The relationship between an economy's
unemployment rate and its gross national product (GNP).
Twentieth-century
economist Arthur Okun developed this idea, which states that when unemployment falls
by 1%, GNP rises by 3%.
However, the law only holds true for the U.S. economy, and only applies
when the unemployment rate falls between 3-7.5%.
Another version of Okun's Law focus on a
relationship between unemployment and GDP, whereby a percentage increase in
unemployment causes a 2% fall in GDP.
The percentage by which GNP changes when unemployment changes by 1% is called the "Okun coefficient".
The percentage by which GNP changes when unemployment changes by 1% is called the "Okun coefficient".
Industrialized nations with labour markets that
are less flexible than those of the United States, such as France and Germany,
tend to have higher Okun coefficients. In those countries, the same percentage
change in GNP has a smaller effect on the unemployment rate than it does in the
United States.
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