GDP and unemployment rates are typically linked because a fall in GDP results in a decrease in the rate of employment.
- Okun's Law states that employment grows in lockstep with GDP. A link between GDP and unemployment rates is significant in two respects. According to one version of Okun's law, when unemployment declines by 1%, the gross national product (GNP) grows by 3%. Another form of Okun's rule focuses on the link between unemployment and GDP, stating that a 2% rise in unemployment results in a 2% decrease in GDP.
- GDP declines cause the economy to contract, which is negative for businesses and individuals. A recession starts when the GDP decreases for two consecutive quarters, which might result in wage freezes and job losses.
Thus this is what happens to unemployment when GDP declines.
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