Economic Report President

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and been replaced by younger, more educated ones, the number of jobsavailable to high school dropouts shrank even faster from the late1970s to the early 1990s. An important explanation is technologicalchange in manufacturing, as a result of which the manufacturingsector requires fewer workers to produce more output than in thepast. Competition from lower wage, low-skilled labor in other countriesmay also have been a factor, although most studies find that technologicalchange is more important than increased international trade inexplaining the declining demand in the United States for workerswith no more than a high school diploma. Meanwhile, employment hasexpanded dramatically in the financial, professional, and businessservices industries, where most jobs require a college education orbeyond.Unions have historically helped less educated workers obtain higherwages than they could get otherwise. As employment in the highlyunionized goods-producing, transport, and utilities industries hasdeclined as a share of the work force since the 1950s, however, so hasunion membership. Like the American economy in general, the labormarket has become more competitive in recent decades, with compensationand job security more often determined by market forces thanbefore. This has benefited many American workers who were in aposition to take advantage of the new job opportunities, but it has beenhard on less skilled workers at the lower end of the wage distribution.The Administration’s efforts to keep the economy expanding and tomake work pay have been particularly important to these workers. Notonly is the overall labor market performing at record levels, but severalgroups of workers who had been experiencing low employmentrates, declining wages, and high rates of unemployment have begun toshow marked improvements. These groups include low-wage workers,workers with less than a college education, blacks and Hispanics,immigrants, and single mothers.LOW-WAGE WORKERSIt is well established that workers at the lower end of the wage distributionhave not fared well in recent decades: from the late 1970sthrough the early 1990s, the purchasing power of their wages declined.Between 1979 and 1993 the real hourly wages of male and femaleworkers (including part-timers) at the 10th percentile of the wage distributionfell by 14.8 percent and 15.8 percent, respectively (Chart 3-3).More recently, however, these lowest paid workers have seen significantgains. Real hourly wages for men 16 and older at the 10th and20th percentiles have increased by about 6 percent since 1993, withespecially large gains in the past 2 years. One might expect the earningsof low-wage women to have declined in recent years as supplyexpanded when a large number of them left welfare and entered thelabor force. But on the contrary, wage increases for women were104
Chart 3-3 Hourly Wages of Low-Wage Workers Aged 16 and OverDuring the 1980s, wages declined for men and women at the 10th and 20th percentilesof the wage distribution, but significant gains have occurred since 1993.1997 dollars98Men: 20th percentile7Women: 20th percentile6Men: 10th percentile5Women: 10th percentile401979 1982 1985 1988 1991 1994 1997Note: Sample includes part-time as well as full-time workers.Source: Council of <strong>Economic</strong> Advisers tabulations of Current Population Survey data.significant, with wages for those at the 20th percentile increasing by4.7 percent since 1993.These gains have not been confined to the lower end of the wage distribution.Real hourly earnings of the median male worker haveincreased by 3.6 percent since 1993, while those of the highest earningmen and women (measured at the 90th percentile; these data are notshown in the chart) have increased by 6.4 percent and 6.2 percent,respectively.LESS EDUCATED WORKERSEducation is a key determinant of labor market success, and much ofthe decrease in real wages for low-wage workers over the past twodecades may be due to changes in the economy that have placedincreasing value on skilled labor. The shift from goods-producingindustries to services and to a more technology-intensive workplacehas increased the premium on education, and particularly on workerswho have at least a bachelor’s degree. In this new economic environmentit is important to monitor the progress of those with less education,who risk missing out on gains in the economy as a whole. Duringthe current economic expansion, however, those with less educationappear to be sharing in the benefits of the tight labor market in a numberof ways.Since 1993 the strong labor market has sharply reduced unemploymentrates for workers at all levels of educational attainment.105
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EconomicReportof thePresidentTransm
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C O N T E N T SPageECONOMIC REPORT
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ECONOMIC REPORT OF THE PRESIDENTTo
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Once we have saved Social Security,
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THE ANNUAL REPORTOF THECOUNCIL OF E
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C O N T E N T SPageCHAPTER 1. MEETI
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PageCHAPTER 5. REGULATION AND INNOV
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Page2-3. Accounting for Growth in R
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Page6-5. Terms of Trade ...........
