Calculate the relationship between GDP growth and unemployment rates using Okun's Law. Understand economic indicators and their impact.
The predicted change in the unemployment rate based on GDP growth differences.
The actual percentage change in Gross Domestic Product from one period to another.
The maximum sustainable growth rate an economy can achieve without inflation.
A coefficient representing the relationship between GDP and unemployment (typically 0.5).
Actual GDP: 4.0%
Potential GDP: 2.5%
Result: Unemployment ↓ 0.75%
Actual GDP: -2.0%
Potential GDP: 2.5%
Result: Unemployment ↑ 2.25%
Actual GDP: 2.5%
Potential GDP: 2.5%
Result: No change in unemployment
| Country | Okun Coefficient (k) | Period | Reliability |
|---|---|---|---|
| United States | 0.5 | 1948-2023 | High |
| European Union | 0.4 | 1995-2023 | Medium |
| Japan | 0.3 | 1980-2023 | Medium |
| China | 0.2 | 1990-2023 | Low |
| United Kingdom | 0.45 | 1971-2023 | High |
Okun's Law describes the empirical relationship between unemployment and GDP growth, showing that for every 1% increase in unemployment, GDP falls by about 2%.
Used by economists and policymakers to predict unemployment changes based on economic growth and vice versa.
The relationship isn't perfect and varies across countries and time periods. Other factors like productivity also matter.
Used in macroeconomic forecasting, policy analysis, and understanding business cycle fluctuations.
First proposed by Arthur Okun in 1962 based on US data from 1947-1960.
Different countries have different Okun coefficients based on labor market flexibility and economic structure.