What economic law states that a 1% increase in unemployment corresponds to a roughly 2% decrease in GDP? Okun's law does. It describes an empirical, usually short-run relationship between changes in unemployment and changes in real economic output.
Economist Arthur M. Okun introduced the relationship in 1962. Its “gap” version compares actual GDP with potential GDP: a one-percentage-point increase in the unemployment rate is associated with an approximately two-percentage-point increase in the output gap. The growth version instead links changes in unemployment with changes in real GDP growth.
The 2% figure is a rule of thumb, not a mechanical constant. Okun’s coefficient varies by country, period, labor-market structure, productivity, hours worked, and labor-force participation. A recession may therefore produce a different GDP response from the textbook estimate.
It is commonly confused with a definition or universal law of unemployment. Okun’s law is an observed statistical regularity used in forecasting, especially for short-term analysis; it does not prove that unemployment alone causes every movement in GDP. The Phillips curve, by contrast, concerns unemployment and inflation.