Okun's Law

Discipline: Economics

Named after American economist Arthur Okun (1926-1980), Okun's law states that the elasticity of the ratio of actual to potential output, with regard to a change in the employment rate, is a constant of roughly three.

Okun looked at the US GNP during the 1950s and 1960s and found that a one per cent rise in unemployment was associated with a three per cent decrement in the ratio of actual GNP to full capacity GNP. This became known as Okun's law.

Source:
A M Okun, The Political Economy of Prosperity (Washington, 1970)

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