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Is Faster Economic Growth Important for American Workers?
It’s an odd time to downplay the importance of boosting long-term economic growth. The expert consensus seems to be that American economic growth has, in all likelihood, permanently downshifted. Productivity growth has been moribund for more than a decade, and demographics suggest historically slow labor-force expansion is destiny. For instance: The Federal Reserve’s long-term, real GDP forecast stands at 1.8 percent, about half the average pace from 1947 to the start of the Great Recession.
And that’s bad for workers. For instance: In “Productivity and Pay: Is the link broken?” Harvard’s Anna Stansbury and Lawrence Summers find higher productivity growth is associated with higher average and median compensation growth. Moreover, boosting productivity growth is at least as good for workers as reducing inequality. Stansbury and Summers note that if inequality had stayed at 1973 levels, the median worker’s pay would have been around 33 percent higher in 2016. But if productivity growth had been as fast over 1973-2016 as it was over 1949-1973 — about twice as high — median and mean compensation would have been around 41 percent higher. (Recall that supposed Golden Age for American workers was also a time of rapid productivity growth.)
Likewise, the slowdown in productivity growth also provides a large part of the explanation of slow wage growth in recent years — that, even though unemployment is even lower than what it was in the fast-wage growth era of the 1990s. Productivity growth has been rising only a quarter as fast as back then. Economist Jason Furman: “Based on the productivity numbers alone, one would predict that average wages would be growing about 2.3 percent more slowly than they did in the late 1990s. This one fact more than explains the 0.7 percentage point slowdown in real wages relative to the late 1990s or the slightly smaller 0.5 percentage point slowdown in median wages since then.”
And one should also consider how the long expansion, even if unspectacular, can help workers of all sorts. As my AEI colleague Michael Strains points out, “Since 2015 compensation has risen faster for lower-income workers.”
Given that, policymakers should be careful not to ignore the growth impacts from new policies and policy changes — whether involving immigration, trade, taxes, or regulation.
Published in Economics
JamesP,
The maxim is simple. At any given tax rate, a no-growth economy produces a smaller net of tax collection resulting in more people who need help and less money to help them with. At any given tax rate, a growth economy produces a larger net of tax collection resulting in fewer people who need help and more money to help them with.
This reminds me of what Mr. Micawber said to David Copperfield.
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.“
OK, OK, maybe this isn’t an exact analogy but the spirit is the same. If a society doesn’t put a very high premium on growth it’s nuts!
Regards,
Jim
Ok we can have more economic growth from productivity growth and for those who get hired at higher tech production there will be a boost. For those displaced not so much. We could have higher economic growth from immigration, but the benefits do not flow to the unskilled wage earners negatively impacted. The kinds of generalizations about growth usually come from macro economists and they’re sometimes right, but growth shouldn’t be a policy focus. It’s nice when it happens and gives us insight that something good may be happening when there is growth or that something dumb and harmful is being done when there isn’t. Economies are organic and it is their nature to grow and it takes special effort to stop that growth, however we often do harmful things in the name of more growth, not because growth isn’t good, but because everyone accepts it as a good goal, i.e. it’s good politics, but the problem is more often than not something harmful governments are doing, often with origins in trying to stimulate growth.