📉 Okun’s Law Calculator
Use Okun’s Law to estimate the gap between actual and potential GDP based on the unemployment gap.
What Okun’s Law describes
Okun’s Law is an empirical relationship observed by economist Arthur Okun that links changes in unemployment to changes in a country’s real economic output. It shows that when unemployment rises above its natural rate, actual GDP tends to fall below its potential level.
The formula
This calculator uses the output-gap version of Okun’s Law: Output Gap % = -c × (Actual Unemployment Rate – Natural Unemployment Rate), where c is Okun’s coefficient, commonly estimated around 2 for the United States (meaning each extra percentage point of unemployment above the natural rate is associated with roughly a 2% shortfall in output relative to potential). A positive unemployment gap produces a negative output gap, indicating GDP below potential.
Okun’s coefficient varies by country, time period, and study, so treat this as an approximation rather than a precise forecast. This tool is intended for general economics education and planning.