Okun's Law: Economic Growth And Unemployment

In its most basic form, Okun's law investigates the statistical relationship between a country's unemployment rate and the growth rate of its economy. The economics research arm of the Federal Reserve Bank of St. Louis explains that Okun's law "is intended to tell us how much of a country's gross domestic product (GDP) may be lost when the unemployment rate is above its natural rate." It goes on to explain that "the logic behind Okun's law is simple. Output depends on the amount of labor used in the production process, so there is a positive relationship between output and employment. Total employment equals the labor force minus the unemployed, so there is a negative relationship between output and unemployment (conditional on the labor force)."

Yale professor and economist, Arthur Okun, was born in November 1928 and passed away in March 1980 at the age of 51. He first published his findings on the subject in the early 1960s, which have since come to be known as his "law." Okun's Law is, in essence, a rule of thumb to explain and analyze the relationship between jobs and growth. A talk from former Federal Reserve Chairman, Ben Bernanke, perhaps most succinctly summarizes Okun's law basic concepts

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