Testing Asymmetric Okun's Law Adjustments in Chile

This paper examines whether the unemployment–output relationship in Chile exhibits asymmetric adjustment over the business cycle, challenging the conventional linear interpretation of Okun's law. Using seasonally adjusted quarterly data for the period 1996–2019, disaggregated by sex, the analysis employs an asymmetric error correction model to test for regime-dependent dynamics. At the aggregate level, the results indicate asymmetric adjustment to the long-run relationship: total unemployment adjusts significantly in the regime associated with deviations above long-run equilibrium – interpreted as downturns – but responds weakly in the opposite regime. Furthermore, the short-run output sensitivity of unemployment appears larger for men than for women, with the male point estimate approximately twice the female estimate. When the analysis is disaggregated by sex, the test for asymmetric adjustment does not reject the null of symmetry for either male or female unemployment estimated separately, suggesting that the aggregate asymmetry arises from compositional dynamics between the two labour markets rather than from regime-dependent behaviour within each gender. These findings underscore the importance of nonlinear labour market dynamics for stabilisation policy: the effectiveness of counter-cyclical interventions depends on the phase of the business cycle, and growth-oriented policies should be complemented by targeted measures aimed at reducing gender disparities in employment outcomes.