Panel on Long-Term Trends in Labor Productivity and Wages at NBER Summer Institute
The 2022 NBER Summer Institute's Economics of Social Security meeting featured a panel discussion on long-term trends in productivity and wage growth.
Stephen Goss, Chief Actuary of the Social Security Administration (SSA), described a number of factors that may affect future labor productivity. The aging US population and rising educational attainment may impact labor supply as well as wages. Whether the US updates its physical infrastructure and develops various new technologies may also matter. The difficulty of accurately measuring real wage growth, given changes in labor force attributes and quality improvements for consumer goods, is a complicating factor. The net impact of these factors on workers’ real earnings has implications for Social Security revenues.
Goss then analyzed several trends in macroeconomic variables. The US age distribution has shifted toward those aged 65 and older and this trend will continue in coming decades. Employment in this age group, which has risen rapidly in recent decades, is projected to continue rising. In terms of how productivity translates into wages, the labor share of GDP has trended downward in recent decades, although it has recently rebounded. The SSA projects that it will remain approximately level in coming years. Goss pointed out that recessions can lead to permanent losses in GDP relative to its potential value. Recent OASDI Trustees Reports project lower potential GDP than earlier reports, largely reflecting weak realized productivity growth following the 2007–09 recession. The COVID recession, however, is not expected to have long-lasting effects, in part because the employment-to-population ratio recovered much faster after the 2020 recession than after previous recessions. Goss also noted that the recent increase in quits is more indicative of a “great job churn” than a “great resignation.” Labor productivity, which has experienced a declining trend since the 1970s, spiked in 2020 as employment declined more than GDP. Recent Trustees’ reports project long-run productivity growth of about 1.6 percent per year.
NBER Research Associate Chad Jones of Stanford University discussed the trends and determinants of historical US per capita GDP growth as well as the factors that may impact future growth. He began by emphasizing that ideas are nonrival, in the sense that one new idea could make many workers more productive; one’s use of the idea does not preclude use by others. Examples include the creation of drought-resistant seeds, the spreadsheet, and the COVID-19 vaccine. Jones pointed out that income per person depends on the aggregate stock of knowledge, which means that population growth contributes to productivity growth because it leads to more ideas, which in turn increase per capita income.
Jones then discussed specific factors contributing to the roughly 2 percent average annual growth in per capita GDP since the 1950s. The capital-to-output ratio has remained constant and thus has not contributed to GDP growth. By contrast, one-quarter of per capita income growth (or 0.5 percentage points) is attributable to rising educational attainment. Rising labor force participation has contributed 0.2 percentage points. The remaining 1.3 percentage points represent total factor productivity growth, with about 1 percentage point attributable to increasing research intensity and declining misallocation and 0.3 percentage points to population growth. He pointed out that everything except population growth was a transitory factor, implying that growth could slow down significantly at some future date in the absence of other changes.
Jones also discussed a number of factors that could account for the slowing rates of productivity and per capita income growth over the last two decades, and concluded by noting the substantial uncertainty associated with projections of future growth rates.
NBER Research Associate Francine D. Blau of Cornell University discussed a number of issues related to gender, labor market activity, and Social Security contributions. She noted that after increasing for many decades to a peak of about 60 percent in the mid-1990s, the female labor force participation rate in the US plateaued. While there is no consensus as to the cause of this stagnation, one possible factor is less generous work-family policies, including paid parental leave and child care, in the US than in other developed countries. Since the 1980s, the gender gap in full-time work experience for those between the ages of 25 and 54 has significantly narrowed. The unadjusted female-to-male wage ratio rose rapidly in the 1980s and has increased more slowly since then; it stood at 79 percent in 2010. When adjusted for education, labor market experience, industry, and occupation, the ratio rises to 92 percent. This ratio has been stable since 1990, suggesting persistence in the unexplained portion of the gender wage gap. The gender wage gap has narrowed more slowly at the top of the earnings distribution than at lower levels. In 2010, 10 percent of male workers had earnings above the Social Security taxable maximum, compared with only 4 percent of female workers. The share of women receiving Social Security solely on their own work record has increased from around 4 in 10 in 1980 to nearly 6 in 10 today.
In light of the 20 years of stability in the female participation rate, Blau speculated that women’s labor force participation was unlikely to increase significantly. She also observed that while future reductions in gender segregation by industry and occupation could narrow the gender wage gap, there is less scope than in the past for human capital upgrading to play a role given women’s significant progress in these areas. Work-family policy could impact women’s future participation and wages.
Video of panel discussion is available.
