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Jason Furman slides on President Obama's economic record and the challenges ahead

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Jason Furman slides on President Obama's economic record and the challenges ahead

  1. 1. President Obama’s Economic Record and the Challenges Ahead Jason Furman Chairman, Council of Economic Advisers Resolution Foundation London, United Kingdom November 17, 2016
  2. 2. Table of Contents 1 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  3. 3. Table of Contents 2 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  4. 4. U.S. Recovery Comparatively Strong 3 Note: Population data for euro area and United Kingdom are quarterly interpolations of annual data. Source: National sources via Haver Analytics; CEA calculations. Euro Area United States Japan 2016:Q3 United Kingdom 90 92 94 96 98 100 102 104 106 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Real Gross Domestic Product per Capita Index (Pre-Crisis Peak = 100)
  5. 5. U.S. Unemployment Rate Has Consistently Fallen Below Expectations 4 Note: Annual forecasts are current as of March of the stated year. Shading denotes recession. Source: Blue Chip Economic Indicators; Bureau of Labor Statistics, Current Population Survey. 4 5 6 7 8 9 10 11 2008 2010 2012 2014 2016 2018 2020 Unemployment Rate and Consensus Forecasts 2012 Forecast 2013 Forecast 2014 Forecast 2011 Forecast 2010 Forecast Percent of Labor Force 2015 Forecast
  6. 6. Since the End of 2012, Real Wages Have Grown Nearly 20 Times Faster than Between 1980 and 2007 5 Note: Shading denotes recession. Source: Bureau of Labor Statistics; CEA calculations. 17.50 18.00 18.50 19.00 19.50 20.00 20.50 21.00 21.50 22.00 1980 1985 1990 1995 2000 2005 2010 2015 Real Hourly Earnings for Private Production and Nonsupervisory Employees, 1980-2016 2015 Dollars 1980-2007 Pace: +0.1% Per Year Pace Since End of 2012: +1.4% Per Year Oct-16
  7. 7. Real Wages Have Grown Faster Over the Current Business Cycle Than in Any Cycle Since the Early 1970s 6 Note: Wages for private production and nonsupervisory workers. Source: National Bureau of Economic Research; Bureau of Labor Statistics, Real Earnings; CEA calculations. -1.4 -2.1 -0.2 0.5 0.3 0.9 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 Start Date End Date Nov-1973 Jan-1980 Jan-1980 Jul-1981 Jul-1981 Jul-1990 Jul-1990 Mar-2001 Mar-2001 Dec-2007 Dec-2007 Oct-2016 Percent Change, Annual Rate Real Hourly Wage Growth Over Business Cycles (Cycle Peak to Cycle Peak)
  8. 8. In 2015, Income Increased for Households Across Distribution, With Largest Gains at Bottom and Middle 7Source: Census Bureau; CEA calculations. 7.9 6.3 5.5 5.2 5.4 4.1 2.9 0 1 2 3 4 5 6 7 8 9 10th 20th 40th 50th (Median) 60th 80th 90th Growth in Real Household Income by Percentile, 2014-2015 Percent
  9. 9. Table of Contents 8 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  10. 10. Middle-Class Income Growth Has Slowed in Recent Decades 9 Note: Income levels from the Census Bureau are deflated with the CPI-U-RS price index, and income levels from the Congressional Budget Office (CBO) are deflated with the personal consumption expenditures price index. CBO median income is extended before 1979 and after 2013 with the growth rate of Census median household income. Source: World Wealth and Income Database; Census Bureau; Congressional Budget Office; CEA calculations. 1948-1973 1973-2015 Median Family Income (Census Bureau) 3.0% 0.4% Median Household Income with Benefits (CBO, adj. for household size) N/A 0.5% Median Household Income with Gov't Transfers/Taxes (CBO, adj. for household size) N/A 1.0% Annual Real Middle-Class Income Growth
