This Selected Issues paper focuses on the adoption of new technology and globalization in the United States of America, and assesses the change in the productivity growth and revised estimates, the developments in the labor market, equity prices, and the technology boom. The paper analyzes how the monetary policy influences economic conditions in emergency markets; reviews the developments in financial consolidation; discusses the key provisions contained in the Gramm-Leach-Bliley (GLB) Act, the implications of the GLB Act for financial consolidation, and regulatory and supervisory practices.

Abstract

This Selected Issues paper focuses on the adoption of new technology and globalization in the United States of America, and assesses the change in the productivity growth and revised estimates, the developments in the labor market, equity prices, and the technology boom. The paper analyzes how the monetary policy influences economic conditions in emergency markets; reviews the developments in financial consolidation; discusses the key provisions contained in the Gramm-Leach-Bliley (GLB) Act, the implications of the GLB Act for financial consolidation, and regulatory and supervisory practices.

III. Developments in the U.S. Labor Market1

1. The strength of economic growth during the current expansion raises the question whether this might be driven, in part, by an unusually strong, and thus possibly unsustainable, surge in the U.S. labor supply. Indeed, the notion that the current expansion has been associated with extraordinary employment growth appears to be fairly common. However, although employment and jobs growth has certainly been strong in absolute terms during the current U.S. expansion, it has been remarkable only in comparison to other major industrial countries.2 Relative to the U.S. performance of recent decades, employment and jobs growth has been somewhat slower than in previous expansions. While the low level of unemployment achieved has been notable, the decline in the unemployment rate during the current expansion also appears less remarkable when compared to that during the 1960s and 1980s. Employment growth in the United States over the last several decades has, however, generally exceeded that of other major industrial countries by about 1 percentage point per year. A demographic breakdown of employment growth in the United States during the current expansion indicates that employment growth was driven disproportionately by a continuing rise in female participation and a rise in participation of 55-64 year olds.

A. Labor Market Developments in the United States: 1960-99

2. The growth of employment relative to the labor force during the current expansion has lowered the unemployment rate to a level not seen since 1970. Although this is a remarkable achievement, 1970 was a recession year, and the unemployment rate in the first half of 2000 remains above the level prevailing late in the expansion in the 1960s (Figure 1). Jobs growth during the current U.S. expansion is notable more for its duration than its strength (Figure 2). From December 1992 through December 1999, total payroll employment in the United States expanded by about 19 percent (20 million jobs), compared to about 23 percent during a roughly comparable seven-year period in the previous expansion (December 1982 through December 1989). The total growth of the U.S. labor force (household survey), about 9 percent from end-1992 through end-1999, was also significantly lower during the current expansion than the previous expansion (about 12 percent from end-1982 to end-1989), suggesting that there was somewhat less need to absorb workers in the current expansion. Moreover, the resulting decline in the unemployment rate was far less sharp during the early years of the current expansion than early in the expansion of the 1980s. This, of course, was largely attributable to the relatively greater depth of the early 1980s recession. After the unemployment rates converged in the first two years of the current and previous expansions, they followed roughly equivalent paths over the next five years, at which time the 1980s expansion began to lose steam.

Figure 1.
Figure 1.

United States: Unemployment Rate

(percent)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics and National Bureau of Economic Research.
Figure 2.
Figure 2.

United States: Jobs Growth

(12-month moving average, annualized)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: Bureau of Labor Statistics, Establishment Survey.

3. A number of notable longer-term demographic trends in participation rates are in evidence in the U.S. labor market. The most striking of these are the steady decline in male labor force participation, the strong increase in female participation, and the decline in the participation rate for workers ages 65 and over (Figure 3). Participation rates for workers ages 55-64 moved to a lower level during the decade of the 1970s, but remained roughly stable during the 1980s, and increased by about 3½ percentage points during the current expansion. When the 55-64 age group is decomposed by gender, it is apparent that the decline in the participation rate during the 1970s was driven by falling male participation, as female rates remained roughly constant. Female participation rates in this age group began a steady increase in the late 1980s, while participation rates for males ages 55-64 essentially leveled off at around 67 ½ percent.

Figure 3.
Figure 3.

United States: Trends in Labor Force Participation Rates, 1960-99

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics.

4. During the current expansion (1992-99), labor force growth has been fueled in large part by women and by 55-64 year olds. The overall participation rate increased by ⅔ of a percentage point, with a slow continuation of the trend toward rising female labor force participation rates and falling male participation rates. The continuing rise in female participation is reflected in the female share of total employment growth during 1992-99 (Figure 4). The 55-64 age group had the largest increase in the rate of participation over this period, and this age group also accounted for a disproportionate share of employment growth relative to its share of total employment (Figure 5). The downward movement in participation rates for males ages 55-64 continued during the first two years of the current expansion, but then gradually reversed course, leaving the participation rate for males ages 55-64 about unchanged from March 1991 through March 2000; female participation rates for this age group during the same period increased from 45 percent to 52½ percent.

