Exploring Okun’s Law during COVID-19: did divergent US state responses shape economic shifts?

Abstract This paper examines the impact of the recent COVID-19 pandemic on Okun’s Law enforcement in the USA. The previous results have revealed an increase in Okun’s coefficient in absolute terms at the country scale (Russnak et al., Russnak et al., Econ Bus Lett 12:165–171, 2023). Our article explores, adopting a regional focus, whether this strengthening has depended on the degree of restrictions imposed, as the USA presents a particularly relevant case study due to the significant differences in measures implemented across states. The results first confirm that Okun’s coefficient increased not only at the national level but also, arguably, in all states—or almost all states, depending on the approach—although with varying intensity. Furthermore, our analysis reveals a direct relationship between the intensity of the restrictions and the increase in Okun’s coefficient: the stricter the anti-COVID controls, the more abrupt the subsequent rise in unemployment for any given output decline. These findings are robust from multiple perspectives: methodologically (using MG and AMG estimators), with regard to the inclusion of state-level differences in industrial structure, the consideration of cross-border policy spillovers, and the combination of restrictions and economic support.