  11. 11. Drivers of Income Growth: Productivity, Inequality, and Participation 10Source: Bureau of Labor Statistics, Productivity and Costs; World Wealth and Income Database; Bureau of Labor Statistics, Current Population Survey; CEA calculations. 1948-1973 1973-2015 Income Shares Top 1 Percent 11% → 8% 8% → 18% Bottom 90 Percent 66% → 68% 68% → 52% Labor Force Participation Rate Men, 16 and Older 87% → 79% 79% → 69% Women, 16 and Older 33% → 45% 45% → 57% Determinants of Middle-Class Income Growth Labor Productivity Growth (Annual Average) 2.8% 1.8%
  12. 12. Some Thought Experiments 11 Note: These thought experiments are intended to demonstrate the importance of these three factors for middle-class incomes. They do not consider second-order effects or interactive effects. The first thought experiment assumes that an increase in productivity is associated with an equal increase in the Census Bureau’s mean household income. The second thought experiment uses the Census Bureau’s mean income of the middle quintile as a proxy for median income. The third thought experiment assumes that newly-participating women will have the same average earnings as today’s working women. The first and third thought experiments assume that income gains are distributed proportionally such that mean and median incomes grow at the same rate. Dollar gains are calculated off a base of the Census Bureau’s median household income in 2013. The fourth thought experiment compounds the effects of the first three. Source: World Top Incomes Database; Census Bureau; Congressional Budget Office; Bureau of Labor Statistics, Current Population Survey; Bureau of Economic Analysis; CEA calculations. Thought Experiment Factor Base Period Percentage Impact on 2015 Average Income Income Gain to 2015 Typical Household Productivity Total Factor Productivity Growth 1948-1973 65% $37,000 Inequality Share of Income Earned by Middle 20% 1973 19% $10,000 Participation Female Labor Force Participation Rate 1948-1995 6% $4,000 Combined Impact All of the Above 108% $61,000 Counterfactual Scenarios for Productivity, Equality, and Participation
  13. 13. Table of Contents 12 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  14. 14. Fiscal Response to the Great Recession Was Larger and More Sustained Than Just the Recovery Act 13 0 1 2 3 4 5 6 7 8 2009 2010 2011 2012 Recovery Act Subsequent Fiscal Measures Automatic Stabilizers Program Year Fiscal Expansion as a Percentage of GDP in Each Program Year, United States Percent Source: Congressional Budget Office (2014); Bureau of Economic Analysis, National Income and Product Accounts; CEA calculations.
  15. 15. Fiscal Situation Has Improved, But Debt-to-GDP Ratio Still Rising 14Source: Office of Management and Budget. 9.8 8.7 8.5 6.8 4.1 2.8 2.5 3.2 0 2 4 6 8 10 12 2009 2010 2011 2012 2013 2014 2015 2016 Federal Budget Deficit Percent of Fiscal Year GDP 2017 Continuation of Current Policies 2011 Continuation of Current Policies 0 30 60 90 120 150 180 2000 2005 2010 2015 2020 2025 2030 2035 2040 Comparison of Publicly Held Debt Percent of GDP
  16. 16. The Affordable Care Act Has Driven the Uninsured Rate Below 10 Percent For the First Time Ever 15 Source: CEA analysis of NHIS and supplemental data described in CEA (2014) Note: Data are annual back to 1989 and generally bi-annual before that. Estimates for 2016 reflect only the first quarter. 0 5 10 15 20 25 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Share of Population Without Health Insurance Percent ACA 1st Open Enrollment Creation of Medicare & Medicaid 2016 Q1
  17. 17. 5.2 4.1 4.4 2.4 1.1 -0.6 -2 -1 0 1 2 3 4 5 6 7 Private Insurance Medicare 2000-2007 2007-2010 2010-2014 Growth in Real Per-Enrollee Spending by Payer Average annual percent growth Health Care Spending Per Enrollee Has Grown Exceptionally Slowly in Both the Public and Private Sectors 16 Source: Centers for Medicare and Medicaid Services; Bureau of Economic Analysis; CEA calculations. Note: Medicare spending growth for the 2000-2007 period has been adjusted to remove the effect of the creation of Medicare Part D.
