Lessons for Inclusive Growth from the United States and the World

Jason Furman Chairman, Council of Economic Advisers

July 21, 2014

We Are Now Far Into the Recovery From the Great Recession, But More Work Remains to Be Done

1

Average in Last

Recovery

GR Peak (Trough)

Latest Value

Percent Change from

Previous Average to

Latest Value

Percent Recovery Since GR

Peak (Trough)

Unemployment Rates Overall 5.3 10.0 6.1 16 83 Short Term 4.2 6.9 4.0 -5 107 Long Term 1.0 4.4 2.0 92 72

Alternate Measures U-4 (+ Discouraged) 5.5 10.6 6.5 18 81 U-5 (+ Marg. Attached) 6.2 11.4 7.3 18 79 U-6 (+ PT Economic Rsn) 9.1 17.2 12.1 32 63 Discouraged 0.3 0.9 0.4 55 74 Marginally Attached 1.0 1.8 1.3 29 65 PT for Economic Reasons 3.1 6.6 5.2 65 42

Source: Bureau of Labor Statistics; CEA Calculations.

As Labor Markets Have Strengthened, Nominal Wage Growth Has Picked Up—and Has Exceeded Inflation

2 Source: Bureau of Labor Statistics.

-4-3-2-1012345678

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Average Hourly Earnings for Private Production & Nonsupervisory Workers

Percent, year-over-year

Inflation(CPI-U, through May)

Nominal Earnings(through June)

29 OECD Countries Grew Over the Four Quarters of 2013, Up From 20 in 2012

3 Source: National sources; CEA calculations.

0

5

10

15

20

25

30

00:Q1 02:Q1 04:Q1 06:Q1 08:Q1 10:Q1 12:Q1 14:Q1

Number of OECD Countries GrowingNumber (based on year-over-year real GDP growth)

After Rising Strongly From 1950-1980, Income Growth Has Slowed or Even Reversed

4 Note: Ireland data is based to 1943=1950=100 and missing for 1944-1974. U.K. and Canada series have breaks in 1990 and 1982, respectively. Australia is indexed to 1951=100. Source: World Top Incomes Database; CEA calculations.

41950 1960 1970 1980 1990 2000 2010

United StatesUnited KingdomCanadaAustraliaFranceIreland

Growth in Real Average Income for the Bottom 90 PercentIndex, 1950=100 (log scale)

100

200

300

400

600

800

Long-Term Income Challenges in the United States Can Be Seen in Multiple Data Sources

5 Source: World Top Incomes Database; U.S. Census Bureau; CEA calculations.

41950 1960 1970 1980 1990 2000 2010

Two Measures of Real Income Growth for the United StatesIndex, 1950=100 (log scale)

100

200

300

400

500

Median Family Income(U.S. Census Bureau)

Average Income for Bottom 90% of Tax Units

(World Top Incomes Database)

U.S. Total Factor Productivity Has Rebounded But Still Falls Below the Postwar Period

6 Source: Bureau of Labor Statistics; CEA calculations.

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

1950 1960 1970 1980 1990 2000 2010

Growth in U.S. Total Factor ProductivityAnnual percent change

1953–1973:1.7 percent per year

1974–1995:0.4 percent per year

1996–2013:1.1 percent per year

15-year centered moving average

Productivity Growth Fell in Many Advanced Economies But Picked Up in the United States

Note: Data through 2013. Source: Conference Board; CEA calculations. 7

0

1

2

3

4

5

6

7

8

1950 1960 1970 1980 1990 2000 2010

GermanyFranceItalyIrelandUnited States

15-Year Centered Moving Average of Annual Labor Productivity Growth

Percent per year

Productivity Growth and Average Bottom 90% Income Across Countries

Note: See notes on slide 4. Source: Conference Board; World Top Incomes Database; CEA calculations. 8

41950 1960 1970 1980 1990 2000 2010

United StatesIndex, 1950=100 (log scale)

100

200

300

400

500

75

600700800

Labor Productivity

Real Average Earnings for Bottom 90%

41950 1960 1970 1980 1990 2000 2010

United KingdomIndex, 1950=100 (log scale)

100

200

300

400

500

75

600700800

Labor Productivity

Real Average Earnings for Bottom 90%

41950 1960 1970 1980 1990 2000 2010

FranceIndex, 1950=100 (log scale)

