Okun's Law

Okun's Law describes the relationship between a country's economic growth and its unemployment rate. Essentially, it states that when the economy grows faster than its potential, unemployment tends to decrease; conversely, if the economy slows down or shrinks, unemployment usually rises. The law provides a rough estimate: for example, a 1% increase in GDP (total economic output) typically correlates with about a 0.3% to 0.5% decrease in unemployment. It helps policymakers understand how changes in economic activity can impact job levels, linking overall economic health directly to employment trends.