Economics · Core
Okun's Law
Okun’s law is the empirical link between unemployment changes and GDP growth — a rule of thumb, not a structural identity.
Definition
Roughly: a 1pp rise in unemployment associates with a 2pp hole versus potential GDP (US-ish, unstable). The coefficient moves with labor hoarding, participation, and productivity. It is a reduced form.
Why it matters
It translates a growth scare into a jobs scare. If the coefficient has fallen, ‘soft’ GDP can still be hard on jobs — or the reverse.
Case
2020: GDP collapsed and unemployment exploded more than a 2× rule. 2022–23: GDP wobbled and unemployment barely moved. Same law, different labor-market.
How to read it
Estimate the local coefficient. Then participation and hours — unemployment is not the only slack.
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