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Economic Report
of the President

Transmitted to the Congress
February 1995
TOGETHER WITH

THE ANNUAL REPORT
OF THE

COUNCIL OF ECONOMIC ADVISERS

UNITED STATES GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402




C O N T E N T S
Page

ECONOMIC REPORT OF THE PRESIDENT .........................

1

ANNUAL REPORT OF THE COUNCIL OF ECONOMIC
ADVISERS* .............................................................................

9

CHAPTER 1. IMPLEMENTING

A

NATIONAL ECONOMIC STRATEGY

CHAPTER 2. THE MACROECONOMY

BEYOND .........

49

NATION’S PRODUCTIVE CAPACITY

95

CHAPTER 4. PUBLIC AND PRIVATE SECTOR INITIATIVES TO
PROMOTE ECONOMIC EFFICIENCY AND GROWTH ....................

129

CHAPTER 5. IMPROVING SKILLS

...........................

171

CHAPTER 6. LIBERALIZING INTERNATIONAL TRADE ....................

203

APPENDIX A. REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE COUNCIL OF ECONOMIC ADVISERS DURING 1994 ......

255

APPENDIX B. STATISTICAL TABLES RELATING TO INCOME, EMPLOYMENT, AND PRODUCTION ..................................................

267

CHAPTER 3. EXPANDING

THE

IN

1994

19

AND

AND INCOMES

* For a detailed table of contents of the Council’s Report, see page 13.

(iii)




ECONOMIC REPORT
OF THE PRESIDENT




ECONOMIC REPORT OF THE PRESIDENT
To the Congress of the United States:
Two years ago I took office determined to improve the lives of average American families. I proposed, and the Congress enacted, a
new economic strategy to restore the American dream. Two years
later, that strategy has begun to pay off.
Together we have created an environment in which America’s
private sector has been able to produce more than 5 million new
jobs. Manufacturing employment grew during each month of
1994—the first time that has happened since 1978. We have cut
the deficit in the Federal budget for 3 years running, we have kept
inflation in check, and, based on actions I have already taken, the
Federal bureaucracy will soon be the smallest it has been in more
than 3 decades. We have opened up more new trade opportunities
in just 2 years than in any similar period in a generation. And we
have embarked on a new partnership with American industry to
prepare the American people to compete and win in the new global
economy.
In short, America’s economic prospects have improved considerably in the last 2 years. And the economy will continue to move forward in 1995, with rising output, falling deficits, and increasing
employment. Today there is no country in the world with an economy as strong as ours, as full of opportunity, as full of hope.
Still, living standards for many Americans have not improved as
the economy has expanded. For the last 15 years, those Americans
with the most education and the greatest flexibility to seek new opportunities have seen their incomes grow. But the rest of our work
force have seen their incomes either stagnate or fall. An America
that, in our finest moments, has always grown together, now grows
apart.
I am resolved to keep the American dream alive in this new
economy. We must make it possible for the American people to invest in the education of their children and in their own training
and skills. This is the essence of the New Covenant I have called
for—economic opportunity provided in return for people assuming
personal responsibility. This is the commitment my Administration
made to the American people 2 years ago, and it remains our commitment to them today.




3

The Administration’s Economic Strategy
Our economic strategy has been straightforward. First, we have
pursued deficit reduction to increase the share of the Nation’s economic resources available for private investment. At the same time
we have reoriented the government’s public investment portfolio
with an eye toward preparing our people and our economy for the
21st century. We have cut yesterday’s government to help solve tomorrow’s problems, shrinking departments, cutting unnecessary
regulations, and ending programs that have outlived their usefulness. We have also worked to expand trade and to boost American
sales to foreign markets, so that the American people can enjoy the
better jobs and higher wages that should result from their own
high-quality, high-productivity labor. Having fixed the fundamentals, we are now proposing what I call the Middle Class Bill of
Rights, an effort to build on the progress we have made in controlling the deficit while providing tax relief that is focused on the people who need it most.
Putting Our Own House in Order
The first task my Administration faced upon taking office in January 1993 was to put our own economic house in order. For more
than a decade, the Federal Government had spent much more than
it took in, borrowing the difference. As a consequence, by 1992 the
Federal deficit had increased to 4.9 percent of gross domestic product—and our country had gone from being the world’s largest creditor Nation to being its largest debtor.
As a result of my Administration’s deficit reduction package,
passed and signed into law in August 1993, the deficit in fiscal
1994 was $50 billion lower than it had been the previous year. In
fact, it was about $100 billion lower than had been forecast before
our budget plan was enacted. Between fiscal 1993 and fiscal 1998,
our budget plan will reduce the deficit by $616 billion. Our fiscal
1996 budget proposal includes an additional $81 billion in deficit
reduction through fiscal 2000.
Preparing the American People to Compete and Win
As we were taking the necessary steps to restore fiscal discipline
to the Federal Government, we were also working to reorient the
government’s investment portfolio to prepare our people and our
economy for 21st-century competition.
Training and Education. In our new information-age economy,
learning must become a way of life. Learning begins in childhood,
and the opportunity to learn must be available to every American
child—that is why we have worked hard to expand Head Start.
With the enactment of Goals 2000 we have established worldclass standards for our Nation’s schools. Through the School-to


4

Work Opportunities Act we have created new partnerships with
schools and businesses to make sure that young people make a successful transition to the world of work. We have also dramatically
reformed the college loan program. Americans who aspire to a college degree need no longer fear that taking out a student loan will
one day leave them overburdened by debt.
Finally, we are proposing to take the billions of dollars that the
government now spends on dozens of training programs and make
that money directly available to working Americans. We want to
leave it up to them to decide what new skills they need to learn—
and when—to get a new or better job.
New Technology. Technological innovation is the engine driving
the new global economy. This Administration is committed to fostering innovation in the private sector. We have reoriented the
Federal Government’s investment portfolio to support fundamental
science and industry-led technology partnerships, the rapid deployment and commercialization of civilian technologies, and funding
for technology infrastructure in transportation, communications,
and manufacturing.
A Middle Class Bill of Rights. Fifty years ago the GI Bill of
Rights helped transform an economy geared for war into one of the
most successful peacetime economies in history. Today, after a
peaceful resolution of the cold war, middle-class Americans have a
right to move into the 21st century with the same opportunity to
achieve the American dream.
People ought to be able to deduct the cost of education and training after high school from their taxable incomes. If a family makes
less than $120,000 a year, the tuition that family pays for college,
community college, graduate school, professional school, vocational
education, or worker training should be fully deductible, up to
$10,000 a year. If a family makes $75,000 a year or less, that family should receive a tax cut, up to $500, for every child under the
age of 13. If a family makes less than $100,000 a year, that family
should be able to put $2,000 a year, tax free, into an individual retirement account from which it can withdraw, tax free, money to
pay for education, health care, a first home, or the care of an elderly parent.
Expanding Opportunity at Home Through Free and Fair Trade
Our efforts to prepare the American people to compete and win
in the new global economy cannot succeed unless we succeed in expanding trade and boosting exports of American products and services to the rest of the world. That is why we have worked so hard
to create the global opportunities that will lead to more and better
jobs at home. We won the fight for the North American Free Trade
Agreement (NAFTA) and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).



5

Our commitment to free and fair trade goes beyond NAFTA and
the GATT. Last December’s Summit of the Americas set the stage
for open markets throughout the Western Hemisphere. The AsiaPacific Economic Cooperation (APEC) group is working to expand
investment and sales opportunities in the Far East. We firmly believe that economic expansion and a rising standard of living will
result in both regions, and the United States is well positioned
both economically and geographically to participate in those benefits.
This Administration has also worked to promote American products and services to overseas customers. When foreign government
contracts have been at stake, we have made sure that our exporters had an equal chance. Billions of dollars in new export sales
have been the result, from Latin America to Asia. And these sales
have created and safeguarded tens of thousands of American jobs.
Health Care and Welfare Reform: The Unfinished Agenda
In this era of rapid change, Americans must be able to embrace
new economic opportunities without sacrificing their personal economic security. My Administration remains committed to providing
health insurance coverage for every American and containing
health care costs for families, businesses, and governments. The
Congress can and should take the first steps toward achieving
these goals. I have asked the Congress to work with me to reform
the health insurance market, to make coverage affordable for and
available to children, to help workers who lose their jobs keep their
health insurance, to level the playing field for the self-employed by
giving them the same tax treatment as other businesses, and to
help families provide long-term care for a sick parent or a disabled
child. We simply must make health care coverage more secure and
more affordable for America’s working families and their children.
This should also be the year that we work together to end welfare as we know it. We have already helped to boost the earning
power of 15 million low-income families who work by expanding the
earned income tax credit. With a more robust economy, many more
American families should also be able to escape dependence on welfare. Indeed, we want to make sure that people can move from welfare to work by giving them the tools they need to return to the
economic mainstream. Reform must include steps to prevent the
conditions that lead to welfare dependency, such as teen pregnancy
and poor education, while also helping low-income parents find jobs
with wages high enough to lift their families out of poverty. At the
same time, we must ensure that welfare reform does not increase
the Federal deficit, and that the States retain the flexibility they
need to experiment with innovative programs that aim to increase
self-sufficiency. But we must also ensure that our reform does not



6

punish people for being poor and does not punish children for the
mistakes of their parents.
Reinventing Government
Taking power away from Federal bureaucracies and giving it
back to communities and individuals is something everyone should
be able to support. We need to get government closer to the people
it is meant to serve. But as we continue to reinvent the Federal
Government by cutting regulations and departments, and moving
programs to the States and communities where citizens in the private sector can do a better job, let us not overlook the benefits that
have come from national action in the national interest: safer foods
for our families, safer toys for our children, safer nursing homes for
our elderly parents, safer cars and highways, and safer workplaces,
cleaner air and cleaner water. We can provide more flexibility to
the States while continuing to protect the national interest and to
give relief where it is needed.
The New Covenant approach to governing unites us behind a
common vision of what is best for our country. It seeks to shift resources and decisionmaking from bureaucrats to citizens, injecting
choice and competition and individual responsibility into national
policy. In the second round of reinventing government, we propose
to cut $130 billion in spending by streamlining departments, extending our freeze on domestic spending, cutting 60 public housing
programs down to 3, and getting rid of over 100 programs we do
not need. Our job here is to expand opportunity, not bureaucracy—
to empower people to make the most of their own lives. Government should be leaner, not meaner.
The Economic Outlook
As 1995 begins, our economy is in many ways as strong as it has
ever been. Growth in 1994 was robust, powered by strong investment spending, and the unemployment rate fell by more than a full
percentage point. Exports soared, consumer confidence rebounded,
and Federal discretionary spending as a percentage of gross domestic product hit a 30-year low. Consumer spending should remain
healthy and investment spending will remain strong through 1995.
The Administration forecasts that the economy will continue to
grow in 1995 and that we will remain on track to create 8 million
jobs over 4 years.
We know, nevertheless, that there is a lot more to be done. More
than half the adult work force in America is working harder today
for lower wages than they were making 10 years ago. Millions of
Americans worry about their health insurance and whether their
retirement is still secure. While maintaining our momentum toward deficit reduction, increased exports, essential public investments, and a government that works better and costs less, we are



7

committed to providing tax relief for the middle-class Americans
who need it the most, for the investments they most need to make.
We live in an increasingly global economy in which people, products, ideas, and money travel across national borders at lightning
speed. During the last 2 years, we have worked hard to help our
workers take advantage of this new economy. We have worked to
put our own economic house in order, to expand opportunities for
education and training, and to expand the frontiers of free and fair
trade. Our goal is to create an economy in which all Americans
have a chance to develop their talents, have access to better jobs
and higher incomes, and have the capacity to build the kind of life
for themselves and their children that is the heart of the American
dream.

œ–
THE WHITE HOUSE
FEBRUARY 13, 1995




8

THE ANNUAL REPORT
OF THE
COUNCIL OF ECONOMIC ADVISERS




9

LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS,
Washington, D.C., February 3, 1995.
MR. PRESIDENT:
The Council of Economic Advisers herewith submits its 1994 Annual Report in accordance with the provisions of the Employment
Act of 1946 as amended by the Full Employment and Balanced
Growth Act of 1978.
Sincerely,




11

C O N T E N T S
Page

CHAPTER 1. IMPLEMENTING A NATIONAL ECONOMIC STRATEGY
The Administration’s Economic Strategy: A Midterm Report ....................................................................................
Toward Full Employment with Fiscal Responsibility .......
Enhancing the Economy’s Long-Run Growth Potential ..............................................................................
Deficit Reduction and Investment ...............................
Investing in Skills and Education ...............................
Investing in Science and Technology ..........................
Reinventing Government .............................................
Opening Foreign Markets ............................................
The Administration’s Economic Strategy: The Unfinished
Agenda ...............................................................................
Middle-Class Tax Relief ...............................................
Welfare Reform .............................................................
Health Care Reform .....................................................
Conclusion ............................................................................
CHAPTER 2. THE MACROECONOMY IN 1994 AND BEYOND .........
Closing in on Potential Output ...........................................
Overview of the Economy in 1994 ......................................
Business Fixed Investment ..........................................
Consumer Spending ......................................................
Inventories .....................................................................
Residential Investment ................................................
Employment and Productivity .....................................
Incomes and Profits ......................................................
Inflation .........................................................................
Regional Developments ................................................
International Developments ........................................
Fiscal Policy in 1994 and Beyond .......................................
The Budget Outlook over the Longer Run ..................
The Changing Composition of Federal Spending .......
Principles for Evaluating Alternative Tax Proposals
Monetary Policy in 1994 ......................................................
Rising Interest Rates ...........................................................
Explaining the Rise in Long-Term Rates ...................
Evidence from the United States ................................
Evidence from Foreign Countries ................................



13

19
20
22
25
26
29
33
34
36
37
37
40
42
46
49
51
52
52
54
55
55
57
59
59
60
64
67
68
71
72
78
80
83
85
87

Page

Fiscal Deficits, Demographics, and Emerging Markets .............................................................................
The Administration Forecast ..............................................
Conclusion ............................................................................
CHAPTER 3. EXPANDING THE NATION’S PRODUCTIVE CAPACITY
Factors Generating Growth of Potential GDP ...................
Factors Generating Growth of Productivity ......................
The Quality of the Work Force ....................................
The Size of the Private Capital Stock .........................
Infrastructure ................................................................
Research and Development ..........................................
The Residual .................................................................
Has the Trend in Productivity Growth Improved Recently? ...............................................................................
Issues Related to the Measurement of Productivity .........
Factors Generating Growth of Hours Worked ...................
What Can the Government Do to Improve the Economy’s
Long-Run Growth Potential? ...........................................
Boosting Productivity by Increasing Domestic Saving ...............................................................................
Boosting Productivity by Helping Markets Work
Better .........................................................................
Conclusion: Prospects for Growth .......................................
CHAPTER 4. PUBLIC AND PRIVATE SECTOR INITIATIVES TO
PROMOTE ECONOMIC EFFICIENCY AND GROWTH ....................
Improving How the Government Functions ......................
Procurement Reform .....................................................
Reforming the Federal Aviation Administration .......
Promoting Efficiency in the Market Economy ...................
Antitrust Enforcement .................................................
Interstate Banking .......................................................
Intrastate Trucking ......................................................
Farm Policy Reform ......................................................
Policies for More Efficient Transportation .................
Global Climate Change ................................................
Encouraging Economic Growth ...........................................
Telecommunications .....................................................
Science and Technology ................................................
Conclusion ............................................................................
CHAPTER 5. IMPROVING SKILLS AND INCOMES ...........................
What Has Happened to Wages and Incomes .....................
Slow Growth in Productivity and Average Wages .....
Slowdown for Most, Stagnation for Many ..................
Family Incomes .............................................................
Rising Poverty ...............................................................
The Declining Fortunes of Black Americans ..............
Changes in the Economy ..............................................



14

89
90
92
95
98
101
101
105
105
105
107
108
110
113
116
117
120
125
129
130
131
134
135
136
140
140
141
151
153
157
159
162
169
171
172
172
174
176
178
179
181

Page

Improving Education and Training ....................................
The Quality of American Education ............................
The Implications of Rising Returns to Education ......
Policies to Promote a Lifetime of Learning ................
Facilitating Lifelong Learning and Career-Long Job
Mobility ......................................................................
Policies to Improve Workplaces ..........................................
Markets and the High-Performance Workplace .........
Reinventing Government as a High-Performance
Workplace ..................................................................
Conclusion ............................................................................
CHAPTER 6. LIBERALIZING INTERNATIONAL TRADE ....................
Multilateral Initiatives: The Uruguay Round and the
World Trade Organization ...............................................
Tariff and Nontariff Measures .....................................
New Sectors ...................................................................
Widening Participation ................................................
Dispute Settlement .......................................................
The World Trade Organization and U.S. Sovereignty
Future Multilateral Negotiations ................................
Plurilateral Initiatives .........................................................
Dynamic Emerging Markets ........................................
Regional Blocs as Building Blocks ..............................
The North American Free Trade Agreement .............
Summit of the Americas ...............................................
Asia–Pacific Economic Cooperation .............................
Bilateral Negotiations ..........................................................
Japan .............................................................................
China .............................................................................
The National Export Strategy .....................................
New Issues in Trade Negotiations ......................................
Trade and the Environment ........................................
Competition Policy and Trade .....................................
Investment ....................................................................
Trade and Labor Standards .........................................
Domestic Policy and Trade Policy ......................................
Conclusion ............................................................................

183
183
184
184
192
196
197
201
202
203
205
205
207
210
211
212
214
214
215
217
220
226
229
231
231
235
240
241
241
245
248
249
251
253

APPENDIXES
A. A Report to the President on the Activities of the
Council of Economic Advisers During 1994 ..............
B. Statistical Tables Relating to Income, Employment,
and Production ............................................................
LIST

OF

267

TABLES

2–1. GDP Scorecard for 1994 ................................................



255

15

53

Page

LIST

OF

TABLES—CONTINUED

2–2.
2–3.
2–4.
2–5.
4–1.

Growth in Nonagricultural Payroll Employment ........
Measures of Inflation .....................................................
U.S. Net International Investment Position ................
Administration Forecast ................................................
Announced Mergers and Acquisitions Transactions in
1992 and 1993 ............................................................
6–1. GATT Negotiating Rounds ............................................
6–2. U.S. Trade Deficits with China, Hong Kong, and Taiwan ..............................................................................
LIST

OF

138
205
236

CHARTS

1–1. Share of Aggregate Family Income by Quintile ..........
1–2. Federal Budget Deficits With and Without Deficit
Reduction ....................................................................
1–3. Publicly Held Federal Debt With and Without Deficit
Reduction ....................................................................
1–4. Real Income, Productivity, and Compensation ............
1–5. Investment and Productivity ........................................
1–6. Average Annual Earnings by Educational Attainment ............................................................................
2–1. Job Creation and Inflation ............................................
2–2. Growth in Real Nonresidential Investment ................
2–3. Consumer Debt and Debt-Service Payments ...............
2–4. Fixed-Rate Mortgage Interest Rates and the Share of
ARMs ...........................................................................
2–5. Consumer Prices Less Food and Energy ......................
2–6. Unemployment Rates by State, December 1994 .........
2–7. Merchandise Exports and Imports ...............................
2–8. Measures of the Dollar’s Value .....................................
2–9. Structural Budget Deficits ............................................
2–10. Health Care Inflation and the Federal Deficit ............
2–11. Composition of Federal Spending .................................
2–12. Federal Outlays by Function, Fiscal 1995 ...................
2–13. Nominal and Real Federal Funds Rates ......................
2–14. Term Structure of Interest Rates on Government
Debt .............................................................................
2–15. Actual and Predicted Long-Term Interest Rates ........
2–16. U.S. and Foreign Long-Term Interest Rates ...............
2–17. Inflation and Long-Term Interest Rates ......................
3–1. Real Gross Domestic Product ........................................
3–2. Factors Generating Growth of Gross Domestic Product ................................................................................
3–3. Output per Hour in the Private Nonfarm Business
Sector ...........................................................................
3–4. Output per Hour in the Manufacturing Sector ...........



57
61
65
91

16

21
24
24
26
28
32
50
52
55
56
61
63
64
66
69
70
71
73
79
81
82
82
90
96
99
99
100

Page

LIST

OF

CHARTS—CONTINUED

3–5. Factors Generating Growth of Output per Hour ........
3–6. Expenditures for Research and Development Relative
to GDP .........................................................................
3–7. Output per Hour in the Private Nonfarm Business
Sector ...........................................................................
3–8. Factors Generating Growth of Hours Worked .............
3–9. Average Weekly Hours in the Nonfarm Business Sector ................................................................................
3–10. Civilian Labor Force Participation Rates for Men and
Women ........................................................................
3–11. Components of Gross Saving ........................................
3–12. Gross Saving, Depreciation, and Net Saving ...............
5–1. Growth in Real Compensation per Person Employed
5–2. Growth in Various Measures of Real Pay ....................
5–3. Real Hourly Wages for Men by Level of Education ....
5–4. Real Hourly Wages for Women by Level of Education
5–5. Real Hourly Wages for Men by Wage Percentile ........
5–6. Real Hourly Wages for Women by Wage Percentile ...
5–7. Average Family Income by Quintile .............................
6–1. Income Growth in Industrialized and Developing
Countries .....................................................................
6–2. U.S. Merchandise Exports by Region in 1993 .............
LIST

OF

106
109
115
115
116
118
119
172
174
175
175
177
177
178
216
228

BOXES

1–1. The Economic Rationales for Deficit Reduction ..........
1–2. The Shortcomings of a Balanced Budget Amendment
1–3. The Relationship Between Poverty, Education, and
Earnings ......................................................................
1–4. The Proposed Tax Deduction for Postsecondary Education and Training ....................................................
1–5. HUD Reforms and Welfare Reform ..............................
1–6. Empowerment Zones and Enterprise Communities ...
1–7. The Cost of Doing Nothing About Health Care ..........
2–1. The Redesign of the Current Population Survey ........
2–2. Problems in Measuring Cost-of-Living Increases ........
2–3. Scoring the Revenue Consequences of Tax and Expenditure Changes .....................................................
2–4. Calculating the Cumulative Output Gap .....................
2–5. Indexed Bonds ................................................................
3–1. Chain-Weighted Measures of Output and Productivity Growth ...................................................................
3–2. Technological Catch-up and International Differences
in Productivity Growth ..............................................
3–3. Productivity and the Growth of Jobs ...........................



102

17

27
30
31
39
41
43
44
59
62
75
85
88
97
102
104

Page

LIST

OF

BOXES—CONTINUED

3–4. Business Expenditures for Computer Software in the
National Income and Product Accounts ...................
3–5. Research and Development Pays Off ...........................
3–6. The Research and Experimentation Tax Credit ..........
3–7. A New Analysis of the Costs of Protectionism ............
4–1. Airline Price Fixing .......................................................
4–2. Adverse Selection and Moral Hazard in Crop Insurance .............................................................................
4–3. The Takings Debate .......................................................
4–4. Social Science Research and Environmental Policy ....
4–5. Clearing the Air on Emissions Allowances ..................
4–6. ‘‘Sustainability’’ and Economic Analysis ......................
4–7. The National Flat Panel Display Initiative .................
5–1. Measuring Trends in Pay and Inequality ....................
5–2. What Works: Preparing Students to Learn .................
5–3. What Works: The QUOP Experiment ..........................
5–4. What Works: Profiling and Job Search Assistance .....
5–5. Reforming Workplace Regulation .................................
5–6. What Works: The Baldrige Award ...............................
5–7. What Works: Empowering Civil Servants to Better
Serve Citizens .............................................................
6–1. Uruguay Round Highlights ...........................................
6–2. National Treatment, MFN, and Market Access
Under the GATT and the GATS ...............................
6–3. NAFTA Highlights .........................................................
6–4. The Gains from International Trade ............................




18

112
122
123
124
137
146
149
153
154
158
167
173
186
190
195
199
200
201
206
209
221
252

CHAPTER 1

Implementing a National Economic
Strategy
BY MOST STANDARD MACROECONOMIC INDICATORS, the
performance of the U.S. economy in 1994 was, in a word, outstanding. The economy has not enjoyed such a healthy expansion of
strong growth and modest inflation in more than a generation.
Growth in 1994 was robust, fueled by strong investment spending. Nonfarm payroll employment grew by 3.5 million jobs, the
largest annual increase in a decade, and the unemployment rate
fell by more than a full percentage point, to 5.4 percent. Buoyed by
improving job prospects and growing incomes, consumer sentiment
hit a 5-year high, and retail sales expanded at their fastest pace
in a decade. Yet despite growing demand both at home and abroad,
inflation remained modest and stable. The core rate of consumer
price inflation (which removes the effects of volatile food and energy prices) registered its smallest increase in 28 years. And the
Federal deficit declined by more than $50 billion, as the ratio of
Federal discretionary spending to gross domestic product (GDP) fell
to its lowest level in 30 years.
The economy’s performance in 1994 is even more remarkable
when viewed against the backdrop of the economic challenges confronting the Nation around the time this Administration took office. Then the economy seemed mired in a slow and erratic recovery
from the 1990–91 recession, business and consumer confidence was
low, and the unemployment rate was over 7 percent. Between 1989
and 1992 the Federal deficit had jumped by $137.9 billion, to 4.9
percent of GDP, and even larger deficits were looming on the horizon. To make matters worse, the problems of anemic recovery and
mounting deficits were superimposed on some disturbing long-term
trends: a 20-year slowdown in productivity growth, a 20-year stagnation in real median family incomes, and a 20-year decline in real
compensation levels for many American workers. For an increasing
number of these workers and their families, the dream of rising incomes and prosperity appeared to be fading away under the pressures of rapid technological shifts and a changing global economy.
This Administration moved quickly and decisively to improve the
economic situation, and the turnaround in macroeconomic performance has been dramatic. The deficit has declined sharply, the econ


19

omy has grown at a more rapid and even pace, and more and more
Americans are participating in the Nation’s economic expansion. At
the same time, the Administration has acted to help reverse the
long-term trends that continue to depress the incomes of many
Americans. That, however, will take time: problems that were 20
years in the making cannot be solved in the course of 2 years. But
the Administration’s economic policies have begun to move the Nation in the direction necessary to again place the American dream
within the grasp of all Americans.
This chapter describes the Administration’s strategy for reviving
economic growth and job creation, preparing American workers for
the challenges and opportunities of changing technology and a global economy, opening foreign markets, and restructuring the Federal
Government for greater efficiency and effectiveness. The chapter
also provides an overview of three major policy initiatives—middleclass tax relief, welfare reform, and health care reform—that the
Administration plans for the coming year. The remaining chapters
of this Report examine both the accomplishments of the past year
and the outlook for the future in greater detail.

THE ADMINISTRATION’S ECONOMIC STRATEGY: A
MIDTERM REPORT
This Administration entered office at a time of sluggish economic
recovery, mounting fiscal deficits, disappointing income growth,
and growing income inequality and poverty. The first challenge was
to get the Nation’s fiscal house in order after more than a decade
of fiscal profligacy. One of the most fundamental lessons of economic history is that sustained economic expansion depends on
sound fiscal foundations. Therefore the linchpin of the Administration’s economic strategy was and remains a deficit reduction plan
that is balanced and gradual, yet large enough to be credible and
to have a significant and sustained effect on the course of the deficit over time.
A second defining component of the strategy is a set of policies
to help American workers and businesses realize the opportunities
that flow from rapid changes in technology and an increasingly
global economy. The common theme of these policies is investment,
public and private: on the public side, a shift in government spending away from current consumption and toward investment in children, education and training, science and technology, and infrastructure; on the private side, tax incentives to encourage investment by businesses and individuals in physical, scientific, and
human resources. A logical implication of these policies is that government must not only spend less—it must also spend better, by
focusing more of its resources on the Nation’s future.



20

A third component of the Administration’s economic strategy is
tax relief for working families who have seen their incomes stagnate or decline over the past 15 to 20 years. The dimensions of the
family income problem are compelling. The real median family income in 1993, the last year for which complete data are available,
was virtually unchanged from what it had been in 1973, despite
the fact that during the intervening 20 years real output had increased by 57 percent.
The stagnation of real median family income has been accompanied by an equally disturbing trend of increasing income inequality. In contrast to the years from 1950 to 1973, when average real
family incomes increased across the entire income distribution, between 1973 and 1993 the share of total family income declined for
the lower 80 percent of the income distribution (Chart 1–1). Meanwhile, at the bottom of the income distribution, the number of
Americans living in poverty hit a 30-year high in 1993 of 39.3 million, 40 percent of them children.
Chart 1-1 Share of Aggregate Family Income by Quintile
Between 1973 and 1993, the share of money income received by the 20 percent of families
with the highest incomes rose substantially. The shares for all other quintiles fell.
Percent
50

40

30

20

10

0
Lowest Quintile Second Quintile

Third Quintile
1973

Fourth Quintile Highest Quintile Top 5 Percent
1993

Source: Department of Commerce.

Although not all of the forces behind the rise in income inequality are understood, most economists agree that changes in technology that have reduced the demand for workers with relatively
low levels of skill and education have played a major role. This insight lies behind the Administration’s efforts to help Americans at


21

tain the skills and training they need for today’s high-paying jobs
through changes in both government spending priorities and tax
policies.
The Administration’s first response to the dwindling income prospects of many working Americans took the form of a substantial expansion of the earned income tax credit (EITC). The EITC expansion, included in the Omnibus Budget Reconciliation Act of 1993
(OBRA93), increased the after-tax incomes of over 15 million American workers and their families. The EITC is a refundable tax credit that provides a bonus to eligible low-income workers—a bonus
that can amount to over $3,000 a year for a family with two children. Through the EITC these workers may realize after-tax incomes well in excess of their wages.
At the end of 1994 the President proposed a package of additional tax cuts that will extend tax relief to middle-class American
families, to help them meet the costs of raising their children, acquire more education and training, and save for a variety of purposes. These proposed tax cuts reflect the much-improved outlook
for the fiscal deficit, which allows the President to deliver on his
campaign promise of tax relief for the middle class.
The Federal Government, too, must respond to the demands of
economic change. That is why a fourth component of the Administration’s economic strategy is to reinvent the Federal Government
itself, so that it works better, costs less, and sheds functions that
are no longer needed in today’s economy or are better performed
by either State and local governments or the private sector. The
savings that can be realized by eliminating some existing programs
and rationalizing and improving others are essential to achieving
the goals of deficit reduction, tax relief to working families, and a
shift in the balance of Federal spending toward more investment.
Finally, the Administration has linked its ambitious domestic
economic strategy to an equally ambitious foreign economic strategy based on promoting global trade liberalization. During the last
decade trade has become an increasingly important source of highwage jobs for American workers. Recognizing this reality, the Administration has wedded policies to make Americans more productive with policies to improve their access to expanding international markets on more equitable terms.

