buzzz worthy. . .
This morning, the Council of Economic Advisers released the sixty-ninth annual Economic Report of the President, a 7 chapter document
which reviews the United States’ accelerating recovery and ways to
further support middle-class families as the recovery continues. The
economy is recovering from the Great Recession at an increasing pace,
growing at an annual rate of 2.8 percent over the past two years,
compared with 2.1 percent over the first 3½ years of the recovery. The
speed-up is especially clear in the labor market, where job gains have
reached a pace not seen since the 1990s. But it is essential that a
broad range of households benefit from the United States’ resurgent
growth, so this year’s Report focuses on factors that are important to middle-class incomes: productivity, labor force participation, and income inequality. The
President’s approach to economic policies, what he calls “middle-class
economics,” aims to improve each of these long-standing elements and
ensure that Americans of all income levels share in the accelerating
recovery.
Below are some highlights from each of the seven chapters in this year’s Report:
Chapter 1 reviews the progress of the recovery and explores the long-term factors that drive middle-class incomes. The
U.S. recovery has accelerated in terms of both output and employment,
with job growth rising 30 percent faster in 2014 than in 2013 (Figure
1-2). Indeed, the unemployment rate has fallen to levels that, as
recently as 2013, were not expected until after 2017. These labor market
improvements have begun to translate into wage gains for middle-class
workers, but nevertheless, this recent progress cannot make up for
decades of sub-par middle-class income growth. The chapter provides
historical and international context for middle-class income growth and
the three key factors that influence it: productivity growth, changes in
labor force participation, and income inequality. The increasing
strength of our current recovery provides an opportunity to address
these long-standing challenges, and the President supports a wide range
of policies, detailed in this Report, that will strengthen all three key factors.
Chapter
2 reviews the macroeconomic performance of the U.S. economy during
2014, including the growth of output and employment, the continued
decline in the unemployment rate, the healing of the housing market, and
the improvement in the budget deficit as a share of GDP. By
most measures, the pace of output growth has risen relative to the
beginning of the recovery. Gross domestic product grew 0.7 percentage
point faster per year over 2013 and 2014 than over the first
three-and-one-half years of the recovery. Meanwhile, U.S. households
continued to pay down their debts. Figure 2-15 shows the dramatic rise
in the household sector’s liabilities-to-income and debt-service ratios
in the run-up to the financial crisis, along with the reduction in these
ratios that followed. By the third quarter of 2014, required payments
on mortgage and consumer debt had fallen to 9.9 percent of disposable
income, nearly the lowest level on record. The chapter explores this and
other macroeconomic developments, including the slowdown in global
growth, which could pose some downside risk to U.S. economic growth in
the future. The chapter also reviews the assumptions about future growth
that underlie the President’s Fiscal Year 2016 Budget, including the
economic benefits of the President’s agenda. The chapter explores the
benefits of immigration reform, infrastructure investment, and business
tax reform, among other pro-growth policies that the President supports.
Chapter 3 addresses the opportunities and challenges facing the U.S. labor market. The
sharp drop in unemployment in 2014 came amid a stabilization in the
labor force participation rate and the strongest annual job growth since
the 1990s as businesses added more than 3 million jobs. But economic
performance must be gauged by more than just the unemployment rate—a
successful job market also encourages labor force participation,
supports quality jobs, and facilitates effective job matching of workers
and positions. This chapter reviews the United States’ recent labor
market progress and discusses five long-standing labor market challenges
that motivate many of President Obama’s policy initiatives. The decline
in the labor force participation rate earlier in this recovery is one
such important challenge. Just over half the participation decline has
been driven by an aging population as the “baby boomer” generation has
begun to retire (Figure 3-6). Moreover, labor force participation has
stabilized over the past year, indicating that the 2014 unemployment
decline reflected strong job growth rather than a shrinking labor force.
Chapter
4 discusses how American family lives have changed over the last
half-century and the implications of these changes for our labor market.
