John Shoven, Elena Afanasyeva, John Cochrane, Steven Davis, Nicola Fuchs-Schündeln, Tom Gilligan, Paul Gregory, Nick Hope, Tim Kane, Stephen Langlois, David Mauler, Jonathan Meer, John Raisian, Josh Rauh, Ken Scott, George Shultz, John Taylor, Yevgeniy Teryoshin
John Shoven, the Buzz and Barbara McCoy Senior Fellow at the Hoover Institution and Charles R. Schwab Professor of Economics at Stanford University, presented “Life in the Slow Lane: The Rate of Growth of Potential Output of the U.S. Economy.”
Shoven first reviewed US output, unemployment, and employment data over the past decade. The unemployment rate has recently returned to pre-crises levels however, the employment to population ratio for prime-age workers remains far below its pre-crises level, indicating the recovery is still far from complete.
Shoven then noted the inherent difficulty in measuring the growth of potential output in the US economy. He explained, however, that a simple method exists for obtaining a rough measure of this growth rate. By focusing on snapshots of the economy when the unemployment rate is at identical levels, the average growth rate of potential output between two snapshots can be inferred to be equal to the average growth rate of observed output over that same interval. This exercise produces an estimate of 1.16% average annual potential output growth since late 2008, significantly lower than estimates from prior periods.
Shoven concluded with a discussion of potential reasons for this decline in potential output growth. He described how education and aging demographics likely contribute to the slowdown. In past years, retirees exiting the workforce were not as well educated as entrants. Recently, however, this gain in average education of the workforce is largely absent.