TOWARD FULL EMPLOYMENT WITH FISCAL
RESPONSIBILITY
In early 1993, the Administration faced the challenge of ensuring
that the economic recovery from the 1990–91 recession would gain
strength and return the economy to full utilization of its resources.
At the same time it was vital that this be accomplished in a sound



22

and balanced way, to avoid an acceleration of inflationary pressures. As the preceding discussion indicates and as Chapter 2 delineates in greater detail, this challenge was met in 1994.
In part as a result of the Administration’s 1993 budget package,
the Nation’s fiscal environment today is sounder than it was during
the preceding 14 years. Federal Government purchases of goods
and services declined in real terms, and the Federal deficit in fiscal
1994 was more than $50 billion lower than in fiscal 1993 and about
$100 billion lower than what had been forecast before the enactment of OBRA93. Excluding interest payments on the debt incurred by previous Administrations, the Federal budget in fiscal
1994 was essentially balanced, and the Federal debt outstanding,
which had nearly quadrupled between 1981 and 1992, had begun
to stabilize relative to the size of the economy. Moreover, as Charts
1–2 and 1–3 indicate, the Administration’s deficit reduction measures—along with welcome slowdowns in projected medicare and
medicaid spending—have significantly improved the long-run deficit and debt outlook.
Chart 1–2 shows the Federal deficit as a percentage of GDP for
fiscal 1993–98 as projected in April 1993, prior to the passage of
OBRA93. The deficit was then expected to be around 5.0 percent
of GDP in 1993, falling to a low of 4.1 percent in 1996 before rising
again to 4.9 percent of GDP by 1998. The chart contrasts these
gloomy predictions with the actual deficits for 1993 and 1994 and
the projected deficits for 1995–2000 based on OBRA93, the Administration’s fiscal 1996 budget proposal, and its current economic
forecast. The actual deficit in 1993 was only 4.1 percent of GDP,
thanks to the stronger than expected economic recovery and lower
than expected interest rates. In 1994 the deficit fell to $203.2 billion, or 3.1 percent of GDP, and in 1998 it is slated to fall to 2.4
percent of GDP, the lowest level since 1979. Over the entire 1994–
2000 period the deficit is forecast to average about 2.5 percent of
GDP, well below the levels that would have been reached in the absence of OBRA93 and nearly 2 percentage points less than the
1982–93 average of 4.4 percent. Chart 1–3 shows that the debtGDP ratio is also expected to be stable through the end of the decade.
The effects of the Administration’s budget plan on economic performance were in line with its predictions—and completely at odds
with the gloomy prognostications of its critics. A dramatic decline
in long-term interest rates in 1993, occasioned in part by market
expectations of a significant long-term reduction in government
borrowing needs, fostered strong growth in interest-sensitive investment and consumption spending. As business expectations improved, new job creation picked up pace, and the growth in incomes
in turn reinforced consumer spending, creating the kind of virtuous



23

Chart 1-2 Federal Budget Deficits With and Without Deficit Reduction
Budget deficits would have remained quite large relative to the size of the economy without
deficit reduction initiatives. Instead, deficits have fallen sharply.
Percent of GDP
7

6

5

4

Without OBRA93
3

2

With OBRA93 and
1996 budget package

1

0
1980

1982

1984

1986

1988

1990
1992
Fiscal Years

1994

1996

1998

2000

Source: Office of Management and Budget.

Chart 1-3 Publicly Held Federal Debt With and Without Deficit Reduction
Federal indebtedness as a percent of GDP is expected to remain approximately constant
through 2000 under OBRA93 and the Administration’s 1996 budget proposal.
Percent of GDP
70

Without OBRA93

60

50

With OBRA93 and
1996 budget package

40

30

20

10

0
1980

1982

1984

1986

1988

1990
1992
Fiscal Years

Source: Office of Management and Budget.




24

1994

1996

1998

2000

cycle of employment, income, and spending growth that is the hallmark of periods of robust expansion. The acceleration of growth
around the world, coupled with the Administration’s strong leadership in expanding world trade, added to the momentum by encouraging American companies to invest in greater capacity to serve
growing global markets.
As the economy expanded, the Federal Reserve raised interest
rates several times, tightening the stance of monetary policy in an
effort to prevent inflation from accelerating. The increase in shortterm interest rates resulting from Federal Reserve actions was substantial. Long-term rates also increased significantly during the
year, and the flattening of the yield curve (which plots rates of interest for debt of all maturities prevailing at a given time) that
most economic forecasters had predicted failed to materialize. Although the causes of the rise in long-term rates continue to be debated, the analysis in Chapter 2 suggests that it was largely the
result of a strong economy and reflected an increase in the demand
for capital, as businesses and households increased their borrowing
to invest in durable goods and structures both at home and around
the world. Despite this increase, however, long-term interest rates
remained lower than they would have been if the government’s voracious borrowing needs had not been curbed by the enactment of
the Administration’s deficit reduction program.

ENHANCING THE ECONOMY’S LONG-RUN
GROWTH POTENTIAL
Chapter 3 analyzes the sources of long-term growth in the economy and confirms a simple but powerful proposition: the rate of
growth of productivity is the most important determinant of how
fast the economy can grow and how much living standards can rise
over time. What happens when productivity growth slows? Chart
1–4 shows that growth in both real compensation per hour and real
median family income slowed markedly in the early 1970s. This is
precisely the period when productivity growth also slowed, from an
annual average rate of 3.1 percent between 1947 and 1973 to an
average of just 1.1 percent in the two decades since. This slowdown
shows up not only in the economic statistics, but also in the lives
of many Americans who know that they are working harder for
less. (Productivity growth is measured here using fixed-weight
data. An alternative measure using chain-weighted data is presented in Chapter 3. See Box 3–1 for a more detailed discussion.
Although the two measures differ somewhat, both show a similar
post-1972 slowdown in productivity growth.)
Although economists do not completely understand all the determinants of productivity growth, it is known that increases in physical, human, and technological capital play a key role. This insight



25

Chart 1-4 Real Income, Productivity, and Compensation
Productivity, real income, and real hourly compensation all slowed markedly
around 1973.
Thousands of 1993 dollars

Index, 1959=100
200

40
175

Real median
family income
(left scale)

30

150

Business sector
output per hour
(right scale)

20

125

Business sector
real compensation
per hour
(right scale)

10

100

75

0

50
1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

Note: Compensation is deflated by the implicit price deflator.

Sources: Department of Commerce and Department of Labor.

has shaped the Administration’s economic strategy from the beginning. The link between real productivity growth and the rate of investment in the Nation’s capital stock is straightforward: investment in physical capital and new technology equips workers with
more and better capital; workers so equipped are more productive.
Investment in skills and training also adds to productivity by allowing workers to utilize physical capital more effectively. And
more-productive workers tend to earn higher real wages. Few propositions in economics are as well documented as these or command
as much support among professional economists, whatever their political persuasion.

DEFICIT REDUCTION AND INVESTMENT
A primary economic reason for reducing the Federal deficit is to
increase national saving, in the expectation that increased saving
will in turn increase national investment in physical capital (Box
1–1). As Chart 1–5 shows, investment rates and productivity
growth rates correlate highly across countries. National saving
rates and national investment rates also correlate highly across
countries, despite the increasing globalization of world financial
markets. The implication is that increased national saving should
be associated with increased productivity.




26

Box 1–1.—The Economic Rationales for Deficit Reduction

Perhaps the most important reason for reducing the Federal
budget deficit is to increase national saving. A higher rate of
saving cuts the cost and increases the availability of capital for
private borrowers and reduces the need for the United States
to borrow from the rest of the world. The personal saving rate
in the United States has been too low to cover both private investment needs and the combined borrowing needs of all levels
of government. As a result, the Nation has borrowed massively
from the rest of the world, running a persistent surplus in its
international capital account. Since the capital and current accounts must balance under floating exchange rates, the mirror
image of this capital account surplus has been an equally large
current account deficit.
Demographics are likely to exacerbate the problem of insufficient national saving in the first half of the next century. As
the U.S. population ages, the payment of federally sponsored
retirement and health benefits will place increasing burdens on
the budget. Absent an increase in private saving, larger government deficits will mean diminished resources for private investment and a further increase in borrowing from the rest of
the world. However, since many countries will be facing similar
demographic pressures, the United States is likely to find itself
competing with them for worldwide saving to cover its borrowing needs.
A second reason for reducing the deficit is to reduce the debt
burden that the present generation will bequeath to future
generations. Gross Federal debt per capita—a debt that every
American is saddled with at birth—is approaching $20,000.
This legacy of debt is a real concern, yet it is important not to
overstate the problem or to use it as an excuse to skimp on
public investment. We also bequeath to future generations a
stock of physical capital—highways, airports, and the like—as
well as a stock of human capital and technological knowledge.
Because these add importantly to future generations’ productivity and well-being, these assets will somewhat reduce their
debt burden.
A third reason is that a large deficit hamstrings discretionary fiscal policy as a tool of macroeconomic stabilization. In
the presence of a looming deficit, it is difficult for the Federal
Government to respond to cyclical slowdowns by cutting taxes
or increasing spending. A gradual policy of reducing deficits
can build a cushion in case the Federal Government needs to
engage in countercyclical fiscal policy sometime in the future.




27

Chart 1-5 Investment and Productivity
There is a close correlation between investment rates and productivity growth
rates across industrialized countries.
Average annual per capita real GDP growth rate, 1970-90 (percent)
4
Japan

Ireland
Iceland

Portugal
Norway

Italy

3

Finland

Turkey
Canada
Belgium
Germany
U.K.

Austria

Spain

Greece

Luxembourg

France

2
Denmark

Netherlands
U.S. Sweden

Australia
Switzerland

1

New Zealand

0
16

18

20

22
24
26
28
Investment as percent of GDP (average, 1970-90)

30

32

Source: International Monetary Fund.

According to this reasoning, deficit reduction is not an end in itself but a means to the end of greater national investment and
higher living standards. This logic has three important corollaries.
First, bringing the Federal deficit down is only one step toward
a more productive and prosperous future. That is why, in addition
to measures to reduce the deficit, the Administration’s 1993 budget
package contained several new proposals to encourage private investment, including an increase in the amount of equipment that
small businesses may deduct immediately in computing their income tax liability, a targeted reduction in capital gains tax rates
on long-term equity investments in certain small businesses, and
needed public investments. The President’s 1996 budget plan
builds on these priorities, holding the line on the deficit, cutting
outdated government programs while investing in new and existing
ones, and offering a package of new middle-class tax incentives.
Second, squeezing worthwhile public investments out of the
budget is the wrong way to reduce the deficit. America needs more
of both public and private investment, not a swap of one for the
other. That is why the Administration seeks not only to constrain
total government spending but also to reorient it more toward the
future. Between fiscal 1993 and fiscal 1996, overall discretionary
government spending is expected to remain nearly unchanged in
nominal terms (and fall by more than 6 percent in real terms). At



28

the same time, discretionary spending on the Administration’s public investment programs in such vital areas as education and training, technology support, public health, and infrastructure increases
by over $24 billion. Over this short time period, investment programs will increase from 11.5 percent to 15.5 percent of total discretionary spending.
Third, because deficit reduction—whether accomplished through
increases in revenues or decreases in spending—has a direct
contractionary effect on aggregate spending, there are limits to the
amount of deficit reduction the economy can be expected to withstand within a short period without endangering economic growth.
Over the long run, deficit reduction makes room for additional private investment, but in the short run it depresses aggregate demand and as a result can actually depress private investment. If
long-term interest rates do not decline sufficiently fast and far to
replace the aggregate demand lost through deficit reduction, economic growth will slow, and this will discourage private investment. The policy challenge is to bring the deficit down gradually
and credibly, so as to increase national saving and investment, but
not so rapidly as to threaten continued economic expansion. This
challenge was met in 1994, and the Administration’s economic forecast indicates that it will continue to be met through the remainder
of this decade. The success to date in meeting this challenge is one
reason why the Administration opposes a balanced budget amendment to the Constitution (Box 1–2).

INVESTING IN SKILLS AND EDUCATION
Education and training—investments in human capital—are a
wellspring of human progress, a basic foundation of the country’s
long-run growth potential and its long-run viability as a democracy,
and the ladder of opportunity for all of its citizens (Box 1–3). As
already noted and as analyzed in considerable detail in Chapter 5,
today’s high-paying job opportunities demand increasing levels of
education and training. In part as a result of rapid changes in technology and the global economy, the real average annual earnings
of male high school graduates declined by 15 percent between 1979
and 1992. In 1992 the annual average earnings of a male college
graduate were 64 percent higher than the average annual earnings
of a male high school graduate; in 1979 the difference had been
only 43 percent (Chart 1–6).
The Administration is embarked on an ambitious agenda to improve the education and training prospects for all Americans, and
with support in the Congress it has achieved considerable success
on this agenda during the last 2 years. The Administration is committed to ensuring that at every stage of life—preschool, elementary school, secondary school, college, and in the work force—all



29

Box 1–2.—The Shortcomings of a Balanced Budget Amendment

Continued progress on reducing the Federal budget deficit is
sound economics; a constitutional amendment requiring annual
balance of the Federal budget is not.
The fallacy in the logic of the balanced budget amendment
lies in the premise that the size of the Federal deficit is purely
the result of deliberate policy decisions. In reality, the pace of
economic activity also plays an important role. An economic
slowdown automatically depresses tax revenues and increases
government spending on such cyclically sensitive programs as
unemployment compensation and food stamps. As a result, the
deficit automatically worsens when the economy goes into recessions, and these temporary increases in the deficit act as
‘‘automatic stabilizers,’’ quickly offsetting some of the reduction
in the purchasing power of the private sector.
A balanced budget amendment would throw the automatic
stabilizers into reverse. The Congress would be required to
raise taxes or cut spending programs in the face of a recession,
to counteract temporary increases in the deficit. Rather than
moderate the normal ups and downs of the business cycle, fiscal policy would be forced to aggravate them.
Under a balanced budget amendment, monetary policy would
become the only tool available to stabilize the economy. But
there are several reasons why the Federal Reserve on its own
would not be able to moderate the business cycle as well as it
can in concert with the automatic fiscal stabilizers. First, monetary policy affects the economy only indirectly and with long
lags, making it difficult to time the desired effects with precision. Second, the Fed could become handcuffed in the event of
a major recession, its scope for action limited by the fact that
it can push short-term interest rates no lower than zero, and
probably not even that low in practice. Third, the more aggressive interest rate movements required to limit the cyclical variability of output and employment could actually increase the
volatility of financial markets—something the Fed would probably try to avoid.
The role that fiscal policy can play in smoothing fluctuations
in the business cycle is one of the great discoveries of modern
economics. Unfortunately, the huge deficits inherited from the
last decade have made discretionary changes in fiscal policy in
response to the business cycle all but impossible. A balanced
budget amendment would eliminate the automatic stabilizers
as well, thus completely removing fiscal policy from the macroeconomic policy arsenal.




30

Box 1–3.—The Relationship Between Poverty, Education, and
Earnings

Our core democratic values affirm that each individual
should have the opportunity to reach his or her full potential,
regardless of race or the income or educational attainment of
his or her parents. Yet numerous studies confirm that our Nation today is far from reaching this ideal. That shortfall imposes great costs both on individual Americans and on the
country as a whole.
A recent study by a group of economists chaired by a Nobel
laureate and commissioned by the Children’s Defense Fund examined the effects of childhood poverty on an individual’s future living standards. The study concluded that childhood poverty itself, as distinct from such factors as family structure,
race, and parental education, has a significant adverse effect
on both the educational attainment and the future wages of
the Nation’s poor children. The study found that children who
experience poverty between the ages of 6 and 15 years are two
to three times more likely than those who are never poor to become high school dropouts. Using years of schooling as a predictor of future hourly wages, the study concluded that just 1
year of poverty for the 14.6 million children and their families
in poverty in 1992 costs the economy somewhere between $36
billion and $177 billion in reduced future productivity and employment.
Significantly, one of the studies that the group examined
concluded that each $1 reduction in monthly assistance
through the aid to families with dependent children (AFDC)
program may reduce future output by between $0.92 and $1.51
(in present value terms) solely by reducing the educational attainment and future productivity of the children who are
AFDC’s beneficiaries.
Americans have the opportunity to acquire the skills they need to
participate fully in today’s economy. Chapter 5 of this Report describes the major components of the Administration’s lifelong learning approach; we summarize them here.
Expanded support for Head Start—funding for which increased
by 45 percent between the fiscal 1993 and fiscal 1995 budgets—has
ensured that fewer disadvantaged children will have their opportunities shut off even before they reach kindergarten. Goals 2000 has
put in place a national framework for school assessments to help
citizens throughout the country evaluate how well their local
schools are achieving basic educational goals. The School-to-Work




31

Chart 1-6 Average Annual Earnings by Educational Attainment
The gap in earnings between college graduates and workers with less education has
widened among both men and women.
Thousands of 1992 dollars
60

Thousands of 1992 dollars
60

Women

Men

50

50

College graduates
40

40

30

30

High school graduates
College graduates
20

20

Less than high school
High school graduates
Less than high school

10

0

1974

1977

1980

1983

10

1986

1989

1992

1974

1977

1980

1983

1986

1989

1992

0

Note: Data are for year-round, full-time workers 18 years old and older. Observations for 1991 and 1992 are not
directly comparable to those from prior years.
Source: Department of Commerce.

transition program has provided support to States to develop partnerships between schools and businesses, to facilitate the process
of moving high school graduates into promising job opportunities or
further training and education.
Two innovative education programs developed by the Administration during its first 2 years are AmeriCorps (the national service
program) and the income contingent student loan program. The
former provides Americans with the opportunity to participate in
community service projects while earning funds that can be used
to pay for college or other postsecondary education. The income
contingent student loan program both reduces the cost of student
loans, by making them directly available from the Federal Government at more attractive rates than those offered by private sector
lenders, and makes loan repayment after college less burdensome
by allowing repayments to vary with the borrower’s postcollege income. This program addresses one of the major capital market imperfections that discourages many Americans from attending college at a time when the returns to higher education have increased
dramatically.




32

INVESTING IN SCIENCE AND TECHNOLOGY
As the analysis in Chapter 3 indicates, advances in scientific and
technological knowledge are another important determinant of
long-run productivity growth. Moreover, as the history of this and
other nations demonstrates, public investment has long played a
vital role in promoting scientific discovery and technological
change. At the heart of the dramatic improvements in agricultural
productivity in the United States over the last century have been
the research efforts conducted at federally supported land-grant
colleges and the rapid dissemination of their results to millions of
American farmers through the agricultural extension services supported by the Department of Agriculture. Similarly, Federal investments to promote research in public health, primarily through the
National Institutes of Health, have produced many commercially
successful new drugs, new treatment regimes, and innovative medical equipment, which are the foundations of America’s premier position in the global biotechnology and medical equipment industries.
Federally supported research during World War II and the cold
war promoted or accelerated the development of many new technologies for defense purposes—such as jet engines, computers, and
advanced materials—that eventually found widespread success in
commercial markets. One of the most successful computer-based innovations created by the Defense Department and adopted by the
private sector is the Internet, which began life as ARPANET, a
geographically distributed computer communications system designed to link researchers located at universities around the country. Today tens of millions of people around the world are communicating via the Internet for business, educational, and recreational
purposes.
Most Federal investments in science and technology support the
realization of a particular national mission—for example, increasing national security or enhancing public health. But economists
have long recognized that there is a powerful rationale for Federal
support to increase the general level of scientific investigation and
technological innovation. Markets shape the behavior of private
participants through incentives, but individuals and companies
may invest too little in research and development (R&D), because
market incentives do not reflect the full value to society of such investment. Significant economic gains from scientific discovery and
technological innovation may remain unexploited because markets
alone cannot guarantee that the innovator will capture all or even
most of the economic returns to innovation. This is particularly




33

true of basic research, which increases the store of fundamental
knowledge that underlies most technological innovation. But it is
also true of many generic technologies, the benefits of which flow
quickly and in some cases automatically beyond the laboratory or
the factory floor where they were invented.
Empirical research tends to support these analytical arguments.
As Chapter 3 documents, the estimated annual social rate of return
to R&D spending can be as high as 50 percent, much higher than
the average estimated private rate of return of 20 to 30 percent.
This Administration has built on the strong bipartisan tradition
of Federal support for basic research and technological innovation.
Even as overall discretionary spending has remained approximately constant in nominal terms, Federal spending on science and
technology in this Administration has edged upward. Moreover, as
Chapter 4 discusses in greater detail, the Administration has introduced several policy innovations to enhance the efficiency of Federal R&D support and to refocus it in ways that reflect tighter
budgetary constraints, the new national security environment, and
changing market conditions in high-technology industries.

REINVENTING GOVERNMENT
Through the Vice President’s National Performance Review
(NPR), the Administration has, from its inception, taken on the difficult but critical task of reinventing government.
When an organization in the private sector becomes unresponsive
to customers, encumbered by inflexible internal rules, saddled with
ineffective management, or unwilling to buy inputs or produce
goods and services at lowest cost, it will lose customers to rivals
offering lower prices, superior products, or better service. If the
firm’s customers do not force an improvement in organizational behavior, its shareholders may replace senior management directly or
do so indirectly by selling the company, or the company may simply
go out of business.
Public sector organizations, on the other hand, often lack a clear
and indisputable bottom line for their performance and are not
subject to the same remorseless pressures that force private firms
to function efficiently. The Office of Management and Budget,
along with relevant congressional committees, attempts to monitor
organizational performance within the Federal Government. But
systematic and thoroughgoing organizational improvement of how
the government functions requires strong leadership and the commitment of the most senior executive branch officials—as has been
provided in this Administration through the NPR.
The NPR analyzed the characteristics of successful organizations
in both the public and the private sector. Four principles emerged
from this analysis as key to success: cutting red tape, putting cus


34

tomers first, empowering employees to get results, and getting back
to basics, which in the context of the Federal Government means
producing a government that ‘‘works better and costs less.’’ To implement these principles throughout the Federal Government, the
NPR has sought ways to decentralize decisionmaking power within
agencies, to give Federal workers the tools they need to do their
jobs and hold them accountable for results, to replace regulation
with incentives and market solutions, to expose Federal operations
to competition, to eliminate unnecessary or duplicative government
functions and rules, and to establish concrete measures of success,
one of which is customer satisfaction with government services.
Through the end of 1994 the Administration’s reinventing government reforms had reduced the Federal work force by about
100,000 employees, out of a total reduction of 272,000 planned by
1999, and essentially shredded the 10,000-page Federal personnel
manual. Other NPR initiatives—including procurement reform, one
of its notable successes, and the proposal to restructure the organization controlling the Nation’s air traffic control system—are discussed in Chapter 4.
At the end of 1994 the Administration announced a second round
of NPR reforms, beginning with the restructuring of three cabinet
departments and two major government agencies. The reform plan
proposes to consolidate 60 existing programs in the Department of
Housing and Urban Development (HUD) into three performancebased funds. This will enable HUD to focus its mission more sharply on promoting economic development for communities and facilitating transitions to economic independence for needy families. The
Department of Transportation will collapse its 10 operating agencies into 3 and consolidate over 30 separate grant programs to
States and cities into one flexible transportation infrastructure program, emphasizing capital investment assistance. And the Department of Energy will privatize some of its oil and gas reserves, sell
its excess uranium, reduce costs in its research programs and laboratories, and substantially reorganize its nuclear waste cleanup
program.
Taken together, the NPR reforms announced at the end of 1994
will cut $26 billion from government spending over 5 years. Yet another phase of the NPR will propose additional agency restructuring in the coming months. The savings from these and other reforms will be used to finance the President’s proposed middle-class
tax cuts and to continue progress on reducing the Federal deficit.
With these additional cuts, discretionary government spending as
a share of GDP is slated to fall below 6 percent by the year 2000,
less than half the share in 1970, and the Federal work force is slated to fall to its lowest level in the decades.



35

OPENING FOREIGN MARKETS
The expansion of international trade is integral to raising American incomes, and exports play an increasingly important role in
providing a livelihood for American workers. Between 1986 and
1993 increased exports were responsible for 37 percent of U.S. output growth. The jobs of more than 10 million American workers
now depend on exports, and export-related jobs pay wages significantly above the average. In addition, the reduction of barriers to
trade raises standards of living by providing a wider variety of
goods at lower prices. And foreign competition leads to greater efficiency and higher quality in U.S. production, spurring the productivity growth that is essential for real income growth.
This Administration came to office committed to opening foreign
markets to U.S. exports and bringing down barriers to trade, and
it has achieved remarkable success. As detailed in Chapter 6, the
Uruguay Round agreement of the General Agreement on Tariffs
and Trade (GATT) will bring down foreign tariffs facing U.S. exporters by about a third on average, open foreign markets in agricultural products and services for the first time, and do much to
establish a single rulebook for all trading countries. The North
American Free Trade Agreement (NAFTA) with Mexico and Canada is a pathbreaking accord with two of our three largest trading
partners, achieving a degree of liberalization well beyond that of
similar international agreements. In its bilateral negotiations, the
Administration has been forceful in seeking market-opening measures in Japan, China, and other countries and in advancing the interests of U.S. exports through its National Export Strategy. Finally, during the second half of 1994 the Administration helped
launch negotiations that will lead to the creation of open and free
trade areas among the countries of the Western Hemisphere by
2005 and among the countries of the Asia-Pacific Economic Cooperation forum by 2020.
The Administration’s efforts come at a moment of historic opportunity in the global trading system. Less developed countries and
the economies in transition from central planning, having recognized the importance of international trade in fostering economic
growth, are now willing to lower their barriers to imports. The Administration’s efforts in NAFTA and in encouraging movement toward free trade areas in the Western Hemisphere and the Asia-Pacific region have established an environment in which countries
feel they must participate in meaningful trade liberalization efforts
or be left out.
In a dynamic world economy, trade means challenge and adjustment as well as opportunity. The Administration’s domestic economic policy is a necessary complement to its trade policy. By encouraging investment and research and development to maintain



36

and increase U.S. competitiveness, and by investing in people—
maximizing their ability to acquire skills and move to higher paying jobs in newly emerging occupations—the Administration seeks
to ensure that Americans gain all the benefits possible from competing in world markets.

THE ADMINISTRATION’S ECONOMIC STRATEGY:
THE UNFINISHED AGENDA
For all of its remarkable accomplishments, the American economy continued to suffer from some persistent long-term difficulties
in 1994. Although improvement was seen in the quality of new jobs
created, the real earnings of American workers continued to stagnate. Long-term unemployment rates remained stubbornly high,
especially when viewed against the backdrop of more than 3 years
of economic recovery. The unemployment rates of black Americans
remained more than double that for whites. More children lived in
poverty in 1993 than in any year since 1965, despite the doubling
of real GDP over the same period.
In light of such disturbing trends, it is not surprising that so
many Americans feel increasingly cut off from the prosperity of an
expanding economy. The experience of 1994 confirms that even
though a strong and sustainable economic expansion is a necessary
condition for improving the living standards of all Americans, it is
not sufficient. Still other policies are required to help Americans
obtain the skills and the education demanded by today’s technologies and international markets, and to cope with the often significant dislocations that are a natural feature of today’s economy.
Over the next 2 years the Administration plans several major
policy initiatives, including tax relief for middle-class families, welfare reform, health care reform, and continued restructuring or
reinvention of the Federal Government. In addition, the President
recently announced a proposal to increase the minimum wage from
its current level of $4.25 per hour. This proposal reflects a determination to ensure that working families can lift themselves out of
poverty, as well as a recognition that inflation has reduced substantially the real value of the minimum wage (see Chapter 5 for
further discussion of the minimum wage). Every one of these policy
initiatives is designed to keep the economic expansion and deficit
reduction on track while enabling all Americans to enjoy the benefits of a healthy American economy.

MIDDLE-CLASS TAX RELIEF
A little over 50 years ago the GI Bill of Rights, designed to help
average Americans purchase homes, improve their educations, and
raise their families was signed into law. The GI bill helped trans


37

form a wartime economy into an extraordinarily successful peacetime economy and in the process helped build the great American
middle class. At the end of 1994 the President announced a new
Middle Class Bill of Rights, which like the GI Bill of Rights from
which it draws its inspiration, is designed to help average Americans cope with the demands of today’s economy.
The Middle Class Bill of Rights includes a three-part tax package: a $500 per-child tax credit, a tax deduction for up to $10,000
for annual expenses on postsecondary training and education, and
an expansion of individual retirement accounts (IRAs) to all middle-class families. An estimated 87 percent of the benefits of the
proposed tax cuts would go to families with annual incomes under
$100,000. In addition, the Middle Class Bill of Rights contains a
plan to consolidate over 50 government training programs into a
single training voucher system that would allow eligible workers to
finance the training they need to obtain employment. What ties the
package together is the belief that appropriately structured tax relief and support for training can help middle-class Americans invest in their own future earning power and that of their children.
The Administration proposes a $500 nonrefundable tax credit for
children under 13 in middle-class families. The credit would be
phased out between $60,000 and $75,000 of annual adjusted gross
income (AGI). This measure would increase the income tax threshold (below which no income tax is paid) for a married couple in the
15-percent tax bracket with two eligible children by $6,667 (about
a 30-percent increase over the current threshold). The child-based
tax credit complements other parts of the Administration’s
profamily policy agenda, including the earned income tax credit expansion and welfare reform.
The proposed credit reflects the fact that the existing tax allowance for children—the dependent exemption—has not kept pace
with inflation and income growth. In 1948 the real value of each
child’s personal exemption—$3,700 as measured in 1994 dollars—
was nearly half again as large as today’s $2,500 exemption. Meanwhile many of the costs of raising children—especially medical care
and education—have increased far more rapidly than the overall
price level. And child-rearing costs are often more burdensome for
younger families, who are generally at a stage in their lives when
incomes are relatively low. For all these reasons, taxpayers with
children may have a substantially reduced ability to pay income
taxes.
In addition to the child-based tax credit, the Administration has
proposed a tax deduction for postsecondary education and training
expenses (Box 1–4). Each year of postsecondary education or training has been shown to boost future earnings between 6 and 10 percent on average. Meanwhile the costs of a college education have



38

increased much faster than the overall consumer price index. Middle-class families have become less able to afford higher education
just at the time when it is becoming an increasingly critical determinant of future earnings.
Box 1–4.—The Proposed Tax Deduction for Postsecondary
Education and Training

The Administration’s tax proposal would allow a deduction of
up to $10,000 for amounts spent by a taxpayer on postsecondary education and training expenses for the taxpayer and his
or her spouse and dependents. This deduction would be used
in determining the taxpayer’s adjusted gross income. The maximum allowable deduction would be phased out for taxpayers
filing a joint return with AGIs (before the proposed deduction)
between $100,000 and $120,000. For a taxpayer filing as head
of household or single, the maximum allowable deduction
would be phased out for AGIs between $70,000 and $90,000.
Qualifying educational expenses are those related to postsecondary education paid to institutions and programs eligible
for Federal assistance. This includes most public and nonprofit
universities and colleges and certain vocational schools.
Over 90 percent of families could potentially benefit from the
proposed deduction.
Businesses have long been allowed to deduct the costs of providing education and training for their employees. Yet despite the
high returns and the high costs of postsecondary training and education, the current tax code provides only limited preferences to individual taxpayers making such investments. The Administration’s
proposal will help ensure that the income tax deductibility of training and education expenses does not depend on one’s employer paying for it. But more important, it will provide a financial incentive
for Americans to get the education and training necessary to thrive
in a changing economy. The Administration’s proposed deduction
recognizes that investment in human capital, like investment in
physical capital, is a major determinant of growth in productivity
and living standards.
The third component of the Administration’s proposed tax package is an expansion of individual retirement accounts, aimed at encouraging households to save more and increase the Nation’s worrisomely low private saving rate. Under current law, for taxpayers
with employer-provided pension coverage, eligibility for deductible
IRAs is phased out for AGIs between $40,000 and $50,000 (for married couples filing joint returns; a lower threshold applies to taxpayers filing as single or head of household). Neither the maximum



39

annual deductible contribution per worker ($2,000) nor the income
thresholds are indexed for inflation. The proposal doubles the existing thresholds, making IRAs completely deductible for married couples filing joint returns with incomes below $80,000, regardless of
pension coverage, and allowing partial deductions for those with incomes up to $100,000. In addition, the income thresholds and the
$2,000 contribution limit (both set in 1986) would be indexed for
inflation. Finally, withdrawals from IRAs would be allowed without
penalty to buy a first home, to pay for postsecondary education, to
defray large medical expenses, or to cover long-term unemployment
expenses. As already noted, faster wage and income growth is possible only by boosting investment and saving in America. The Administration’s proposed IRA expansion is a way to promote greater
awareness of personal responsibility for saving.

