In economics, Okun’s law is an empirically observed relationship between unemployment and losses in a country’s production. 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” describes the relationship between quarterly changes in unemployment and quarterly changes in real GDP. The stability and usefulness of the law has been disputed.
What is ‘Okun Gap’
A macroeconomic term that describes the situation when an economy’s potential gross domestic product (GDP) differs from its actual gross domestic product. The gap can either be recessionary or inflationary, but will depend on the economy’s current state, including levels of inflation and the unemployment rate.
Explaining ‘Okun Gap’
An Okun gap can be expressed in either percentage or absolute terms and will be a measure of how much output, as measured by GDP, the economy produced in a given time period relative to the economy’s full-employment level.
Arthur Okun, who is the person credited with discovering Okun’s law, among other famous discoveries, was a senior economist at the Counsel of Economic Advisers (CEA) during President Kennedy’s term in office and a professor at Yale University.
Okun Gap FAQ
What is Okun’s Law equation?
How does Okun’s law calculate GDP gap?
What is Okun’s Law in macroeconomics?
How can GDP gap be calculated using Okun’s Law?
How do you calculate Okun coefficient?
What does Okun’s law show?
How does Okun’s law calculate unemployment rate?
- Revisiting the Okun relationship – www.tandfonline.com [PDF]
- Age effects in Okun's law within the Eurozone – www.tandfonline.com [PDF]
- How useful is Okun's law? – search.proquest.com [PDF]
- A cross-province comparison of Okun's coefficient for Canada – www.tandfonline.com [PDF]
- Okun's coefficient: a comment – www.mitpressjournals.org [PDF]
- Empirical estimates of Okun's Law in Malta – redfame.com [PDF]
- A cross-country analysis of the Okun's law coefficient convergence in Europe – www.tandfonline.com [PDF]
- Revisiting Okun's law in European Union countries – www.emerald.com [PDF]