As a result of a downturn in the economy, a firm cuts back on workers' hours but does not fire workers. Following Okun's law, this is one reason:

Question

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Okun's law states that there is a negative relationship between the output gap (the difference between actual and potential GDP) and the unemployment rate, and this relationship is less than a one-to-one relationship. Therefore, when a firm cuts back on workers' hours but does not fire workers, the output gap may decrease as there is a reduction in the firm's production, but the unemployment rate may not increase as the workers are still employed, albeit with reduced hours. This results in a negative relationship between the output gap and the unemployment rate, but less than a one-to-one relationship, as predicted by Okun's law.

As a Result of a Downturn in the Economy, a Firm