Question

Do you think Okun’s law has become stronger or weaker in the last three recessions? Briefly explain your answer

Answer 1

Okun's law states that there exists a relationship between the country's unemployment rate and rate of growth of GDP.

That is, for every 1% increase in unemployment rate, GDP or output decreases by 2%

However, in the last 3 recessions the economy of US has faced, this relationship is falling or weakening. This is because of the technological progress which is happening which is not only increasing output and GDP but is also displacing labor and increasing unemployment. Thus, the increase in unemployment is now bypassing GDP growth and thus weakening the relationship between the two variables and thus the Okun's law.