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CHAPTER 1Meeting Challenges and Bui
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Box 1-1.—The Dating of Business C
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Chart 1-1 Core Inflation and Unempl
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expansion prematurely. In fact, the
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the duration of the typical unemplo
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throughout that decade of peace and
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all individuals aged 65 and older r
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extent that it would reduce Social
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the vulnerability of the internatio
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access. Even so, international agre
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eliminated entirely, because the go
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Nevertheless, adjustment assistance
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CHAPTER 2Macroeconomic Policyand Pe
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Then the chapter explores two other
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target Federal funds rate brought t
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high of 66.8 percent in the third q
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the third-quarter deceleration and
Page 53 and 54: (that is, excluding food and energy
Page 55 and 56: probably would have increased by ab
Page 57 and 58: Equities clearly involve risk as we
Page 59 and 60: highest level in at least 40 years
Page 61 and 62: attributed to the lesser liquidity
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Page 65 and 66: about the potential impact of large
Page 67 and 68: With respect to leverage, the degre
Page 69 and 70: noted earlier, investment-grade bor
Page 71 and 72: Chart 2-8 Corporate Profits and Net
Page 73 and 74: is attributable to the strong econo
Page 75 and 76: productivity; the latter is in turn
Page 77 and 78: the year 2000, mistaking it instead
Page 79: Box 2-2.—continuedare not expecte
Page 82 and 83: construct an accurate forecasting m
Page 84 and 85: is estimated as the location where
Page 86 and 87: the recent surge in productivity re
Page 88 and 89: Box 2-3.—continuedhowever. Import
Page 90 and 91: Chart 2-12 Three Measures of Core I
Page 92 and 93: a level of capacity utilization tha
Page 94 and 95: Box 2-4.—continuedChanges to be i
Page 96 and 97: Nonfarm manufacturing and trade inv
Page 98 and 99: has been for the past 3 years. But
Page 100 and 101: who have traditionally not fared as
Page 102 and 103: Box 3-1.—continuedas well as full
Page 106 and 107: Particularly interesting, however,
Page 108 and 109: Chart 3-5 Median Hourly Wages of Me
Page 110 and 111: In fact, in 1990 immigrants and nat
Page 112 and 113: Box 3-2.—continuedsome firms may
Page 114 and 115: Box 3-3.—continuedmaximum of $3,7
Page 116 and 117: willing to hire welfare recipients
Page 118 and 119: participation. The renewed increase
Page 120 and 121: TANF grants in reserve at the Treas
Page 122 and 123: JOB DISPLACEMENTWorkers are conside
Page 124 and 125: evidence finds that the percentage
Page 126 and 127: their non-labor market activities.
Page 128 and 129: The Administration is especially co
Page 130 and 131: CHAPTER 4Work, Retirement, and theE
Page 132 and 133: Chart 4-1 Life Expectancy at Age 65
Page 134 and 135: Population aging is not just an Ame
Page 136 and 137: Box 4-1.—continuedfor couples and
Page 138 and 139: earlier retirement, by increasing l
Page 140 and 141: uyouts may also have contributed to
Page 142 and 143: Box 4-2.—Social Security RulesThe
Page 144 and 145: available with the same hourly pay,
Page 146 and 147: Box 4-4.—Types of Pension PlansUn
Page 148 and 149: worker—declined. More of these ol
Page 150 and 151: survey) was about 13 percent higher
Page 152 and 153: well-being is that families have di
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Chart 4-9 Living Arrangements of El
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mentioned earlier in this chapter a
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Box 4-7.—The Federal Role in Empl
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inequality among retirees who have
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whether minorities and women are li
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TABLE 4-4.—Poverty Rates Among th
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TABLE 4-6.—Family Holdings of Fin
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variety of reasons, including the f
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the number of patents granted in th
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The United States has a decades-lon
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matter, depending on various condit
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company Roche Holdings, Ltd. Some o
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The antitrust authorities’ linkin
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espective Writings and Discoveries.
