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Okun's law


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The proposition that in cyclical fluctuations, the ratio of actual to potential real output generally rises by a greater percentage than the fall in unemployment. On the basis of data on the US economy from 1960 to 1980 Arthur Okun (1928–1980) put the ratio of proportional changes in output to those of unemployment at around 3. This effect is believed to be due partly to short-run increasing returns to employment, and partly to a tendency for some workers to drop out from the labour force when laid off, rather than appearing as unemployed.

Subjects: Economics.


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