A striking chart from McKinsey’s new report on US productivity:
Forecasts play a big role in these comparisons, and you know how we feel about those, but it is still an intriguing look at where the US economy now finds itself.
The report includes plenty of the jargon-y gibberish — the US should “harness regional and local capacities” — that one would expect from the world’s premier management consulting firm, but its diagnosis of productivity trends and their economic implications are worth a look.
The US economy has historically been driven evenly by both a growing labour force and productivity increases — until the years 2000-08, when productivity accounted for the vast majority of the growth:
The great stagnation in action, perhaps.
The labour force participation rate in the US now stands at 64.3 per cent, having fallen from about 66 per cent just before the crisis.
It remains uncertain how much of this decline is the result of the recession itself (discouraged jobless people stop looking for work, young people go to school, etc) and how much is simply the continuation of a longer-term secular trend.
Estimates vary, but among the causes of the latter are demographic issues, primarily baby boomers retiring, and a plateau in the female participation rate. See the San Fran Fed, The Economist, and Calculated Risk for more, and you can get a decent picture of what’s been happening from these two graphs by CR:
As you can see in the second graph, the participation rate was already declining before the recession, even if the slope of its fall steepened after.
Absent a new wave of immigration or another tech-driven productivity boom (and hey, we don’t rule out either one), it seems likely that those secular trends in the participation rate will continue, even if there is a cyclical bounce-back in the next couple of years. Which implies both that the currently falling unemployment rate must be qualified, and that the economy’s reliance on productivity will just increase.
Where are the workers? – The Economist
Labor Force Participation and the Future Path of Unemployment – San Fran Fed
Participation rate update – Calculated Risk