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Box 5-3.—Cooperative Innovation a
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machine owned by another. The disti
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companies begin to offer DSL servic
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and compete for customers on the ba
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In another part of the Internet mar
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technology at hand. But incentive-b
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the flexibility to choose lower cos
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In contrast to both performance and
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The SO 2 experience reveals several
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Box 5-7.—The Partnership for a Ne
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Consumers’ investment in energy e
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clean-energy projects in developing
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Chart 5-2 Energy Efficiency and Pri
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equipment, and more than 90 percent
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Box 5-9.—Is There an Environmenta
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larger coal plants. In 1994 these t
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around the country, and seven other
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other social goals. The fund would
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greater opportunity, faster growth,
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Chart 6-1 Net Capital Flows to Deve
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Box 6-1.—The Explosive Growth of
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Recent Financial LiberalizationIn m
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and investment (although openness t
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Box 6-2.—Market-Based (Arm’s-Le
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conditionality in the face of unsou
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Box 6-4.—Sovereign Spreads in Eme
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social safety nets in the crisis co
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Box 6-5.—Moral Hazard in Financia
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Empirical studies confirm that, by
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withdrew $26 billion in 1997. Altho
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America, and these linkages partly
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8.5 percent of GDP in 1998. Indones
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sary revenues to meet these extra i
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which is considered a monetary asse
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ates at home, they sought higher re
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Chart 6-3 Real Value of the Dollar
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The increase in the trade deficit a
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Chart 6-6 Current Account BalanceTh
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Chart 6-7 Economic Growth and Trade
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investment. The U.S. gross investme
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Chart 6-10 Current Account Deficit
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with other countries to strengthen
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REFORM OF THE INTERNATIONAL FINANCI
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about their macroeconomic and finan
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decisions respond to market signals
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Other measures recommended by the w
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ADOPTION OF MEASURES TO REFORM THEI
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Another way to improve global surve
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Issues Posed by Hedge Funds and Oth
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the best investment opportunities,
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egulation of inflows to banks alone
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complement the role of official fin
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emerging markets will take time to
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Box 7-1.—continuedpartner; a stro
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Chart 7-1 European Short-Term Inter
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members agreed in a separate Growth
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Box 7-2.—continuedthrough an auto
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advantages of EMU to U.S. residents
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Box 7-3.—How Does the Dollar Rank
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connection between the currency in
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as an economic superpower early in
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Appendix AREPORT TO THE PRESIDENT O
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Council Members and Their Dates of
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The Chair and Members work as a tea
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countries. The Council heads the U.
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Chief of Staff and General CounselM
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affiliations. They are Christopher
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C O N T E N T SNATIONAL INCOME OR E
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B-71. Aggregate reserves of deposit
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General NotesDetail in these tables
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TABLE B-1.—Gross domestic product
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TABLE B-2.—Real gross domestic pr
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TABLE B-4.—Percent changes in rea
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TABLE B-5.—Contributions to perce
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TABLE B-6.—Chain-type quantity in
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TABLE B-7.—Chain-type price index
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TABLE B-9.—Real gross domestic pr
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Year orquarterGrossdomesticproductT
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YearBased on1972 SIC:TABLE B-13.—
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TABLE B-15.—Output, costs, and pr
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TABLE B-17.—Real personal consump
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TABLE B-19.—Real private gross fi
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TABLE B-21.—Real government consu
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TABLE B-23.—Real inventories and
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TABLE B-25.—Real exports and impo
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TABLE B-27.—Relation of national
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TABLE B-28.—National income by ty
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TABLE B-29.—Sources of personal i
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TABLE B-31.—Total and per capita
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TABLE B-32.—Gross saving and inve
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-35.—Civilian population a
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TABLE B-37.—Civilian employment b
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TABLE B-39.—Civilian labor force
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TABLE B-41.—Civilian employment/p
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TABLE B-43.—Civilian unemployment
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TABLE B-45.—Unemployment insuranc
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TABLE B-46.—Employees on nonagric
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TABLE B-48.—Employment cost index
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Year orquarterTABLE B-50.—Changes
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Year or monthTABLE B-52.—Industri
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TABLE B-54.—Capacity utilization
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Year or monthTABLE B-56.—New hous
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TABLE B-58.—Manufacturers’ ship
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PRICESTABLE B-60.—Consumer price
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TABLE B-61.—Consumer price indexe
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TABLE B-63.—Changes in special co
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TABLE B-65.—Producer price indexe
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YearandmonthMONEY STOCK, CREDIT, AN
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TABLE B-70.—Components of money s
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TABLE B-72.—Bank credit at all co
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TABLE B-73.—Bond yields and inter
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TABLE B-74.—Credit market borrowi
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TABLE B-76.—Mortgage debt outstan
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GOVERNMENT FINANCETABLE B-78.—Fed
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TABLE B-80.—Federal receipts and
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TABLE B-82.—Federal Government re
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TABLE B-84.—Federal and State and
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TABLE B-86.—State and local gover
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TABLE B-88.—Maturity distribution
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CORPORATE PROFITS AND FINANCETABLE
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TABLE B-92.—Corporate profits of
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TABLE B-94.—Relation of profits a
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Year or monthTABLE B-96.—Business
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End of yearTotalassetsTABLE B-98.
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YearFarm population,April 1Number(t
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YearTABLE B-102.—U.S. exports and
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TABLE B-103.—U.S. international t
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TABLE B-105.—U.S. international t
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TABLE B-107.—International invest
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TABLE B-109.—Civilian unemploymen
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TABLE B-111.—International reserv
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Economic Report President

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