|Jobs, Jobs, Jobs—and Nothing to Show for Them?|
If Federal Reserve policymakers were to look solely at headline labor market indicators, they might be tempted to conclude that the U.S. economy had finally reached cruising altitude. The unemployment rate has fallen from a peak of 10 percent in 2009 to 5.5 percent, within the range considered to be full employment. Nonfarm payroll growth has averaged 275,000 a month over the last year, a pace last seen in the roaring '90s.
Yet nothing else has that '90s feel: not the pace of economic growth, not capital investment, not productivity growth, not even Nasdaq 5000. The juxtaposition of solid job growth and tepid economic growth describes what the current expansion lacks: dynamism and innovation. These are the forces that drive productivity growth, allowing companies to produce more with less and provide a higher real wage to workers.
Almost all of the increase in real GDP since the start of 2010 has come from growth in labor inputs, according to Douglas Holtz-Eakin, president of American Action Forum, a center-right think tank, and a former director of the Congressional Budget Office. Labor inputs include the number of jobs and the number of hours worked. The contribution of productivity has been miniscule.
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