The case study on a relationship  between Latvian GDP growth and unemployment rate

Farkhod  Giyasov; Konstantīns  Savenkovs

doi:10.55225/pel.664

Authors

Farkhod Giyasov Riga Aeronautical Institute, Latvia https://orcid.org/0009-0003-9882-0655
Konstantīns Savenkovs Riga Aeronautical Institute, Latvia https://orcid.org/0000-0002-5076-9569

DOI:

https://doi.org/10.55225/pel.664

Keywords:

Okun's law, Latvia, GDP growth, unemployment, OLS, ANOVA, economic forecasting

Abstract

This study investigates the empirical relationship between Latvia’s GDP growth and unemployment rate through the lens of Okun’s Law. Drawing on data analysis using linear regression and ANOVA within the XLMiner environment, the research confirms a statistically significant and robust negative correlation between real GDP growth and changes in unemployment. The model explains approximately 81% of the variation in unemployment, supporting the theoretical assumptions of Okun’s Law. Findings reveal that a 1% increase in GDP growth corresponds to a reduction in the unemployment rate, validating the relevance of Okun’s coefficient for Latvia. Residual and standard residual analysis indicate a minimal overprediction bias and no presence of outliers, reflecting model reliability. Additionally, percentile-based probability outputs offer a nuanced risk assessment tool for forecasting unemployment scenarios. These outcomes provide Latvian policymakers with valuable insights to evaluate labor market conditions, estimate output losses, and formulate targeted strategies to stimulate economic growth and mitigate unemployment, particularly among vulnerable populations.

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