By Gus Faucher
The Trump administration has set some very ambitious economic goals. A White House webpage titled “Bring Back Jobs and Growth,” says that “President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4 percent annual economic growth.” But it is unlikely that the administration will hit these benchmarks.
That’s not because the administration’s proposed economic policies are bad for growth. Instead, it’s because under the current structure of the U.S. economy, no set of polices can realistically guarantee job growth of 2.5 million each year for a decade and consistent economic growth of 4 percent. Here are a few reasons why:
In terms of job growth, 25 million over ten years would be a record. There has never been a decade where the economy has added that many jobs. Going back to the start of the data in 1950, the best 10-year performance was from 1992–2001, when the economy added 23.7 million jobs. In fact, the economy has added 2.5 million jobs in a year only three times in this century.
The demographic evolution of the U.S. economy will make the task even tougher. The workforce is now growing much more slowly than it did in the past. Baby boomers are aging into retirement and smaller age cohorts are moving into the labor force behind them. In the 1960s–1980s, a huge influx of women joined the workforce as societal norms changed, but that process has run its course. As a result, it will become more and more difficult to find new workers.
According to projections from the Census Bureau and calculations by PNC, the population available to work will grow by only 23 million over the next decade. This means that President Trump’s plan would require two million additional people of working age to move into the labor force.
There is some room for growth in the near term, given that many people stopped looking for work after the Great Recession and could possibly move back into employment if the job market were stronger. But a lot of those who dropped out already have come back into the labor force. Others have retired and cannot be lured back into working, and the number of retirees will only increase over the next 10 years given the aging U.S. population.
What about economic growth of 4 percent? (This is defined as growth in inflation-adjusted gross domestic product, the broadest measure of the economy.) The United States has not achieved a single year of 4 percent growth since 2000, and has not achieved a decade of average annual growth of 4 percent since 1964–1973.
A big reason for this is slower growth in the labor force. Economic growth can only come from three places:
Due to big demographic shifts in the economy, growth in the number of potential workers has slowed dramatically since the 1970s and the 1980s. And given the aging baby boomers, this slowing will continue for the next decade.
Although there is room to increase the length of the average workweek, it has been falling steadily for more than 50 years. It will be difficult to reverse this trend given the aging population, because senior citizens, when they do choose to work, prefer part-time jobs. Even if we do see this increase, it would account for only a small part of economic growth.
That leaves productivity—output per worker—as the best source of stronger long-term economic growth. Productivity growth has slowed over the past 15 years. Some of the policies the Trump administration is considering could help to reverse that trend, including:
There is still a lot that economists do not understand about productivity growth, and it is possible that new technologies, such as driverless cars and trucks, could make U.S. workers much more productive in the future. But achieving more than a few quarters of 4 percent growth would require productivity gains much larger than anything we have seen in the United States since World War II.
Although some of the new administration’s policies, if implemented, are likely to promote growth, it’s highly unlikely the U.S. economy can consistently expand at a 4 percent pace.
Gus Faucher is deputy chief economist for PNC Financial Services Group
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