Something Has Gone Wrong with US Unemployment Estimates

An economic concept known as Okun’s Law—which explains the relationship between rates of unemployment and GDP growth—has held true for all US economic downturns and recoveries since 1948. However, we discovered a major discrepancy for the recovery period after the Great Recession of 2008, where Okun’s Law failed to explain the drop in the US unemployment rate as reported by the US government. This means the US labor market might not be as strong as numbers suggest, and considering central banks use Okun’s Law to help set monetary policy, this discrepancy could have major consequences.