The Slovak labour market in the wake of the crisis: did Okun’s law hold?

Despite experiencing one of the strongest post-crisis rebounds in economic growth in the European Union, the Slovak labour market has yet to show signs of improvements. The unemployment rate hovers around 14%, nearly five percentage points above the pre-crisis level and well above that of other Visegrad countries. Given the pre-existing problems of the Slovak labour market, the current situation poses a mixture of structural and cyclical challenges. While a companion Country Focus deals with the former challenges, empirical estimates from an Okun's law perspective show that the Slovak labour market is particularly responsive to cyclical developments with trade-offs that are less favourable than in peer economies. In the Slovak case, a relatively high rate of GDP growth is needed for the unemployment rate to fall. The empirics are in line with the structure of the Slovak economy, which is heavily specialised in a few capital-intensive cyclical industries. Rather than being an isolated episode, the recent fall in employment appears to be similar to that experienced during a previous severe recession at the end 1990s. In the absence of a return to robust economic growth in Europe, the latest spike in unemployment risks becoming structural.