WELFARE REFORM
The President entered office with a promise to reform the welfare
system so that it would function as an effective safety net promoting work and family, rather than as a snare enmeshing poor families in long-term dependence. Under the current system some people have become long-term welfare recipients—although more than
one-third of all women who ever receive AFDC do so for less than
2 years, almost one-fourth end up receiving AFDC for over 10 years
during their lifetime. And, as currently structured, the welfare system in effect imposes a high marginal tax rate on paid employment, because low-income mothers lose their AFDC and food stamp
benefits and eventually their medicaid health insurance for themselves and their children when they take a job. In short, for many
the current system contains powerful disincentives against work
and in favor of continued welfare.
The fundamental goal of all of the Administration’s policies
aimed at those at the lower end of the income distribution is to increase the rewards and hence the incentives to work. These policies
are also designed to ensure that those willing to work will be able
to live above the poverty level (see Box 1–5 for a discussion of how
housing reforms relate to welfare reform).
The Administration’s proposed welfare reform legislation, the
Work and Responsibility Act, will help make work pay, by ensuring
that welfare recipients obtain the skills they need to find employment, and by eliminating long-term welfare dependency as an option for those able to work. Under the Administration’s plan, welfare recipients who are job-ready will begin a job search immediately, and anyone offered a job will be required to take it. Support for child care will be provided to help people move from dependence to independence. For those not ready for work, the Administration’s proposed reforms will provide support, job training,



40

Box 1–5.—HUD Reforms and Welfare Reform

The Administration has proposed major reforms aimed at
reinventing the Federal Government’s housing programs.
These reforms will focus the efforts of the Department of Housing and Urban Development on two major tasks: empowering
individuals and empowering communities.
The Administration’s proposals for empowering individuals
in the housing market bear a close connection to its proposals
to reform welfare. The HUD reforms will gradually end public
housing as we know it, moving from support of public housing
projects to support of individuals who need housing. The current system impedes the job mobility of public housing recipients. In order to accept a job in another community, a recipient
may have to give up the subsidized public housing he or she
has and sign up at the bottom of a waiting list for housing assistance in the new location. In addition, public housing often
concentrates the poor in areas where few jobs are available
close at hand. Under the reinvention proposal, instead of being
tied to a particular unit in a public housing project, households
would be given portable rental housing certificates, which
could be used to obtain housing in the private market. This reform would encourage mobility between jobs, impose market
discipline on public housing authorities, help break up the dysfunctional concentration of the poor, and enable individuals to
make housing choices best suited to their needs. In all these
ways the HUD reform effort complements welfare reform by
removing barriers to participation in the paid labor force.
and assistance in finding a job when they are ready. Each adult recipient of AFDC will be required to create an employability plan,
to ensure that he or she will move into the work force as quickly
as possible. Time limits on receipt of welfare benefits will require
that anyone who can work, must work—in the private sector if possible, in a temporary, subsidized job if necessary.
The proposed program will strongly discourage children from
bearing children. Parents under the age of 18, if they apply for welfare payments, generally will not be allowed to set up independent
households; instead they will receive assistance to stay in school.
The Administration’s proposal also includes funding for grants to
schools and communities to prevent teen pregnancy, and it toughens efforts to collect child support from all absent fathers—a provision that is expected to double Federal collections of child support
payments, from $9 billion to an estimated $20 billion by 2000.
These proposals to discourage teen pregnancy and to foster paren-




41

tal responsibility will help prevent the need for welfare in the first
place.
In welfare as in other areas of joint Federal and State responsibility to help the poor, such as medicaid, the Administration is
committed to working with the States to enhance the flexibility and
efficiency of programs. For this reason the Administration has been
an active proponent of granting waivers from various regulatory
constraints, to allow States to experiment with new ways of designing welfare strategies and find the ones that best suit their particular needs and characteristics. During its first 2 years in office, this
Administration granted waivers to enable 24 States to undertake
welfare reform—more than all previous Administrations combined.
Partnerships with State and local governments take many forms.
Box 1–6 describes one of the Administration’s initiatives for working with State and local governments to encourage communitybased solutions to economic development problems in povertystricken areas.

HEALTH CARE REFORM
The President entered office with a pledge to reform the Nation’s
health care system, and he will continue to work with the Congress
to realize this objective during the coming year. Reform is essential
to address four separate but interrelated problems of the current
system, which if left unsolved will result in an increasingly heavy
financial burden on governments and individuals (Box 1–7).
First, millions of Americans, both insured and uninsured, do not
have health security. Those who are insured face the risk of losing
their coverage, at least temporarily, if they lose or change their
jobs. Meanwhile the number of uninsured Americans continues to
grow at an alarming rate.
Second, the current health insurance system has a number of
shortcomings. One is that insurers know that a small proportion of
the population incurs the bulk of medical expenditures, making it
profitable to screen prospective purchasers to determine their risk
characteristics; those who are sick—who have so-called pre-existing
conditions—may be unable to purchase insurance altogether, or
may only be able to purchase it at exorbitant prices. Another shortcoming is that people unable to obtain health insurance through
their employers may be offered coverage only at prices unaffordable
for many Americans. Still another is that many insurance policies
do not cover a variety of large financial risks (e.g., high-cost illnesses), although these are exactly the kinds of risks for which insurance is most needed.
Third, the current health care system imposes a large and
unsustainable burden on public sector budgets. Governments account for nearly half of all health care spending in the United



42

Box 1–6.—Empowerment Zones and Enterprise Communities

OBRA93 contained a provision to create 9 empowerment
zones and 95 enterprise communities in selected localities
across the Nation. The designated zones and communities will
receive significant tax benefits and new Federal resources totaling an estimated $3.8 billion over the next 5 years, to support economic revitalization and community development. In
December 1994 the President announced the areas selected to
participate. Selections were based primarily on the strength of
the applicants’ proposed strategies for community-based development. Cities receiving urban empowerment zones are Atlanta, Baltimore, Chicago, Detroit, New York, and Philadelphia/Camden. Rural empowerment zones designated are the
Kentucky Highlands region of Kentucky, the Mid-Delta region
of Mississippi, and the Rio Grande Valley in Texas.
The empowerment zone/enterprise community program is
based on the notion that development efforts can be targeted
to areas that have been economically left behind. Besides receiving monetary awards totalling $1.3 billion in financial assistance and $2.5 billion in tax benefits over the next 5 years,
the selected zones and communities (as well as nonselected applicants) may request waivers from many Federal regulations,
and their requests will be processed on an expedited basis. To
date over 1,200 such requests have been received. Perhaps
more important, the areas selected generally are those that
have effectively mobilized local private and public sector resources to leverage the potential Federal commitments. The
application process encouraged localities to harness their own
creative talents and financial resources to frame a comprehensive response to the problems of local economic development.
In a sense, the zones and communities selected are laboratories for experiments in local economic development. The Federal Government realizes that it does not have all the answers
to the economic development conundrum; instead it has enlisted institutions at the State and the local level (including
the private and nonprofit sectors) to help design possible solutions.
For the program to work, however, successful areas and the
reasons for their success must be identified. Therefore a comprehensive evaluation process will follow the progress of the
selected zones and communities and report periodically on
them. The evaluation will largely determine whether the program should be replicated elsewhere.




43

Box 1–7.—The Cost of Doing Nothing About Health Care

If no steps are taken to reform the Nation’s health care system, existing trends will result in increased health care costs
and reduced health insurance coverage. Neither of these outcomes is desirable. Without reform:
• Per capita health care costs will rise from about $3,300
in 1993 to about $5,200 in 2000.
• Aggregate health care costs, currently running at around
14 percent of GDP, will increase to an estimated 18 percent of GDP by 2005.
• Health care expenditures by the Federal Government
will increase from 21 percent of total expenditures in
1994 to 26 percent by 2000.
• Medicare and medicaid expenditures will grow at 9.1
percent and 9.2 percent per year, respectively, over the
foreseeable future, nearly three times as fast as overall
consumer prices.
• More Americans will lose health insurance coverage,
adding to the nearly 40 million without health insurance
in 1993.
• Wages will continue to be held down, as an ever-greater
proportion of total compensation is paid in the form of
health benefits. In the past 5 years, health care benefit
costs per employee rose at about twice the overall rate
of inflation.
States, primarily in the form of payments for medicaid and medicare. Since 1980 the share of health care spending in the Federal
budget has doubled; the budgets of State and local governments
also saw larger shares going toward health expenditures.
Fourth, the current health care system suffers from numerous
structural features that may keep costs high. For instance, fee-forservice providers may have an incentive to overprovide care, and
provide some care that is inappropriate or of equivocal value, because they are generally reimbursed for each additional test or procedure they perform. For their part, consumers often do not have
the information they need to evaluate the differences among providers or to determine whether or not the care prescribed for them
is necessary. Moreover, in a system dominated by third-party payers (insurers), consumers seldom have a strong reason to be directly concerned about the cost-effectiveness of their care. Thirdparty payers have responded by establishing programs to review diagnoses and suggested treatments. Competition among insurers
may help offset some of the effects of informational asymmetries.



44

Over the past few years, under the pressure of rapidly escalating
costs, the private health care system has begun a process of dramatic structural change. In 1988, for example, only about 29 percent of health insurance enrollees were in some form of managed
care plan, in most cases either a health maintenance organization
(HMO) or a preferred provider organization (PPO). By 1993 this
figure had increased to 51 percent. Much of this migration toward
managed care has occurred in larger firms, where nearly 60 percent of covered employees are now in managed care plans. Many
analysts credit managed care with keeping health care costs down.
In the Far West, where HMO penetration is higher than elsewhere
in the country, real spending on health care grew more slowly over
the 1980–91 period than in any other region in the country (3.4
percent per year versus a national average of more than 4.5 percent). In part as a result of these changes, there is some promising
evidence that growth in health care costs in the private sector may
be slowing somewhat. For instance, medical price inflation slowed
to a 5.4 percent annual rate in 1993 and slowed still further to 4.9
percent in 1994. Even the 1994 rate, however, was still well above
the overall rate of inflation.
For a variety of reasons discussed in Chapter 2, the increases in
medicare and medicaid spending projected for the coming years
have been revised downward significantly. For instance, in January
1993 medicaid expenditures were projected to increase at an annual rate of nearly 15 percent through 1997. Yet actual medicaid
expenditures grew by only 11.8 percent in fiscal 1993 and 8.2 percent in fiscal 1994. Accordingly, the 1996 budget projects slower
growth in medicaid than did prior budgets, averaging slightly over
9 percent for 1996–2000. The situation for medicare is similar.
Even with these changes, however, health care spending is slated
to remain the most rapidly growing component of the Federal budget during the rest of this century, and to escalate during the first
decade of the next century, partly in response to the aging of the
American population.
This Administration remains firmly committed to reforming the
current health care system in order to expand coverage, contain
costs, and curb public sector deficits. Last year’s debate on health
care reform produced a consensus on several key points. Many of
the alternative proposals included insurance market reforms, such
as provisions to prevent insurers from denying coverage to those
who have been ill. A number of bills recognized the importance of
providing health care coverage to low- and middle-income Americans, especially children. It is possible to build on this consensus
and achieve real reform.
The Administration believes that any successful reform must ultimately be comprehensive in scope, even if it proceeds step by



45

step. This belief rests on the reality that none of the four major
problems of the current health care system identified above can be
solved in isolation. For example, any attempt to impose arbitrary
caps on Federal health care spending without more-fundamental
reforms would simply shift more government program costs onto either State and local governments or the private sector. According
to one recent estimate, uncompensated care and government programs that reimbursed hospitals below market prices shifted about
$26 billion in costs onto the private sector in 1991. Similarly, any
attempt to provide universal coverage without complementary
measures to improve competition and sharpen the incentives for
more cost-conscious decisions by both providers and consumers
would mean even more dramatic increases in systemwide costs.
Limited reforms designed to eliminate the most glaring shortcomings of private insurance markets, although desirable, would
not solve either the problem of providing health security for all
Americans or the problem of escalating public health care bills. Finally, efforts by the private sector to control costs might well increase the number of Americans without health insurance, especially children and those most in need of medical attention.
Ultimately, meaningful reform of the Nation’s health care system
will do more than just unburden public sector budgets and provide
health security. It will also improve living standards. For years, the
rising cost of health care has forced a shift in the composition of
the typical compensation package away from take-home wages and
salaries and toward fringe benefits, especially health insurance.
Between 1966 and 1994 the share of health benefits in total labor
compensation increased from 2.0 percent to 7.2 percent, while the
share of cash compensation correspondingly fell. In absolute terms
average real take-home pay barely increased: most of the gains in
total compensation were realized as fringe benefits. In short, working men and women, for the most part, paid for escalating health
costs by taking home lower pay than they would have otherwise.
On the assumption that the future will look much like the past, the
Administration expects that any benefits of a reduction in health
care costs resulting from meaningful reforms will show up in higher take-home pay for working Americans.

CONCLUSION
Nineteen ninety-four was a very good year for the American
economy. Indeed, robust growth, a dramatic decline in the unemployment rate, low inflation, and a much improved outlook for the
Federal budget combined to yield the best overall economic performance in at least a generation. In addition, last year’s economic



46

performance ranks as the best among the advanced industrial
countries with which the United States is usually compared.
But the economic successes of the past year must not obscure the
long-term economic challenges facing the Nation. Some of these,
like the dramatic growth in entitlement spending projected for the
first few decades of the next century, or the disturbing increase in
the number of Americans without health insurance, result in large
part from the interaction of national economic policy choices with
the changing demographics of the American population. Others,
such as the persistent decline in real compensation for many
groups and overall increasing income inequality, may in large part
result from worldwide changes in technology and other areas.
These changes are creating a new world economy and a new American economy, which hold both the promise of a more prosperous
future and the threat of more dislocation and adjustment for many
American workers and their families.
As the Nation enters the last half-decade of this century, this Administration has already put in place some important foundations
for greater prosperity. Over the coming year we look forward to
working with the Congress, with the States, and, most important,
with the American people, to address the Nation’s long-term economic challenges and to make the most of the Nation’s long-term
economic opportunities.




47

CHAPTER 2

The Macroeconomy in 1994 and
Beyond
IN 1994 THE AMERICAN ECONOMY enjoyed a balanced and
broad-based expansion, marked by rising real output, declining unemployment, and modest and stable inflation. Over the year, real
gross domestic product (GDP) advanced 4.0 percent and real disposable income rose 4.3 percent. Between January and December
1994 the unemployment rate declined 1.3 percentage points, and
3.5 million more payroll jobs existed in December 1994 than in December 1993. The consumer price index (CPI) rose by 2.7 percent,
essentially the same rate recorded over the past 3 years. The
economy’s performance in 1994 was a dramatic improvement over
its performance at the beginning of the recovery from the 1990–91
recession, when output growth was fitful and anemic, and over its
performance in 1992, when despite a strong gain in output, employment growth remained lackluster. Indeed, the combination of rapid
job growth and low inflation gives 1994 one of the best macroeconomic performances on record (Chart 2–1).
Initially, recovery from the 1990–91 recession was hampered by
several special factors including large household and business debt
burdens, high vacancy rates in commercial real estate, tight credit
practices by many lenders, stagnant growth in much of the rest of
the world, and declining Federal purchases, especially of military
goods and services. As the recovery progressed, all but the last of
these impediments diminished in importance, providing a more favorable environment for a pickup in economic growth and job creation. As described in last year’s Report, the pace of expansion also
improved as a result of a substantial decline in long-term interest
rates in 1993 that accompanied first the anticipation and then the
passage of the Administration’s deficit reduction package in August
of that year. Lower interest rates strengthened the interest-sensitive components of private spending, which in turn bolstered the
rest of the economy.
The expansion of output and jobs that characterized the second
half of 1993 persisted and strengthened in 1994, despite a shift toward tighter monetary and fiscal policies. In February 1994 the
Federal Reserve began reducing the degree of monetary accommodation, and by the end of the year the resulting increase in interest



49

Chart 2-1 Job Creation and Inflation
Compared with the experience of the 1980s and early 1990s, the economy in 1994
produced a large number of jobs with low inflation.
Millions of payroll jobs created
5

1984

4

1994

1983

1987
3

1985

1993
1986

2

1988

1989

1992
1

1990
0

1991
-1

1982

-2

-3
2

3

4
Percent change in CPI less food and energy

5

6

Note: Data represent changes from December to December.
Source: Department of Labor.

rates was substantial. Continued fiscal restraint was also significant, as evidenced by a decline of $20 billion in the structural
budget deficit ($40 billion excluding special factors like deposit insurance) during fiscal 1994. Nevertheless, investment and consumption spending remained strong. High rates of inventory accumulation through most of the year signaled business confidence
about future demand for output, as did business investment in
equipment and structures, which rose 12.9 percent over the year.
Households, too, showed substantial optimism about their income
and employment prospects, as purchases of motor vehicles and existing homes as well as residential construction were at high levels
despite rising interest rates. Overall, the economy grew at a faster
rate than virtually all forecasters had projected at the start of
1994, and it did so despite interest rates that were much higher
than forecast at that time.
The performance of inflation in 1994 was equally impressive,
with most price measures near forecasts made at the beginning of
the year, despite much stronger than expected levels of output and
employment. These price developments reflected continued growth
above trend in labor productivity and a surprisingly modest increase in hourly compensation. As discussed below, compensation
increased less than would have been expected based on historical




50

experience, indicating possible changes in the dynamics of the labor
market.

CLOSING IN ON POTENTIAL OUTPUT
Over the last 2 years the economy has grown at an average annual rate of 3.6 percent, as aggregate demand rebounded from the
1990–91 recession and the sluggish growth that initially followed
it. In part the economy’s expansion was accomplished through an
increase in the quantity and quality of the labor force and through
net additions to the capital stock, the latter financed by both domestic saving and foreign borrowing. In part average labor productivity increased as a result of efficiency-enhancing technologies embedded in the capital stock. But to a significant extent, output was
able to satisfy the strong growth of aggregate demand in 1994, because workers who had been unemployed were reemployed, and because capital that had been idle or underutilized was brought back
on line or utilized more intensively. By the end of 1994, however,
both labor and capital utilization rates were in ranges that suggested little remaining slack.
As the margin of underutilized capital and labor reserves diminishes, the economy’s growth rate becomes increasingly constrained
by the rates of growth of new entrants into the labor force, net additions to the capital stock, and the productivity of labor and capital owing to technological progress and to improvements in the
quality of the labor force. Over the long run these factors determine the economy’s growth rate of potential output. If, in the absence of slack in labor or product markets, growth in aggregate demand outstrips growth of the economy’s potential output, pressures
to increase wages and prices are likely to mount, increasing the
probability of a rise in inflation. In turn, the buildup of wage and
price pressures is likely to cause interest rates to rise, dampening
aggregate demand growth and bringing it back in line with the
growth of potential output.
The preponderance of the available empirical evidence suggests
that the growth rate of potential output is currently around 2.5
percent. But the economy’s strong performance in 1994 has caused
some observers to speculate that the growth rate of potential output is now, or soon will be, higher. This hypothesis is examined in
Chapter 3, which analyzes the major factors behind the economy’s
long-run growth potential. The remainder of this chapter analyzes
the economy’s macroeconomic performance in 1994, a year during
which the margins of slack were sharply reduced. This chapter also
examines the course of fiscal and monetary policy in 1994, looks at
the surprising rise in long-term interest rates, and presents the Administration’s economic forecast for the 1995–2000 period.



51

OVERVIEW OF THE ECONOMY IN 1994
A sector-by-sector look at economic performance provides a clearer picture of the factors contributing to the continued strong expansion in 1994.

BUSINESS FIXED INVESTMENT
A key factor driving the current expansion has been the rapid
growth of business fixed investment, particularly spending on capital equipment (Chart 2–2). Between the trough of the 1990–91 recession and the end of 1994, investment in producers’ durable
equipment (PDE) increased at an average annual rate of 12.8 percent, while real GDP rose at an annual rate of 3.1 percent. (Table
2–1 summarizes the growth of GDP by component.)
Chart 2-2 Growth in Real Nonresidential Investment
Investment in business equipment has surged during the current expansion, but investment
in nonresidential structures has just begun to increase.
Percent change from four quarters earlier

20

Producers’ durable equipment

10

Structures
0

-10

-20
1985198519861986 198719871988198819891989 199019901991 199119921992199319931994 1994
Source: Department of Commerce.

The extraordinary growth in PDE reflects the strong growth
posted by spending on both computers and noncomputer equipment. Since the current expansion began, real investment in computers and peripheral equipment has increased at an average annual rate of 33.9 percent, while real spending on equipment other
than computers has increased at an annual rate of about 8 percent.
As a share of real GDP, noncomputer investment during 1994 was
higher than at any time since separate records were first kept for
computer and noncomputer investment spending. Over 1994, PDE



52

TABLE 2–1.— GDP Scorecard for 1994
[Real growth fourth quarter to fourth quarter]

Component

Percent
change,
except
as noted

Comments

Consumer expenditures ..........................

3.4

Strong gains in employment as well as in households’ willingness to increase levels of indebtedness accounted for
broad–based increases in consumer spending.

Producers’ durable equipment ...............

15.6

The real success story underlying the strength of the current expansion.

Housing ...................................................

1.9

Residential investment showed remarkable resilience in the
face of rising interest rates throughout 1994, partly due
to adjustable–rate mortgages.

Nonresidential structures .......................

4.2

This sector rebounded after a surplus of commercial and
industrial real estate led to no growth during the early
part of the expansion.

Change in inventory investment 1
(billions of 1987 dollars) ...................

$37.1

A key to maintaining momentum in the economy during
1994.

Federal Government purchases ..............

−6.2

Corporations were not the only organizations downsizing in
the current expansion. Federal spending was a net drag
on economic growth in 1994.

Exports of goods and services ...............

10.2

A marked increase in exports reflected the pace of economic recoveries abroad.

Imports of goods and services ..............

14.9

Strong consumption and investment demand showed up in
imports during 1994. Computers and computer components accounted for much of the runup.

1 Change

between 1993 and 1994 in annual inventory investment.
Note.—Data are preliminary.
Source: Department of Commerce.

spending reflected especially robust investment in cars and trucks,
total sales of which to business and households rose to 15 million
units.
Whereas gross investment in PDE has been on a fairly steady
upward trend for most of the postwar period, the trend in net investment (that is, net of depreciation) is less pronounced. Because
the composition of PDE investment has shifted toward short-lived
equipment, such as computers, a growing proportion of gross investment each year represents replacement of existing capital stock
rather than a net increase in its overall level. The growing wedge
between gross and net real PDE investment is illustrated by the
fact that depreciation of PDE, relative to GDP, rose to roughly 6.5
percent in 1994 from about 5.8 percent a decade earlier. Gross investment has beneficial effects on the economy, contributing to income growth and facilitating the introduction of new technologies
into the production process. But net investment is even more important to the Nation’s economic well-being, because by adding to
the amount of capital per worker, it raises labor productivity and
the long-run earning potential of workers.
The other major component of business investment is spending
on nonresidential structures, including office buildings, shopping
malls, and retail stores. During 1994 the shadow cast over this sec


53

tor of the economy by overbuilding during the 1980s began to fade,
and nonresidential investment in structures increased 4.2 percent.
The supply of bank credit for new construction appeared to be plentiful, and increased demand for office and industrial space was reflected in a fall in vacancy rates in some parts of the country. Contract awards for commercial and industrial construction increased
during the second half of 1994, and sales prices for office, industrial, and other commercial structures posted solid increases during
the year.

CONSUMER SPENDING
A favorable environment for consumer credit and strong gains in
employment contributed to healthy increases in consumer spending
and sentiment during 1994. Personal consumption spending advanced at a 3.4-percent pace during the year, led by an 8.1-percent
rise in purchases of consumer durables. In turn, durable goods purchases were buoyed by double-digit growth in consumer expenditure on furniture and household equipment, especially video, audio,
and computer equipment. Consumer sentiment returned to prerecession levels early in the year and surged to a 5-year high at
the end.
Households increased their indebtedness in 1994, as the ratio of
debt to disposable personal income reached a record 81 percent
(Chart 2–3). Undoubtedly, households were reacting in part to the
fact that the cost of borrowing had declined dramatically during
1993 and remained low throughout much of 1994. Growth of
consumer credit may also have been spurred by the proliferation of
credit card programs that offer rewards to cardholders—such as direct rebates on purchases or frequent-flyer miles—based on
amounts charged. Nonetheless, as in 1993, Americans devoted the
smallest fraction of their disposable income to scheduled payments
on principal and interest since 1984. The decline represented a substantial windfall for debtor households: had the debt-service burden
remained at its 1989 peak, the average American household would
have paid about $965 more in principal and interest during 1994.
The reduction in the debt-service burden, which primarily reflected
lower financing costs on mortgages, freed up income, fueling part
of the increase in household discretionary spending.
An increase in the personal saving rate occurred toward the end
of the year, with the rate rising to 4.6 percent in the fourth quarter
from 3.6 percent in the first quarter. In part this rise reflected a
likely worsening in the ratio of net worth to income, as household
debt burdens rose relative to income, while household assets—such
as corporate equity—declined slightly relative to income.




54

Chart 2-3 Consumer Debt and Debt-Service Payments
Despite an increase in the ratio of debt to disposable income, debt-service payments
declined relative to income.
Percent
19

Percent

80
18

17

Debt-service
payments
(left scale)
70

16

60

15

14
50

Debt
(right scale)

13

12
0

40
0
1964 1965
1964 1966

1969

1974

1979

1984

1989

1994

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Sources: Department of Commerce and Board of Governors of the Federal Reserve System.

INVENTORIES
The sustained pace of inventory accumulation during 1994 was
in marked contrast to the early stages of the recovery, when businesses refrained from rebuilding inventories out of concern that the
recovery might lose steam. A hefty accumulation of inventory
stocks occurred in the second, third, and fourth quarters, particularly in the wholesale and retail trade sectors. Although it is impossible to know with certainty to what extent the accumulation
was intended, sales and shipments were also robust, so that there
was little evidence of an inventory overhang that would warrant
significant production cutbacks over the near term. Instead, the
pace of inventory accumulation in the trade sector suggests that
business expected continued growth in demand for its production.
Inventory accumulation was modest in the manufacturing sector,
and movement in the manufacturing inventory-to-sales ratio was
dominated by the strong downward trend seen the past several
years.

RESIDENTIAL INVESTMENT
Residential fixed investment was buoyed throughout 1994 by
growth in incomes and employment. This traditionally interest-sensitive sector of the economy showed remarkable resilience in the
face of rising interest rates. Housing starts totaled 1.5 million



55

units, their highest level since 1988, with single-family home starts
posting their highest annual total since 1978. Although a slowdown
in residential investment took hold during the second half of the
year as real investment dropped at an annual rate of 4.3 percent,
average 1994 residential investment was still over 8 percent greater than the average for 1993. Sales of existing single-family homes,
at just under 4 million, posted the highest resale total since 1978.
One factor that sustained the strength in housing in 1994 was
the increased reliance on adjustable-rate mortgages (ARMs) in financing home purchases. During the summer of 1993 the ARM
share of mortgage originations was only about 17 percent—near
the historic low for this series. By November 1994, however, more
than half of all mortgage originations were ARMs—the highest proportion in more than 5 years. Not only were many ARMs priced
with a first-year discount, but they also allowed borrowers to structure their payments in a variety of ways; for example, some ARMs
offered fixed rates for the first 7 or 10 years. The pricing of ARMs
mitigated the initial cash crunch facing many home buyers and
meant that fewer families were priced out of the market as interest
rates rose (Chart 2–4).
Chart 2-4 Fixed-Rate Mortgage Interest Rates and the Share of ARMs
Over the past year, more home buyers turned to adjustable-rate mortgages (ARMs)
as rates on fixed-rate mortgages rose.
Percent
10

Percent
70

60
8

Interest rate on fixed-rate loans
(left scale)

50

6

40

30

4

20
2

ARM share of mortgage originations
(right scale)

0

10

0
1991

1991

1992

1992

1993

1993

1994

1994

Source: Federal Housing Finance Board.

Construction of multifamily units gradually picked up following
the overbuilding of the 1980s. The willingness to build new units



56

was boosted by the increased availability of credit for such construction over the course of the year. During 1994, multifamily
housing starts rose by 59 percent relative to 1993.

EMPLOYMENT AND PRODUCTIVITY
The strength of the expansion in 1994 was accompanied by a
rapid pace of job creation. According to current estimates the economy generated an average of 290,000 new payroll jobs per month,
for a total of 3.5 million jobs, more than 90 percent of which were
in the private sector. An early analysis of forthcoming revisions to
estimates of payroll employment indicates that the job gains in
1993 and 1994 may prove to have been even stronger. For the 12
months ending in March 1994, the Bureau of Labor Statistics
(BLS) estimates that as many as 760,000 additional jobs may have
been created. When the revised data are released next summer, it
is expected that the job gains since the Administration took office
will have exceeded 6 million.
The employment gains of 1994 were spread widely throughout
the economy (Table 2–2). Among goods-producing industries, construction employment posted its largest annual gain in a decade,
while manufacturing employment recorded its largest increase
since 1987. However, almost 85 percent of the advance in payroll
employment was concentrated in the services sector, with 20.3 percent originating in the business services category (temporary agencies, building maintenance, and the like) and another 7.3 percent
in the health services industry. Employment of Federal workers declined by 46,000.
TABLE 2–2.— Growth in Nonagricultural Payroll Employment
Employment in
December 1994 1
(thousands
of persons)

Sector

Change since December 1993 1
Thousands
of persons

As percent of
total change

Total nonagricultural employment ..................................................

115,864

3,490

100.0

Goods–producing industries 2 ................................................
Construction .........................................................
Manufacturing ......................................................
Durable goods .............................................

23,779
4,956
18,226
10,419

553
298
277
250

15.8
8.5
7.9
7.2

Services-producing industries 2 ..............................................
Retail trade ..........................................................
Business services .................................................
Health services .....................................................

92,085
21,297
6,817
9,153

2,937
811
710
256

84.2
23.2
20.3
7.3

Government ....................................................................
Federal ..................................................................
State and local .....................................................

19,491
2,872
16,619

252
−46
298

7.2
−1.3
8.5

1 Preliminary.
2 Includes

industries not shown separately.
Note.—Data are not seasonally adjusted.
Source: Department of Labor.

Although job creation has been exceedingly strong during the
past 2 years, some analysts have expressed concern about the qual


57

ity of the jobs created. In particular, it has been noted that, during
the late 1980s and the early part of this decade, job growth in the
traditionally high-wage manufacturing sector lagged increasingly
behind gains in the relatively low-paying services sector. Less frequently cited, however, is the fact that recent gains in employment,
although concentrated in relatively low-wage industries, have at
the same time favored high-wage occupations.
For example, according to BLS, managerial and professional occupations represented 26.5 percent of total employment in 1992. In
1993 this share rose to 27.1 percent. Although the data for 1994
are not directly comparable because of the introduction of a new
survey of household unemployment, the share of total employment
accounted for by managerial and professional occupations last year
rose to 27.5 percent. Managerial and professional jobs paid a median wage for full-time employees of $680 per week—some 47 percent above the median wage of all full-time workers.
One characteristic of recent job growth that warrants concern
has been the increase in the share of new jobs accounted for by
temporary jobs. Employment at so-called help supply services (the
best available measure of temporary employment) has accounted
for 13.8 percent of all new jobs created during the current expansion. By comparison, over the 1982–90 period, only 4.4 percent of
total growth in employment was in the help supply services category.
With the sharp job gains in 1994, the civilian unemployment rate
fell by more than 1 percentage point, from 6.7 percent in January
to 5.4 percent in December. Despite the fact that the new survey
method is likely to have raised the measured unemployment rate,
December’s rate was the lowest since 1990 (Box 2–1). Nevertheless,
over the current expansion, the average duration of unemployment
has increased, and the share of unemployed workers reporting permanent job losses has risen.
Not only were more people working in 1994, but they were working longer hours. In the manufacturing sector, employment posted
its first annual increase since 1988, and both the factory workweek
and manufacturing overtime hours increased to postwar records.
Labor productivity in the nonfarm business sector has also been
strong: since the trough of the recession in 1991, output per hour
in the nonfarm business sector has risen at an annual rate of 2.1
percent, well above most estimates of its long-run trend. Because
productivity generally grows at above-trend rates during a cyclical
rebound, it would be premature to conclude that there has been an
increase in the long-run trend in productivity growth. Chapter 3
provides a more detailed discussion of the factors affecting long-run
productivity growth.



58

Box 2–1.—The Redesign of the Current Population Survey

The Bureau of Labor Statistics’ Current Population Survey,
a monthly survey of households, is a major source of information about the U.S. labor market. The monthly unemployment
rate statistics are based on this survey. In January 1994 a
major redesign of the survey was implemented to give a more
accurate picture of the work force, taking into account changes
in the patterns of employment by industry and changes in the
labor force participation of women. BLS currently estimates
that the effect of the new survey is to raise the measured aggregate unemployment rate by 0.2 percentage point relative to
the old survey.