Figure 4.
Figure 4.

United States: Employment and Employment Growth

(shares of total growth by tender)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics, Household Survey.
Figure 5.
Figure 5.

United States: Employment Growth and Employment

(share of total by age group)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics, Household Survey.

5. In addition, welfare caseloads have fallen from record highs in 1994 to a level in 1999 not seen since the late 1960s. At the same time, the percentage of welfare recipients working tripled between 1992 and 1997. A study by the CEA (1999) has found that during 1993-96, about one-third of the caseload decline was due to improved labor market conditions. The same study estimated that roughly one-third of the caseload decline between 1996 and 1998 was due to the 1996 welfare reforms, and only around one-tenth was due to the strong conditions in the labor market.3

6. Although it is difficult to track the contribution of the 1996 welfare reform legislation to labor growth, the data reveal a significant increase in the employment of female heads of households. In 1997, the first year of operation under the new welfare rules, the employment of female heads of households increased by 5½ percent (Figure 6). The increase in employment of this group in the period 1996-99 represented about 13 percent of the increase in total employment in those years.

Figure 6.
Figure 6.

United States: Employment of Female Head of Households, 1990-99

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics.

7. Although difficult to measure, another factor that has contributed to the growth in the U.S. labor force in the last decade is the growth of the foreign-born population. The foreign-born population is estimated to have risen in the last decade from 8 percent of the total population to near 9½ percent, or almost 6 million people.

B. How Do U.S. Labor Market Developments Compare with Those in Other Industrial Countries?

8. During the period 1960-98, the United States exhibited stronger growth rates in the civilian labor force than all other major countries, except Canada (Table 1 and Figure 7).4 France had a continued decline in its labor force growth since the 1960s, but in the later part of the 1990s it has shown an increased rate of growth. In contrast, Japan and Germany (after the unification) both have shown slower labor force growth in the 1990s than in the 1980s.

Table 1.

United States: Labor Market Developments

(In percent)

article image
Source: Bureau of Labor Statistics.

United States, 1992-99 and Germany, 1992-98.

Figure 7.
Figure 7.

United States: Civilian Labor Force Growth, 1960-98

(percent)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: U.S. Bureau of Labor Statistics.1 Unified Germany, 1991 onward.

9. With the exception of Japan, labor force participation rates in the major industrial countries were broadly similar at about 60 percent of the civilian working-age population in 1960. Since then, participation rates in France, Germany, and Japan have declined, while participation rates in Canada and the United States moved significantly higher; the participation rate in the United Kingdom remained essentially flat (Figure 8). In all countries, male participation rates have fallen continuously over the last 40 years (Figure 9). The drop in male participation rates was especially pronounced and sustained in France, Germany, and the United Kingdom. In Canada, Japan, and the United States, the 40-year decline in the male participation rate was less precipitous. Helping to offset the downward trend in male labor force participation, female participation rates were generally rising in Europe and North America (Figure 10).

Figure 8.
Figure 8.

United States: Civilian Labor Force Participation Rates, Selected Countries, 1960-98

(percent of working-age population)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: Bureau of Labor Statistics.1 Unified Germany, 1991 onward.
Figure 9.
Figure 9.

United States: Male Labor Force Participation Rates, Selected Countries, 1960-98

(percent of working-age population)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: Bureau of Labor Statistics.1 Unified Germany, 1991 onward.
Figure 10.
Figure 10.

United States: Female Labor Force Participation Rates, Selected Countries, 1960-98

(percent of working-age population)

Citation: IMF Staff Country Reports 2000, 112; 10.5089/9781451960297.002.A003

Source: Bureau of Labor Statistics.1 Unified Germany, 1991 onward.

10. Using BLS data, Krueger and Pischke (1997) estimated long-term trends in employment growth across ten major industrial countries. Over the period 1959-95, they find that U.S. employment growth exceeded that of the others by about 1 percentage point per year, while Germany, for example, fell behind the rest of the major countries by about 0.7 percent per year. A large part of the cross-country differences in employment growth is explained by different rates of growth in the working-age population. Specifically, in the case of the United States, about 60 percent of the faster trend U.S. employment growth is explained by the higher growth of the U.S. working-age population. Even after controlling for differences in population growth, however, U.S. employment growth is estimated to remain above the ten-country trend, and Germany’s is estimated to remain below.