100

200

300

400

500

75

600700800

Labor Productivity

Real Average Earnings for Bottom 90%

41950 1960 1970 1980 1990 2000 2010

CanadaIndex, 1950=100 (log scale)

100

200

300

400

500

75

600700800

Labor ProductivityReal Average Earnings

for Bottom 90%

41950 1960 1970 1980 1990 2000 2010

AustraliaIndex, 1950=100 (log scale)

100

200

300

400

500

75

600700800

Labor Productivity

Real Average Earnings for Bottom 90%

41950 1960 1970 1980 1990 2000 2010

IrelandIndex, 1950=100 (log scale)

100

200

400

600

75

8001000

1300

Labor Productivity

Real Average Earnings for Bottom 90%

Share of Total, Labor, Capital Income Accrued to Top 1% (Piketty & Saez Data)

Source: Piketty & Saez (2013); CEA calculations. 9

0

50

100

150

200

250

300

350

1970 1980 1990 2000 2010

Share of Total, Labor, Capital Income Accruing to Top 1%Index, 1970 = 100

Share of Total Income

Share of Labor Income

Share of Capital Income

Capital Income Inequality Contributes More to Overall Inequality Towards the Upper End of the Income Distribution

Source: Piketty & Saez (2013); CEA calculations. 10

Top 10% Top 1% Top 0.1% Top 0.01%Income Excluding Capital Gains

1970-2010 (Piketty-Saez) 83% 68% 53% 39%1980-2010 (Piketty-Saez) 71% 54% 59% 35%1990-2010 (Piketty-Saez) 64% 51% 53% 37%

Income Including Capital Gains1970-2010 (Piketty-Saez) 80% 63% 47% 33%1980-2010 (Piketty-Saez) 67% 50% 52% 30%1990-2010 (Piketty-Saez) 61% 45% 44% 30%

Increase in Income Share Accounted for by Inequality Within Labor Income

Note: Values for any given year calculated as a centered three-year moving average.

The Rise in Inequality in the United States Has Coincided With a Decline in Union Membership

Note: Data through 2012. Source: World Top Incomes Database; Economic Policy Institute. 11

0

10

20

30

40

50

60

1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

U.S. Union Membership and Top 10% Income SharePercent

Top 10% Income Share

Union Membership

Rate

Wealth in the United States Has, Over the Long Term, Remained Steady Compared to Europe

Source: Piketty (2014); CEA calculations. 12

0

100

200

300

400

500

600

700

800

1870 1890 1910 1930 1950 1970 1990 2010

National Capital in the United States and EuropePercent of national income

United States

Europe

The Labor Share of Income Began To Decline in 2000

Source: Bureau of Labor Statistics; CEA calculations. 13

50

52

54

56

58

60

62

64

66

68

1950 1960 1970 1980 1990 2000 2010

Labor Share in the Nonfarm Business SectorPercent

2014:Q1

1947-2000 average

Many OECD Countries Enroll Nearly All Their Four Year Olds in Pre-School; in the United States, Only 78% Are Enrolled

Note: Data for Canada as of 2010. Source: OECD. 14

0102030405060708090

100

Enrollment Rates at Age 4 in Early Childhood and Primary Education

Percent (2011 unless noted)

Most OECD Countries Currently Invest a Small Share of GDP in Transportation Infrastructure

Note: Data for Switzerland, Hungary, Japan, Portugal and Denmark as of 2010. Data for Belgium as of 2009. Data for Greece and Ireland as of 2007. U.S. figures updated to 2013 based on OMB data. Source: OECD; U.S. Office of Management and Budget; CEA calculations. 15

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Investment in Inland Transportation InfrastructurePercent of GDP (2011 unless noted)

The United States Was One of the Pioneers of Tax Incentives for Business R&D, But Has Since Fallen Behind Other Countries

Note: Data for Belgium, Ireland, Australia, Spain and Chile as of 2010. Source: OECD. 16

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Tax Incentives for Business R&DPercent of GDP (2011 unless noted)

With a $10.10 Minimum Wage, the United States Would Be in the Middle of the Range Across the OECD

Note: Data as of 2012. Source: OECD. 17

02468

1012141618

Minimum Hourly Wage2012 US$ per hour