INCOMES AND PROFITS
The gains in employment during 1994 were reflected in strong
aggregate income growth. Real disposable income increased 4.3
percent over the year. Nonetheless, the gain in real compensation
per hour remained modest. Hourly compensation, as measured by
the employment cost index, increased 3.0 percent, barely outpacing
the 2.7-percent increase in CPI inflation.
Based on a statistical relationship between the unemployment
rate and the growth rate of hourly compensation, actual growth in
compensation (with the compensation measure taken from the national income and product accounts, or NIPA) was lower than
would have been expected. The same was true in 1993. Statistical
relationships are meant to explain only average historical experience, and their predictions can err substantially on a year-by-year
basis. Nevertheless, the shortfall in actual relative to predicted
growth in hourly compensation averaged 1.4 percent in the 2
years—a shortfall that by its size and persistence could suggest
some substantial changes in the dynamic behavior of the labor
market.
The increase in corporate profits in 1994 was impressive. Although the January 1994 earthquake in Northridge, California, depressed profits (so that first-quarter profits fell by 18 percent at an
annual rate), they rebounded quickly. Despite the earthquake-related drop, corporate profits increased at an annual rate of 5.6 percent over the first three quarters of 1994.

INFLATION
Some observers expressed concerns during 1994 that the strong
gains in employment would translate into upward pressure on
labor costs and prices by the end of the year. Indeed, the prices of
some highly visible commodities, including coffee, cotton, and basic



59

metals, did rise by significant amounts during the year. In addition, surveys of industrial prices by the National Association of
Purchasing Managers and the Federal Reserve Bank of Philadelphia indicated that prices in the industrial sector were accelerating. Although increases in commodity prices, particularly among
industrial goods, made for some disturbing headlines, rising commodity prices are a normal phenomenon during a cyclical rebound
in the economy and do not typically lead to a noticeable increase
in broader measures of inflation. However, with capacity tight in
many industries, there was concern that commodity price increases
would spill over into increases in other goods. Moreover, for the
first time in 4 years, import prices began edging up more rapidly
than overall inflation.
Despite the episodes of price acceleration for some commodities,
and despite real GDP growth that sharply reduced slack in labor
and capital markets, broad measures of inflation remained stable
throughout the year (Table 2–3). Inflation ended the year about in
line with the consensus forecast made at the beginning of the year.
Core CPI and PPI inflation rates (measures that exclude volatile
food and energy components) were lower during the second half of
1994 than during the first half of the year. Core CPI inflation was
just 2.6 percent last year—the lowest rate since 1965 (Chart 2–5).
(Box 2–2 Contains a discussion of problems in the CPI as a measure of changes in the cost of living.) A major source of the restraint
in inflation was modest growth in employee compensation accompanied by strong growth in labor productivity.

REGIONAL DEVELOPMENTS
The ongoing effects of the national economic expansion were felt
in all major regions of the country during 1994. Although the pace
of the expansion was uneven across the country, all major regions
(that is, all nine Census divisions) enjoyed stable employment or
outright employment growth, steady or declining unemployment
rates, and real growth in income and retail sales.
In 1994 the Midwest and South continued along the moderateto-strong growth path established over the preceding 2 years, with
payroll employment rising 2 to 3 percent, unemployment rates falling steadily, and income rising more than 6 percent. In the Northern Plains States the unemployment rate fell below 4 percent—its
lowest level in 15 years. Parts of the Northeast also grew strongly.
In New England, employment rose nearly 2 percent in 1994, and
the unemployment rate dropped to below the national average. The
Middle Atlantic region displayed somewhat weaker growth but nevertheless generated increased employment, with the region’s unemployment rate falling to 5.4 percent in December (Chart 2–6).




60

TABLE 2–3.— Measures of Inflation
Measure

1993

1994 IV
(annual
rate)

1994

Percent change
GDP fixed–weight price index .............................................................................................
Non-oil import prices ..........................................................................................................

2.8
1.5

1 2.9

1 2.6

3.9

4.6

CPI–U:
All items .....................................................................................................................
All items less food and energy ..................................................................................
Medical care ...............................................................................................................

2.7
3.2
5.4

2.7
2.6
4.9

2.2
2.0
6.1

Finished goods ...........................................................................................................
Finished goods less food and energy ........................................................................
Intermediate materials less food and energy ............................................................
Crude materials ..........................................................................................................

.2
.4
1.6
.1

1.7
1.6
5.1
−1.1

1.0
−.6
9.0
2.8

Employment cost index: 2
Total compensation ....................................................................................................
Wages and salaries ...........................................................................................
Benefits .............................................................................................................

3.5
3.1
4.6

3.0
2.8
3.4

2.6
2.4
2.8

PPI:

1 Preliminary.
2 For

civilian workers.
Note.—Inflation as measured by the GDP price index is computed from fourth-quarter to fourth-quarter for 1993 and
1994, and from 1994 III to 1994 IV. All other measures are calculated from December to December for 1993 and 1994, and
from September to December for 1994 IV.
Sources: Department of Commerce and Department of Labor.

Chart 2-5 Consumer Prices Less Food and Energy
In 1994 consumer prices less food and energy increased at the lowest annual rate
since 1965.
Percent change, December to December
14

12

10

8

6

4

2

0
1965

1969

1973

1977

1981

Source: Department of Labor.




61

1985

1989

1993

Box 2-2.—Problems in Measuring Cost-of-Living Increases

It is impossible in practice to calculate an index number that
accurately reflects changes in the cost of living for American
families, because no two families are alike and because the
quality and the availability of goods and services change. Private companies and public policymakers, needing an objective
measure of consumer inflation but aware of the limitations to
which all are subject, have used what is widely regarded as the
best available index, the consumer price index (CPI).
Researchers at the Bureau of Labor Statistics, which prepares the CPI, have identified several problems with the index,
and the agency has moved, where possible, to address them.
The most important technical problems remaining are substitution bias and the treatment of quality changes and new products. The net effect of these and other problems is probably to
make the CPI overstate actual cost-of-living increases, but this
is controversial and estimates vary widely.
Substitution bias arises because consumers regularly shift
the composition of their purchases, substituting goods that
have become relatively cheaper for goods that have become relatively more expensive. The CPI, which measures the price
changes of a mostly fixed basket of goods, fails to capture such
shifts. This is inherent in the nature of the CPI, which was designed originally to measure the average price increase for a
fixed basket of goods and services, not to capture changing consumption patterns. Whenever the market basket used to calculate the CPI is updated (usually every 10 years), substitution
bias is mitigated, only to worsen again over time as consumer
choices diverge from the new market basket. More frequent
changes in the market basket would reduce the bias but would
require additional resources as well as research to determine
how frequently the updates should occur.
The quality of the goods and services purchased by consumers also changes over time. In principle, a change in price that
reflects a change in quality is not a change in the cost of living.
The CPI cannot, however, adjust the prices of all the products
in its market basket for changes in their quality: it is simply
impossible to measure the extent of ongoing quality changes in
the myriad products consumers purchase. Experts disagree
about how well the CPI in practice has accounted for quality
changes and how this accounting might best be improved.




62

The West was a region of sharp contrasts. The Rocky Mountain
region was the star performer of 1994. Payroll employment rose
more than 4 percent and personal income jumped more than 8 percent. Similarly, the Mountain region led the Nation in retail sales
growth. Although the unemployment rate fell less sharply there
than in other regions in 1994, by September the rate was less than
5 percent.
In contrast, the Pacific region’s performance continued to lag well
behind its strong growth of the 1980s, largely reflecting the subpar
performance of California. Payroll employment growth in the Pacific region, although positive, trailed that of other regions; even by
the end of the year the level of employment had not yet regained
its prerecession peak. California’s unemployment rate remained far
above the national average throughout the year, and the pace of job
creation there was much slower than in the rest of the country.
Much of the softness of the California economy reflected weakness in the southern part of the State. The loss of jobs associated
with defense downsizing and the collapse of the Los Angeles area
real estate market over the past few years has been well documented. Although the number of jobs in the aerospace industry
continued to decline, there is now evidence that other sectors of
Southern California’s economy are picking up and that the real es


63

tate market has finally stabilized. Moreover, California should benefit from the growth in incomes elsewhere in the Nation as it
translates into increasing orders for California producers who ‘‘export’’ their goods and services to the rest of the country.

INTERNATIONAL DEVELOPMENTS
During 1994, America’s merchandise trade deficit (the excess of
merchandise imports over exports) increased to 2.7 percent of GDP,
reaching a total deficit of $169 billion (Chart 2–7). More rapid
growth at home than in the rest of the world was a major factor
responsible for the deterioration in the Nation’s external position.
Chart 2-7 Merchandise Exports and Imports
Since 1991 the deficit on merchandise trade has been widening.
Percent of GDP
12
10

Imports

8

Exports

6
4
2
0
-2

Net
-4
-6
19861986 19871987 1988 1988 1989 1989 1990 1990 1991 1991 1992 1992 1993 1993 1994 1994
Note: Trade data are on a balance-of-payments basis.

Sources: Council of Economic Advisers and Department of Commerce.

Real exports of goods and services expanded briskly, rising 10.2
percent in 1994, and the United States maintained its position as
the world’s largest exporter. The strengthening recovery in foreign
industrial countries, continued robust growth in developing countries, the decline in the dollar’s exchange value, the implementation of the North American Free Trade Agreement, and the ongoing
improvement in America’s underlying competitiveness all helped to
boost export sales to record highs. But the rise in exports was outstripped by the increase in imports that accompanied strong domestic investment and consumption demand. The performance of
the trade deficit in 1994 was consistent with estimates indicating



64

that, for the United States, the response of imports to a change in
domestic income is generally greater than the response of exports
to a similar change in foreign income.

America as an International Debtor
The United States remains critically dependent on foreign capital
inflows to finance its sizable external deficit. Since the early 1980s,
when America’s claims on foreigners exceeded foreigners’ claims on
the United States, persistent current account deficits and the counterpart foreign acquisition of U.S. assets have led to a buildup of
U.S. international indebtedness. By the late 1980s the value of U.S.
assets owned by foreigners was larger than the value of foreign assets owned by American residents, and the gap has continued to
grow since then (Table 2–4). Total net U.S. international debt exceeded $500 billion in 1993; the figure is $556 billion if direct investment holdings are valued at current cost, and $508 billion if
those holdings are evaluated at market value. As a share of nominal income, the burden of net international debt has risen to between 8 and 9 percent of GDP. Regardless of whether it is measured in billions of dollars or as a share of income, however, the
debt owed to foreigners remains high.
TABLE 2–4.— U.S. Net International Investment Position
Billions of dollars
End of year

At current
cost

Percent of GDP

At market
value

At current
cost

At market
value

1982 ................................................................................................

379

265

11.9

8.3

1987 ................................................................................................

−23

58

−.5

1.2

1990 ................................................................................................

−251

−224

−4.5

−4.0

1993 ................................................................................................

−556

−508

−8.6

−7.8

Source: Department of Commerce.

Yet despite its position as an international debtor, the United
States until very recently registered a positive balance on net investment income. Higher rates of return on U.S. holdings abroad
than on foreign holdings of U.S. assets reflected in part low rates
of return on foreign holdings, most notably on investments in real
estate. During 1993, however, the balance on investment income
switched from positive to negative. Net investment payments now
add to our current account deficit, increasing our financing needs
and our dependence on foreign capital. Without a sizable reduction
in the net debt owed to foreigners, either through an increase in
U.S. holdings of foreign assets or through a reduction in U.S. liabilities to foreigners, net investment income payments are likely to
remain in deficit through the end of the decade and beyond. Over
time, net investment income payments to foreigners will constitute
a larger and larger share of our current account position.



65

Exchange Rates
The value of the dollar declined about 8 percent last year when
measured on a trade-weighted basis against the currencies of the
nine major foreign industrial countries. However, the nominal
value of the trade-weighted dollar has been broadly trendless since
early 1987, following the Louvre Accord among the six major industrialized countries to stabilize exchange rates.
The dollar moved more substantially against some individual
currencies than is reflected in the weighted-average rate (Chart 2–
8). Between the end of 1993 and July 1994, the dollar declined
some 12 percent against the Japanese yen, bringing the cumulative
decline vis-a-vis the yen since the end of 1992 to 21 percent. After
midsummer the dollar’s value in terms of the yen was more stable,
and the dollar ended the year trading at 99.6 yen. Movements in
the dollar-yen rate reflected to some extent trade tensions between
Japan and the United States (see Chapter 6). In addition, the rising current account deficit in the United States and surplus in
Japan may have increased downward pressure on the dollar and
upward pressure on the yen. Although both the American and the
Japanese current account imbalances have been rising in recent
years, external imbalance is not new for either country; thus it remains a question how much this factor influenced the behavior of
financial markets in 1994.
Chart 2-8 Measures of the Dollar’s Value
The dollar fell against the currencies of Japan and Germany in 1994 but appreciated
against the Canadian dollar.
Index, January 1987=100
110

Canada
100

90

80

Germany

70

Japan
60
1990

1990

1991

1991

1992

1992

Note: Data represent units of foreign currency per U.S. dollar.
Source: Board of Governors of the Federal Reserve System.




66

1993

1993

1994

1994

The dollar also weakened significantly against some European
currencies, most notably vis-a-vis the German mark and the currencies that are closely tied to it through the European Exchange
Rate Mechanism, such as the French franc, the Belgian franc, and
the Dutch guilder. Over the course of the year the dollar fell 11
percent against the mark. At the beginning of 1994 market participants expected some rise in the dollar’s value relative to the mark,
as monetary policy in the United States was widely expected to
grow tighter and that in Germany to become easier over the year.
The strength of the German recovery relative to expectations may
have accounted for some of the appreciation of the mark against
the dollar.
Against the currency of our largest export market—the Canadian
dollar—the U.S. dollar appreciated 5 percent last year. Since mid1991 the Canadian dollar has lost 19 percent of its value relative
to the U.S. dollar. Major contributors to the slide in the Canadian
dollar have been rising government debt and political uncertainty:
the ratio of Canadian Government debt to GDP hit 95 percent in
1994 (up from less than 70 percent in 1989), and the increasing
strength of the Quebec separatist movement has gained widespread
attention.
At the end of 1994 the Mexican peso declined sharply—by some
31 percent—vis-a-vis the U.S. dollar. Details of the peso’s fall and
efforts by the Administration to address Mexico’s resulting liquidity
crisis are discussed in Chapter 6.
Other factors are likely to have influenced the overall depreciation of the dollar as well. First, the perception by at least some
market participants that the Federal Reserve was slow to tighten
the stance of monetary policy may have led investors to sell dollar
assets. In addition, the widely discussed move by institutional investors out of dollar assets and into emerging-market funds in
order to diversify portfolios no doubt contributed to the dollar’s
weakness.

FISCAL POLICY IN 1994 AND BEYOND
As noted in Chapter 1, the Administration’s 1994–98 budget
package, embodied in the Omnibus Budget Reconciliation Act of
1993 (OBRA93), resulted in a dramatic reduction in the Federal
deficit in 1994 and markedly improved the deficit outlook for the
remainder of this decade. The fiscal 1994 deficit was $52 billion
lower than the fiscal 1993 deficit, and $72 billion lower if special
factors, such as net receipts from sales of assets acquired from
failed savings and loans, are excluded. Over the entire 1994–98 period, the Administration estimates that accumulated deficits will
fall by some $616 billion relative to the pre-OBRA93 baseline—



67

roughly $500 billion from OBRA93’s spending cuts and revenue increases, and the remainder from technical revisions as well as improved economic conditions, the latter in part due to the budget
package. The Administration’s 1996 budget package preserves
OBRA93’s deficit reduction measures and adds another $81 billion
in budgetary savings through 2000, even as it provides full funding
for the Administration’s proposed middle-class tax cuts, which will
total $63 billion between 1996 and 2000.
As a result of the Administration’s deficit reduction measures,
along with projected slowdowns in medicare and medicaid spending, the Federal deficit will continue to decline as a share of GDP,
averaging about 2.5 percent during the 1994-2000 period, nearly 2
percentage points less than the 4.4-percent average for the 1982–
93 period.
Because the size of the budget deficit depends not just on policy
decisions but also on the state of the economy, economists prefer
to use the so-called structural or cyclically corrected deficit to assess the stance and direction of fiscal policy. The structural deficit,
defined as the deficit that would result if the economy were operating at or near its potential output level, is designed to capture the
effects of policy and exclude the effects of the business cycle on the
size of the deficit.
Chart 2–9 shows the Administration’s estimates of the structural
deficit relative to the economy’s potential output. The chart reveals
that this ratio rose dramatically during the 1980s, reaching a peak
of 5 percent in 1986 and averaging 3.9 percent between 1982 and
1993. Between 1993 and 1994 the stance of fiscal policy became
contractionary in response to OBRA93’s implementation, and this
ratio fell from 3.3 percent to 2.8 percent. The decline in the ratio
of the structural deficit to potential GDP is even more impressive
when special factors such as deposit insurance are excluded: from
3.7 percent in 1993 to 2.9 percent in 1994. Moreover, based on the
Administration’s current economic forecast, projected slowdowns in
the growth of medicare and medicaid spending, and the Administration’s deficit reduction policies, the structural deficit is projected
to decline throughout the remainder of the decade as a share of potential GDP and to average 2.5 percent for the entire 1994–2000
period.

THE BUDGET OUTLOOK OVER THE LONGER RUN
Current long-run projections suggest that if the Administration’s
current policy proposals are enacted and the anticipated slowdowns
in medicare and medicaid spending persist, the improvement in the
deficit should be preserved for at least the next 10 years. Beyond
2000 the deficit is anticipated to remain roughly constant. Relative
to GDP, however, the deficit is likely to continue its gradual de


68

Chart 2-9 Structural Budget Deficits
Policy changes enacted in 1993 arrested the upward trend of the deficit, and the President’s
proposed budget for fiscal 1996 will achieve even more deficit reduction.
Percent of potential GDP
6

Without deficit reduction
5

4

3

2

With OBRA93 and
1996 budget package
1

0
1964

1967

1970

1973

1976

1979
1982
1985
Fiscal Years

1988

1991

1994

1997

2000

Note: Structural deficit excludes cyclical revenues and outlays.
Sources: Council of Economic Advisers and Office of Management and Budget.

cline, falling below 2 percent early in the next century. Over the
longer run, changing demographics will put upward pressure on
the deficit as the baby-boom generation, born during the first two
decades after World War II, begins to retire. The aging of the population will contribute to rising expenditures for both Social Security
and Federal medical programs, because medicare is primarily a
program for those over the age of 65, and medicaid is increasingly
a program for elderly people needing nursing home care.
During the 1996–2000 period, spending for both medicare and
medicaid is projected to increase at a slower rate than in recent
years. This projected slowdown is the result of several factors including lower projected medical cost inflation, slower projected
growth of the medicaid beneficiary population, and increased scrutiny of State claims for certain Federal medicaid matching payments. Despite these changes, however, the projected growth rates
for both medicare and medicaid remain very high. Medicare benefits are projected to grow at an average annual rate of 9.1 percent,
and medicaid benefits at an average annual rate of 9.3 percent.
Both of these growth rates are nearly three times the projected
general inflation rate of 3.2 percent, and at these rates both medicare and medicaid spending will double every 8 years. As a result,
by 2000 spending on these programs will account for one-fifth of
total Federal outlays, rising from 3.4 percent of GDP in fiscal 1994



69

to 4.1 percent by 2000. By 2005 these health care programs will
amount to 4.9 percent of GDP.
The number of people participating in the Federal health programs is expected to increase as the medicaid population grows at
an anticipated 3.8-percent annual rate on average between now
and 2000. However, this expansion makes up a relatively small
part of the increase in total Federal spending for medicare and
medicaid—it could be accommodated without undue pressure on
the deficit. The main reason why the fiscal impact of these programs is such a problem is that health care spending per beneficiary keeps rising faster than inflation—indeed faster than inflation plus the general increase in real per capita GDP.
Chart 2–10 illustrates the impact of rising medicaid and medicare spending on the deficit. If spending on these programs grew
at the rate of increase of the beneficiary population, but spending
per beneficiary rose in line with per capita nominal GDP, the Federal budget would be balanced by the year 2003. Obviously it is unrealistic to anticipate such a sharp change in health care spending
trends given the long history of rapid growth, but this fact helps
pinpoint the real problem behind the continuing large Federal deficit and confirms the need for genuine health care reform.

Chart 2-10 Health Care Inflation and the Federal Deficit
If per beneficiary costs of medicare and medicaid rose only at the rate of growth of nominal
per capita output, the Federal deficit would vanish by the year 2003.
Percent of GDP
5

4

Projected deficits with
current rate of
health care inflation

3

2

1

Projected deficits with
moderated rate of
health care inflation

0

-1

-2
1993

1995

1997

1999
Fiscal Years

Source: Office of Management and Budget.




70

2001

2003

2005

As noted in Chapter 1, the Administration remains committed to
such reform, to provide health security to all Americans and contain health care costs for families, businesses, and Federal, State,
and local governments. Because of the linkages and interactions between public health care programs and the private health care
market, attempts to stem the growth of Federal programs by such
mechanisms as spending caps will not solve the underlying problem of costs. Instead, the imposition of caps will shift costs to the
private sector and threaten the availability and quality of services
for the medicare and medicaid populations.

THE CHANGING COMPOSITION OF
FEDERAL SPENDING
One of the underappreciated aspects of fiscal policy is the change
in fiscal spending priorities that has emerged during the last three
decades. Chart 2–11 presents the major categories of Federal
spending over this period. The chart indicates that—contrary to
conventional belief—the long-run growth of nondefense discretionary spending has been considerably slower than GDP growth
for much of this period, and the ratio of nondefense discretionary
spending to GDP is projected to remain well below the peak realized in 1980.
Chart 2-11 Composition of Federal Spending
Relative to GDP, discretionary spending has fallen during the past two decades,
while entitlement spending and interest on the debt have grown.
Percent of GDP

Percent of GDP

Discretionary

Entitlements and Net Interest

8

8

Other mandatory spending

Defense

6

6

Social Security

4

4

Nondefense

2

2

Net interest
Health entitlements
0

1970

1975

1980
1985
Fiscal Years

1990

1995 1970

Source: Office of Management and Budget.




71

1975

1980
1985
Fiscal Years

1990

1995

0

To some extent, the diminishing claim on economic output of
nondefense discretionary spending reflects competition between defense and nondefense spending. But to a larger extent the contraction of nondefense discretionary spending relative to GDP reflects
the pressure on the budget of rapid growth in both net interest
payments on the debt and entitlement spending. Over the early
1980s the buildup in Federal debt was particularly large. As a result, 1994 interest payments on the debt constituted 3.1 percent of
GDP, compared with an average of 1.6 percent between 1970 and
1981.
The most dramatic feature in the changing expenditure mix is
the growth of spending on entitlement programs, especially health
care programs. Federal health care spending grew from an average
of 1.3 percent of GDP over the 1970–81 period to close to 3.4 percent of GDP by 1993–94. Between 1970 and 1994, average annual
growth in health care spending was about 13⁄4 times average annual growth in nominal GDP.
Chart 2–12 provides detail on the projected composition of Federal spending for fiscal 1995. The four largest components of Federal spending are Social Security, national defense, interest on the
debt, and medicare, in that order. Together these categories account for about 65 percent of total Federal spending. Expenditures
for medicare, the smallest of these four components, are over five
times spending on food stamps, over eight times spending on international affairs, and over nine times spending on aid to families
with dependent children.

PRINCIPLES FOR EVALUATING ALTERNATE
TAX PROPOSALS
As already noted and described in Chapter 1, the Administration’s 1996 budget proposal contains a package of tax cuts for middle-class Americans. These include a child-based tax credit, a tax
deduction for postsecondary education and training expenses, and
expanded availability of individual retirement accounts (IRAs).
These initiatives are paid for primarily by discretionary spending
cuts.
In its assessment of various tax proposals that are likely to be
considered by the Congress during the coming year, the Administration will rely on four basic principles:
• Do the proposed changes in tax policy enhance long-run economic growth?
• Are they consistent with norms of economic efficiency?
• Are they fair?
• Are they fiscally responsible?




72

Chart 2-12 Federal Outlays by Function, Fiscal 1995
Social Security, defense, medicare, and net interest on the debt comprise 65 percent of
Federal spending, dwarfing outlays on international affairs and social insurance programs.

Social Security (22%)
International
Affairs (1%)
Defense (18%)

Other (13%)

Food Stamps (2%)
Other Income
Security (6%)
Net Interest (15%)

Medicaid (6%)

Pensions and
Unemployment (6%)

Medicare (10%)

AFDC (1%)

Note: AFDC is aid to families with dependent children.
Source: Office of Management and Budget.

Although each of these principles is important in its own right, any
set of tax proposals should be evaluated in terms of how it measures up against all four.
The first of these principles focuses on the incentive properties
of tax measures and takes a long-run view of their likely results.
The Administration’s proposed tax deduction for postsecondary
education and training expenses, for example, is designed to
strengthen individual incentives to invest in these activities, both
of which have been demonstrated to offer good rates of return on
average. Similarly, the Administration’s proposed IRA expansion is
intended to focus more attention on household saving. The goal of
these tax proposals is to increase the economy’s aggregate amounts
of human and physical capital, thereby increasing incomes in the
long run.
The second principle concentrates on economic efficiency by examining the distortions that proposed taxes might create in basic
economic choices. In the early 1980s, for example, changes in tax
policy produced a proliferation of tax shelter activity, with adverse
consequences for both investors and the tax system. Another example of a proposal that is deeply flawed from an efficiency point of
view is the ‘‘neutral cost recovery system’’ proposed in the House
Republican Contract with America. This system offers, for certain
types of assets, depreciation allowances that are indexed for infla


73

tion and then increased by a factor of 3.5 percent per year. However, it does not index debt, so that businesses can deduct all of
their interest expense rather than only that portion associated with
the real interest rate. Thus it effectively shields businesses from
taxation on many of their investments while permitting them to deduct fully the costs of debt to finance those investments. This
would create a large economic distortion in investment choices both
because it would result in a negative income tax on a significant
fraction of total business investment and because it would treat different types of capital differently.
The third principle for evaluating tax proposals is fairness, an
important dimension of which is vertical equity, or the distribution
of the tax burden among families at different income levels. As
noted earlier, about 87 percent of the benefits of the Administration’s proposed tax cuts would go to families with annual incomes
under $100,000. In contrast, according to analyses by the Treasury
Department, about 50 percent of the benefits of the tax cuts proposed in the Republican Contract would go to families with annual
incomes over $100,000—only 10 percent of all American families.
The overall effect of the Contract’s tax package would be to reduce
substantially the progressivity of the Federal tax system. A second
important dimension of fairness is horizontal equity—that is, providing similar treatment to taxpayers in similar economic situations. By further increasing the gap between the tax burdens on
labor income and capital income, the capital gains rate reductions
proposed in the Republican Contract fall short on this score as
well.
Finally, whether a proposed tax reduction is desirable economic
policy depends on whether it provides social benefits greater than
its revenue cost. As already noted, the revenue losses resulting
from the Administration’s tax proposal are fully offset by specific
spending cuts, allowing continued progress on deficit reduction
through the end of the decade. Specific revenue offsets have not
been offered for the substantial costs of the tax proposals in the Republican Contract; those costs have been estimated by the Treasury
Department at $205 billion between fiscal 1995 and fiscal 2000,
and $725 billion between fiscal 1995 and fiscal 2005.
Moreover, the Administration uses conventional accounting
methods to ‘‘score’’ the impact of its tax proposals. In contrast,
some members of the Congress have proposed using so-called dynamic scoring methods to evaluate the budgetary impact of their
proposed tax reductions. For the reasons noted in Box 2–3, although such methods sound reasonable in theory, in practice they
would pose grave risks, because they could easily be used to rationalize tax reductions that would sharply increase the deficit over
time.



74

Box 2-3.—Scoring the Revenue Consequences of Tax and
Expenditure Changes

Current ‘‘static’’ budgeting techniques recognize and incorporate many kinds of behavioral responses to proposed changes
in government policies. For example, if an increase in the tax
on gasoline is being considered, budget analysts will estimate
the likely reduction in gasoline purchases and adjust their revenue estimates. But current techniques also assume that these
behavioral responses are not large enough to significantly affect the level of total output or its growth rate within the 5year budget window.
Nearly all economists would agree that in principle policymakers should consider the effects of policy changes on the aggregate economy. But the consensus quickly falls apart when
it comes to the details of how such ‘‘dynamic’’ scoring should
be conducted. The lack of consensus reflects the fact that models of the macroeconomy are very complex, embodying myriad
assumptions about the behavior of individuals and businesses.
Even small differences in these assumptions can lead to different conclusions.
For example, different assumptions about the sensitivity of
labor supply decisions to changes in income tax rates, and
about the sensitivity of saving to changes in the after-tax rate
of return, can lead to very different conclusions about the extent of revenue loss resulting from a reduction in the income
tax rate or the capital gains tax rate. Unfortunately, existing
empirical techniques make it impossible to determine which estimates are the best predictions of behavioral responses to tax
rate changes with the degree of precision necessary for reliable
dynamic analysis.
Although static scoring techniques rest on simplifying assumptions, budget decisions involving tens of billions of dollars
are too important to leave to dynamic scoring techniques which
are fraught with uncertainties and easily manipulated. It is
not hard to imagine how dynamic scoring techniques could be
used to justify generous tax cuts on the grounds that they
would pay for themselves, when it is all too likely that they
would cause a large increase in the deficit.

The Debate over Further Reduction in the Capital Gains
Tax Rate
One of the fiscal initiatives that is likely to be proposed and debated during the coming fiscal year is a further reduction in the
tax rate on capital gains. Under current law, capital gains income




75

already receives a tax preference relative to other forms of income.
This preference arises from several provisions. First, the statutory
rate on capital gains is capped at 28 percent, compared with a 39.6percent marginal rate on other forms of income for upper income
households. Second, capital gains are taxed only when an asset is
sold, not as the gain accrues. Third, the tax liability against an appreciated asset is forgiven when the owner of the asset dies.
Fourth, the tax liability on the sale of a principal residence is deferred provided the seller purchases another house at least as expensive within 2 years. Finally, taxation on up to $125,000 of the
capital gain on the sale of a principal residence is forgiven if the
owner is over the age of 55 (this exclusion may be taken only once
in a taxpayer’s lifetime). OBRA93 further expanded the tax preference for capital gains by exempting from tax one-half of all capital gains generated by equity investments held for at least 5 years
in certain small businesses.
Arguments in favor of yet more generous treatment of capital
gains are based largely on claims that a cut in the tax rate would
spur saving and investment and would raise, rather than lower,
government tax revenues, especially capital gains tax receipts. Although a reduction in capital gains tax rates would increase the
after-tax rate of return on savings (for a given before-tax rate of
return), the preponderance of the available empirical evidence suggests that private saving is not likely to increase much in response.
Indeed, private saving (both from domestic sources and from an inflow of foreign capital) has historically been fairly insensitive to
changes in the rate of return. In addition, as discussed below, government revenues from capital gains are likely to fall with a cut
in the tax rate, unless there are feedback effects on the growth of
the economy (for instance from channeling more, or redirecting existing, resources into new ventures) that are implausibly large. If
total saving—the sum of private saving and government saving—
did not increase, neither investment spending nor aggregate output
would increase.
Can lower capital gains tax rates raise capital gains revenues
even if they do not induce an increase in the economy’s growth
rate? In the short run, revenues could increase as lower tax rates
caused asset holders to accelerate the sale of their assets. Especially if the tax cut is thought to be temporary, the incentive could
be strong to realize the gain and pay the tax sooner rather than
later. But such a shift in the timing of the tax would probably
mean a reduction in total capital gains taxes paid on a given asset
over the long run. Indeed, the acceleration in payment would occur
precisely because asset owners view this as a tax-minimizing strategy.