  18. 18. Higher State and Local Minimum Wages Have Driven Bottom-End Wage Growth 17 Note: Bars show percent changes from 2012:Q2 to 2016:Q2 using not-seasonally-adjusted average weekly earnings; the category of States that have increased minimum wages since 2013 excludes those that only index their minimum wage to inflation. Source: Bureau of Labor Statistics, Current Employment Statistics; CEA calculations. 0 3 6 9 12 15 18 Earnings Growth Job Growth States that have raised the minimum wage since 2013 Have not raised the minimum wage since 2013 Earnings and Job Growth in Leisure & Hospitality Since the President's 2013 Call to Raise the Minimum Wage Percent Change, 2012:Q2–2016:Q2
  19. 19. Historic Investments in Higher Education 18Source: College Board (2015). Total Pell Expenditures (left axis) Number of Recipients (right axis) 0 1 2 3 4 5 6 7 8 9 10 0 5 10 15 20 25 30 35 40 45 50 1980 1984 1988 1992 1996 2000 2004 2008 2012 Pell Expenditures Over Time Billions of 2014 Dollars Millions of Recipients
  20. 20. A Historic Reduction in Income Inequality 19Source: Department of the Treasury, Office of Tax Analysis. -15 -10 -5 0 5 10 15 20 Change in After-Tax Income by Income Percentile: Changes in Tax Policy Since 2009 and ACA Coverage Provisions, 2017 Percent Change in After-Tax Income
  21. 21. The Financial Sector is More Resilient, With Higher Minimum Capital Ratios for Banks 20 Note: Includes data for banks and bank holding companies (BHCs). Source: Federal Reserve Bank of New York. Less than $50bn Assets $50-500bn Assets Greater than $500bn Assets 2016:Q2 4 6 8 10 12 14 2001 2003 2005 2007 2009 2011 2013 2015 Tier 1 Common Equity Ratios by Bank Size Percent of Risk-Weighted Assets
  22. 22. Table of Contents 21 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  23. 23. Average Annual Productivity Growth Has Slowed in All of the G-7 Economies 22Source: Conference Board, Total Economy Database; CEA calculations. -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 United States Canada Japan Germany France United Kingdom Italy 1995-2005 2005-2015 Labor Productivity Growth, G-7 Countries Percent, Annual Rate
  24. 24. Table of Contents 23 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  25. 25. The United States Has Seen Faster Growth and Higher Levels of Income Inequality Than Other Major Advanced Economies 24Source: World Wealth and Income Database. 2015 4 6 8 10 12 14 16 18 20 1975 1980 1985 1990 1995 2000 2005 2010 2015 United States United Kingdom Canada France Italy Japan Germany Share of Income Earned by Top 1 Percent, 1975-2015 Percent
  26. 26. Competitive Explanation: Increased Demand for Skills 25 Note: Ratio of median annual earnings of full-time, full-year workers over age 25 with a bachelor’s degree only to median annual earnings of full-time, full-year workers over age 25 with a high school degree only. Prior to 1992, bachelor’s degree is defined as four years of college. Source: Bureau of Labor Statistics, Current Population Survey (Annual Social and Economic Supplement); CEA calculations. 2015 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1975 1980 1985 1990 1995 2000 2005 2010 2015 College Earnings Premium, 1975-2015 Earnings Ratio
  27. 27. Competitive Explanation: Slowdown in the Growth of the Supply of Skills 26Source: Calculations by Claudia Goldin and Lawrence Katz. 1982 6 7 8 9 10 11 12 13 14 15 16 17 1875 1890 1905 1920 1935 1950 1965 1980 Mean Years of Schooling at Age 30, U.S. Native-Born, by Year of Birth, 1876-1982 Mean Years of Schooling Completed Year of Birth 1876-1951 Trend 1951-1982 Trend
  28. 28. Noncompetitive Explanation: Worker Bargaining Power Has Been Reduced 27 Note: Total employment from 1901 to 1947 is derived from estimates in Weir (1992). For 1948 to 2015, employment data are annual averages from the monthly Current Population Survey. Minimum wage adjusted for inflation using the CPI-U-RS. Source: Troy and Sheflin (1985); Bureau of Labor Statistics, Current Population Survey; Weir (1992); World Wealth and Income Database; Department of Labor; Bureau of Labor Statistics, Consumer Prices; CEA calculations. 2015 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 1960 1970 1980 1990 2000 2010 Real Value of the Federal Minimum Wage, 1960–2015 2015 Dollars Troy and Sheflin (1985) CPS: Membership 0 10 20 30 40 50 60 70 80 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015 Union Membership as a Share of Total Employment and Bottom 90 Percent Income Share, 1915-2015 Percent Bottom 90 Percent Share of Income 2015
