The U.S. economy is on the mend, but recovery so far has been feeble. The author investigates explanations of why the turnaround has been slow and weak.
The economic recovery in the United States has entered its fifth year but remains weak. That the current rebound is from a financial crisis explains only so much. The author argues that the slow turnaround may be attributable, in part, to demographics.
How Is This Article Useful to Practitioners?
The Great Recession in the United States ended in 2009, but the economy has made haste slowly. The author cites the recent annual economic report of President Obama’s Council of Economic Advisers, which concludes that the underlying trend rate of growth—a function of the supply of workers, capital, and technology—is a great deal lower than in the aftermath of past recessions and has been in place since before the onset of the most recent recession.
One explanation for this phenomenon is that unemployment has fallen further and the economy has grown more slowly than the White House or the Federal Reserve expected. Some of this result can be explained by decreasing labor force participation rates. The population under age 25 and over age 54 has grown, which has drawn down participation rates because the greatest participation is by those who fall between these two ages.
Another explanation is a slower long-term growth rate because of a falloff in labor productivity and total factor productivity—the latter being a technology metric that captures the efficiency with which capital and labor are used. A Federal Reserve Bank of San Francisco economist traces this decline to around 2003, when productivity wrought from the internet began to wane.
Jump-starting the economy will not come about with another blockbuster innovation but rather with reforms designed to increase the amount of workers in the labor force.
Economists and students of economic sciences would not only draw interesting conclusions from this piece but also come up with further questions to explore.
The challenge facing policymakers of helping the U.S. economy get back on its feet has been particularly acute. Demography and the aftermath of a severe financial crisis explain only part of the problem. Poor incentives that result from a lower retirement age and disability benefits have a hand in the lower supply of workers, as does current immigration policy. Far-reaching reforms in these areas—beyond a quick fix—appear to be what is needed.