A review for Peru of the relationship among unemployment, underemployment and production

This paper examines the relationship between unemployment and production in Peru between 1970 and 2018, commonly referred to as Okun's Law, based on the first two versions originally proposed by Arthur Okun. Likewise, a new econometric formulation is proposed, adding underemployment as a dependent variable to unemployment, seeking an approximation to the high levels of precarious employment characteristic of developing economies, which serve as an escape route for the population and avoid higher levels of unemployment. Finally, additional variables to the output are incorporated into the models to allow for a better adjustment. The results show lower levels of the coefficient, in reference to those originally estimated for the United States economy and similar studies carried out for developed economies by various authors, which implies higher levels of output to reduce unemployment. Furthermore, the aggregate reformulation of unemployment with underemployment helps to better explain the growth needs of the Peruvian economy.