Okun's law links a recession’s rise in unemployment to a fall in real GDP. It is an empirical relationship rather than a strict economic law, describing how changes in joblessness tend to correspond with changes in output.
The relationship was identified by American economist Arthur Okun, who studied U.S. data in the early 1960s. His research suggested that when unemployment rises above its normal or “natural” level, real output generally falls below the economy’s potential output.
The exact relationship varies by country, period, and economic conditions. A recession may reduce production and employment, but employers sometimes retain workers temporarily, while labor-force participation and productivity can also change. For these reasons, Okun’s law is best used as a rule of thumb, not a precise forecasting formula.
It is commonly discussed alongside inflation indicators, because recessions can affect both employment and price pressures. However, Okun’s law concerns output and unemployment, not the direct relationship between inflation and unemployment.