  29. 29. Noncompetitive Explanation: Increasing Dispersion in Returns to Invested Capital Across Firms 28 Note: The return on invested capital definition is based on Koller, Goedhart, and Wessels (2015), and the data presented here are updated and augmented versions of the figures presented in Chapter 6 of that volume. The McKinsey data includes McKinsey analysis of Standard & Poor’s data and exclude financial firms from the analysis because of the practical complexities of computing returns on invested capital for such firms. Source: Koller, Goedhart, and Wessels (2015); McKinsey & Company; Furman and Orszag (2015). Median 90th Percentile 2014 75th Percentile 25th Percentile 0 20 40 60 80 100 120 1965 1975 1985 1995 2005 2015 Return on Invested Capital Excluding Goodwill, U.S. Publicly-Traded Nonfinancial Firms Percent
  30. 30. Table of Contents 29 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  31. 31. A Troubling Trend: Declining Prime-Age Labor Force Participation 30Source: Bureau of Labor Statistics, Current Population Survey; CEA calculations. 86 88 90 92 94 96 98 100 1948 1958 1968 1978 1988 1998 2008 Percent 1948-2007 Trend Oct-16 Prime-Age Male Labor Force Participation Rate 30 40 50 60 70 80 90 100 1948 1958 1968 1978 1988 1998 2008 Percent 1948-2007 Trend 2000-2007 Trend Oct-16 Prime-Age Female Labor Force Participation Rate
  32. 32. Declining Prime-Age Male Participation Has Been Concentrated Among Men with Less Educational Attainment 31Source: Bureau of Labor Statistics, Current Population Survey (Annual Social and Economic Supplement); CEA calculations. High School or Less Some College Bachelor's or Higher 2016 80 82 84 86 88 90 92 94 96 98 100 1964 1974 1984 1994 2004 2014 Prime-Age Male Labor Force Participation Rate by Educational Attainment, 1964-2016 Percent
  33. 33. Recent U.S. Experience Diverges from the United Kingdom 32 United Kingdom United States 60 61 62 63 64 65 66 67 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Labor Force Participation, 2007-2016 Percent, Centered Three-Month Moving Average Aug-16 Sep-16 Source: U.S. Bureau of Labor Statistics, Current Population Survey; U.K. Office of National Statistics, Labour Force Survey.
  34. 34. Despite Flexible Labor Markets, the United States Ranks Towards the Bottom of the OECD in the Share of Prime-Age Men and Women in the Labor Force 33Source: Organisation for Economic Co-operation and Development. 70 75 80 85 90 95 100 Switzerland Japan CzechRepublic Mexico Luxembourg Iceland SlovakRepublic Sweden Greece Slovenia Spain Germany France Estonia NewZealand Netherlands Hungary Chile UnitedKingdom Portugal Austria Korea Canada Denmark Poland Turkey Australia Belgium Ireland Finland Norway UnitedStates Italy Israel 2015 1990 Prime-Age Male Labor Force Participation Rate Percent of Population 30 40 50 60 70 80 90 100 Slovenia Sweden Iceland Portugal Switzerland Austria Norway Finland Denmark Estonia France Germany Netherlands Spain Canada CzechRepublic Luxembourg SlovakRepublic Belgium UnitedKingdom Hungary Poland NewZealand Israel Greece Australia Japan UnitedStates Ireland Chile Italy Korea Mexico Turkey 2015 1990 Prime-Age Female Labor Force Participation Rate Percent of Population
  35. 35. U.S. Labor Market Has High Flexibility But Low Supportiveness According to OECD’s Going for Growth Indicators 34 Source: Organisation for Economic Co-operation and Development, Going for Growth 2016; CEA calculations. Percentile Rank (100 = Most Flexible/Most Supportive) Measures of Labor Market Flexibility Overall Labor Market Regulation (2014) 100 Employment Protection for Regular Employment (2013) 100 Minimum Cost of Labor (2014) 96 Coverage of Collective Bargaining Agreements (2013) 94 Measures of Institutional Labor Market Support Expenditure on Active Labor Market Policies per Unemployed (2013) 6 Net Childcare Costs, Couples (2012) 10 Implicit Tax on Returning to Work, Second Earner (2012) 10 OECD Going for Growth Indicators
  36. 36. Table of Contents 35 1. The Recent Good… 2. …But the Longer-Term Bad 3. Effects of Selected Obama Administration Policies 4. The Worldwide Productivity Growth Slowdown 5. The Especially Large Increase in U.S. Inequality 6. The Unique U.S. Challenge of Labor Force Participation 7. Next Steps for U.S. Policy
  37. 37. Selected Policies for Inclusive, Sustainable Growth 36 Productivity • Investing in infrastructure, research, and education • Expanding trade and immigration • Reforming the business tax code Inequality and Participation • Raising the minimum wage and expanding collective bargaining • Reducing concentration of market power and rent-seeking via competition policy • Deepening “connective tissue” in labor markets and expanding workplace flexibility • Reforming the criminal justice system Sustainability • Continuing to implement Wall Street Reform • Improving automatic stabilizers and making more active use of fiscal policy • Reducing the long-run deficit with a combination of reforms to entitlements and increased revenue • Addressing climate change
  38. 38. President Obama’s Economic Record and the Challenges Ahead Jason Furman Chairman, Council of Economic Advisers Resolution Foundation London, United Kingdom November 17, 2016

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    Apr. 1, 2017

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