Transcript Growth Rate of Real GDP per Head in Selected Countries

Outline
1. The importance of growth
2. What makes economies grow?
3. Growth of employment
4. Growth of the stock of physical and human capital
5. Technological change
6. The costs of growth
If real GDP grows
faster than the
population, then the
average standard of
living will increase
Ave. Standard
Of Living
Real GDP
Population
GDP per
Head
The Malthusian view1: Population grows geometrically and the
food supply grows arithmetically
Population
Food
supply
Time
1Thomas
Malthus. Essays on the Principle of Population, 1798
The Malthusian view
is not confirmed by the
U.S. record. Real GDP
per head has increased
by nearly three-fold
since 1952
Growth Rate of Real GDP per Head in Selected Countries
Country
1948-72 1972-88 1988-95 1995-99
United States
2.2%
1.70%
1.0%
2.6%
United Kingdom
2.4
2.1
0.9
2.1
Canada
2.9
2.6
0.6
1.9
France
4.3
2.1
1.2
2.1
Italy
4.9
2.8
1.6
1.4
W. Germany
5.7
2.2
1.3
0.9
Japan
8.2
3.3
2.1
1.5
Sources: Angus Maddison (1982) and the Bureau of the
Census (www.census.gov/ipc/www.idbsum.html )
GDP Per Head in Selected Industrialized Nations, 2000
in 2000 dollars
45000
40000
39400
38000 37900
35000
34800
30000
29800
27100
25000
26600
22900
20000
15000
17400
16500
10000
Denmark
Germany
Spain
Ireland
Norway
Singapore
Aust ralia
Source : The Economist
Country
Israel
Japan
U.S.
GDP Per Head in Selected Countries, 2000
in 2000 dollars
6000
5600
5000
5040
4860
4000
3000
3210
2000
2080
1740
1000
979
909
488
0
Turk ey
Russ ia
Poland
Source : The Economist
369
India
China
Mex ico
Phillipines
Country
Viet Nam
Columbia
Lebanon
How to raise GDP per Head?
If you want to improve the
standard of living, you either
have to work longer and
harder or you have to work
smarter.
Growth of
Employment
1.
2.
3.
Economic
Growth
1.
2.
3.
Growth of
Productivity
Lengthening of the
work week
Increased labor force
participation
Population growth
Growth of the stock
of physical capital
Growth of the stock
of human capital.
Technological change
Real
Hourly
Wage
Shift of Labor Supply (LS)
LS1
LS2
$15
12
LD
0
100 120
Millions of
Workers
Real
GDP
Increased employment
raises Real GDP
$8 Trillion
$7 Trillion
0
100
120
Millions of
Workers
Real
Hourly
Wage
An Increase in Labor Demand (LD)
LS
B
$17
15
A
LD2
LD1
0
100
120
Millions of
Workers
Real
Hourly
Wage
The U.S. Labor Market Over a Century
LS1
LS2
W2
W1
B
A
LD2
LD1
0
L1
L2
Millions of
Workers
How to increase total employment
•Use tax policy to create incentives to
work and disincentives to leisure.
•Reductions in tax rates increase the aftertax real wage
Hourly Real
Wage
Tax Rate
After-Tax
Real Wage
$30.00
33.3
$20
30.00
20
24
Personal Responsibility and Work
Opportunity Reconciliation Act of 1996
•Popularly known as the “Welfare Reform” bill
•Replaced AFDC with time-limited cash assistance
(Temporary Aid to Needy Families or TANF).
•Adults in families receiving TANF required to participate in
“work activities”1 after 24 months—subject to “good cause
exemptions.
•Sharp decrease in welfare case loads since 1996.
•Increase in labor force participation rates among former
AFDC recipients.
1Work
activities defined to include pursuit of the GED, vocational training, or provision
of day care services to an individual participating in a community service program