Okun's law

Graph of US quarterly data (not annualized) from 1948 through 2016 estimates a form of the difference version of Okun's law: % change GDP = 3.2 − 1.8 * (change unemployment rate). R2 of 0.463. Differences from other results are partly due to the use of quarterly data.

In economics, Okun's law is an empirically observed relationship between unemployment and losses in a country's production. It is named after Arthur Melvin Okun, who first proposed the relationship in 1962.[1] 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"[2] describes the relationship between quarterly changes in unemployment and quarterly changes in real GDP. The stability and usefulness of the law has been disputed.[3]

  1. ^ Okun, Arthur M. "Potential GNP: Its Measurement and Significance," American Statistical Association, Proceedings of the Business and Economics Statistics Section 1962. Reprinted with slight changes in Arthur M. Okun, The Political Economy of Prosperity (Washington, D.C.: Brookings Institution, 1970)
  2. ^ Knotek, 75
  3. ^ Knotek, 93