Economic Report of the President

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members of the population, who typically have higher rates of savingthan either the young or the elderly, should increase the Nation'ssaving rate and facilitate growth in the capital stock.But a third effect of the rising average age and experience of thelabor force will be a decrease in flexibility. Shifts in the demand forlabor by region, industry, and occupation are most easily met whenyoung workers just entering adulthood are available to move to areaswhere the growing sectors of the economy are located. These youngerworkers are not tied to the skills gained from long experience inone job, they generally do not own homes, and their ties to communitiesare weaker. Further, young workers normally have more yearsover which to recoup the costs of acquiring new skills or moving to anew community.Older experienced workers and individuals in two-earner familiesare often much less flexible in changing jobs, industries, occupations,or communities. If there is a decline in the demand for the type oflabor they supply, they are less able and willing than younger workersto move or to abandon old skills or to learn new ones. Firms areless interested in absorbing the costs of training older workers fornew careers. Therefore, although older workers are less likely to losetheir jobs, if their jobs do disappear they are likely to have a hardertime than young workers in finding a new job and are likely to beunemployed for a longer time. Thus, although total unemploymentrates will tend to fall as the labor force ages, the percentage of workersunemployed for extended periods may rise.Although U.S. labor markets may become less flexible in thefuture, we currently appear to be able to find new jobs for displacedworkers more rapidly than several major European economies. Themore rapid the adjustment to employment shocks, the lower will bethe percentage of workers unemployed for extended^ periods. Table13 presents the long-term unemployed as a percentage of the totallabor force for the United States, Germany, France, and the UnitedKingdom. Although these percentages undoubtedly reflect internationaldifferences in definitions of employment and in stages of thebusiness cycle, they do suggest that American workers suffer lesslong-term unemployment than their European counterparts.However, the adjustment to new patterns of labor demand -in theeconomy of the 1980s may be more difficult than it has been in thepast, and government assistance may be necessary to soften theshocks of structural change while promoting flexibility. Such programscan be designed to move workers to jobs or jobs to workers.The former include retraining programs for the unemployed as wellas relocation subsidies to encourage them to move from depressedareas to communities with excess demand for labor. The latter in-126
elude government investments in local infrastructure and investmentsubsidies to encourage expanding firms to replace contracting ones.Whatever combination of policies is chosen, efforts to cushion theshocks of adjustment should not themselves discourage adaptation.TABLE 13.—Long-term unemployment as percent of labor force, 1973-80YearUnitedStatesGermanyFranceUnitedKingdom19731974 ...1975197619771978197919801 Not available.Note.—Long-term unemployment is defined as 15 weeks or longer for the United States, 14 weeks for the United Kingdom,and 3 months for France and Germany.Source: Organization for Economic Cooperation and Devefopment.0.891.002.632.411.921.341.141.710.430.942.382.402.342.251.92(M1.571.662.643.063.473.724.42n1.221.111.802.733.253.403.350)THE DILEMMA OF INDUSTRIAL POLICYChapter 1 of this Report and the preceding sections of this chapterdescribe an economy facing increased pressure to adjust to changingeconomic circumstances in a period of restrained growth. The increasein Federal involvement in areas previously considered to bethe domain of private decisionmakers has also been detailed. Therecognition that increased adjustment is needed and that the resourcesto smooth the path of this adjustment are limited, has ledsome to propose an explicit "industrial policy" to guide the broadcollection of Federal activities affecting individual industries and sectors.These proposals, and the conflicting pressures they have created,illustrate the dilemma stated at the beginning of this chapter:Increased Federal involvement in the economy carries with it boththe potential to improve and the threat of reducing the economy'sefficiency and adaptability.The steel industry, for example, faces a major financial burden incomplying with clean air and water mandates. It is also beset withmajor problems of economic adjustment because of vigorous foreigncompetition, technological evolution, changes in labor and raw materialcosts, and geographic and compositional shifts in the demand forsteel. Similarly complex circumstances have been developing in theauto sector for several years. In 1980 the combination of recessionand sharply higher gasoline prices focused public attention on thedomestic industry's longer term problems of coping with foreigncompetition, improving productivity, and retooling to meet the127
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Economic Reportof the PresidentTran
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ECONOMIC REPORTOF THE PRESIDENT
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We have heard much about American i
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at an approach that took account of
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een due to overall demand in the ec
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to $27.5 billion in the new budget
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ductions would amount to over $27 b
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10 percent inflation rate, keeping
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tutes for petroleum. The Synthetic
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esponse can be so large as to wipe
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSCHAPTER 1. INFLATION AND GR
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PageChallenges to the International
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CHAPTER 1Inflation and Growth in th
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needed to control inflation by resi
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decline in productivity growth may
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Chart 1Standard Unit Labor CostsPER
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end of 1974 the world price of oil
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price decisions cannot easily be re
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Federal budget achieved a surplus.
