Can the Sahm rule indicator signal recession in OECD countries?

Labour market indicators are widely used to identify recessions, with the Sahm rule – based on changes in unemployment rate – valued for its simplicity and timeliness in the United States. Its effectiveness elsewhere, however, remains uncertain. This study examines whether the Sahm rule can serve as an early-warning signal in 32 OECD countries. Using monthly unemployment rates, the indicator is computed, country-specific thresholds are derived, and its performance is assessed through the initial alert months (IAMs). Results indicate that tailored thresholds allow for effective detection: approximately two-thirds of recession episodes are signalled in their early months. At the same time, about one-third of alerts occur outside of recession periods. Although the Sahm rule provides timely alerts, accuracy varies across countries, and the indicator cannot reliably assess current economic conditions. These findings suggest that, with adjustments, the Sahm rule can complement other indicators for recession monitoring in OECD economies.