76

In the long run, without an induced increase in economic growth,
a cut in the capital gains tax rate could raise capital gains revenues only under the following circumstances. First, an increase in
the differential between the tax rate on capital gains income and
that on ordinary income might lead taxpayers to transform ordinary income into tax-preferred capital gains income, hence generating more capital gains revenue. Of course, aggregate income taxes
inclusive of capital gains taxes would fall. Second, a reduction in
the capital gains tax rate could induce a shift in investors’ portfolios away from tax-exempt bonds or even housing into assets subject to capital gains taxes. Third, and most important, a reduction
in the tax rate could encourage a decrease in the value of assets
that are held until death in order to escape taxation. Whether the
increase in the realization of capital gains that would otherwise escape taxation would be large enough to offset the decline in tax
revenues from assets whose gains are generally taxed is an empirical question.
Although studies have found a wide range of responses, recent
research suggests that capital gains realizations would rise over
the long haul if tax rates were reduced, but not by enough to keep
capital gains revenues from falling. In any case, eliminating the
capital gains tax preference given to inherited assets is a more
straightforward and certain way of eliminating the lock-in effect,
and thus raising capital gains tax revenues, than a reduction in the
capital gains tax rate itself.
Finally, income tax revenues other than on capital gains could
increase if a reduction in the capital gains tax rate raised the turnover rate of assets subject to sales commissions that are either
fixed or based on gross value rather than capital gain.
When judged by the four principles of long-run growth, economic
efficiency, fairness, and likely effects on revenues and the deficit,
the reduction in the capital gains tax rate proposed by the House
Republican Contract with America—which calls for a 50-percent
tax exclusion for all capital gains and, for certain assets, the taxation of only real capital gains (through the indexation for tax purposes of capital gains for inflation)—is problematic and ultimately
ill-advised. For the reasons already noted, the direct effects of additional capital gains tax relief on private saving and investment—
perhaps its only valid rationale—are likely to be small. The creation of a larger wedge between the rate of capital gains taxation
and the rate of income taxation for higher income taxpayers is likely to encourage more-aggressive tax-sheltering activities. And a reduction in the capital gains tax rate that applied both retrospectively and prospectively would provide a substantial windfall to investments undertaken before the change in the tax code, which



77

does not serve the purpose of encouraging new saving and investment.
An across-the-board reduction in the capital gains tax rate also
violates the principle of tax fairness. By providing different tax
treatment to different classes of assets, the proposal would create
an uneven playing field for investors. Moreover, according to available estimates, about 50 percent of the benefits of a uniform capital
gains rate cut would go to the 1 percent of the population with the
highest incomes, and over 75 percent of the benefits would accrue
to the top 10 percent of the income distribution. Such a skewed distribution of benefits follows directly from the current distribution
of wealth in the United States. According to the Survey of
Consumer Finances, Americans in the top 1⁄2 percent of the net
worth distribution owned 29.1 percent of aggregate net worth in
1989, while the bottom 90 percent owned only 30.7 percent. The
share of the wealthiest 1⁄2 percent increased by 5 percentage points
and that of the bottom 90 percent fell by 2.6 percentage points between 1983 and 1989.
Finally, a uniform and generous reduction in the capital gains
tax rate is likely to be expensive in terms of forgone revenues. The
Treasury estimates that the capital gains tax reduction currently
proposed in the Contract with America would reduce tax receipts
by about $60 billion between fiscal 1995 and fiscal 2000 and by
about $183 billion between fiscal 1995 and fiscal 2005. These lost
revenues would have to be offset by an equivalent amount of
spending cuts (or increases in other revenues) to make the overall
proposal deficit-neutral.

MONETARY POLICY IN 1994
At the beginning of 1994 a growing number of observers began
to express concern that continued economic growth at the pace experienced over the second half of 1993 would soon close the gap between actual and potential output, precipitating increases in wage
and price inflation. This concern was heightened both by a jump
in GDP growth at the end of 1993, to a rate in excess of 6 percent,
and by the degree of underlying momentum the economy carried
into 1994.
Acting to forestall inflation, the Federal Reserve raised the Federal funds rate (the rate on overnight interbank loans) by one quarter percentage point in early February 1994. Monetary policy was
tightened further in five subsequent Fed policy actions over the
course of the year, and by December 1994 the Federal funds rate
stood 2.5 percentage points higher than in January 1994. Although
the year-end Federal funds rate was still considerably lower both
in nominal and in real terms than it had been in 1989 and early



78

1990 (Chart 2–13), when the gap between actual and potential output was roughly comparable to where it was at the end of 1994,
the cumulative rise in the rate was substantial when measured
against changes in the first year of earlier episodes of tightening.
Chart 2-13 Nominal and Real Federal Funds Rates
The rising Federal funds rate in 1994 reflected the Federal Reserve’s shift toward
tighter monetary policy.
Percent
12

10

Nominal funds rate
8

6

Real funds rate

4

2

0

-2
891

1989

901

1990

911

1991

921

1992

931

1993

941

1994

Note: The real Federal funds rate is the nominal rate less the rate of inflation, measured by the change
in the GDP fixed-weight price index over the past year.
Sources: Department of Commerce and Board of Governors of the Federal Reserve System.

The Fed’s action in February, in advance of any apparent increase in inflation, reflected its view that economic activity responds with a lag and then only gradually to changes in interest
rates. In the belief that the risks on inflation had shifted to the upside, the Federal Reserve reduced the degree of monetary accommodation slowly but substantially. In the Fed’s view, the risk of increased inflation was augmented by the actual and expected
strength of real activity, and by the absence of any appreciable
slack in labor markets. Additional factors that influenced the Fed
included a significant pickup in inflation at the early stages of
processing, and an acceleration in nonoil import prices. The Fed
also saw signs that inflationary expectations had risen in the behavior of foreign exchange and long-term debt markets: bond prices
rallied initially with many of the rate hikes, but retreated subsequently with the release of additional news confirming the persistent strength of the economy. Finally, the Fed believed that various
practices of banks during 1994—lowering standards for business
loans and passing through to consumer loans an unusually small



79

portion of the rise in market interest rates—were offsetting some
of the effects of higher interest rates and thus warranted somewhat
larger interest rate hikes.
By the end of 1994 the effects of higher interest rates on real activity had shown up clearly only in the most interest-sensitive sectors, such as housing. Still, the expectation was that the bulk of
the restraint imposed by higher rates in 1994 would materialize
over the coming months, moderating the pace of economic activity
in 1995. Although it is expected that the economy will slow just
enough to bring it to its long-run sustainable path, neither the timing nor the ultimate size of interest rate effects is known with certainty. Thus, it is possible that the Fed will decide that another
rise in interest rates will be required to slow the economy sufficiently, or that the Fed’s monetary tightness will cause economic
growth to slow more than anticipated by the Administration’s forecast.

RISING INTEREST RATES
An element of considerable surprise in financial markets over the
past year was the sharp increase in yields on long-term bonds in
most industrial countries. Although bond yields might have been
expected to rise somewhat with the increase in short-term rates engineered by the Fed, the yield curve (the rates of interest across all
maturities that prevail at a given time) nevertheless would have
been expected to flatten significantly. Instead, from a low of 5.78
percent on October 15, 1993, the yield on 30-year U.S. Government
bonds rose markedly during 1994, peaking at 8.16 percent in early
November and ending the year at 7.89 percent. Thus, even before
the first Fed action in February, yields across the maturity spectrum had risen fairly uniformly relative to the yield on 3-month
Treasury bills, and the spread vis-a-vis the 3-month bill rate continued to rise through early April. Over the remainder of the year,
spreads between the 3-month bill rate and yields on 1- to 3-year
notes were roughly constant, while the spread between the bill rate
and yields on longer term debt narrowed somewhat, especially after
the Fed’s tightening in November (Chart 2–14).
All told, the increase in bond yields was unusually large when
judged by the historical relationship between year-to-year movements in short- and long-term interest rates. Chart 2–15 plots the
actual yields on U.S. long-term corporate bonds and the yields that
would be predicted from historical experience. The chart shows the
uncharacteristic size of the 1994 prediction error, with actual longterm rates much higher than expected. The prediction is based on
a relatively standard equation that explains the relationship be


80

Chart 2-14 Term Structure of Interest Rates on Government Debt
Contrary to most expectations, long-term interest rates rose by almost as much as
short-term rates over the course of 1994.
Percent
10

December 1994

8

April 1994
March 1994

6

October 1993
4

2

0
3 months
3 months

years
5 5years

10 years
10 years

30 years
30 years

Maturity
Note: Based on 3-, 6-, and 12-month Treasury bills, 2-, 3-, 5-, and 7-year notes, and 10- and 30-year bonds.
Source: Department of the Treasury.

tween short-term and long-term yields—the term structure of interest rates.
The rise in long-term interest rates in the United States was
fully matched by increases in the weighted average of interest
rates in Japan, Germany, France, Italy, the United Kingdom, and
Canada (Chart 2–16). Since the end of 1993, the weighted average
of 10-year interest rates in the foreign G–7 countries moved up 2.1
percentage points over the year. However, this average movement
disguises experiences that differed markedly across individual
countries—for example, long-term interest rates rose 1.3 percentage points in Japan and 3.6 percentage points in Italy.
What explains the unusual rise in long-term rates both in the
United States and in other industrial countries? To sort out the alternative explanations one must first determine the extent to
which the increase in yields constituted a rise in real rates of interest, and the extent to which it reflected heightened expectations of
inflation. If real rates have risen, the cause could be either stronger
than expected aggregate demand or an increase in the risk premium (or some combination of the two). Only limited evidence exists to help make these distinctions. The relative importance of
each factor is likely to have differed—perhaps significantly—across
countries. The next section sets out a framework for examining the
rise in interest rates and applies it to the U.S. experience.



81

Chart 2-15 Actual and Predicted Long-Term Interest Rates
The increase in long-term interest rates during 1994 is at odds with standard models
of interest rate determination.
Percent
16

14

Predicted yield

12

10

8

Actual yield
6

4
0
1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Note: Yields are for Moody’s seasoned Aaa bonds and are reported as effective yields. The predicted yields are
based on the term structure equation of the MPS model, estimated over 1957-1983.
Sources: Board of Governors of the Federal Reserve System and Moody’s Investors Service.

Chart 2-16 U.S. and Foreign Long-Term Interest Rates
The rise in interest rates in the United States in 1994 corresponded to similar increases
in foreign industrialized countries.
Percent
8.50
8.00

United States

7.50
7.00

6.50
6.00

G-7 countries
excluding the United States

5.50

5.00
4.50
0

Jan
Feb Mar
Apr
May Jun
Jul
Aug Sep
Oct
Nov Dec
Feb
Mar
May
Jun
Jul
Aug
Oct
Note: Foreign rate computed as weighted average using shares in 1991 GDP, converted at
purchasing-power-parity exchange rates. Interest rates are for 10-year bonds. G-7 (Group of Seven)
countries excluding the United States are Canada, France, Germany, Italy, Japan, and the United Kingdom.
Sources: Board of Governors of the Federal Reserve System and Organization for Economic Cooperation
and Development.




82

EXPLAINING THE RISE IN LONG-TERM RATES
Theories of the relationship between the yields on assets of different maturities generally argue that the yield on a 30-year bond
should equal the average of expected yields on 1-year bonds over
the next 30 years, plus some premium to compensate the bondholder for a loss of liquidity or other sources of long-term risk.
Under the assumption that there was no change in the risk premium, the term structure theory suggests that the average expected 1-year rate over the next 30 years rose by 2.1 percentage
points in the United States between October 1993 and the end of
1994, 0.4 percentage point less than the increase in the Federal
funds rate during 1994. Moreover, because the rise in rates was
roughly uniform for 1- to 30-year debt through most of the year,
financial market participants acted as if the higher level of shortterm rates would persist indefinitely. Thus, the market seemed to
be saying that short-term rates would remain high for many years.
Based on historical experience—experience that is captured in
equations used to model the term structure of interest rates—expectations about future short-term rates are not based solely on the
value of the current short-term rate but also on values of past
short-term rates. The almost contemporaneous increase in shortand long-term rates over 1994 thus signaled a fundamental change
in the outlook for future rates. This change in interest rate expectations coincided with a growing consensus that the underlying
strength of the U.S. economy was greater than first thought.
To see how the increased strength of the economy could raise
rates, consider two alternative scenarios. Each scenario highlights
one extreme on the spectrum of interpretations of the increase in
interest rates. Both scenarios assume that the economy is operating close to its level of potential output and that something happens to raise the outlook for aggregate demand. For instance, foreign GDP growth could strengthen relative to prior expectations,
thus enhancing the prospects for U.S. exports. Alternatively, housing starts or other elements of domestic demand could appear to
be unusually immune to high interest rates.
In the first scenario, in order to prevent the economy from operating above its potential level following the increase in aggregate
demand, the real interest rate would have to rise. Moreover, if the
upward shift in aggregate demand is expected to be sustained for
some years, the rise in the real interest rate must also be sustained. This scenario attributes the rise in expected short-term
rates implicit in the rise in long-term interest rates to an expected
and sustained increase in real short-term rates. This scenario is
consistent with a view that the Federal Reserve’s commitment to
a goal of price stability will lead it to raise real rates when an in


83

crease in demand would otherwise result in the economy operating
above its potential.
The second scenario attributes the rise in long-term rates to an
increase in the long-term forecast for inflation. It is based on a
view that, although aggregate demand has shifted upward, the
Federal Reserve either does not fully recognize the increased
strength of demand or reacts only after some time has elapsed,
during which price pressures build. In this scenario, in which the
Fed is seen as tolerating an economy operating above its potential,
the rate of inflation increases until either aggregate demand shifts
back to its original level or the Fed steps in and raises real interest
rates by the amount necessary to dampen the level of demand.
Thereafter the inflation rate stabilizes, but at a higher level—the
longer the economy is allowed to operate above potential, the larger
is the sustained increase in the inflation rate.
Both of these scenarios assume that the impetus to the runup in
long-term yields in 1994 was a reassessment of the fundamental
strength of demand in the U.S. economy. How large would that upward revision have to have been to justify a sustained increase in
expected real rates of 2.1 percentage points or an increase in the
inflation premium of the same magnitude? And how plausible is
such an upward revision in view of the behavior of the U.S. economy over 1994? In short, is either of the two scenarios plausible?
Rules of thumb derived from U.S. macroeconomic data can be
used to quantify, albeit very crudely, the size of the perceived shock
to aggregate demand under these two alternative scenarios. In the
first scenario, the size of the upward shift to aggregate demand
that can be offset by a given increase in real rates depends on the
sensitivity of aggregate demand to changes in such rates. The more
interest-sensitive is demand, the larger is the shift in aggregate demand associated with the observed increase in the real rate. Based
on estimated statistical relationships, an increase in real interest
rates of 2.1 percentage points would offset a permanent upward
shift in aggregate demand of about 1.9 percent of GDP. That is, to
keep the level of output unchanged—despite an increase of about
1.9 percent in the level of demand associated with any given real
interest rate—real rates would have to rise by about 2.1 percentage
points.
In the second scenario, where the entire rise in rates reflects an
increase in the long-term inflation forecast, the cumulative output
gap—defined as the excess of actual output relative to potential
output over the period when the economy is operating above potential—is roughly 10.5 percentage points (Box 2–4 describes this calculation). A cumulative gap of this magnitude can arise either
quickly or over a longer period of time. For instance, the anticipated shift in aggregate demand could be a near-term phenomenon,



84

with the level of output exceeding potential by 5.3 percent over
each of the next 2 years. Alternatively, investors may think that
the additional strength in the economy is likely to last about 5
years and be worth a little more than 2 percent on the output gap
each year.
Box 2–4.—Calculating the Cumulative Output Gap

The output gap associated with a permanent increase in the
inflation rate of 2.1 percentage points can be calculated by
using Okun’s rule and an estimate of the sacrifice ratio (defined as the percentage-point decline in the unemployment rate
required to raise the long-term rate of inflation by 1 percentage
point). From Okun’s rule, every percentage-point increase in
the gap between actual and potential output reduces the unemployment rate by 0.4 percentage point. Then, using a mean estimate of 2 for the sacrifice ratio, each percentage-point decrease in the unemployment rate that is sustained for 1 year
adds 0.5 percentage point to the permanent rate of inflation.

EVIDENCE FROM THE UNITED STATES
Is there evidence to discriminate between these hypotheses—an
expected permanent increase in the real interest rate or an expected increase in the long-term inflation rate? What evidence is
there for some middle ground—a combination of an expected increase in both the real interest rate and the inflation rate? And is
the magnitude of the implied shift in aggregate demand reasonable
under either of these scenarios, or is it so implausibly large that
alternative explanations of the rise in long rates must be sought?
Monthly Blue Chip forecasts help to shed some light on these
questions (the Blue Chip forecast is a consensus forecast of some
50 private sector economists). Beginning with the Blue Chip forecast of real GDP growth made in October 1993 (the recent low
point for long-term yields) and continuing through the forecast
made early in January 1995, upward revisions were made to the
level of real GDP projected to prevail in the fourth quarter of 1994.
By January 1995 the forecast of the level of real GDP for the final
quarter of 1994 was 2 percent higher than the forecast made in October 1993. Forecasts of 1995 growth (on a fourth-quarter-overfourth-quarter basis) were essentially unchanged over this period,
indicating that the upward shift in the level of demand was expected to be sustained at least through 1995. These forecast revisions underestimate—possibly significantly—the perceived upward
shift in aggregate demand because they occurred at the same time
that actual interest rates and projected interest rates were increas


85

ing (and thus do not reflect the increase in demand that would
have been consistent with unchanged yields).
Blue Chip projections for the U.S. economy over the next decade
are broadly consistent with the notion that the upward shift in the
underlying strength of the economy in 1994 was expected to be sustained for a period of years. In October 1993 the unemployment
rate was projected to average 6.0 percent and the yield on corporate Aaa bonds was expected to average 7.4 percent between
1995 and 2004. By October 1994 the average unemployment rate
projected to prevail between 1996 and 2005 had risen only to 6.1
percent (roughly 5.9 percent after correcting for the difference in
the new and old unemployment rate survey) despite the sizable increases in interest rates that had already occurred and an upward
revision of about 0.5 percentage point to 10-year forecasts of both
nominal and real interest rates (as discussed below). Thus, sustained higher interest rates were expected to be necessary to restore the level of output approximately to where it would have been
in the absence of the upward shift in demand.
The Blue Chip forecasts also offer some evidence on the decomposition of the rise in interest rates into real and inflation components. Between October 1993 and January 1995, forecasts of
consumer price inflation over the year ending in the fourth quarter
of 1994 were revised downward slightly—from 3.2 percent to 2.8
percent. Similarly, projections of inflation over the year ending in
the fourth quarter of 1995 were revised upward modestly—from 3.3
percent to 3.5 percent. In addition, forecasts of the average annual
increase in the CPI over the next 10 years were revised down between October 1993 and October 1994 by 0.1 percentage point.
Taken as a whole, these revisions offer no evidence for an increase
in the inflation premium and thus lend support to the hypothesis
that the rise in long-term rates was largely due to an increase in
the real component.
Clearly, revisions to Blue Chip forecasts of output growth and inflation provide at best imperfect evidence on long-run expectations,
and even then are limited by their 10-year horizon. Moreover, there
is some evidence to suggest that financial market participants saw
a very different story. For instance, the dividend-price ratio of the
stocks in the Standard & Poor’s 500 index—a reasonable proxy for
the expected real rate of return on equity—showed no significant
sustained increase over the course of 1994. So, from the behavior
of equity markets, the rise in long-term interest rates either was
due to heightened expectations of inflation or represented some
shift in the preference for equity over bonds. A popular view in the
financial press was that, for much of the year, the Fed was ‘‘behind
the curve’’; in that case, some fraction of the rise in long-term rates
would have reflected market fears of increased inflation. In fact,



86

the flattening of the yield curve that followed the Fed’s November
tightening is consistent with the view that the Fed had only then
assumed the appropriately aggressive stance.
An increase in the market’s required compensation for risk could
also be an important factor in the rise in long-term yields. The risk
premium is difficult to measure and can vary over time as perceptions change. The events in financial markets in 1994 no doubt
heightened market participants’ assessments of risk, as is evidenced by a rise in expected volatilities inferred from options
prices. But expected volatilities remained well below levels recorded through much of the 1980s, and thus this measure of riskiness, by itself, does not support the hypothesis that higher risk
premia accounted for a significant portion of the runup in U.S.
long-term interest rates.
On balance, therefore, the evidence from the United States is
mixed. The consensus of forecasts sees no major increase in inflation. But there are indications that financial markets did see inflation and that the increase in long-term rates was therefore not entirely due to an increase in its real component.
More direct and reliable readings of inflation expectations would
be provided if one could compare rates of return on bonds whose
yields are invariant to inflation with yields on conventional bonds
(Box 2–5). Such inflation-indexed bonds have been issued in other
countries, but not in the United States, and valuable information
about inflation expectations has been obtained from their yields.

EVIDENCE FROM FOREIGN COUNTRIES
A number of factors appear to have contributed to the rise in
long-term interest rates in foreign countries during 1994. Probably
the most important development—virtually identical to the evolution of forecasts for the U.S. economy—was the better than expected recovery in real economic activity in the foreign G–7 countries. At the beginning of 1994, market forecasters expected real
GDP growth to average 1.1 percent in the major foreign countries
in 1994 and 2 percent in 1995. By the end of last year those expectations had been revised upward to 2.1 percent and 2.6 percent, respectively. As in the case of the United States, there is some limited evidence available to decompose the rise in nominal yields into
real, inflation, and risk components.
Evidence from the United Kingdom’s well-established market for
indexed bonds suggests that only about one-half of the rise in
nominal interest rates in that country has shown up in real rates.
The remaining increase in nominal interest rates during 1994 is
viewed as compensation for inflation, a measure that includes the
expectation of inflation as well as any premium for inflation risk.
That the United Kingdom would have experienced such a large in


87

Box 2–5.—Indexed Bonds

Although the inflation-indexed bonds that various countries
have issued differ somewhat in their design, their terms generally guarantee that the principal and coupon payments are
adjusted to reflect the cumulative change in a specified price
index since a base period. For instance, consider an indexed
bond that is issued with 2 years to maturity, a maturity value
of $100 in real terms, and an annual coupon rate of 5.0 percent. One way of structuring the payments stream is as follows. If prices rise by 3 percent in the first year, the first-year
coupon payment would be $5.15 (0.05 times $100 times 1.03).
If prices rise by 4 percent in the second year, the second-year
coupon payment would be $5.36 ($5.15 times 1.04). The maturity value at the end of the second year would be $107.12 ($100
times 1.03 times 1.04). If this bond sells for $100, its real yield
is 5 percent.
For this indexed bond, the real yield to maturity is set once
the purchase price of the bond is determined. The real yield
does not vary with the rate of inflation, although the realized
nominal yield to maturity does. By contrast, with a conventional bond the nominal yield to maturity is known given the
purchase price, and the realized real yield to maturity will depend on the actual course of inflation.
An estimate of the expected rate of inflation can be derived
by comparing the real yield on an indexed bond with the nominal yield on a conventional bond. For example, if the average
annual nominal yield on a conventional bond is 9 percent and
the average annual real yield on an indexed bond is 5 percent,
then the average annual expected rate of inflation is approximately 4 percent, assuming that, except for the indexation, the
bonds are perfect substitutes for each other in investors’ portfolios. Differences between the bonds’ maturity, coupon payments, tax treatment, and other features could affect the preference for one type of bond relative to the other, in which case
the difference in yields would not correspond exactly to the expected rate of inflation. For example, investor preferences for
certainty about the real rate of return are likely to cause the
spread between yields on conventional and indexed bonds to
overestimate the expected rate of inflation, because investors
would be willing to pay a premium on indexed bonds (or would
require additional compensation on conventional bonds). Similarly, if investors preferred certainty about nominal returns,
the yield spread would be likely to understate the expected inflation rate.




88

crease in compensation for inflation over 1994 should come as no
surprise, given that inflation there in recent years has been somewhat volatile. Moreover, the withdrawal of the pound sterling from
the Exchange Rate Mechanism of the European Monetary System
in September 1992 may have increased the risk premium attached
to British assets. Notwithstanding this evidence of a greater likelihood of inflation, or increased uncertainty about inflation prospects, forecasts of U.K. retail price inflation for 1994 and 1995 were
actually revised downward over the year.
With the exception of Italy, inflation forecasts for 1994 and 1995
remained unchanged or declined between January and December
1994 in the foreign G–7 countries. This evidence, by itself, would
suggest that in most countries the rise in yields was due to higher
real rates or increased premia for risk. However, some analysts
have suggested that the rise in long-term bond yields across countries in 1994 should be viewed in the context of each country’s inflation history. Chart 2–17 demonstrates that the rise in long-term
interest rates last year was smaller in countries with a history of
lower inflation (such as Japan and Germany) than in countries
with a history of higher inflation.
Others have suggested that the size of fiscal deficits may have
played a role. But the evidence on the link between government
spending and increases in long-term yields is more mixed. The total
stock of government debt is a far better indicator of a nation’s fiscal
position than is the size of the deficit in a single year. Whereas in
Italy and Sweden increases in long-term yields of 3.6 and 3.7 percentage points, respectively, seemed to be related to government
debt levels around 100 percent of GDP, rates rose in Belgium by
a smaller 1.9 percentage points, despite government debt near 150
percent of GDP. There was considerable discussion among analysts
about the determinants of the rise in long-term yields, but past
price and fiscal developments were not ‘‘news’’ in 1994, and therefore it is difficult to understand why financial market participants
had not already incorporated such developments into their expectations. In some cases these variables, when coupled with an uncertain political environment, may have increased the market’s required compensation for risk.

FISCAL DEFICITS, DEMOGRAPHICS, AND
EMERGING MARKETS
Some analysts have pointed to other factors as possible contributors to increased capital demands and last year’s global rise in
long-term interest rates. One factor frequently mentioned is government deficits in industrial countries, which are sizable but generally did not increase appreciably last year. Another factor mentioned is demographic shifts that will begin in some countries by



89

Chart 2-17 Inflation and Long-Term Interest Rates
Interest rate increases were greater in countries with histories of higher rates of inflation.
Change in rates on 10-year bonds during 1994 (percentage points)
4

Sweden
Italy

3

France
2

Germany

Canada

United Kingdom

United States

Japan
1

0
0

1

2
3
4
5
Average annual percent change in CPI, 1984-93

6

7

Sources: Board of Governors of the Federal Reserve System and Organization for Economic
Cooperation and Development.

the end of this century and are expected to bring with them increased health care costs and rising pension liabilities. Ultimately,
fiscal deficits may grow significantly larger, as countries face the
expenses associated with aging populations. Finally, increased investment opportunities in developing countries and transition
economies are often viewed as having added to global demands for
capital in 1994. Many commentators have pointed to the rise in
stock market capitalizations in emerging economies and the increased flow of capital into those markets from U.S. institutional
investors seeking portfolio diversification.
None of these factors was new last year, however, and it is difficult to see what would make them suddenly become important in
1994. Although the factors just enumerated may be important in
assessing the expected competition in world capital markets over
the longer term or the generalized rise in the level of real interest
rates since the 1960s and 1970s, it seems improbable that they contributed substantively to increases in long-term interest rates during 1994.

THE ADMINISTRATION FORECAST
The Administration expects the economic expansion to moderate
in 1995 as the effects of increases in interest rates to date spread



90

more broadly through the economy. The actual growth rate is forecast to approach the growth rate of potential output, with the economy achieving a so-called soft landing. Over the longer run, output
is forecast to grow in line with potential output, and the rate of inflation to remain roughly constant at 3 percent (Table 2–5).
TABLE 2–5.— Administration Forecast
item

1994
(actual)1

1995

1996

1997

1998

1999

2000

Percent change fourth quarter to fourth quarter
Real GDP .............................

4.0

2.4

2.5

2.5

2.5

2.5

2.5

GDP implicit deflator ..........

2.3

2.9

2.9

3.0

3.0

3.0

3.0

Consumer price index
(CPI-U) ............................

2.6

3.2

3.2

3.2

3.2

3.1

3.1

Calendar year average
Unemployment rate
(percent) .........................

6.1

5.5–5.8

5.5–5.8

5.5–5.8

5.5–5.8

5.5–5.8

5.5–5.8

Interest rate, 91–day
Treasury bills (percent) ..

4.3

5.9

5.5

5.5

5.5

5.5

5.5

Interest rate, 10–year
Treasury notes (percent)

7.1

7.9

7.2

7.0

7.0

7.0

7.0

113.4

116.7

118.3

120.1

121.7

123.4

125.1

Nonfarm payroll
employment (millions) ....
1 Preliminary.

Sources: Council of Economic Advisers, Department of the Treasury, and Office of Management and Budget.

By early 1996 the forecast predicts an easing in short-term interest rates. Over the forecast horizon, long-term interest rates also
are projected to decline, and the spread between long- and shortterm rates is projected to narrow, as the near-term slowing of
growth dispels any fears on the part of financial market participants of an overheated economy. The decline in nominal long-term
rates reflects a decline in real long-term rates and, in turn, is a
consequence of the growing restraint implied by the stance of fiscal
policy. Absent the decline in the real rate, output growth would be
likely to slow with the slowing in Federal Government spending.
Thus the Administration’s longer term outlook is consistent with a
growing share of private sector spending (especially of its interestsensitive components) and a declining share of Federal spending in
GDP.
The unemployment rate is forecast to be between 5.5 and 5.8 percent. A range, rather than a single figure, is projected both because
the relatively short experience with the new unemployment rate
survey increases the uncertainty associated with its forecast, and
because, as indicated earlier, some structural change could be
under way in labor markets. Nevertheless, the Administration expects that economic growth over the next several years will be
strong enough to absorb all new entrants into the labor force. For



91

budget purposes, the more conservative projection of a 5.8 percent
unemployment rate was used.
As always, there are risks to the forecast. In assessing the nearterm risks, some possibility exists that the interest rate increases
to date will not succeed in dampening growth as quickly as anticipated and that the pace of the expansion could overshoot the projected growth rate of 2.4 percent for 1995. Were this to happen, interest rates would be likely to rise further, slowing the economy
thereafter more than expected.
On the downside, there remains the possibility that interest rate
increases already in the pipeline will moderate the expansion sooner and by more than anticipated. Compounding this risk is the risk
that foreign economic growth may stall, reducing foreign demand
for U.S. exports. The sharp decline in the Mexican peso and the ensuing slowdown in the Mexican economy will also cut into U.S. export growth. In addition, the substantial inventory accumulation
over the past year may not be entirely intentional. If this is the
case, production could be scaled back more than anticipated in
order to reduce the degree of inventory overhang.
Finally, the course of the economy depends as always on budgetary and other policy decisions of the Congress. Perhaps more
than usual in recent years, there is substantial uncertainty about
future congressional action in matters that can influence the paths
of output, deficits, and interest rates over the medium run.

CONCLUSION
Strong, investment-led growth with rapid job creation and low inflation is a winning combination, and this is what the U.S. macroeconomy has achieved over the past 2 years. In part, the robust
pace of growth in GDP in 1993 and 1994 was possible because considerable slack existed in the economy in January 1993. Because
most of that slack had disappeared by the end of 1994, it is unlikely that the economy will realize the same rate of growth over
the next few years. That is why the Administration—and most private forecasters—predict a soft landing in which GDP growth
moves to what is widely viewed to be its long-run potential rate of
about 2.5 percent a year.
Despite the likely slowing of growth, the macroeconomic outlook
remains very favorable. Continued increases in employment and incomes are expected. Job creation should be sufficient to keep the
unemployment rate down, and sustained economic expansion with
moderate inflation should allow more Americans to increase their
real earnings and their family incomes over the next 2 years and
beyond.



92

As always, there are risks in the economic outlook. The Federal
Reserve has increased short-term interest rates, and long-term
rates have risen almost in parallel. Indeed, long-term rates have
risen around the world. The rise that has already taken place could
slow growth more than expected. However, the Council of Economic
Advisers views this as an unlikely outcome.
In the 1980s the U.S. economy collided with exploding budget
deficits. That situation has changed. The deficit reduction measures already enacted have paid off, leading to an improved deficit
outlook for the remainder of the decade. The President’s 1996
budget proposal includes additional deficit reduction, as well as a
middle-class tax cut. The Administration’s progress on reducing the
deficit has provided the basis for a stable and balanced long-term
growth path.
One weak spot in the macroeconomic picture for 1994 has been
the current account deficit, which widened significantly over the
year as the strong U.S. expansion, combined with less robust
growth overseas, resulted in stronger growth in imports than in exports. An improvement in the current account is anticipated for
1995, as growth overseas strengthens and U.S. import growth
slows. Over the longer run, reductions in the budget deficit will aid
in reducing the current account deficit.
With a budget deficit that is under control, strong growth of jobs
and GDP, and continued low inflation, the macroeconomy has
changed vastly for the better over the past 2 years, and the U.S.
economy looks forward to continued growth with rising incomes in
1995.
Vigorous growth in 1993 and 1994, an expected soft landing in
1995, large increases in employment, and modest rates of inflation—these are noteworthy achievements for any economy. But the
unemployment rate remains high—especially for teenagers, blacks,
and Hispanics—despite a significant decline over the past 2 years,
and the real incomes of many Americans have shown only meager
growth. Chapter 5 discusses the Administration’s proposals for lifelong learning, which have the potential to greatly improve the
earning prospects of those Americans who have not participated
fully in the economy’s expansion. First, however, Chapter 3 discusses policies to enhance the economy’s long-run growth.