Women now represent almost one-half of the workforce, married
couples increasingly share child-care responsibilities, and people
live—and work—longer than in the past. Today, all parents are working in
more than 6 out of every 10 households with children, up from 4 out of
10 in 1968 (Figure 4-4). Chapter 4 considers some of the crucial changes
that are needed to help Americans better balance their work and
caregiving responsibilities. While many workers have limited access to
family-friendly workplace policies such as paid sick and family leave,
recent State and local policies have expanded access to these benefits.
The chapter examines workplace flexibility policies—a range of policies
that enable workers to adjust aspects of work as needed. It also
discusses the economic evidence for paid leave and workplace flexibility
policies that the President has proposed, showing how these policies
can increase worker productivity, retention, and morale. This evidence
demonstrates that family-friendly policies can benefit workers,
businesses, and the economy.
hapter
5 shifts the focus to productivity growth with an examination of
business tax reform as well as a briefer discussion about the
complementary issues in individual taxation. In 2014, the top
statutory corporate tax rate in the United States was roughly 10
percentage points above the OECD average. At the same time, the U.S. tax
code is riddled with loopholes that benefit certain companies without
justification. For example, the tax code gives U.S. corporations the
ability to reduce dramatically their tax bills by locating subsidiaries
in small, low-tax countries. This pattern is evident in the outsized
amounts of foreign corporate profits reported in many of these countries
(Table 5-1). The President’s approach would close loopholes in the tax
code while making it more attractive for companies to locate and invest
in the United States. The chapter describes this and other components of
the President’s approach to reform, documenting four channels through
which reform can boost productivity and living standards: encouraging
domestic investment, improving the quality of investment, reducing the
inefficiencies of the international tax system, and facilitating
investments in infrastructure.
Chapter 6 reviews the profound transformation of the U.S. energy sector.
The United States is producing more oil and natural gas and generating
more electricity from renewables such as wind and solar. While the
dramatic increase in U.S. oil production in widely recognized (Figure
6-3), a less well known but also critical trend is the decrease in U.S.
oil consumption (Figure 6-2a), which reflects rising fuel efficiency
among other factors. To build on this progress, to foster economic
growth, and to ensure a sustainable low-carbon economy for future
generations, the President has set out an aggressive all-of-the-above
energy strategy. This chapter lays out the key elements of the strategy
that will enhance U.S. energy security and limit greenhouse gas
emissions in ways that also support economic growth and job creation. In
recent years, expanded production of oil, natural gas, and renewables
has raised employment in those industries during a period of
labor-market slack. At the same time, technological innovation and
greater production have helped to reduce energy prices, to the benefit
of energy-consuming businesses and households. These developments have
contributed broadly to employment and GDP growth, and will continue to
do so.
Finally, Chapter 7 situates the United States in the context of the global economy. The
United States is more integrated with the rest of the world than ever
before. This chapter examines the substantial potential benefits of
greater U.S. integration with the global economy, through both
international trade in goods and services and financial transactions in
international capital markets. It presents empirical evidence on the
economic effects of enhanced U.S. trade and free trade agreements, as
well as on ongoing trends such as the Nation’s growing surplus in
services trade. U.S. businesses that expand in response to the increased
foreign market access provided by U.S. free trade agreements support
American jobs, strengthening the middle class in several ways. As Figure
7-6 shows, on average over the 1990s and 2000s, export-intensive
industries report 17 percent higher average wages than
non-export-intensive industries, similar to what has been found in other
studies. Exporting industries also tend to be more productive and to
rely more on capital and skilled workers. In addition to bringing down
our trading partners’ tariff and non-tariff barriers closer to the low
levels the United States already has, President Obama’s “values-driven”
trade policy seeks to do what’s best for the American middle class by
enforcing international trade agreements that improve labor and
environmental standards around the world, combat corruption, and
strengthen the rule of law abroad. These agreements therefore allow
American firms and American workers to compete on a level playing field
in the global economy.