C. The Outlook for U.S. Labor Force Growth

11. In the decade ahead, the labor force is expected to continue to grow roughly in line with that in the past decade, and, thus, it does not appear that a slowdown in labor force growth will present an obstacle to continued strong potential GDP growth. The rate of growth in the U.S. labor force in the next decade is projected to slow very slightly, owing to a modest slowdown in the growth of the working-age population and a slightly slower rate of increase in the female participation rate. Specifically, Fullerton (1999) estimates that the labor force in the period 1998-2008 will grow by 12 percent compared to 13 percent in 1988-98. The rate of growth of women in the labor force is expected to slow (to 1.4 percent annually from 1.5 percent in the period 1988-98), but would still remain above that of men, and the share of women in the labor force is projected to increase from 46 percent in 1998 to 48 percent by 2008. For men, the rate of growth in the labor force is projected to continue slowing (to 0.9 percent annually from 1 percent in the period 1988-98).

12. The labor force participation rate is projected to rise by ½ percentage point between 1998 (67.1 percent of working-age population) and 2008 (67.6 percent). For women, the participation rate is projected to increase from 59.9 percent in 1998 to 62 percent in 2008. The overall rate of labor force participation for men is projected to drop about 1¼ percentage points (from 74.9 percent in 1998), similar to the decline in the last decade.

13. The significant migration to the United States that started in the 1970s and has continued to the present is projected to slow only modestly in the decade ahead. Thus, a significant share of the population growth projected for the period 1998-2008 will stem from net immigration flows. Moreover, the labor force will be affected by the aging of the baby-boom generation (those born between 1946 and 1964); the median age of the labor force will rise to record levels and the aging of the baby-boom generation will eventually contribute to lowering the overall participation rate.

List of References

  • Council of Economic Advisers and the Office of the Chief Economist, U.S. Department of Labor, 1999, “20 Million Jobs: January 1993-November 1999,” December.

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  • Council of Economic Advisers, 1999, “The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads: An Update,” December 3.

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  • Fullerton, Howard N, Jr., 1999, “Labor Force Participation: 75 Years of Change, 1950-98 and 1998-2025,” Monthly Labor Review, U.S. Bureau of Labor Statistics, December.

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  • Krueger, Alan B. and Jorn-Steffen Pischke, 1997, “Observations and Conjectures on the U.S. Employment Miracle,” National Bureau of Economic Research, Working Paper 6146, August.

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  • U.S. Department of Labor, Bureau of Labor Statistics, 1999, “Comparative Civilian Labor Force Statistics: Ten Countries, 1959-98,” October.

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1

Prepared by Michael Leidy and Martin Kaufman.

2

Following the convention adopted by CEA (1999), “jobs” refers to the payroll statistics from the establishment survey of the Bureau of Labor Statistics (BLS) and “employment” refers to statistics from the household survey of the BLS. The establishment survey canvasses a random sample of private nonfarm businesses (including government entities) to estimate the number of people on nonfarm payrolls. The household survey samples the civilian noninstitutional population to estimate the number of people employed in a given week.

3

The Personal Responsibility and Work Opportunity Act enacted in August 1996 was designed to facilitate movement from dependency on social assistance to employment by giving states greater flexibility in the design and implementation of welfare programs. Critical among the new rules, federally funded assistance is generally limited to no more than five years in a lifetime, and strengthened work requirements mandate that individuals have some participation in the labor force within two years of receiving assistance.

4

The data set covers the period 1959-98 for the G-7 countries and the Netherlands and Sweden. The U.S. Bureau of Labor Statistics’ (BLS) has compiled international estimates of employment, labor-force growth, unemployment, and labor force participation, that use U.S. concepts of employment and working-age population. These data facilitate direct comparisons between the United States and these other countries.

United States: Selected Issues
Author: International Monetary Fund
  • View in gallery

    United States: Unemployment Rate

    (percent)

  • View in gallery

    United States: Jobs Growth

    (12-month moving average, annualized)

  • View in gallery

    United States: Trends in Labor Force Participation Rates, 1960-99

  • View in gallery

    United States: Employment and Employment Growth

    (shares of total growth by tender)

  • View in gallery

    United States: Employment Growth and Employment

    (share of total by age group)

  • View in gallery

    United States: Employment of Female Head of Households, 1990-99

  • View in gallery

    United States: Civilian Labor Force Growth, 1960-98

    (percent)

  • View in gallery

    United States: Civilian Labor Force Participation Rates, Selected Countries, 1960-98

    (percent of working-age population)

  • View in gallery

    United States: Male Labor Force Participation Rates, Selected Countries, 1960-98

    (percent of working-age population)

  • View in gallery

    United States: Female Labor Force Participation Rates, Selected Countries, 1960-98

    (percent of working-age population)