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As an abrupt increase in the price
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policies but are based on the wides
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tion, and can policies be designed
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duction and employment to grow only
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Moreover, their actions must indica
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Starting with its 1975 targets as a
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well after the fact whether the mon
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Reserve provides some flexibility i
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in response to circumstances in par
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Although the flexibility of TIPs ma
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ard or that thought the administrat
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given standard, as the reward and t
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large firms. Even among large firms
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cause declining productivity growth
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vanced technology and will therefor
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ather than restoring the growth of
Page 81 and 82: correct some of the distortions in
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Page 85 and 86: EXPECTED PRODUCTIVITY GAINSAlthough
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Page 95 and 96: CHAPTER 2Improving the Adaptability
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Page 99 and 100: expectation of price controls or fu
Page 101 and 102: dependence on foreign oil mean that
Page 103 and 104: While the market solution might pro
Page 105 and 106: High energy prices and excessive de
Page 107 and 108: part, the interests of these partie
Page 109 and 110: Federal regulations designed to pro
Page 111 and 112: Agency (EPA) from considering prosp
Page 113 and 114: other things, that federally assist
Page 115 and 116: ing services. Money-market mutual f
Page 117 and 118: holdings of consumer and business l
Page 119 and 120: they once had and thus cannot conti
Page 121 and 122: finding ways around outdated regula
Page 123 and 124: proportion of the existing farms pr
Page 125 and 126: prices for years in the future, reg
Page 127 and 128: derground water resources once thou
Page 129 and 130: comprehensive, actuarial crop insur
Page 131: duced a decline in the median age o
Page 135 and 136: some of the firms in the chosen sec
Page 137 and 138: CHAPTER 3The Economy: Review and Pr
Page 139 and 140: uild up oil inventories and maintai
Page 141 and 142: Chart 7Selected Interest Ratesand B
Page 143 and 144: had risen just 2 months earlier. By
Page 145 and 146: Chart 8Personal Saving RatePERCENT1
Page 147 and 148: chief cyclical determinant of housi
Page 149 and 150: ment were sharply diminished by the
Page 151 and 152: dropped even faster, in large part
Page 153 and 154: ployment grew more vigorously after
Page 155 and 156: terials fell for a full third of th
Page 157 and 158: 1979, slowed to a 19 percent annual
Page 159 and 160: costs of production. The evidence s
Page 161 and 162: sharp decline in output in the seco
Page 163 and 164: ecord high interest rates during th
Page 165 and 166: automatic transfer services (ATS) n
Page 167 and 168: plunged in March, although the only
Page 169 and 170: (FHLB) System increased their borro
Page 171 and 172: THE PROSPECTS FOR 1981 AND 1982In 1
Page 173 and 174: expectations. Of course, if the eco
Page 175 and 176: The uncertainty of developments in
Page 177 and 178: produce a slight decline in the sav
Page 179 and 180: more rapid growth thereafter. Durin
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hike would depend on many factors,
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major revision of the NIPA occurred
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per year. This modest acceleration
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THE INDUSTRIAL ECONOMIES: TRENDS AN
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Chart 10Labor Costs, Value-Added De
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Rather, the German current account
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TABLE 30.—Inflation in major indu
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THE GLOBAL OIL MARKETTable 31 summa
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may be preserved. Stocks are in fac
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straint on growth. Finally, policie
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outside government, both at home an
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ates are high, differences in polic
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Japanese trade performance in volum
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No "Say's Law" operates in internat
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the cost of the loans, and they may
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At the same time, access to the IMF
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to closer cooperation is to risk a
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While all countries, in attempting
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threats of disruption, market-shari
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LETTER OF TRANSMITTALCOUNCIL OF ECO
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Past Council Members and their date
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1977 to review selected analyses of
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The Chairman and the Council Member
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University). Kate Stith Pressman, s
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CONTENTSNATIONAL INCOME OR EXPENDIT
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GOVERNMENT FINANCE'—ContinuedB-72
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross national product
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TABLE B-3.—Implicit price deflato
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TABLE B-5.—Implicit price deflato
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TABLE B-10.—Gross national produc
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TABLE B-12.—Output, costs, and pr
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TABLE B-14.—Gross private domesti
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TABLE B-16.—Inventories and final
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TABLE B-18.—Relation of national
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TABLE B-19-—National income by ty
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Year orquarter192919331939194019411
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TABLE B-22.—Total and per capita
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Year orquarterTotalTotalCurrencyand
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TABLE B-26.—Population by age gro
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TABLE B-27.—Noninstitutional popu
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Year or monthTABLE B-29.—Selected
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TABLE B-31.—Unemployment rate by
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TABLE B-33.—Unemployment by reaso
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TABLE B-35.—Wage and salary worke
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TABLE B-37.—Average weekly earnin
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TABLE B-39.—Changes in productivi
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TABLE B-42.—Industrial production
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TABLE B-44;—New construction acti
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TABLE B-45.—New housing units sta
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TABLE B-47.—Sales and inventories
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TABLE B-49.—Manufacturers' new an
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TABLE B-51.—Consumer price indexe
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19391940194119421943194419451946194
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TABLE B-54.—Changes in special co
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TABLE B-55.—Producer price indexe
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TABLE B-57.—Producer price indexe
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TABLE B-58.—Changes in producer p
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TABLE B-60.—Components of money s
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TABLE B-62.— Total funds raised i
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TABLE B-63.—Federal Reserve Bank
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TABLE B-65.—Bond yields and inter
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TABLE B-66—Consumer credit outsta
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TABLE B-68.—Mortgage debt outstan
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GOVERNMENT FINANCETABLE B-70.—Fed
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TABLE B-l\.—Federal budget receip
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TABLE B-73.—Government receipts a
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TABLE B-75.—State and local gover
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TABLE B-77,—Interest-bearing publ
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TABLE B-79-—Maturity distribution
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TABLE B-81.—Corporate profits by
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TABLE B-83.—Sales, profits, and s
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TABLE B-85.—Relation of profits a
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TABLE B-87.—Sources and uses of f
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TABLE B-89-—State and municipal a
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TABLE B-91.—Business formation an
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TABLE B-93.—Farm output ami produ
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Year or month1940194119421943194419
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TABLE B-97.—Balance sheet of the
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TABLE B-99— U.S. international tr
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TABLE B-100.—U.S. merchandise exp
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TABLE B-102.—U.S. merchandise exp
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TABLE B-104.— World trade: Export
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TABLE B-106.—International reserv
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• • ' •TABLE B-108.—Industr
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TABLE B-110.—Summary of major U.S
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