What is the intuition behind Okun Law?

Answer 1

Okun's Law illustrates the relationship between unemployment and economic output, suggesting that a decrease in unemployment correlates with an increase in GDP. Specifically, it posits that for every 1% drop in the unemployment rate, a country's GDP can be expected to be roughly an additional 2% higher than its potential output. This relationship highlights the efficiency of labor in driving economic growth and reinforces the idea that reducing unemployment can lead to greater overall economic productivity. Essentially, it reflects the idea that more employed individuals contribute to increased economic activity and output.