The cyclical fluctuations of production and unemployment in Morocco: a sectoral approach to Okun's law

The objective of this study is to verify the validity and stability of Okun's law for the case of Morocco over the period between 2000 and 2014 in quarterly data. One of the special features of our approach is the adoption of dynamic modeling, allowing us to assess the sensitivity of cyclical unemployment to the different phases of expansion and contraction of the production cycle, as well as its sensitivity to fluctuations in sectoral production. Our results show the existence of a structural break in Okun's relationship to Morocco, as well as a strong unemployment rigidity. Similarly, the test of the symmetry of the relationship showed that cyclical unemployment only depends on the phases of contraction of cyclical production, and more particularly to those of the tertiary sector.

The policy implications of these results are important for, at least, three reasons: the assumption that “more growth will lower unemployment rates” is not valid in the short term; the need to establish policies allowing the flexibility of the labor market and finally, the adoption of supply-based policies allowing the inclusion of the Moroccan economy in a process of structural transformation.