Okun's Law
What is Okun's Law?
A rule of thumb linking unemployment to the gap between actual and potential output.
Understanding Okun's Law
Economist Arthur Okun observed in the 1960s that U.S. output falls well below potential when unemployment rises. A common modern estimate is that each percentage point of unemployment above its natural rate goes with output about 2% below potential.
It is an empirical regularity, not a law of nature, and the ratio varies across countries and periods.