93

CHAPTER 3

Expanding the Nation’s Productive
Capacity
HOW FAST CAN THE ECONOMY grow on a sustainable basis?
Most mainstream analysts currently believe that aggregate output
can grow about 21⁄2 percent per year. Recently, however, some analysts—perhaps inspired by the outstanding performance of the
economy in 1994—have asserted that much more rapid growth,
possibly as fast as 5 percent per year, may be sustainable.
The answer to this question has profound implications for the future well-being of the American people. If the mainstream view is
correct, aggregate output will double only every 28 years or so, and
per capita output only about every 56 years (assuming population
growth of 1 percent per year). But if the alternative view is correct,
aggregate output could double every 14 years, and per capita output every 18 years.
The answer also has important implications for the conduct of
government policy. Sensible Federal budget planning can proceed
only in the context of a realistic assessment of the long-term outlook for the economy. If the outlook is robust, then a more expansionary fiscal policy may well be consistent with a responsible outcome on the deficit. If, on the other hand, the outlook is more subdued, a greater degree of fiscal restraint may be required.
Chart 3–1 illustrates one simple method for assessing the sustainable rate of growth of gross domestic product (GDP). (The estimates of GDP used in this chapter are based on so-called chaintype annual weighted data, which are discussed in Box 3–1.) The
chart focuses on the growth of real GDP between the first quarter
of 1988 and the fourth quarter of 1994. The reason for focusing on
these two quarters is that the unemployment rate was very similar
in both: 5.7 percent and 5.6 percent, respectively. This suggests
that a similar fraction of the economy’s overall productive capacity
was being utilized in both quarters. Thus the average rate of
growth of output in the interval between them should give a good
indication of the average rate of growth of the economy’s productive
capacity during that period.
As the chart shows, real GDP increased at an average annual
rate of 2.1 percent between the first quarter of 1988 and the fourth
quarter of 1994. This suggests that the economy’s productive capac


95

Chart 3-1 Real Gross Domestic Product
Between the beginning of 1988 and the end of 1994, real GDP increased at an
average annual rate of 2.1 percent.
Index, 1987 = 100 (ratio scale)
120

115

110

105

Average annual rate of growth
of real GDP is 2.1 percent

100

95
871 1987

881 1988

891 1989

901 1990 911 1991

921 1992 931 1993 941 1994

Note: Data are based on a chain-weighted measure.
Source: Department of Commerce.

ity—potential GDP—also grew at about that rate. Over the same
period, real GDP measured on the more conventional basis (1987
dollars) increased at an average annual rate of 2.3 percent. Therefore, this simple method suggests that the consensus view that the
sustainable rate of growth is about 21⁄2 percent per year is slightly
more optimistic than a purely mechanical reading of recent experience would warrant.
But does the simple graphical method, based only on historical
experience, provide an accurate signal about the future growth of
the economy’s capacity? Historical experience does not yield certain
knowledge of future trends. In particular, it does not take into account the influence of policies adopted by this Administration with
the goal of enhancing the productive capacity of the economy. This
chapter undertakes a systematic analysis of the factors contributing to the growth of the economy’s potential, mainly for the purpose of assessing future growth prospects. The chapter begins by
reviewing trends in the growth of GDP since the early 1960s. Next
it analyzes improvements in the productivity of American workers
and increases in their hours of work—the two major sources of
growth in the economy’s productive capacity. This discussion also
examines the shortcomings of existing measures of productivity
growth and concludes that the economy’s actual performance may
be stronger than current estimates indicate. The chapter then



96

Box 3–1.—Chain-Weighted Measures of Output and
Productivity Growth

Any index of aggregate output is constructed as the weighted
sum of the output of the myriad types of goods and services
produced in the economy. But what weights does one use?
From an economic standpoint, it makes sense to use relative
prices as weights. In the United States, government statisticians traditionally have used fixed weights, namely, the relative prices that prevailed in a particular recent year (currently 1987). The resulting index is appropriate for assessing
economic performance in years when the relative price structure was similar to that in the base year.
Over time, however, relative prices can change greatly, making a fixed-weight index less useful for gauging long-term
trends in output. Computers serve as a good example. The
rapid increase in the quantity of computers produced over the
past 30 years has been accompanied by a sharp decline in their
relative price. Because the price of a computer in 1987 was far
lower than it was in, say, 1963, the fixed-weight index understates the sector’s share in total output in 1963, and hence understates total output growth between 1963 and 1987. After
1987, the effects are reversed: the price of computers has continued to decline, so use of 1987 weights for 1994 computer
output causes an overstatement of the contribution of computers to 1994 output. Because the output of the computer sector
has continued to grow faster than the economy as a whole, this
overweighting causes the fixed-weight index to overstate the
growth in output between 1987 and 1994.
Fortunately, the Department of Commerce, which prepares
the traditional fixed-weight measures of GDP, also now publishes alternative GDP measures that eliminate this bias. One
such alternative is the so-called chain-type annual weighted
measure. The Department of Labor uses a similar chainweighted measure (for the private nonfarm business sector) to
construct the productivity measures cited in this chapter. According to the chain-type output measure, between 1963 and
1987 real GDP increased by an average of 3.3 percent per year,
or 0.3 percentage point faster than the fixed-weight measure.
Between 1987 and 1993, output as measured by the alternative
index grew an average of 1.9 percent annually, or about 0.2
percentage point less than the official fixed-weight figures.
Thus, correcting for fixed-weight bias makes the post-1987 performance of output (and therefore also of productivity) look
somewhat less encouraging relative to its pre-1987 performance.




97

turns to an examination of the appropriate role of government policy in enhancing the economy’s sustainable long-run growth rate.
The chapter concludes with a brief assessment of the outlook for
trend productivity growth and for the growth of the economy’s potential.

FACTORS GENERATING GROWTH
OF POTENTIAL GDP
Between 1963 and 1994 real U.S. GDP increased at an average
annual rate of 3.1 percent per year. Because the economy appears
to have been operating about at its potential in both those years,
the average rate of growth of actual output between those dates
should provide a relatively accurate estimate of the average rate of
growth of potential output during the same period.
Growth of real GDP can be decomposed into two main components: growth of output per hour worked (or productivity) and
growth of hours worked. As Chart 3–2 illustrates, these two components each contributed 1.7 percentage points to the growth of GDP
between 1963 and 1994. (Strictly speaking, the data on productivity and hours worked pertain only to the private nonfarm business
sector, whereas the data on output pertain to the total economy. As
a result, and because the output of the private nonfarm business
sector was increasing slightly more rapidly than the output of the
total economy, the growth of output per hour and the growth of
hours worked add up to slightly more than the growth of GDP).
Chart 3–2 also shows that the average experience since 1963
subsumes two very different episodes. Between 1963 and 1972 real
GDP increased at an average annual rate of 4.2 percent. By contrast, since 1972 real GDP has increased only about 2.6 percent per
year. (The economy appears to have been operating at about its potential in 1972; as a result, that year should also serve as a useful
benchmark for purposes of estimating potential GDP growth rates.)
The slower rate of growth of GDP since 1972 can be attributed to
a slowdown in the rate of growth of productivity, since the growth
of hours worked was about as rapid after 1972 as before.
Chart 3–3 examines the slowdown in the growth of productivity
in more detail. The chart illustrates one of the most significant economic developments of the postwar period. Whereas productivity in
the private nonfarm business sector increased at an average annual rate of 2.8 percent between 1963 and 1972, it increased only
1.7 percent per year between 1972 and 1978, and only 1.0 percent
after 1978 (yet another year in which the economy was operating
close to potential).
By contrast, productivity growth in the manufacturing sector
seems to have slowed much less during the past four decades. As



98

Chart 3-2 Factors Generating Growth of Gross Domestic Product
Since 1972, real GDP has increased more slowly than before, owing to a reduction
in the rate of growth of output per hour worked.
Average annual percent change
5

Real GDP
4

Output per
Hour Worked

3

2

Hours Worked

1

0
1963-72

1972-94

1963-94

Note: Estimates of growth in output and output per hour are based on chain-weighted measures.
Data on output per hour and hours worked pertain to the private nonfarm business sector, whereas the data
on GDP pertain to the whole economy.
Sources: Council of Economic Advisers, Department of Commerce, and Department of Labor.

Chart 3-3 Output per Hour in the Private Nonfarm Business Sector
Productivity growth in the private nonfarm business sector seems to have slowed
markedly sometime in the early 1970s.
Index, 1987 = 100 (ratio scale)
120
110

Trend growth 1978-94
1.0 percent per year

100

90

Trend growth 1963-72
2.8 percent per year

80

70

Trend growth 1972-78
1.7 percent per year

60

50
1958

1962

1966

1970

1974

1978

Note: Data are based on a chain-weighted measure.
Sources: Council of Economic Advisers and Department of Labor.




99

1982

1986

1990

1994

Chart 3–4 shows, output per hour in the manufacturing sector is
estimated to have increased on average about 3.3 percent per year
between 1963 and 1972, 2.6 percent between 1972 and 1978, and
2.6 percent again between 1978 and 1987. (The chain-weighted
data used in Chart 3-4 were only available through 1991. Growth
in manufacturing productivity between 1987 and 1991 was quite
weak, but this is not surprising given that the economy was still
in recession in early 1991. Assessment of the more recent trend in
manufacturing productivity will have to await publication of data
for subsequent years, when the economy was once again operating
closer to potential.)
Chart 3-4 Output per Hour in the Manufacturing Sector
Productivity growth in the manufacturing sector appears to have slowed only a
little since the 1960s and early 1970s.
Index, 1987 = 100 (ratio scale)
120

100

Trend growth 1978-87
2.6 percent per year

80

Trend growth 1963-72
3.3 percent per year

60

Trend growth 1972-78
2.6 percent per year

40
1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

Note: Data are based on a chain-weighted measure.
Source: Department of Labor.

Taken together, Charts 3–3 and 3–4 suggest that the slowdown
in the growth of productivity after 1972 was concentrated outside
the manufacturing sector. It has been argued that these and similar data exaggerate that concentration, because they do not control
for the fact that the manufacturing sector may have increasingly
‘‘outsourced’’ some low-productivity activities. For example, if factories contract with security firms to do work formerly done by
their own security guards, that activity will be counted in the services rather than the manufacturing sector, and if security guards’
productivity is less than that of the factories’ assembly-line workers, official statistics may report an increase in overall manufactur


100

ing productivity that does not reflect an increase in the productivity of any individual worker. What this argument ignores, however,
is that high-productivity jobs may also have been outsourced, in
which case the direction of bias in the official estimates would be
ambiguous. On balance, the evidence suggests that the apparent
strength of productivity growth in manufacturing is not a figment
of job migration.
Much of the discussion in this chapter focuses on the slow rate
of growth of productivity in the United States since the early
1970s, relative to earlier U.S. experience and the experience of
other countries. But it is worth noting that U.S. workers remain
among the most productive in the world. This suggests that the
productivity ‘‘problem’’ in the United States has much more to do
with the rate of growth of productivity than with its level. Box
3–2 discusses one possible explanation for the coincidence of a high
level and slow growth of productivity in the United States compared with other countries.

FACTORS GENERATING GROWTH OF
PRODUCTIVITY
Productivity can be raised by improving the quality of the work
force (adding human capital per worker in the form of education or
training); by increasing the quantity of capital (investing in new
private equipment and structures and in public infrastructure); and
by improving the efficiency with which these factors of production
are used. Improvements in efficiency can come from advances in
technology (due to basic research or applied research and development, or R&D), but they can also come from other sources, such as
process innovation, that are not conventionally thought of as technology. Chart 3–5 summarizes the behavior of the main factors
contributing to the growth of productivity since 1963. (Box 3–3 discusses whether an increase in productivity comes at the expense of
a reduction in jobs.)

THE QUALITY OF THE WORK FORCE
One important determinant of worker productivity is the workers
themselves and the skills and abilities they bring to the workplace.
Increases in the hourly output of the average worker can reflect an
improvement in the characteristics that allow workers to accomplish the same tasks in less time, to adapt to changing situations
with greater flexibility, and to become the engineers of change
themselves.
Two rough indicators of work force quality are average educational attainment (average years of schooling per worker) and average experience. Since 1963 the average educational attainment of



101

Box 3–2.—Technological Catch-up and International
Differences in Productivity Growth

How could it be that the United States, with one of the highest levels of productivity in the world, is not also among the
countries where productivity is growing most rapidly? Some
economists have suggested that, far from being a paradox, this
circumstance is to be expected. The slow-growing leader, fastgrowing follower pattern may simply reflect the dynamics of
technological ‘‘catch-up.’’
Standard models of economic growth assume that richer and
poorer countries have the same production technologies at
their disposal (even if they choose to implement them with different mixes of capital and labor). Recently, however, growth
economists have begun to question the realism of this assumption. In practice, technological diffusion—the spread of ideas—
from leader to follower is far from automatic. Firms in follower
countries may lack the skilled workers (engineers, managers)
needed to exploit technologies used in leader countries efficiently. In addition, firms in leader countries may attempt to
guard their core technologies to prevent or delay their spread
to potential competitors abroad. Technological diffusion may be
particularly slow in the case of ‘‘soft’’ technologies (process
technologies and work organization), which cannot be imported
and reverse-engineered as new products can.
For follower countries a gap in technology creates an opportunity. Leader countries (such as the United States) will find
their productivity growth limited by the rate of creation of new
knowledge. But followers can grow more quickly by closing a
portion of the technology gap. It appears that success in closing
this gap helped spur the postwar growth of Japan and the East
Asian newly industrializing countries, which invested heavily
in technology acquisition and human resources and created
business environments conducive to technological growth. Not
every country succeeds, however, in closing the technology gap.
Indeed, some followers have fallen farther behind, and follower
countries as a group have not become richer faster than leader
countries. Nevertheless, the evidence suggests strongly that,
for followers, the upper limit on growth in per capita income
and productivity exceeds that for technological leaders.
the work force has increased by about 2 years. The Bureau of
Labor Statistics (BLS) of the Department of Labor estimates that
investment in education boosted productivity about 0.3 percentage
point per year, on average, between 1963 and 1992. In contrast, the
average experience level declined slightly between 1963 and 1992,



102

Chart 3-5 Factors Generating Growth of Output per Hour
Most of the slowdown in productivity growth after 1972 reflects a deceleration
of the so-called residual factor.
Average annual percent change

Output per
Hour Worked

3

2

Residual

Capital
Intensity
1

Labor
Composition
0

R&D

-0.01

-1
1963-72

1972-92

1963-92

Note: Data are based on chain-weighted measures and pertain to the private nonfarm business sector.
Source: Department of Labor.

knocking about 0.1 percentage point off productivity growth each
year. On net, therefore, measured changes in worker quality have
added an estimated 0.2 percentage point per year to productivity
growth since 1963. Interestingly, worker quality appears to bear
none of the responsibility for the post–1972 slowdown in productivity growth. In fact, the estimated contribution of improvements in
worker quality to productivity growth increased, from essentially
nothing before 1972 to about 0.3 percentage point per year between
1972 and 1992 (Chart 3–5).
One caveat is in order here. Although the BLS education measure captures changes in the average number of years of schooling,
it does not capture changes in its quality. Clearly, quality matters:
a worker who spent 12 years marking time in poorly taught classes
is likely to be less productive than one who spent the same number
of years actively learning from skilled teachers. Unfortunately, the
evidence on whether any such decline in the quality of schooling
could help explain the productivity slowdown is too scanty to support any firm conclusions.
Training workers on the job is another way of increasing their
human capital and contributing to aggregate productivity growth.
Solid quantitative estimates have not been made of the contribution of training to aggregate productivity growth because there are
no reliable data on the aggregate amount of training taking place.



103

Box 3–3.—Productivity and the Growth of Jobs

A persistent concern, voiced by many workers and business
owners as well as some economic analysts, is that rapid growth
of productivity may cause job losses. This concern seemed validated early in the current expansion, when strong growth of
productivity seemed to be standing in the way of a vigorous
pickup in the pace of hiring. Does this concern have any analytical basis?
At the macroeconomic level, a pickup in the rate of productivity growth need not be associated with any reduction in the
aggregate number of jobs available in the economy—at least
not once fiscal and monetary policy have been adjusted to reflect the favorable change in productivity growth. An increase
in productivity growth allows GDP to grow more rapidly without generating inflationary pressures. Over the long term,
macroeconomic policies can bring the growth of aggregate demand in line with the improved rate of expansion of the economy’s productive capacity, and thus sustain the growth of employment.
At the microeconomic level, productivity growth may change
the composition of available jobs, and thus may be associated
with significant dislocation as workers are forced into new jobs,
possibly requiring different skills and perhaps even relocation.
In this context, the role of government is to facilitate the transition of workers and capital to their most productive uses,
while setting fiscal and monetary policies to keep the economy
on a sustainable trajectory of high employment with low inflation.

Nevertheless, available microeconomic evidence suggests that
training matters. Studies of the wages of individual workers indicate that the payoff to formal training (including apprenticeships)
can be quite substantial: a year of training typically provides returns of a similar magnitude to those offered by a year of formal
schooling (an increase in wages of about 6 to 10 percent on average). Other research has found that companies offering more training enjoy higher rates of productivity growth. (Chapter 5 discusses
the importance of worker training in greater detail.)

THE SIZE OF THE PRIVATE CAPITAL STOCK
Increasing capital intensity—roughly speaking, the amount of
capital per worker—has been a key source of productivity improvement over the postwar period. When new investment has been undertaken to support an improved technology, the gains have some


104

times been especially impressive. For example, output per hour in
the telecommunications industry increased an average of 5.5 percent per year between 1969 and 1989, as the industry invested
heavily in new satellite, cellular, and fiber optic technologies.
Productivity increases through capital investment have often involved exploiting economies of large-scale production. Industries
such as food processing, beverages, and electricity generation are
cases in point. In the beverage industry, for example, high-speed
canning lines have raised productivity, but their contribution has
been made possible in part by the development of large markets.
To operate efficiently, these lines must produce nearly 500 million
cans per year!
Data from the BLS indicate that increases in capital intensity—
also known as capital deepening—added about 0.9 percentage point
per year to the growth of U.S. productivity between 1963 and 1992.
As Chart 3–5 shows, a reduction in the pace of capital deepening
explains only a small portion of the post–1972 slowdown in productivity growth.

INFRASTRUCTURE
Historically, investment in public capital such as roads, bridges,
airports, and utilities has made a significant contribution to the
Nation’s productivity growth. Yet the net public capital stock in the
United States has declined relative to GDP, from 50 percent of
GDP in 1970 to only a bit more than 40 percent recently. The net
public capital stock has also declined relative to the net private
nonresidential capital stock. These declining trends in public capital suggest that infrastructure investment has been a net drag on
the growth of productivity since 1970, but there is no consensus as
to the quantitative importance of this effect.

RESEARCH AND DEVELOPMENT
Total Federal and private spending for research and development
has averaged about 21⁄2 percent of GDP since 1960 (Chart 3–6). In
dollar terms, American investment in R&D in 1992 was greater
than the R&D investment of Japan, Germany, and France combined. Even relative to national income, the United States was
roughly tied with Japan for first place among major industrialized
countries.
As Chart 3–6 shows, a much larger share of total R&D spending
in the United States is privately financed now than used to be the
case. Relative to GDP, Federal spending for R&D was at a high
level in the early 1960s, after the Sputnik launch provoked a wave
of concern that the United States was lagging behind the Soviet
Union technologically. But that ratio trended down during most of
the 1960s and 1970s and has been more or less flat since the late



105

Chart 3-6 Expenditures for Research and Development Relative to GDP
Total R&D expenditures have been fairly steady over the past three decades, but the share
financed by private industry has risen since 1980.
Percent

3

2

1

0
1960

1963

1966

1969

1972

Federal

1975
Industry

1978
Other

1981

1984

1987

1990

1993

Total

Note: "Other" includes R&D funded by universities and other nonprofit organizations. Observations after 1990 are
not strictly comparable with those of earlier years, due to a change in the survey methodology.
Sources: Council of Economic Advisers and the National Science Foundation.

1970s. In contrast, industry-funded R&D investment has been noticeably greater relative to GDP during the 1980s and early 1990s
than during the 1960s and 1970s. Indeed, since 1980 the private
sector has sponsored more R&D than has the Federal Government.
According to BLS estimates, investment in R&D contributed
about 0.2 percentage point to the growth of productivity between
1963 and 1992, with essentially no difference before and after 1972
(Chart 3–5). In all likelihood, however, R&D has played a more important role than these estimates would indicate, for a number of
reasons. First, given the difficulties involved in measuring the return to investment in R&D, part of it probably shows up in the unexplained residual (see below). Second, because it is very difficult
for anyone investing in R&D to capture all of the benefits of that
investment, part of the return to American investment in R&D
probably is captured by foreign producers. (Similarly, American
producers probably capture some of the benefits of R&D investment
undertaken by foreign firms.) Finally, some investment in R&D has
had important benefits in addition to whatever improvement in the
measured growth of productivity it may have yielded. For example,
medical research (which claims 18 percent of total U.S. R&D) has
substantial payoffs, but it is highly unlikely that these payoffs are
fully reflected in the statistics on output per hour.




106

THE RESIDUAL
Over the postwar period, increases in human and physical capital and investment in R&D fail to account for all of the measured
growth in productivity. The remainder generally is presumed to reflect unmeasured improvements in the quality of the capital stock
and the work force, as well as more efficient utilization of capital
and labor in the production process. Available data suggest that
this unexplained residual contributed about 0.5 percentage point
per year to the growth of productivity between 1963 and 1992.
The nature of this residual has puzzled economists for 40 years
and has stimulated a vast literature seeking to explain it and to
understand the dramatic difference in its behavior before and after
1972. Between 1963 and 1972 the residual contributed about 1.5
percentage points per year to the growth of productivity. Between
1972 and 1992, however, the residual made no contribution at all
(Chart 3–5).
Two possible explanations as to the source of the residual follow
from the previous discussion. The data from the BLS do not quantify the effect of either on-the-job training or investment in infrastructure, so any contributions of those two factors end up in the
residual. In addition, industries evolve in ways that increase productivity, and the contributions of these evolutions are not captured in existing measures of capital, labor, or R&D investment.
For example, the shift from small food stores to supermarkets gave
a substantial boost to productivity in food retailing in the United
States in the 1950s and 1960s. Similarly, many American companies have improved their business systems, and the contributions
of these improvements are likewise not captured in the official statistics except, by default, in the residual. For example, the redesign
of production processes within the manufacturing sector (such as
lean manufacturing of automobiles) and the redesign of products to
make them easier to assemble have been sources of productivity
growth.
Some observers have argued that an increasing burden of government regulation may account for part of the reduction in the
contribution of the residual during the 1970s. Since the late 1970s,
however, a number of important industries—including trucking,
airlines, and rail—have been deregulated. In addition, competition
has been introduced into the market for long-distance telephone
services. These factors suggest that any role of regulatory burden
in the post–1972 productivity slowdown probably has not been
large.
Another commonly mentioned explanation for the reduction in
the contribution of the residual to productivity growth is the rise
in energy prices during the 1970s. According to this logic, efforts
to reduce energy consumption reduced measured productivity



107

growth. This explanation is not very convincing, however, because
energy costs do not bulk large in total costs, and because productivity growth has not revived despite the reversal of most of the 1970s
runup in real oil prices.
Finally, it is possible that part of the slowdown in measured productivity growth is not real but reflects measurement error. This
could be the case if, for example, measurement error has caused
the official statistics to understate productivity growth by more
since 1972 than before. Even if measurement error does not help
explain why productivity growth has been slower since 1972 than
before, it may help explain why it has been so slow in absolute
terms. A later section of this chapter examines the extent to which
the productivity problem might reflect faulty measurement.

HAS THE TREND IN PRODUCTIVITY GROWTH
IMPROVED RECENTLY?
Since 1987, according to current estimates, productivity growth
in the private nonfarm business sector has averaged 1.2 percent
per year, somewhat faster than the average during the previous
decade. And since 1991, productivity growth has averaged about
2.0 percent per year—more than twice the 1978–87 average. Are
recent claims of a pickup in trend productivity growth justified?
(Provided there has been no offsetting reduction in the growth of
hours, such a pickup would translate into an increase in the economy’s potential growth rate.) This question is not easily resolved because the recent behavior of productivity has been heavily influenced (for the better) by the faster pace of economic activity during
the last 2 years. A proper assessment of the trend in productivity
growth can be made only by abstracting from cyclical influences.
Chart 3–7 focuses on the behavior of productivity since 1976. Between 1978 and 1982—a period that included the deepest recession
of the postwar period—productivity actually declined slightly according to official estimates. Then, as recovery took hold, productivity rebounded. By 1987 the economy once again was operating in
the neighborhood of its full potential. Between 1978 and 1987 the
growth of productivity averaged about 0.9 percent per year.
Since 1987 this chain of events has essentially repeated itself: a
period of slow growth in productivity as the economy endured a recession, followed by a period of rebound as the recovery gathered
strength. Today, well into the expansion, the economy once again
appears to be operating in the neighborhood of its potential. Between 1987 and 1994—as was noted above—productivity growth
averaged about 1.2 percent per year. Thus, currently available data
do seem to hint that the trend in productivity growth has picked
up in the last few years. However, the magnitude of that pickup



108

Chart 3-7 Output per Hour in the Private Nonfarm Business Sector
Productivity has increased rapidly since 1991. Nonetheless, it is still difficult to know whether
there has been an improvement in the trend rate of productivity growth.
Index, 1987 = 100 (ratio scale)
110

Trend growth 1987-94
1.2 percent per year

105

Trend growth 1978-87
0.9 percent per year

100

Cyclical rebound
95

90

Cyclical rebound

85
1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

Note: Data are based on a chain-weighted measure.
Sources: Council of Economic Advisers and Department of Labor.

pales in comparison to the decline that occurred earlier in the postwar period. Moreover, the evidence in support of a pickup is still
inconclusive. For example, if trends are computed for the periods
1978–86 and 1986–94 rather than 1978–87 and 1987–94, the suggestion of a pickup is much weaker: productivity growth averaged
1.0 percent per year in the earlier alternative subperiod and 1.1
percent in the later one. On the other hand, if the breakpoint chosen is 1988 or, especially, 1989, the evidence in favor of a pickup
appears stronger. However, the averages over these later periods,
especially the one since 1989, are dominated by the cyclical recovery and so may create a false impression of an improvement in the
trend.
Furthermore, the Labor Department released data in 1994 suggesting that the growth of hours worked between 1993 and 1994
may be revised upward by enough to shave 0.1 percentage point off
the average rate of productivity increase for the period 1987–94.
Thus, while the evidence in favor of a slight improvement in the
productivity growth trend is encouraging, it is not yet decisive. The
experience of the next few years will be quite telling for this issue.




109

ISSUES RELATED TO THE MEASUREMENT OF
PRODUCTIVITY
To many in the business community, the idea that there has
been a slowdown in the rate of improvement of business efficiency
would simply be implausible. International comparisons based on
detailed case studies suggest that the level of productivity is higher
in the United States than in Germany or Japan and that many important innovations—especially in the services sector—have originated in the United States.
Examples of such innovations abound. Retailers have invested
heavily in information technology to improve efficiency and the
quality of service. New specialty formats provide customers with a
wider array of choices. Financial institutions have simultaneously
improved their efficiency and expanded their product lines dramatically. Mortgages are now processed much more quickly and in
much greater volume. Customer service has been enhanced by the
widespread introduction of automatic teller machines as well as
automatic deposit and withdrawal services. The mutual fund industry now provides individual investors with diversification possibilities that would have been barely conceivable 30 years ago. In the
field of medicine, with the introduction of microsurgical techniques,
a cataract operation performed today is faster and safer than one
performed even a decade ago. And with the advent of arthroscopic
surgery, repair of a torn knee ligament involves a shorter stay in
the hospital, less chance of collateral damage during surgery, and
a faster recovery time. Telecommunications companies have introduced many new services, including high-speed data transfer and
mobile cellular telephone service.
To some extent, these dramatic changes in service industries are
not reflected in the productivity data presented in this chapter. Either they do not enter the standard productivity calculations at all,
or their contribution to growth is understated. For example, within
the financial services area, productivity growth in the banking industry has averaged more than 2 percent per year in recent years,
according to BLS estimates. However, these estimates are not used
in the construction of aggregate measures of output and productivity. Instead, for these measures, growth of real output in banking
and other financial services is assumed equal to the increase in
hours worked in the industry, so that growth in labor productivity
is roughly zero by assumption.
Measurement issues are particularly important in the area of
health care, both because that sector now accounts for 14 percent
of GDP and because the conceptual difficulties there are so great.
For example, current productivity measures would not reflect the
influence of a technological advance that allowed a gallbladder pa


110

tient to be treated and to recover in a much shorter time than before. As for telecommunications, productivity data understate the
benefit to consumers of newly available services.
These examples reflect underlying problems in productivity
measurement associated with the changing character of the economy. But there are also other general problems in measuring productivity. Roughly speaking, official measures of average labor productivity are calculated by dividing the nominal output of a given
sector (e.g., the private nonfarm business sector or the manufacturing sector) by an estimated price index and a measure of hours
worked. The trends in all three of these variables are subject to
measurement error.
In concept, the task of measuring nominal output is straightforward: one need only calculate the current dollar value of total
production of ‘‘final’’ goods and services—that is, goods and services
that are used for either consumption or investment at home or
abroad, by either individuals, businesses, or governments. In practice, however, the task is challenging. One important set of difficulties involves the definition of investment goods. Traditionally, investment goods have been defined as tangible assets, such as factories or drill presses, that have a useful lifetime of more than 1
year. As a result, intangibles such as computer software and research and development have for the most part been treated as intermediate goods and services—that is, as inputs into the production process—and therefore not as part of final demand.
Recently, however, a number of observers have suggested that
the traditional definition of an investment good should be expanded
to include business expenditures for computer software. A move in
this direction would raise the measured level of GDP and hence
would also raise the measured level of productivity. Moreover, to
the extent that business expenditures for computer software have
been growing more rapidly than the economy as a whole, such a
redefinition would also raise the rate of growth of both output and
productivity. Finally, such a redefinition would temper the apparent slowdown in productivity growth since 1972, assuming that, as
seems likely, the growth of software production has been more
rapid since 1972 than before. Box 3–4 discusses issues related to
treatment of software as an investment good in the national income
and product accounts (NIPAs).
Measurement of prices is the critical problem in the measurement of productivity. The output of the economy increasingly is
shifting away from standardized commodities with easily definable
characteristics that change little over time, toward goods and services for which issues of quality and even definition are of primary
importance. And if the trend in prices is mismeasured, so will be
the trend in output and hence productivity. As an illustration of



111

Box 3–4.—Business Expenditures for Computer Software in the
National Income and Product Accounts

Much of computer software is treated as an intermediate
good in the national income and product accounts rather than
as an investment good. (Software that is sold with computer
hardware as part of a package is, however, included in the current NIPA measure of investment if the machine itself is so
treated.) In part, the current treatment of software reflects a
presumption that much computer software has a useful lifetime of less than 1 year, and thus does not qualify as an investment good under current definitions. In part, however, it
also reflects a lack of information; many companies probably do
not themselves know how much they spend on computer software, and the Department of Commerce certainly does not
know, because none of its ongoing surveys requests this information.
If computer software were to be included in the national income accounts as an investment good, estimates would have to
be developed not only of nominal outlays for computer software, but also of a quality-adjusted price of software. To estimate such prices, analysts would have to determine, for example, how much more ‘‘word processing power’’ was provided in
a new release of a word processing package than in the one it
superseded.
It is difficult to know how much the treatment of computer
software as an intermediate good affects the overall productivity picture. But because the volume of software purchases is
vastly greater today than it was three decades ago, it may help
explain part of the productivity puzzle. The case of computer
software also illustrates some of the serious conceptual difficulties involved in improving current measures of productivity.
the difficulties involved in measuring prices, consider the increased
prominence of discount outlets in the retail sector. In constructing
the consumer price index, government statisticians treat goods sold
at discount retailers as distinct from similar or identical goods sold
through traditional outlets. When a discount retailer adds to its
product line an item already being sold by traditional retailers, but
offers it at a lower price, the difference between the discounter’s
and the full-service merchant’s price is treated as signaling a difference in the quality of a total package: item for sale, service provided, and possibly other consumer amenities. Hence, the lower
price suddenly available at the discounter is considered not to
imply a reduction in the cost of living, and it is not allowed to drive
the index down. But while it may be true that discounters provide



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less attentive or complete service and a less enjoyable overall shopping experience than their full-price counterparts, it is also plausible that part of the difference in initial price reflects operating efficiencies and hence does represent a true reduction in the cost of
living; if so, it would argue for taking at least partial account of
the discounter’s initial prices in computing the index.
Even measurement of hours worked is more difficult than one
might imagine. Estimates based on surveys of employers and
households show different trends. In part this divergence may indicate that employers have a relatively poor idea of how many unpaid overtime hours their employees are working at home. For
their part, workers have been shown to overstate hours worked on
average.
It is easy to point to deficiencies of existing elements of the
measurement system—deficiencies that could be alleviated by a
reallocation of resources for data collection and analysis—but it is
much harder to pinpoint the quantitative significance of such deficiencies. The Bureau of Labor Statistics has been in the forefront
of research into methodological improvements in both price and
productivity data and, indeed, has implemented many improvements in both types of data in recent years.
What are the implications of possible measurement errors? First,
they are likely to provide at least a partial explanation for why the
measured growth of productivity has been slow in recent years.
Second, as was noted earlier, they help explain the post–1972 slowdown in productivity growth to the extent that they have been
more severe since 1972 than before. Although the magnitudes involved are not known with any precision, it is likely that error-contaminated data understate the economy’s productivity growth rate
and hence its capacity growth rate.

