Okun's law

In economics, Okun's law (named after Arthur Melvin Okun, who proposed the relationship in 1962) is an empirically observed relationship between unemployment and losses in a country's production. The 'gap version' states that for every 1% increase in the unemployment rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. The 'difference version' describes the relationship between quarterly changes in unemployment and quarterly changes in real GDP. The stability and usefulness of the law has been disputed. In economics, Okun's law (named after Arthur Melvin Okun, who proposed the relationship in 1962) is an empirically observed relationship between unemployment and losses in a country's production. The 'gap version' states that for every 1% increase in the unemployment rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. The 'difference version' describes the relationship between quarterly changes in unemployment and quarterly changes in real GDP. The stability and usefulness of the law has been disputed. Okun's law may more accurately be called 'Okun's rule of thumb' because it is an approximation based on empirical observation rather than a result derived from theory. Okun's law is approximate because factors other than employment (such as productivity) affect output. In Okun's original statement of his law, 2% increase in output corresponds to a 1% decline in the rate of cyclical unemployment; a 0.5% increase in labor force participation; a 0.5% increase in hours worked per employee; and a 1% increase in output per hours worked (labor productivity).