Faster Growing US Economy

The key to a very good recent economic performance has been to increase productivity an increase in output per worker hour; this paper will discuss about some of the reasons for that increase productivity. But the most frequently asked questions, and one that the organizers of this session, says the program is the question of whether there is now a "new economy" in the United States? Surprisingly good performance represents a change in performance, but not a fundamental change in relations between the main macroeconomic variables. The performance of the U.S. economy is now just amazingly well. But it is suspected that it is actually better.

So that brings then to question whether there is a "new economy" in the United States. There are significant improvements in productivity, is an exciting new technology, and labor force behavior of young people today is different from what it was in the past. All this can continue for many years into the future and continue to give us a faster productivity growth. But there is a new economy in the sense that the old relationship is not so? One reads in the newspaper every day to throw the old road maps, the old leadership, old textbooks. Nevertheless, there isn't a new economy. It is worth remembering, even in the stock market that, while last year's Nasdaq rose about 100 percent in the United States, the broad Standard and Poors index only increased by about 10 percent. So it is clear of technology stocks, which paid an extremely high ratings in the market.

But what about reducing unemployment? Rapid GDP growth that we experienced has been brought about in part because the continuing fall in unemployment. The unemployment rate is currently 4.1 percent. Several years ago, most economists, including myself, would say that the unemployment rate below 5 percent, or 5.5 per cent would lead to a rigid labor market, which would insist on wage growth and that, in turn, would increase costs on production and those increased costs of production would have to show a price rise in inflation. Well, that is why we saw no prices.

First of all, the basic fact is that the fall in unemployment was associated with more rapid wage growth. Thus, we see wage inflation, we just do not see prices. In 1994 - 95 when we had 5.5 percent unemployment, wages rise only 2 percent. Two years later, the unemployment rate fell to 5 percent, while wages increased by 3.5 percent. And over the past two years, the unemployment rate fell to 4.3 percent, while wages increased by 5.1 percent. So an old truth about the relationship between the rigid labor markets and higher rates of wage inflation was true. Salaries have gone from 2 percent growth to 3.5 to more than 5 percent. But this didn't translate into higher product prices because it didn't translate into higher costs per unit of labor. Why not? Due to the increase in productivity. In 1994 - 95, ...