Skip to content

Home / Glossary / Okun's Law

Economics

Okun's Law

Empirical link between unemployment and the output gap.

Each 1 percentage-point rise in unemployment above its natural rate is associated with roughly a 2% fall in real GDP below potential. It is a rule of thumb, not an exact law, but useful for translating labour-market data into growth estimates.

Formula / theory

(Y − Y*)/Y* ≈ −c · (u − u*)   with c ≈ 2

Practise Okun's Law hands-on — free, in your browser

Related terms