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Okun Model: Unemployment Change & GDP Growth Gap

Explore the growth-rate version of Okun’s law using two unemployment rates, GDP growth, trend growth and a chosen slope.

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How to use this calculator

  1. Enter the known values in the units shown. Results update as you type.
  2. Where results are editable, change one to solve backwards. Lock a value to hold it fixed.
  3. Use the worked example to check the method. Reset restores the starting fields.

Use the result with context

Results are estimates for planning and education. Confirm rates, taxes, fees, and legal requirements with the relevant institution or a qualified professional before making a financial decision.

Formula and method

If unemployment rises from 4 to 5 percent and the slope is −0.5, GDP growth lies 2 percentage points below trend. With trend growth of 3 percent, modeled actual growth is 1 percent.

Unemployment change = slope × (actual GDP growth − trend GDP growth)

Worked example

Enter these known values and leave the other values blank.

Current unemployment rate
5 %
Previous unemployment rate
4 %
Signed slope: unemployment change / growth gap
-0.5
Trend GDP growth rate
3 %
Actual GDP growth rate
1 %
GDP growth gap, in percentage points
-2 %

Assumptions and limitations

  • This is the growth-rate version: a change in unemployment is related to actual GDP growth minus trend growth. It is not a calculation of the level of GDP below potential.
  • Use matching periods and compatible annualization for both growth rates. A difference between two percentage rates is measured in percentage points.
  • The coefficient is empirical, signed and nonzero. It is usually negative in this convention; the retained −0.45 starting value is illustrative and is not freshly estimated for a country or period.
  • Unemployment rates range from zero to 100 percent. Simple actual and trend growth rates must exceed minus 100 percent; the growth-rate difference may be either sign.
  • This association can change over time with participation, productivity, working hours and other factors. Treat results as a stated-coefficient scenario, not a reliable unemployment or GDP forecast.

Common questions

Does a gap of −2 mean GDP is 2 percent below potential?

No. Here it means the actual GDP growth rate is 2 percentage points below the trend growth rate.

Why is the slope negative?

In the usual convention, faster growth relative to trend is associated with falling unemployment. The coefficient must use the same sign and period convention as your data.

References

Bookify bounds unemployment rates between zero and 100 percent and requires simple GDP growth rates above minus 100 percent.

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