Here, a comparison with the to expansion is informative. Output growth in that earlier expansion averaged nearly 3 percent per year, well above the pace in the current expansion.
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The difference, of course, is productivity, which grew at more than twice the pace in the early s than it has in recent years. Taking a longer view, the average pace of labor productivity growth since is the slowest since World War II and about one-fourth of the average postwar rate figure Moreover, the productivity growth slowdown seems to be global and is evident even in countries that were little affected by the financial crisis figure This observation suggests that factors specific to the United States are probably not the main drivers.
As shown in figure 12 , labor productivity growth can be broken down into the contributions from business investment or capital deepening , changes in the skills and work experience of the workforce, and a residual component that is attributed to other factors such as technological change and efficiency gains usually lumped together under the term total factor or multifactor productivity.
In the United States and in many other countries, some of the slowdown in labor productivity growth can be traced to weak investment after the crisis. Investment has picked up recently in the United States, however, which suggests that capital deepening may pick up as well. The other big contributor to the slowdown has been in total factor productivity growth. The outlook for this dimension of productivity is considerably more uncertain.
Total factor productivity growth is notoriously difficult to predict, and there are sharply different views on where it might be heading. Some argue that the productivity gains from the information technology revolution are largely behind us, and that more-recent technological innovations have less potential to boost productivity. New technological breakthroughs in many areas--robotics, biotech, and artificial intelligence to name just a few--have led others to take a more optimistic view.
In addition, the optimists point out that advances in technology often take decades to work their way into the economy before their ultimate effects on productivity are felt. That delay has been observed even for game-changing innovations like the steam engine and electrification, which ultimately produced broad increases in productivity and living standards.
In this view, we just need to be patient for new technologies to diffuse through the economy. The other principal contributor to output growth is hours worked. One reason for slower growth of the labor force is that baby boomers are aging and retiring, and that trend will continue. But another reason is that labor force participation of people between the ages of 25 and prime-age individuals--declined from to and remains low.
Indeed, the participation rate for prime-age men has been falling for more than 50 years, while women's participation in this age group rose through the s but then turned downward, and it has fallen for the past 20 years. These trends in participation have been more pronounced in the United States than in other advanced economies.
In , the United States had relatively high participation rates for prime-age women relative to other countries and was in the midrange of advanced economies for prime-age men. However, we now stand at the low end of participation for both men and women in this age group--just above Italy, but well below Germany, France, and Spain figure There is no consensus about the reasons for the long-term decline in prime-age participation rates, and a variety of factors could have played a role.
In addition, factors such as the increase in disability rolls in recent decades and the opioid crisis may have reduced the supply of prime-age workers. Given that the declines have been larger here than in other countries, it seems likely that factors specific to the United States have played an important role.
As I noted earlier, the strong economy may continue to pull some prime-age individuals back into the labor force and encourage others not to drop out. Research suggests that structurally-oriented measures--for example, improving education or fighting the opioid crisis--also will help raise labor force participation in this age group.
To summarize this discussion, some of the factors weighing on longer-term growth are likely to be persistent, particularly the slowing in growth of the workforce. Others are hard to predict, such as productivity. But as a nation, we are not bystanders. We can put policies in place that will support labor force participation and give us the best chance to achieve broad and sustained increases in productivity, and thus in living standards. These policies are mostly outside the toolkit of the Federal Reserve, such as those that support investment in education and workers' skills, business investment and research and development, and investment in infrastructure.
Monetary Policy Let me turn now to monetary policy. In the aftermath of the financial crisis, the FOMC went to extraordinary lengths to promote the recovery, support job growth, and prevent inflation from falling too low. As the recovery advanced, it became appropriate to begin reducing monetary policy support. Since monetary policy affects the economy with a lag, waiting until inflation and employment hit our goals before reducing policy support could have led to a rise in inflation to unwelcome levels. In such circumstances, monetary policy might need to tighten abruptly, which could disrupt the economy or even trigger a recession.
As a result, to sustain the expansion, the FOMC adopted a gradual approach to reducing monetary policy support. We began in December by raising our target for the federal funds rate for the first time in nearly a decade. Since then, with the economy improving but inflation still below target and some slack remaining, the Committee has continued to gradually raise interest rates. In addition, after careful planning and public communication, last October the FOMC began to gradually and predictably reduce the size of the Fed's balance sheet.
Reducing our securities holdings is another way to move the stance of monetary policy toward neutral. The balance sheet reduction process is going smoothly and is expected to contribute over time to a gradual tightening of financial conditions. Over the next few years, the size of our balance sheet is expected to shrink significantly. This decision marked another step in the ongoing process of gradually scaling back monetary policy accommodation.
The FOMC's patient approach has paid dividends and contributed to the strong economy we have today. Over the next few years, we will continue to aim for 2 percent inflation and for a sustained economic expansion with a strong labor market. As I mentioned, my FOMC colleagues and I believe that, as long as the economy continues broadly on its current path, further gradual increases in the federal funds rate will best promote these goals. It remains the case that raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion.
But raising rates too quickly would increase the risk that inflation would remain persistently below our 2 percent objective. Our path of gradual rate increases is intended to balance these two risks. Of course, our views about appropriate monetary policy in the months and years ahead will be informed by incoming economic data and the evolving outlook.
If the outlook changes, so too will monetary policy. Our overarching objective will remain the same: fostering a strong economy for all Americans--one that provides plentiful jobs and low and stable inflation. Return to text. This fundamental uncertainty has been extensively studied, particularly with respect to the most commonly used measure of full employment--the so-called natural rate of unemployment. See Douglas Staiger, James H. Stock, and Mark W.
PDF " chapter 5 in Christina D.
Romer and David H. Romer, eds. Individuals expecting to be recalled from a temporary layoff are also counted as unemployed whether or not they are actively looking for work. The official unemployment rate is known as U See, for example, Robert J. See, for example, Ryan A.https://de.ubiqolipes.tk
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Decker, John Haltiwanger, Ron S. See, for example, Katharine G. Abraham and Melissa S. Kearney , " Explaining the Decline in the U. See Alan B. An Inquiry into the Decline of the U. Search Submit Search Button.
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