Okun’s Law

The following extract is taken from The Signal and the Noise by the American statistician, Nate Silver. In it he describes the economic relationship between job growth and GDP growth as first proposed by Arthur Melvin Okun in 1962.

“The American and global economy is always evolving, and the relationships between different economic variables can change over the course of time.

Historically, for instance, there has been a reasonably strong correlation between GDP growth and job growth. Economists refer to this as Okun’s Law. During the Long Boom of 1947 through 1999, The rate of job growth had normally been about half the rate of GDP growth, so if GDP increased by 4% during a year, the number of jobs would increase by about 2%.

The relationship still exists – more gross is certainly better for jobseekers. But it’s dynamics seems to have changed. After each of the last couple of recessions, considerably fewer jobs were created than would have been expected during the Long Boom years. In the year after the stimulus package was passed in 2009, for instance, GDP was growing fast enough to create about two million jobs according to Okun’s law. Instead, an additional 3.5 million jobs were lost during the period.”

Hey. I’m Alex Murrell. I'm a Planner at Epoch Design in Bristol where I help deliver highly creative, innovative and effective pack, instore and online communications for some of the world’s biggest FMCG brands. Want to know more? You can find me on Twitter or LinkedIn.

Leave your comment