FACTORS GENERATING GROWTH OF HOURS
WORKED
In addition to increases in output per hour worked, the other
source of growth in the productive capacity of the economy is increases in the total number of hours worked. Of course, the implications of increases in work hours for the economic well-being of
the American people are not the same as the implications of increases in productivity, because increases in hours worked impose
some cost in terms of time no longer available for other activities.
Growth in hours worked can come from four main sources:
growth in the number of hours worked each week by the average
employed worker; growth in the fraction of the labor force that is
employed; growth in the fraction of the working-age population
that is in the labor force; and growth in the size of the working


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age population. Chart 3–8 summarizes the behavior of each of
these factors since 1963.
According to the Department of Labor, the number of hours
worked per week on the average job in the nonfarm business sector
declined from just over 38 hours per week in the mid-1960s to
about 34 hours in the early 1980s. Since then it has been about flat
(Chart 3–9). (The nonfarm business sector differs from the private
nonfarm business sector in that it includes government enterprises
such as the U.S. Postal Service.) On net, the decline in the average
workweek has taken about 0.4 percentage point off the growth of
aggregate hours worked since 1963—a bit more between 1963 and
1972, and a bit less since 1972 (Chart 3–8).
Changes in the employment rate have contributed essentially
nothing to the trend growth in hours over any of the periods shown
in Chart 3–8. This outcome reflects two facts. First, the years 1963,
1972, and 1994 were chosen as endpoints precisely because the employment rate was near its so-called full-employment level in those
years. Second, the full-employment level of the employment rate
has not changed greatly over the periods examined here.
One of the most striking macroeconomic developments of the
postwar period has been the convergence in the labor force participation rates of men and women (Chart 3–10). Thirty years ago
fewer than 40 percent of working-age women were in the labor
force; today that fraction stands at nearly 60 percent. The largest
increases in labor force activity took place among younger women,
but substantial gains were also registered by women in their forties
and fifties. The trend among men has been in the opposite direction. In 1960 more than 83 percent of working-age men were in the
labor force, but by the early 1990s that fraction had dropped below
76 percent. The reduction in the labor force participation of men
was particularly pronounced among older workers.
On balance, the influx of women into the labor force was the
more important of the two gender-related trends, and the aggregate
participation rate displayed a marked upward drift over the last 35
years, contributing about 0.4 percentage point per year to the
growth of hours. The contribution of the participation rate to the
growth of hours has been a shade greater since 1972 than before.
Since 1989, however, the growth in labor force participation has
been unusually slow. In fact, the average participation rate in 1993
was below the average rate in 1989. The average rate did move up
noticeably in 1994, but it is still too early to know whether the upward trend in this variable has resumed. Moreover, the interpretation of the participation data for 1994 has been made more problematic by the introduction in January 1994 of the redesigned Current Population Survey (the Labor Department survey that is one
of the key sources of monthly data on the labor market). Data col


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Chart 3-8 Factors Generating Growth of Hours Worked
Overwhelmingly, the increase in aggregate hours worked since 1963 reflects the
increase in the working-age population.
Average annual percent change
3

Population
Aged 16 and Over

2

Hours Worked

Members of the
Labor Force
per Person in the
Population
Aged 16 and Over
(participation rate)

1

0.01

0

-0.01

-0.02
Employed Workers
per Member of the
Hours Worked per
Labor Force
Employed Worker

-1

1963-72

1972-94

1963-94

Note: Data on hours worked, total and per worker, pertain to the private nonfarm business sector, whereas data
on the employment rate, participation rate, and population pertain to the whole economy.
Sources: Council of Economic Advisers and Department of Labor.

Chart 3-9 Average Weekly Hours in the Nonfarm Business Sector
The length of the average workweek trended downward from the early 1960s until
the early 1980s. Since then it has been about flat.
Hours
39

38

37

36

35

34

33

32
0

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Source: Department of Labor, unpublished data.




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Chart 3-10 Civilian Labor Force Participation Rates for Men and Women
The participation rates of men and women have converged over the past three decades.
Percent
90

80

Men

70

All
60

Women
50

40

30

20
0
1961 1962
1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Note: Data for 1994 come from the redesigned Current Population Survey.
Source: Department of Labor.

lected over the next few years should help resolve whether the
pause in the increase in the participation rate between 1989 and
1993 was a temporary aberration or a signal of a new, permanent
state of affairs.
Between 1963 and 1972 growth of the working-age population
averaged nearly 1.8 percent per year. By contrast, since 1972 this
growth has averaged 1.4 percent per year, and since 1982 only
about 1.1 percent per year.
Since 1963, aggregate hours worked in the private nonfarm business sector have increased at an average pace of about 13⁄4 percent
per year, with little difference in the growth rate before and after
1972. By happenstance, the slower rate of decline in the workweek
after 1972 and the slight step-up in the rate of change of the participation rate (both pluses for the growth of hours) were about offset by the slower growth in the working-age population.

WHAT CAN THE GOVERNMENT DO TO IMPROVE
THE ECONOMY’S LONG-RUN GROWTH
POTENTIAL?
Without a doubt, the future rate of increase in the economy’s productive capacity will be largely determined by the decisions of the
millions of individual businesses and households in the private



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economy. The role of the government is, and will continue to be, a
limited one: to foster an open and competitive market environment,
and to help the market work better when it would otherwise generate an inefficient result.
Government policies to advance these objectives generally fall
into two broad categories. First, government must address the
question of national saving. Historically, nations that have saved
the most have also invested the most, and investment has been
strongly correlated with productivity. Therefore, it is a matter of
considerable concern that the national saving rate in the United
States is low by international standards and has declined in the
last 20 years. Second, government must address market failures.
Depending on the context, pursuit of the second objective may require the government to strengthen market forces already in place
(as, for example, when it subsidizes student loans or provides support for worker training and skill acquisition); to impose regulation
(as, for example, when it takes actions to curb excessive market
power or to protect the environment); to enhance competition (as,
for example, when it reduces barriers to international trade); or to
provide public goods (as, for example, when it funds R&D). The
need for public goods arises especially in situations in which private market incentives on their own would result in less than the
optimal amount of investment being undertaken because the returns from that investment are not fully appropriable by the private investor. Investment in basic research is a case in point. It
should go without saying that government policies to address market failures should be designed to achieve their objective while imposing the lightest possible burden on the economy. (Chapter 4 discusses this point further.)

BOOSTING PRODUCTIVITY BY INCREASING DOMESTIC
SAVING
During the 1960s and 1970s gross saving in the United States
averaged about 17 percent of GDP. As Chart 3–11 shows, gross
saving declined markedly thereafter, averaging roughly 151⁄2 percent during the 1980s and only about 121⁄2 percent between 1990
and 1993 (fiscal-year basis). In part this decline reflected the deteriorating fiscal position of the government sector (defined to include
all levels of government—Federal, State, and local). Measured on
a national income accounts basis and averaged over fiscal years,
the deficit of the government sector was only 0.2 percent of GDP
during the 1960s and about 1 percent during the 1970s. But during
the 1980s the average deficit widened to 21⁄2 percent of GDP, owing
entirely to a dramatic increase in the Federal deficit. And the average between 1990 and 1993 was even a bit worse because of a decline in the surplus of State and local governments.



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Chart 3-11 Components of Gross Saving
Gross saving has declined since the 1970s, partly because the personal saving rate has
declined and partly because the public sector has run much larger deficits.
Percent of GDP
20

Gross Saving

15

10

5

0

-5
1960-69

1970-79
Business

1980-89
Personal

1990-93

1994

Government

Note: Data are calculated on a fiscal year basis.
Source: Department of Commerce.

Personal saving has also declined, from about 41⁄2 percent of
GDP during the 1960s and 51⁄2 percent in the 1970s to only 31⁄2
percent during the early 1990s. Meanwhile, the trend in business
saving—which accounts for the bulk of gross saving—has been remarkably flat since the 1960s.
In fiscal 1994, gross saving, private and public, reversed course
and edged up to nearly 131⁄2 percent. The main cause of this development was a considerable reduction in the deficit of the consolidated government sector, almost exclusively the result of a sharp
improvement at the Federal level: measured on a national income
accounts basis, the Federal deficit in fiscal 1994 (the first year in
which this Administration’s budget plan was in effect) declined to
2.6 percent of GDP, a full 1.5-percentage-point reduction from the
preceding year.
Gross saving serves as a good measure of the Nation’s saving effort, but saving net of depreciation may be a more meaningful
measure of the domestic resources available for increasing the capital stock. Unfortunately, the trend in net saving has been even
more disturbing. As Chart 3–12 reveals, the decline in net saving—
from an average of 8 percent of GDP in the 1960s to an average
of 2 percent of GDP between 1990 and 1993—has been even steeper than the decline in gross saving. Net saving increased in 1994,
and it is in this light that the reduction in the Federal deficit is



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especially significant: the fiscal consolidation at the Federal level
accounts for all of the improvement in the Nation’s net saving rate
in 1994 over the average for the early 1990s.
Chart 3-12 Gross Saving, Depreciation, and Net Saving
Since the 1960s, net saving has fallen more sharply than gross saving, in part because of
a shift in investment toward more rapidly depreciating equipment.
Percent of GDP
20

Gross Saving

15

10

5

0
1960-69

1970-79

1980-89
Net saving

1990-93

1994

Depreciation

Note: Data are calculated on a fiscal year basis.
Source: Department of Commerce.

In theory, domestic investment need not be tightly linked to domestic saving, and a country that succeeds in boosting domestic
saving may not be rewarded with an increase in domestic investment. In that event, however, it would be rewarded with a reduction in its current account deficit (roughly speaking, its balance of
trade in goods and services with other countries). In the case of the
United States, either outcome—an increase in investment or a reduction in the current account deficit—would be a desirable result
of an increase in the domestic saving rate.
In this light it is relevant to ask what the government can do to
stimulate the rate of gross saving. Fundamentally, two approaches
are possible: one is to boost public saving (that is, cut the deficit
of the government sector), and the other is to stimulate private
saving.

Increasing Public Saving
As has been documented in Chapters 1 and 2, this Administration has made a very substantial contribution toward the reduction
of the Federal deficit (Chart 2–9 in Chapter 2). Even so, the longer
term outlook for the deficit remains troublesome, owing in part to



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the projected shift in demographics, as the baby-boom generation
moves into retirement and begins collecting Social Security and
medicare benefits. This aspect of the long-term outlook suggests
that, despite the progress achieved under the Omnibus Budget Reconciliation Act of 1993 and the additional deficit reduction proposed
in the Administration’s 1996 budget package, more work remains
to be done to put the budget on a secure footing for the long term
and hence to ensure a healthy national saving rate.

Increasing Private Saving
The Federal Government has often sought to increase national
saving by inducing the private sector to save more. The evidence
on the effectiveness of such efforts is mixed.
Many of these attempts have focused on increasing the after-tax
rate of return to the owner of a particular type of asset. For example, individual retirement accounts (IRAs) increase the rate of return on saving by allowing tax-free accumulation of funds held in
qualified accounts, from which the funds cannot be withdrawn
without penalty until the owner reaches the age of 591⁄2. The Administration has proposed an expansion of IRAs, to allow tax-deductible contributions by all couples with incomes below $100,000
(and individuals with incomes below $70,000), and to allow penalty-free withdrawals before age 591⁄2 for the purpose of purchasing
a first home, paying for postsecondary education, defraying large
medical expenses, and covering long-term unemployment expenses.
Chapter 1 discusses this initiative in greater detail.

BOOSTING PRODUCTIVITY BY HELPING MARKETS
WORK BETTER
Aside from increasing domestic saving, a government can increase the productivity of its citizens by improving the quality of
the labor force, increasing the quantity and improving the quality
of the available capital stock, promoting the development of new
technology, and fostering a free market characterized by vigorous
competition.

Improving the Skills of the Work Force
The Federal Government has an important role to play in improving the quality of labor. Individual workers have an incentive
to acquire productive skills on their own, without government involvement, if for no other reason than that better skills usually
mean higher earnings. As is discussed in Chapter 5, however, individuals and organizations left to themselves are likely to
underinvest in skill acquisition. To help overcome this problem, the
Administration has devised a comprehensive set of education policies centered on the theme of lifelong learning. Together these policies are aimed at ensuring that students enter school ready to



120

learn (thanks to Head Start and other programs); that schools work
as effectively as possible in helping students to live up to their potential (through the Goals 2000 program); that students make a
smooth and well-planned transition from high school to a job or
further training (through the School-to-Work program); and that
workers are given an opportunity to upgrade their skills (for example, with the help of a tax deduction for postsecondary training or
through a grant for retraining in the event of unemployment). Each
of these initiatives is described in detail in Chapter 5.

Increasing Investment in Technology
Firms that invest in technology often are unable to capture all
of the benefits of their investment. That is, there appear to be important spillovers or ‘‘positive externalities’’ from such investment,
in the form of benefits captured by other firms without compensation to the firm making the investment. These externalities imply
that the social return to investment in R&D is higher than the private return, and that a private market left to its own devices would
invest too little. As a result, government has an important complementary role to play, either in sponsoring research itself or in
subsidizing private-sector research, or both.
Increasing investment in research and development is one way
to promote technological innovation and productivity growth, because well-directed R&D spending has a very high growth payoff
per dollar. Indeed, estimated social rates of return to R&D average
around 50 percent—much higher than the average estimated private rate of return of 20 to 30 percent. (Box 3–5 discusses empirical
evidence on average rates of return on R&D investment.)
For this reason the Administration has supported extending the
research and experimentation (R&E) tax credit. (Box 3–6 examines
the R&E tax credit in more detail.) The Administration is also increasing funding for government-industry research partnerships
and is working to restore a 50–50 balance between the military and
civilian components of its technology investment. (The defense
share of Federal R&D spending has already fallen from 69 percent
in the government’s fiscal year 1986 to a projected 55 percent in
fiscal 1995.) In addition, the Administration is working to focus a
larger portion of the Federal R&D effort on so-called dual-use technologies (those with both military and civilian applications). Other
Administration research initiatives reflect a strong continuing commitment to basic science, to the creation of improved information
and transportation infrastructure, and to the development of technology in pursuit of other national goals, such as environmental
protection and world-class manufacturing. These initiatives and
others are designed to speed the pace at which new technological
ideas are discovered and disseminated in the private sector. Chap


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Box 3–5.—Research and Development Pays Off

Investment in R&D appears on average to have an impressive payoff. One recent study concluded that the private rate
of return—that is, the return to the firm performing the
R&D—averages perhaps 20 to 30 percent. For comparison, the
average rate of return to investment in the business sector as
a whole is thought to be in the neighborhood of 10 percent.
Estimated rates of return in R&D to society as a whole are
even higher, thanks to the spillovers described in the text. For
specific innovations, estimates of the returns have ranged as
high as 423 percent in the admittedly atypical case of optical
fiber. In a wide range of areas, however, case study evidence
points to rates of return of between 30 percent and 80 percent.
By choosing particular technologies for study, case study research runs the risk of choosing only ‘‘winners’’ (that is, R&D
investments that have paid off handsomely), thus biasing the
results upward. But the case study evidence has been widely
corroborated by industry-level studies. By estimating the industry-wide returns to R&D carried out within the industry itself and within related industries, these studies have provided
additional evidence that social rates of return greatly exceed
private returns. On the basis of such evidence, a recent survey
concluded that, with spillovers taken into account, the returns
to R&D average perhaps 50 percent.
Typically, we might expect such high returns to encourage
firms to spend more on R&D, driving down the rate of return
until it equals the return to other activities. Why have returns
remained so high? In the case of private returns, one probable
explanation is that investing in R&D is risky. For every idea
that yields a high payoff there may be dozens of ‘‘losers’’ into
which a firm sinks resources in vain. If the firm were unconcerned about risk—for example, if it were able to farm out its
risk by selling shares of its R&D activities to mutual funds—
the variability of returns would not matter. But in practice, because of the problems of communicating the quality of a potential innovation to investors, the firm is likely to have to shoulder some of the risk itself. As a result, unless it is large
enough to withstand the resulting variability of returns without difficulty, the firm will probably require a higher return as
compensation for the greater risk.




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ter 4 provides more details on the Administration’s reorientation of
Federal R&D policy in light of the end of the cold war.
Box 3–6.—The Research and Experimentation Tax Credit

The research and experimentation tax credit is a Federal tax
subsidy available to firms engaging in certain research activities. To address concerns that the subsidy be focused as narrowly as possible on research that otherwise would not have
taken place, the credit is made available only on the increment
of domestic research expenditures over a threshold amount.
The incremental nature of the credit means that some taxpaying firms (those with total research spending below the
threshold) will not receive a subsidy for their research activities, worthwhile though they may be. The Congress recognized
this concern but believed that an incremental credit was a
more efficient subsidy mechanism than one that subsidized all
research spending—in other words, that an incremental credit
could achieve most of the benefit provided by a flat
(nonincremental) credit at a lower budgetary cost.
Empirical research on the effectiveness of the R&E credit
has yielded mixed results. Many of the early studies found that
the credit was not very effective: an additional dollar of Federal tax subsidy was estimated to generate less than a dollar
of additional research. However, the credit was substantially
restructured in 1989, and more recent studies have indicated
that the R&E credit is more cost-effective than previously
thought.
The spillovers from both basic research and more applicationsoriented activities cross national boundaries. In recent decades
such transnational spillovers have probably been magnified by the
revolution in communications, which allows news about innovations to be transmitted instantaneously around the world. Importantly, the existence of these spillovers suggests that the global return on R&D investment exceeds the national return. As a result,
even national governments, acting on their own, will tend to sponsor too little basic research and applied R&D. If this analysis is
correct, there may be a role for international coordination in support of such research. By instituting a formal mechanism for sharing research costs, such coordination could reduce the incentive of
each country to free-ride on innovations financed by others.

Working to Reduce Trade Barriers
Barriers to international trade inhibit the efficient allocation of
production across industries and countries and lower the real pur


123

chasing power of consumers. Trade barriers at home permit inefficient industries to continue using labor and capital resources that
could be used more productively in other sectors. And trade barriers abroad limit the access of our efficient industries to foreign
markets. One of the most beneficial aspects of an open world trading environment is that it exposes businesses all over the globe to
greater competition, and forces firms and industries either to improve their efficiency or to free up their productive resources (labor
and capital) for use elsewhere in the economy. Box 3–7 describes
a recently developed theory suggesting that traditional analyses
have been far too conservative in their conclusions regarding the
costs of protectionism.
Box 3–7.—A New Analysis of the Costs of Protectionism

Traditionally, in extolling the virtues of free trade and warning against excessive tariff protection, economists have focused
on trade-induced efficiency gains of the type discussed in the
text. But estimates of the costs of protectionism obtained from
traditional economic models have typically turned out to be
quite small. The inefficiencies caused by a 20-percent tariff, in
one such analysis, turn out to cost the economy perhaps 4 percent of national income—hardly trivial, but far too little to explain why highly protected developing economies have often remained very poor. This finding has become more puzzling over
the past decade or two, as mainstream opinion in development
economics has swung firmly toward the view that integration
in the world trading system has been critical to the success of
the fastest growing developing nations.
Recent research has suggested one possible solution to this
puzzle. If international trade barriers prevent new goods and
technologies from being introduced into an economy, rather
than simply raising the cost of goods that are currently available, then the cost of protection may be much higher. In one
simple new-goods model, for example, a 20-percent tariff exacts
costs equal to an astounding 39 percent of income—nearly 10
times as much as in the standard model. No highly abstract
model is likely to give definitive estimates of the costs of protectionism, of course, and models with different assumptions
yield very different results. Nevertheless, the new research
does suggest a way to bring theory more closely into line with
experience.
In light of the significant long-run benefits accruing to the economy from the pursuit of open markets, the Administration strongly
supports the creation of a world trade and investment environment



124

free of international barriers and has made historic progress toward that objective. After securing the ratification of the North
American Free Trade Agreement (NAFTA) in 1993, the Administration scored several major achievements on the trade front in
1994. Most important was the signing of the Uruguay Round agreement of the General Agreement on Tariffs and Trade and its subsequent congressional approval. The Administration also made
strides toward achieving freer trade and investment flows within
Asia and Latin America. Chapter 6 describes at greater length the
accomplishments of the Administration on the trade front.
Although removal of trade barriers leads in the long run to an
improvement in the standard of living in all countries that participate, it can involve significant costs in the short run for some industries and some workers. For example, the transition to a new
job from one lost because of trade liberalization can be difficult and
may require significant retraining for the new job and even relocation. However, part of society’s overall income gain from the move
to freer trade can be used to reduce the cost of dislocation borne
by individual workers. To ease the transition of workers affected by
the implementation of NAFTA, as well as of other displaced workers, the Administration has introduced a number of innovative programs focusing on worker retraining. These programs are described
in Chapters 5 and 6.

Improving the Efficiency of Regulation
Government regulation plays a central role in shaping the competitive environment in which firms operate. In many cases an improvement in regulation can simultaneously promote the more effective attainment of policy objectives and increase the efficiency of
the economy. For example, a traditional approach to the problem
of reducing emissions of sulfur dioxide (a major cause of acid rain)
might have entailed mandatory investment in costly new pollution
reduction equipment by all emitters. Instead, a market-oriented
system, based on tradable emissions allowances, is achieving the
same results while allowing the efficient allocation of the task of
reducing pollution across emitters. Chapter 4 addresses in much
greater detail the important contribution of efficient regulation to
overall productivity.

CONCLUSION: PROSPECTS FOR GROWTH
In sum, the preponderance of the available empirical evidence
supports the conventional wisdom that the economy’s productive
capacity is expanding at roughly a 21⁄2-percent annual rate. Growth
in the productivity of American workers appears to have picked up
slightly in recent years, to about 11⁄4 percent per year, measured
on a chain-weighted basis (this is roughly equivalent to 11⁄2 percent



125

on the more usual fixed-weight basis). However, trend growth in
the aggregate number of hours worked in the economy probably
will be somewhat slower than it has been during the past decade
or two, owing largely to a decline in the rate of growth of the working-age population. On balance, the sustainable rate of growth of
the economy’s potential appears to be nearly the same as it has
been over the past two decades, with the increase in the trend
growth of productivity offsetting part of the decline in the population growth rate.
The Administration’s economic projection for the next 5 years reflects this analysis. Thus, among other factors, the projection reflects a cautious assessment of the beneficial effects of Administration policies to enhance the Nation’s productive capacity and to foster more rapid growth of productivity. The projection also places
the Administration squarely within a broader consensus about the
longer term outlook for the economy. The Administration has attempted to adopt a balanced assessment of the outlook, grounded
in rigorous analysis and consistent with recent experience. Although some observers maintain that the economy can grow much
more rapidly on a sustained basis, currently there is no convincing
empirical evidence to support such claims.
To illustrate the difficulty of improving the trend in the growth
of the Nation’s productive capacity, consider the following example.
Suppose that a particular set of policies were to result in an immediate and permanent increase in the investment rate of 1 percentage point of GDP. Given that investment now constitutes about 14
percent of GDP, this would be an impressive accomplishment indeed. Under plausible assumptions, a standard approach to modeling the long-term growth of the economy suggests that such an increase in investment would boost the average annual rate of growth
of potential GDP only by about 0.2 percentage point per year for
the first 10 years. Thereafter the growth effects would diminish,
fading eventually to nothing—but leaving the level of potential
GDP an estimated 31⁄2 percent higher than it would have been
without the investment push.
The analysis in this chapter also indicates that currently available official statistics probably understate the true rate of growth
of productivity, and hence the rate of expansion of the Nation’s productive capacity. Furthermore, to the extent that problems of measurement have become more acute during the last two decades (as
might be suggested by the shift in the economy toward the services
sector, where measurement is particularly difficult), the slowdown
in the trend rate of productivity growth during the mid-1970s apparent in the official data is probably overstated.
Clearly, a full understanding of the scope and magnitude of
measurement error is important for the proper design and conduct



126

of economic policy. In particular, measurement error may cause official statistics to understate the performance of the American business sector, both relative to its international competitors and relative to its earlier performance. At the same time, measurement
error does not provide a basis for adjusting one’s view of the appropriate stance of monetary and fiscal policy. An upward revision in
the estimated pace of innovation and growth in the economy would
have similar implications for estimates of both actual and potential
output, and thus would result in no revision in the estimated gap
between the two.
The improvement in the trend rate of growth of productivity that
is embedded in the Administration’s economic forecast has important implications for the wealth and welfare of the Nation. If policies to boost the annual growth of productive capacity by 0.2 percentage point had been implemented a decade ago, the American
economy would now have the capacity to generate an additional
$150 billion in goods and services every year. Fortunately it is not
too late to lay the foundations for comparable gains in productivity
and incomes 10 years hence. The disappointing growth record of
the last 20 years, and the anxieties that so many Americans have
about their own and their children’s economic prospects, demand
that every effort be made today to expand the economy’s capacity
in the future.




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CHAPTER 4

Public and Private Sector
Initiatives to Promote Economic
Efficiency and Growth
FROM THE DAYS OF ADAM SMITH, economists have recognized that a system of perfectly competitive markets enhances economic well-being in several ways: by permitting resources, products, and services to go to those who value them most; by providing
incentives for cost savings and innovation in the production and
distribution of goods and services; and by fostering low prices. Yet
like Adam Smith, today’s economists also recognize that under
some limited but important circumstances markets do not always
achieve these desirable ends. When they do not, appropriate government action can improve markets’ functioning and so increase
economic well-being—for example, by enhancing health and safety,
protecting the environment, maintaining competition, and helping
develop the intellectual and physical infrastructure that undergirds
economic progress.
Markets may fall short in several ways. Markets in some sectors
of the economy are imperfectly competitive because a few suppliers
exercise market power, keeping prices high and discouraging innovation. Markets may also be subject to externalities, in which private actors, responding to market incentives in their own self-interest, impose costs on others (for example by polluting the environment) without compensating them for their loss. Finally, markets
by themselves are not likely to provide appropriate amounts of
some goods and services—like national security, education, and research and development—because these ‘‘public goods’’ have value
to society far in excess of their value to any individual buyer.
Governments, like markets, may fall short of perfection. Government operations are not always as efficient as they could be, and
government regulations, however well intentioned, may sometimes
themselves distort economic activities so that markets function less
than perfectly. Accordingly, the Administration has taken on the
challenge of creating a government that, in the words of the National Performance Review (NPR), ‘‘works better and costs less.’’
This chapter begins by describing the results so far of the Administration’s effort to reinvent government. The remainder of the
chapter examines some of the Administration’s policy initiatives to


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ward making markets work better. These initiatives reflect the
positive role of government, long recognized by economists, in promoting competition in particular markets, remedying harmful
externalities, and providing public goods.

IMPROVING HOW THE GOVERNMENT FUNCTIONS
For Americans used to hollow rhetoric about efforts to change the
culture of government, the first fruits of the National Performance
Review, directed by the Vice President, come as a welcome surprise. In its first report, in September 1993, the NPR identified 384
separate actions that the Federal Government could take to save
money while preserving or even improving the level of service. One
year later, more than 90 percent of the NPR’s recommendations
were being implemented. Actions already taken are expected to
achieve more than half of the $108 billion in savings the NPR forecast achieving over 5 years. Thirty bills covering one-fifth of the
NPR’s legislative recommendations have been signed into law, including the Procurement Reform Act, the Customs Service Modernization Act, the Federal Employee Buyout Bill, Financial Management Reform, and the Department of Agriculture Reorganization Act. The Federal Government is buying fewer custom-designed
products and becoming a more sensible shopper of merchandise off
the rack. Agencies are saving taxpayers millions of dollars by
slashing red tape. Federal employees have contributed hundreds of
promising practices to share with other Federal agencies. Across
the country, 135 ‘‘reinvention labs’’ are fostering innovation by Federal employees.
The Administration’s efforts to improve government functioning
and government regulation seek to replace administrative controls
with market constraints and market-like incentives where feasible.
For example, Federal agencies have long been in the habit of providing certain financial and administrative services for themselves.
The NPR directs Federal agencies to open up these internal monopolies by exposing their operations to competition. Agencies can now
purchase over 100 financial, administrative, and other services
from competitive suppliers in other agencies. Similarly, the General
Services Administration has begun a pilot initiative to reduce its
monopoly on government real estate services and instead give its
agency customers a choice of service providers. This initiative involves the creation of competitive enterprises to provide real property services on a fee basis, with benchmarks for performance.
The NPR also challenges Federal agencies themselves to search
for market, not administrative, solutions to agency needs and missions. Agencies can now make small purchases with an ordinary,
commercially issued credit card; this move saved $50 million in



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1994 alone. At the Defense Department a new travel process is expected to save $1 billion over 5 years. And as discussed below, the
Federal Communications Commission has begun to auction the
rights to portions of the radio spectrum that previously were allocated in a cumbersome administrative hearings process or by lottery. These auctions have already raised hundreds of millions of
dollars.
The NPR encourages government agencies to replace regulations
with incentives. For example, the Environmental Protection Agency
(EPA) is shifting its emphasis from regulation-based pollution control to providing incentives for pollution prevention. The EPA’s
Common Sense Initiative involves six major U.S. industries in creating more cost-effective pollution control and prevention strategies, such as allowing companies to trade pollution credits (the advantages of tradable credits are explored later in this chapter). The
Occupational Safety and Health Administration has restructured
its approach to workplace safety, empowering OSHA inspectors to
identify better ways to protect American workers.

PROCUREMENT REFORM
For decades, changes in government purchasing rules were more
often proposed than enacted. But with the support of the Administration a bipartisan coalition in the Congress passed the Federal
Acquisition Streamlining Act of 1994. The act changes the way the
Federal Government buys $200 billion worth of goods and services
each year—everything from paper clips to jet aircraft. Two hundred
and twenty-five major provisions of law are either repealed or reformed, resulting in a purchasing system that will increase competition and lower costs.
To most Americans government procurement has become almost
synonymous with ‘‘waste, fraud, and abuse.’’ This is understandable, given the many well-publicized anecdotes over the years suggesting a regulatory bureaucracy gone out of control. Yet, ironically, the web of laws and regulations that gave rise to such horror
stories as the Defense Department’s $600 toilet seat actually
evolved out of laudable efforts to protect the taxpayer from waste,
fraud, and abuse.
Since the Civil War, Federal authorities have sought ways to ensure fair competition for government contracts. By 1994 no fewer
than 889 oversight laws and regulations were on the books. Oversight activities employed thousands of procurement officials and
added billions of dollars each year to the cost of running the Defense Department. Today the Congress and the Administration believe the public interest can be better served by a procurement system that is less regulated, more flexible, and much more compatible with commercial practices.



