In the study of the economy, the two factors of primary importance to economists are jobs and growth. These two factors have a clear relationship, which has led many economists to frame the debate by attempting to study how unemployment levels are related to economic growth. Arthur Okun, an economist, began his study of the relationship in the ’60s, and his research on the subject is now called Okun’s Law.

So, what is Okun’s law? In the most basic form, this law investigates the statistical relationship between the economic growth rate of a country and its unemployment rate. Okun’s law is aimed at telling how much of a country’s gross domestic product (GDP) is likely to be lost when the levels of unemployment go way past the natural levels.

It is an empirically observed relationship between losses and unemployment in a nation’s production. Okun’s law predicts that a one percent increase in unemployment is typically linked to a two percent drop in GDP.

Its underlying logic is simple; an economic output relies on how much labor goes into the production process, meaning that the output and employment have a positive relationship. Thus, the total employment will be equal to the labor force less the unemployed, which indicates that output and unemployment have a negative relationship.

Arthur Okun, an economist and professor at Yale, first published his postulations in the early ’60s, going on to be known as his “law.” This rule of thumb explains and analyzes the relationship between economic growth and jobs. Ben Bernanke, the Federal Reserve’s former chair, says that Okun made the observations that culminated in the law due to increases in the labor force’s size and productivity levels. Thus, there is a requirement that real GDP growth goes close to the growth rate of the potential to hold steady the unemployment rate. Bernanke says that the reduction of the rate of unemployment thus requires that the economy grows at a rate that is above its potential.