The relationship between Gross Domestic Product (GDP) and unemployment rates can be seen by the application of Okun’s Law. According to the principles established by this law, there is a corresponding two percent increase in employment for every established one percent increase in GDP. The reasoning behind this law is quite simple. It states that GDP levels are driven by the principles of demand and supply, and as such, an increase in demand leads to an increase in GDP. Such an increase in demand must be accompanied by a corresponding increase in productivity and employment to keep up with the demand.
GDP and unemployment rates are linked in the sense that both are macroeconomic factors that are used to gauge the state of an economy. A rise in the GDP is significant in the study of macroeconomic trends in a nation. This is also true of a rise or decrease in unemployment levels. GDP and unemployment rates usually go together because a decrease in the GDP is reflected in a decrease in the rate of employment.