The unemployment rate is an imperfect measure of idle capacity; still, there’s a strong relationship – Okun’s Law – between changes in the unemployment rate – capacity going into or out of use – and short-run economic growth. The unemployment rate is historically low. This means that growth over the next decade will have to come from rising capacity, meaning growth in potential output. It suggests a potential growth rate – growth consistent with constant unemployment – of maybe 1.5 percent. Why is potential growth so low?

Source: New York Times January 28, 2018 14:15 UTC