Arthur Okun found that each percentage point of unemployment above its natural rate cost about 2–3% of GDP. The relationship is a rule of thumb that varies across countries and time.
How to use the Okun’s Law Calculator
- Actual unemployment rate
- Natural unemployment rate
- Potential GDP
- Okun’s coefficient
- Real GDP growth
- Potential GDP growth
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the actual and natural unemployment rates, potential GDP and Okun’s coefficient, and optionally GDP growth to estimate the unemployment change.
Tips
- Use real (inflation-adjusted) figures to compare across years.
- Check whether data are seasonally adjusted.
- Use the same currency and base year throughout.
- Economic models simplify reality – treat results as illustrations, not forecasts.
Common mistakes to avoid
- Mixing nominal and real values.
- Comparing percentage changes with percentage-point changes.
- Treating correlations as causes.
Inputs explained
| Field | What to enter |
|---|---|
| Actual unemployment rate | In % |
| Natural unemployment rate | In % |
| Potential GDP | Amount in your currency |
| Okun’s coefficient | A number |
| Real GDP growth | In % |
| Potential GDP growth | In % |
What each result means
- Output gap = 0 – [Okun’s coefficient]×([Actual unemployment rate] – [Natural unemployment rate])
- Estimated actual GDP = [Potential GDP]×(1 + [Output gap]÷100)
- Output lost = [Potential GDP] – [Estimated actual GDP]
- Implied change in unemployment = 0 – ([Real GDP growth] – [Potential GDP growth])÷[Okun’s coefficient]
Example values
How the main result changes when Actual unemployment rate changes and everything else stays at the example values above:
| Actual unemployment rate (%) | Output gap (%) |
|---|---|
| 3 | 3 |
| 4.5 | 0 |
| 6 | -3 |
| 7.5 | -6 |
| 9 | -9 |
| 12 | -15 |
Formula
Gap version: (Y − Y*) ÷ Y* = −c × (u − u*), c ≈ 2Difference version: Δu = −(1 ÷ c) × (GDP growth − potential growth)Worked example
Inputs — Actual unemployment rate: 6 %; Natural unemployment rate: 4.5 %; Potential GDP: $24,000; Okun's coefficient: 2; Real GDP growth: 1 %; Potential GDP growth: 2 %.
Results — Output gap = -3 %; Estimated actual GDP = $23,280.00; Output lost = $720.00; Implied change in unemployment = 0.5 %.
Frequently asked questions
What is Okun's law?
Each 1 point of excess unemployment ≈ 2% of output below potential.
Is Okun's law exact?
No – it's an empirical rule of thumb.
What is Okun's coefficient?
The ratio between the output gap and the unemployment gap, about 2 for the U.S.
What formula does the Okun's Law Calculator use?
Gap version: (Y − Y*) ÷ Y* = −c × (u − u*), c ≈ 2.