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The inherited procurement system raises costs and impedes innovation by discouraging commercial firms from doing business with
the government, and especially with the Defense Department,
which accounts for well over half of all Federal procurement. Particularly cumbersome are the provisions of the Truth in Negotiations Act of 1962 (TINA), which among other things generally require companies with government contracts worth over $100,000 to
account for every 6 minutes of each of their employees’ time. One
leading defense contractor, a manufacturer of aircraft engines for
commercial as well as military customers, has to employ 52 extra
people, at a cost to taxpayers of $13 million a year, just to comply
with TINA and other government procurement regulations. The
high overhead costs of dealing with the purchasing bureaucracy
have led at least one other large corporation, faced with declining
sales due to military downsizing, to sell its defense division to a defense contracting specialist, which could afford the cost of doing
business with the public sector because it could spread the overhead costs over a greater sales base.
The procurement barriers that prevent the Defense Department
from buying commercial items off the shelf do not merely raise
costs to the taxpayer; they also impede the Pentagon’s access to
commercial technology, which in many critical areas is now more
advanced than military technology. Because of specialized cost accounting practices and other demands unique to the government,
leading-edge commercial producers of advanced technology sometimes refuse to become partners with military contractors. The result is to choke off the flow of technology from the civilian to the
defense sector.
An incident during the Persian Gulf crisis offers probably the
best-known recent example of how procurement regulations can
prevent the Defense Department from taking full advantage of the
inventiveness and efficiency of commercial producers. The Pentagon placed an emergency order with a leading U.S. telecommunications equipment supplier for 6,000 commercial radio receivers.
The Pentagon waived all military-unique specifications, but procurement officials were still legally bound to ensure that the government was getting the lowest available price. Unfortunately, the
company’s commercial unit lacked the specialized recordkeeping
systems required to demonstrate that the quoted price was indeed
the lowest for that radio available anywhere. And since any
misstatement regarding the price might constitute a felony, no
company official would risk making the certification. The impasse
was resolved only when the Japanese Government, unencumbered
by such rules, agreed to purchase and ‘‘donate’’ the radios as part
of its promised contribution to the allied war effort.



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Past efforts to fine-tune the procurement system have not solved
its problems. The entire system has to be fundamentally redesigned. The Federal Acquisition Streamlining Act of 1994 begins
this process by making three key statutory changes.
First, the new law simplifies government contracting for commercial purchases. Agencies acquiring goods shall give preference to
commercially available versions rather than ones specifically designed for the government. The law waives many laws that required supplier companies to provide the government with data
they did not already routinely collect or that their commercial customers did not also require. Second, the law authorizes the Defense
Department to undertake pilot projects to test innovative approaches to acquiring military equipment derived from commercial
products.
Third, the law authorizes greatly simplified contracting procedures for small purchases while also encouraging electronic commerce—in effect, Federal contracting by electronic mail. The new
law waives the paperwork and recordkeeping requirements of numerous existing laws for purchases of less than $100,000 (the previous threshold was $25,000). The increase will make an additional
45,000 procurement actions annually—valued at about $3 billion
each year—eligible for simplified acquisition procedures. Federal
agencies also are given greater flexibility to make ‘‘micro purchases’’ of $2,500 or less. For example, a Federal office manager
can now buy pencils at a local discount store without having to fill
out a stack of government purchasing forms.
The new law facilitates electronic commerce by encouraging Federal agencies to plug into a publicly accessible Federal Acquisition
Computer Network. The President has also ordered all Federal
purchasing agencies to utilize electronic commerce to the extent
possible; as a result, nearly 250 Defense Department offices, which
account for 80 percent of small defense purchases, plan to be online within 2 years.
Building upon these legislative reforms, the Pentagon is redesigning its buying practices to reduce significantly its reliance on
so-called milspecs, the 31,000 military specifications that describe
down to the minutest detail how items ordered by the military are
to be made—everything from shotgun ammunition to macaroons for
the mess hall. Another case from the Persian Gulf conflict highlights the urgent need for change. The U.S. Army had placed an
emergency order with a large defense contractor for 12,000 handheld navigation devices. The devices would receive signals from the
Global Positioning Satellite (GPS) System, thus enabling soldiers to
know their precise position on the desert battlefield. The contractor
responded that, to comply with milspecs, each receiver would cost
$34,000 and weigh 17 pounds, and the order would take at least



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18 months to fill. The Army obtained an exemption from the
milspecs and found two commercial firms that could fill the order
quickly with GPS receivers that weighed only 3 pounds and cost
only $1,300 apiece.
Milspecs may have made more sense in the past, for sophisticated weapons systems at least, when the Pentagon and the defense industry dominated advanced technology. But for the fields of
technology most important to the Defense Department today—
semiconductors, computers, software, telecommunications—technical leadership now generally resides with commercial industry.
By adopting commercial standards, the Defense Department expects to pay less to provide the armed forces with the latest generation of equipment than if it attempted to design and maintain its
own unique standards. Under the new procurement system, to be
fully implemented in 3 or more years’ time, the Defense Department will no longer tell contractors how most of the products it
buys must be made. Milspecs will be the exception, not the rule.
The complete restructuring of the government’s procurement system will take time. Some analysts believe that nothing less than
a cultural revolution is needed to make the shift to a system that
supports innovation and rewards market-driven, entrepreneurial
management. That may be so, but in the meantime the Federal Acquisition Streamlining Act, together with other reforms being actively implemented by the Defense Department, will produce—indeed, are producing—positive results.

REFORMING THE FEDERAL AVIATION
ADMINISTRATION
The National Performance Review also called for reform of the
way the Federal Aviation Administration (FAA) operates the Nation’s air traffic control system. Emerging, satellite-based technologies of air navigation and air traffic control promise to reduce
routine air travel times and congestion-related delays by freeing
aircraft from having to travel in designated airways. But, the NPR
argued, existing budgeting, personnel, and procurement rules so
hobble the agency as to impede its ability to adopt this cutting-edge
technology quickly. To create an organization that would be up to
the challenge of building and running a state-of-the-art air traffic
control system, the NPR proposed transferring that responsibility
from the FAA to a public corporation set up for that purpose. The
National Commission to Ensure a Strong Competitive Airline Industry contemporaneously made a similar recommendation.
In May 1994 the Administration announced a plan to implement
these recommendations. The new government corporation would be
funded in part from fees paid by the commercial aviation firms
using the new system. It would also be permitted to borrow from



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the Treasury and from private capital markets, so that the substantial capital investment needed to complete an advanced air
traffic control system would not be limited by the flow of user fees.
Accelerating the full deployment of the new system in this way
will, it is hoped, speed complementary investments by the airlines
in aircraft equipment needed to use the system.
The Administration’s proposal assigns the users of the air traffic
control system a significant role in its corporate governance: aviation company executives would be not merely advisers to the corporation but its directors as well. In part because of the fees they
would pay, users would have a direct and substantial financial
stake in ensuring that air traffic control services promote safe and
rapid air travel, that those services are provided at low cost, and
that beneficial investments are not delayed. Strong user representation on the board of directors would therefore encourage sensible
and cost-effective corporate decisionmaking.
Regulatory oversight remains important to ensure safety in air
travel, to prevent monopoly abuses in the setting of user fees, and
to ensure that the corporation does not abuse its ability to borrow.
In the Administration’s plan, these functions would be performed
outside the corporation by the Department of Transportation. Safety regulation would remain in the hands of a slimmed-down FAA,
which would oversee the new air traffic control corporation in much
the same way it now oversees air carriers and manufacturers. The
Secretary of Transportation would have the power to disapprove
user fees that harm new entrants, diminish competition, or lead to
excessive fees for air service, and the power to disapprove borrowing in excess of the corporation’s ability to repay or borrowing intended for inappropriate, wasteful, or unreasonably speculative activities.

PROMOTING EFFICIENCY IN THE MARKET
ECONOMY
Government can promote efficiency in the market economy in
many ways, including these three: restraining anticompetitive practices, ensuring that the costs of externalities are taken into account
by those who create them, and undergirding markets with research
and information that would be undersupplied—or not supplied at
all—by private markets. This Administration is committed to making the Federal Government perform these and other important
functions efficiently so that markets perform better, and is working
on many fronts to do so. Notable examples are initiatives in antitrust enforcement and interstate banking legislation. Other challenges—and opportunities—for improving the performance of the



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market economy lie ahead, for example in the areas of agricultural
policy and ground transportation regulation.

ANTITRUST ENFORCEMENT
The Nation’s antitrust laws, effectively enforced, preserve competition and the economic benefits it yields. This Administration is
committed to maintaining antitrust protections. In 1994 the Justice
Department filed three complaints challenging firms for monopolizing markets, including a widely publicized settlement involving the
largest firm in the computer software industry. In contrast, the
Justice Department had filed only four other such complaints since
the successful conclusion, in 1982, of the prolonged government
lawsuit to break up what was then the nationwide telephone monopoly. Other important antitrust initiatives of the past year included a renewed campaign against foreign anticompetitive conduct
that harms U.S. interests, the settlement of the Justice Department’s price-fixing case against the major airlines (Box 4–1), new
efforts in reviewing proposed mergers and acquisitions to harmonize the need to protect competition with industry trends toward
rationalization, and efforts to protect incentives for firms in competition to innovate. This last initiative is discussed later in this
chapter (in the section on ‘‘Intellectual Property’’); the other three
are considered here.

Anticompetitive Foreign Practices
For 50 years the antitrust laws have been interpreted as forbidding anticompetitive foreign practices that harm U.S. interests,
whether by raising the prices of imports to American consumers or
by closing markets to American exporters. In the past, for example,
the antitrust laws have been employed against foreign buying cartels using monopsony power—the market power of a single buyer—
to lower the price received by U.S. exporters. Such enforcement not
only protects specific U.S. interests directly, but also advances U.S.
interests more broadly by promoting a global regime of competitive
open markets.
In 1988 the Justice Department chose to disavow the use of these
laws to protect U.S. export trade. That policy was renounced in
1992, but no new case was filed until 1994, when the department
reached a settlement with a large British producer of float glass
(the type of glass used in automobiles and buildings). The Justice
Department charged that the company used exclusive territories
and other restrictions in licensing its technology in an attempt to
monopolize this $15-billion-a-year global industry. The licensing restrictions discouraged U.S. firms from designing, building, or opening float glass plants abroad. Because much of the technology being
licensed is now in the public domain, and thus could not claim intellectual property protection as trade secrets, the Justice Depart


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Box 4–1.—Airline Price Fixing

In 1994 the Justice Department settled a case involving
price-fixing charges against eight major airlines. What was
new about the case was the way in which new forms of information exchange made possible by advances in telecommunications and computerization were allegedly used to facilitate illegal conduct.
The major airlines are connected through a computerized
system, set up by the airlines themselves through a joint venture, that collects fare information from each of them and
transmits it to the various computer reservation systems used
by travel agents. Through the joint venture, the air carriers
process and sort fare change information to produce detailed
daily reports displaying relationships among fares. The Justice
Department emphasized that much of this information is unavailable in practice to travel agents and other users of the
reservation systems.
According to the Justice Department, the carriers’ joint venture was used in a novel and anticompetitive way to coordinate
fare decisions over a 5-year period. Using certain features of
the fare records (first and last ticket dates and footnote designators) and often employing prospective fares never offered
to the public, the carriers created a detailed language for striking complex bargains across fares and routes. For example, one
carrier might agree to raise its fares for a certain city-pair
market in which a rival carrier would prefer a higher fare than
the first carrier desired, in exchange for the rival carrier agreeing to raise its fares in a second market in which the preferences were reversed. The rapid information exchange made
possible by the computerized network aided the carriers in enforcing such bargains: an airline could usually detect and respond to a rival’s deviation from such a deal within a day.
The Justice Department claimed to have identified over 50
such collusive agreements between carriers using the computerized joint venture for negotiations, and challenged as unreasonable the features of the fare records that made these conversations possible. If such coordination had raised fares by as
little as 5 percent for 5 years on 300 routes, the cost to consumers would have been nearly $2 billion, according to the
Justice Department. The price-fixing charges were settled by
an agreement approved by a Federal court which forbids the
carriers from using the features of the fare records that facilitate bargaining.




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ment concluded that the licensing provisions were not legitimate
business practices but were instead being used to close off foreign
markets to U.S. competitors. The settlement eliminates the British
company’s territorial restrictions, allowing U.S. firms to manufacture float glass abroad. This case also illustrates the Justice Department’s renewed focus on anticompetitive distribution practices
and the anticompetitive potential of sham intellectual property licensing arrangements.
The ability of Federal antitrust enforcers to challenge international cartels and other anticompetitive foreign practices that
harm U.S. consumers and exporters was enhanced by legislation
enacted in 1994. The new act allows the Justice Department and
the Federal Trade Commission to enter into reciprocal agreements
with foreign antitrust agencies, under which the U.S. and the foreign agencies will assist each other’s investigations by obtaining
antitrust evidence from firms and persons within their own jurisdictions. Safeguards in the legislation ensure that confidential business information supplied to foreign antitrust authorities will not
be improperly used or disclosed.

Antitrust Review of Mergers and Acquisitions
Mergers and acquisitions are on the upswing: both their number
and the value of the assets transferred have increased every year
since 1991. But half of all mergers and acquisitions in 2 recent
years, as measured by asset value, have occurred in four industries: telecommunications, health care, financial services, and defense and technology (Table 4–1). These are all industries in which
technology or the government’s role has been changing dramatically, leading firms to alter their business strategies through restructuring.
TABLE 4–1.—Announced Mergers and Acquisitions Transactions in 1992
and 1993
Transactions
Industry
Number
All industries ..................................................................................
Finance ...........................................................................................
Telecommunications .......................................................................
Health care .....................................................................................
Defense and technology .................................................................

5,237
900
249
598
226

Asset value

Percent of
total
100.0
17.2
4.8
11.4
4.3

Millions of
dollars
273,088
65,030
62,615
18,503
8,913

Percent of
total
100.0
23.8
22.9
6.8
3.3

Source: Merrill Lynch, Mergerstat Review 1993. Reprinted with permission.

Mergers and acquisitions may be attractive to the parties involved for a number of reasons. They may allow the merging firms
to lower costs, improve management, stimulate innovation, or reduce taxes. But they may also—and this is the concern of antitrust
enforcers—enable the expanded company to exercise market power.



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Acquisitions in industries undergoing widespread restructuring
are more likely than most to raise conflicts between the business
trends that encourage consolidation and the need to preserve and
promote competition. Such conflicts have arisen in the hospital industry, where a consolidation has been under way for some time.
Nationwide, almost 100 hospitals merge or close in a typical year,
and consolidation is occurring in all regions of the country. Because
many hospitals serve highly localized geographic markets, where
few alternative providers exist or could enter the market, the loss
of a single hospital through merger or closure can often sharply reduce competition in its locality. In part the trend toward industry
concentration reflects, ironically, the efforts of health insurers and
managed care providers to lower the prices they pay by encouraging competition among neighboring hospitals and the rationalization of duplicative facilities. Hospitals also face increasing competition from surgical and outpatient clinics, which can offer at lower
cost some health care services that formerly only hospitals provided.
Cost-saving consolidations can lower the price of hospital services
and improve health care delivery—so long as they do not undermine competition. Competition ensures that hospital cost reductions will benefit consumers. Antitrust enforcers have not challenged the more than 95 percent of all proposed hospital mergers,
and the even greater fraction of proposed joint ventures, that they
did not find threatening to competition. But a few proposed consolidations do raise conflicts between the trend toward rationalization
and the need to promote competition.
During 1994 the Department of Justice, in partnership with the
Florida Attorney General’s office, responded innovatively to one
such conflict. Under the terms of a consent settlement of an antitrust case, the two largest general acute care hospitals in northern
Pinellas County, Florida, were permitted to collaborate in providing
those services in which they compete with nonhospital or distant
hospital providers, including many outpatient services and tertiary
care services. The hospitals were also allowed to consolidate billing,
procurement, and other administrative functions. But the settlement requires them to market their collaborative services independently and to continue to compete in offering those inpatient
services for which there may be no practical alternative supplier
for most patients in their region.
In recognition of the restructuring under way in the health care
industry, the Justice Department and the Federal Trade Commission have jointly issued several antitrust guidelines for the health
care industry as a whole. The agencies’ joint statement on hospital
mergers declares that the government will not normally issue a
challenge if either of the merging hospitals averages fewer than



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100 beds and fewer than 40 patients per day over a 3-year period—
regardless of concentration in their geographic market. Guidelines
such as these should encourage needed investment and reorganization in this industry by lessening uncertainty about the antitrust
consequences of proposed restructurings.

INTERSTATE BANKING
Legislation enacted in 1994 takes a giant step toward interstate
banking and bank branching in the United States. The new law removes Federal barriers to geographic expansion and authorizes the
States to remove the rest. Lowering the hurdles to interstate banking and branching improves the efficiency of the banking system in
three ways. First, banks can increasingly consolidate branches
across State lines into one network and accept interstate deposits
without restrictions. This will lower costs for banks operating in
more than one State.
Second, increased interstate banking reduces the likelihood of
bank failures by facilitating greater diversity in bank loan portfolios. Banks can more easily avoid tying their profitability and solvency to the health of a single region. This will make it easier to
diversify against regional risks such as weather- or disease-related
crop failure, earthquake, or energy price fluctuations.
Finally, banks’ increased ability to enter new markets across
State lines will boost competition. To further promote competition,
the legislation limits mergers and acquisitions that would cause a
bank holding company to control more than 30 percent of the bank
deposits in a State, unless the State waives this limit.

INTRASTATE TRUCKING
The trucking industry was partially deregulated in 1980, with
the enactment of legislation significantly reducing Federal control
over entry, pricing, and operations of interstate trucking. Scholars
estimate that this legislation has generated annual savings in the
tens of billions of dollars. Legislation enacted in 1994 removes the
most burdensome remaining governmental constraints: regulation
by more than 40 States of the rates, entry, and routes of motor carriers.
The end of intrastate trucking regulation in 1995 promises to
lower the prices of trucking services. For example, under current
State regulation, one consumer products distributor pays $560 to
ship products the 422 miles between Dallas and Laredo, Texas, but
only $410 to ship the same goods the 480 miles between Dallas and
Topeka, Kansas, in largely unregulated interstate commerce. The
new legislation discourages inefficient business practices predicated
on State regulation. For example, cargo carriers will no longer have
an incentive to ship to inconvenient out-of-State airports in order



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to avoid regulated intrastate trucking rates. Competition among
truckers and multimodal cargo carriers implies that much of the
savings from deregulation will be passed through to consumers.

FARM POLICY REFORM
The drafting of a new farm bill in 1995 will give the Federal Government an opportunity to reassess and redesign its role in the agricultural economy. A more efficient farm policy would reflect contemporary economic conditions, environmental needs, and public
values. As described below, efficiency requires that farmers be
given greater opportunity to respond to market incentives, and that
cost-effective public policies be used to correct market failures in
agriculture. Revising government policy to meet better these objectives will help unleash more of the innovative energy that has long
characterized American agriculture.

Changing Conditions in the Agricultural Economy
Today’s agricultural commodity support programs are rooted in
landmark New Deal legislation that followed the agricultural depression of the 1920s and 1930s. These programs were designed to
sustain prices and incomes for producers of cotton, milk, wheat,
rice, corn, sugar, tobacco, peanuts, and other crops. However,
changing economic conditions and trends in agriculture over the
past half-century suggest that many of the original motivations for
farm programs no longer apply.
The farm sector no longer looms large in the macroeconomy. Commodity programs were originally instruments of macroeconomic
policy as well as a means of sustaining farm families’ incomes. In
the 1930s farm households accounted for 25 percent of the U.S.
population and generated over 10 percent of gross domestic product
(GDP). Today they comprise less than 2 percent of the population.
Although the U.S. food and fiber system as a whole (including food
processing and marketing) provides an estimated 18 percent of U.S.
jobs and contributes over 15 percent of GDP, farming alone now
generates only 9 percent of rural employment and less than 2 percent of GDP. Technological progress and growth in farm productivity permit a smaller labor force to supply the agricultural needs of
the entire country. As a result, government farm programs play a
reduced role in the U.S. macroeconomy.
International trade in agricultural products has grown. Productivity gains in agriculture have helped fuel growth in agricultural
exports. For example, wheat exports have grown from 8 percent of
U.S. wheat production in the 1930s to over 50 percent today, while
corn exports have grown from less than 2 percent of production to
about one-quarter. Such growth has helped convert agriculture
from a trade deficit sector to an important trade surplus sector,
contributing over $19 billion to the U.S. balance of trade in 1993.



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The average farm payment recipient is no longer poor. In the
1930s per capita farm income was only one-third the per capita income of the remaining population. Commodity programs were intended to reduce this disparity. Today, however, recipients of farm
program payments (about one-third of all farm operators) tend to
be better off than the average American. Overall, farm households
have about the same average income and quadruple the net worth
of the average U.S. household. Moreover, two-thirds of program
payments go to the largest 18 percent of farms—even though the
average income of these recipients is triple that of the average U.S.
household.
Agricultural production is increasingly concentrated. The number
of farms has fallen by more than 60 percent since 1950, while the
size of the average farm has doubled. Moreover, 92 percent of what
the Bureau of the Census terms farm households operate small
farms but receive almost all their income from off-farm sources;
they have about the same average income as the typical nonfarm
household and receive only a small share of government farm program payments.
Demographic data indicate that these trends will continue, in
part because the young increasingly choose nonfarm occupations.
During the 1980s, entry rates into farming fell by 50 percent
among those under 25 years of age and by 35 percent among those
aged 25 to 34. Low rates of young farmer entry have persisted
since 1987. By 1990, as a result, 22 percent of farm operators were
65 or older, compared with only 3 percent of the U.S. work force
as a whole.
Farmers now can insure themselves against price declines. In the
early 1930s farm incomes were at the mercy of year-to-year fluctuations in farm prices. Commodity programs provided price floors
for agricultural producers, insuring them against adverse price
swings. The growth of futures and options markets now lets farmers protect against short-term price declines without the need for
a government program.
The potential environmental costs of farming have increased.
Modern agricultural practices can sometimes lead to substantial
runoff of nutrients and chemicals, which pollute downstream water
resources. The use of both pesticides and fertilizers has doubled
since the 1960s, and agriculture is now considered a contributor to
water quality problems in approximately 60 percent of river and
lake areas that are impaired. An increasing rural population has
raised the potential public health costs of environmental damage
from agricultural activities. Agriculture has also been a major
source of wetlands losses, which can diminish floodwater storage
capacity and harm water quality and wildlife. The upper Midwest,
for example, once had an estimated 53 million acres of wetlands;



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today only about 23 million acres remain, 29 million acres having
been converted to cropland. (Wetlands policy is discussed further
below.)

New Foundations of Agricultural Policy
Both changing economic conditions and the quest for efficiency in
government motivate a new set of objectives for agricultural policy.
Market incentives at home and abroad. With the increasing importance of international markets to U.S. agriculture, free trade between nations has also become increasingly important to this sector. As discussed in Chapter 6, the Administration has achieved
historic agreements that will lower international trade barriers
around the world, including some prominent barriers to agricultural trade. These agreements will yield large dividends to the
farm sector and the U.S. economy at large.
At home, farmers must be given appropriate market signals so
that their decisions will help maximize aggregate economic welfare.
Unfortunately, some government farm programs impede market
processes and efficient choices. In some agricultural markets, the
Federal Government operates programs that do not involve taxpayer subsidies, but that nonetheless reduce economic efficiency.
For example, in markets for sugar, peanuts, and tobacco, abovemarket prices are supported by cartel-like supply restrictions that
are enforced by the Federal Government. The sugar and peanut
programs also impose marketing restrictions in ways that inhibit
shifts of production from more costly to less costly producers.
Farm commodity programs currently come in two main forms.
Income support is provided by deficiency payment programs, which
make payments that depend on a commodity’s statutory target
price, the actual market price, and the number of acres a farmer
has accredited to the commodity program. To maintain their benefits, farmers have an incentive to plant the same crops year after
year. Deficiency payments are sometimes tied to a requirement
that farmers idle a portion of their land. Farmers that are eligible
for deficiency payments also benefit from price support programs
that pay them the difference between a commodity’s support price
and its international price on each unit of a program crop that they
produce.
Both programs affect economic behavior in ways that may prove
costly. By encouraging overinvestment and overproduction in agriculture, the programs affect the allocation of resources in the economy and thereby reduce overall productivity. The programs also reduce the productivity of agriculture itself because they subsidize
different crops to different extents. Indeed, almost half of agricultural production is not covered by either price support or deficiency
payment programs. In addition, farm programs may have long-run
costs: by raising agricultural land values, crop subsidies may raise



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the financial barriers to entry into farming, deterring some entry
and increasing the financial vulnerability of new farmers.
The programs may also discourage environmentally beneficial
practices. By favoring program crops over nonprogram rotation
crops, both programs discourage crop rotations that break pest cycles and promote soil conservation. Price support programs can encourage the use of pesticides, herbicides, and fertilizers, which may
raise yields but contribute to off-site environmental damage. By increasing the returns to crop cultivation, both programs may encourage the farming of marginal lands, which for environmental reasons may be better left fallow. And both programs may skew the
composition of farm output toward program crops, some of which
are particularly intensive in environmentally harmful inputs. For
example, a 17-State Department of Agriculture survey found that
farms growing cotton, a program crop, use almost twice as much
pesticide per acre as the average farm.
Some economists argue that current farm programs can be reformed to increase economic efficiency, better serve environmental
objectives, and still provide government support to the agricultural
sector. For example, one approach would sever the link between
commodity program payments and farmers’ crop choices by fixing
farmers’ commodity program acreages, allowing farmers complete
planting flexibility on these acreages, terminating acreage control
requirements, and rolling price support programs for the incomesupported commodities into deficiency payments (thus curtailing
overproduction incentives implicit in price supports).
Farm survival. Farmers are subject to daunting risks from both
nature and markets. For a variety of economic reasons, including
incentive considerations, these risks are mostly borne by farmers
themselves. Investment in farmland and farm capital generally requires a combination of a farmer’s own funds and bank loans.
When the agricultural economy suffers a downturn, farmers’ debts
can threaten their financial stability and indeed the survival of
their enterprises, as was witnessed most recently in the agricultural recession of the early 1980s. For would-be farmers with limited capital, such prospects can limit the availability of bank funds
and deter entry, even if that entry appears profitable, on average,
in prospect. Government support of farm credit and crop insurance
is intended to counter these effects.
Risks to farm revenues come from two sources: prices and yields.
When both prices and yields are insured, so is the product of the
two, farm revenues. Price insurance is now available on private
markets in the form of futures and options contracts. Yield insurance, on the other hand, is offered by the Federal Government in
the form of subsidized crop insurance.



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In principle, private insurance markets can mitigate risks to
farm revenue when an individual farm’s revenues are closely tied
to observable regional measures of crop revenue. Regional revenue
insurance can offer farmers compensation when revenues are low,
without creating problems of adverse selection and moral hazard
(Box 4–2). In practice, however, the Federal Government has deterred the development of a private insurance market by offering
subsidized crop insurance of its own and by standing ready to underwrite many farm losses in the event of natural disasters.
Even if regional revenue insurance were available, some risks
specific to individual farms may remain uninsurable in private
markets because of adverse selection and moral hazard. Farm disaster insurance responds to this market failure.The Administration
has moved swiftly to address the need for farm disaster insurance
that both protects farmers from large crop losses on their individual farms and clarifies the government’s role in disaster relief. The
Federal Crop Insurance Reform initiative, signed into law in the
fall of 1994, provides for minimal disaster insurance coverage for
all farmers that participate in government farm programs and any
others that choose to purchase this coverage; the insurance protects
farmers from yield losses above 50 percent of their historical average yields, with payments for such losses at a rate of 60 percent
of the expected crop price. This reform provides farmers with disaster protection that is statutory and hence dependable. With this
basic protection in place, the stage is set for advancing market alternatives to conventional government crop insurance, in order to
insure against low, but noncatastrophic, revenues. Regional revenue insurance represents one possible private market insurance alternative.
Environmental stewardship and efficient land use. The choice of
farm practices can have a wide range of environmental effects,
positive and negative. Negative effects include off-site costs of soil
erosion and agricultural runoff; positive effects include wildlife
preservation benefits from hedgerows and windbreaks, and reduced
greenhouse gas emissions due to improved fertilizer management
and processing of confined livestock waste. Over the past two decades, farm conservation practices have improved dramatically.
Nonetheless, farmers should be given incentives to consider the environmental costs and benefits of their actions. Federal policy can
incorporate environmental and public health values into farmers’
decisionmaking through an incentives-based approach that leaves
management decisions in farmers’ qualified hands while turning
collective environmental objectives into individual financial ones.
For example, the environmental costs of agricultural erosion and
runoff stem from both the application of fertilizers and pesticides
and a variety of other farm practice decisions, including tillage



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Box 4–2.—Adverse Selection and Moral Hazard in Crop
Insurance

When some farmers face a higher risk of crop shortfalls than
others, but potential insurers cannot identify which farmers
are high-risk, insurance premiums must be set to reflect the
average risk of insured farmers. However, for low-risk farmers,
such premiums will be higher than their average revenue
losses, and these farmers may therefore decide not to buy the
insurance. As a result, only the high-risk farmers may choose
to purchase private crop insurance, leaving all other farmers to
face the full range of revenue risk, and leading insurers to
raise their premiums on the now-riskier pool of customers. The
problem that arises when individual farmers know their own
vulnerability to specific hazards better than do insurers is
called adverse selection.
Crop insurance can also fall victim to what economists call
moral hazard, the problem that arises because a farmer who
is insured against crop loss has less of an incentive to avoid
the loss. Moral hazard in this setting occurs when insured
farmers adjust their production practices to increase the likelihood of receiving an insurance payment. This can be done, for
example, by producing a small crop and a large crop in alternating years. The large crops keep the insured revenue level
up, while the small crops permit the farmer to collect on the
insurance contract.
Both adverse selection and moral hazard problems could be
avoided with regional revenue insurance that compensates each
farmer only for shortfalls in regional revenue, not the farmer’s
own revenue. For example, a regional insurance contract could
be tied to average corn revenue in a given county, defined as
the product of the county-wide average yield on corn acreage
and a corn price index. An insured farmer would receive a payment when average corn revenue falls below a given level; the
size of the payment would depend upon the amount of insurance the farmer has purchased. To the extent the farmer’s own
corn yields match those of the region, regional insurance would
provide financial relief in times of low revenue, without tying
insurance payments to outcomes that depend upon the farmer’s
own planting decisions or risk attributes.
practices, crop rotation decisions, and the use of filter strips that
absorb runoff in the boundaries of croplands. When the application
of fertilizers and pesticides imposes off-site costs, farmers can only
be expected to make efficient decisions if they are themselves confronted with these costs. One possibility by which policy could use



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markets to do this is to levy fees on the use of these inputs that
reflect the environmental cost of their application in different geographical areas. Another option is to use positive financial incentives to encourage the adoption of conservation practices that reduce erosion and runoff or provide wildlife habitat.
Federal policy also needs to be concerned with agricultural land
use. In some cases the public benefits from preserving uncultivated
land or returning cultivated land to its native form may exceed the
potential private benefits of cultivation. This is likely to be the case
with some highly erodible land and many wetlands. About 120 million acres of cropland, representing over 25 percent of all U.S. cropland, is considered highly erodible. These lands are estimated to
erode at least eight times as fast as their soil can be naturally regenerated, leading to high off-site costs of sediment and chemical
runoff. Such lands have been among the most important targets of
the Agriculture Department’s principal land retirement program,
the Conservation Reserve Program, which has succeeded in reducing the overall national soil erosion rate by an estimated 20 percent. Federal policy should continue to target such sensitive lands
and do so in a way that yields the greatest environmental benefit
per tax dollar.
How wetlands are used affects a wide variety of public resources,
including water quality, groundwater supplies, floodwater storage,
and wildlife. To protect these resources, Federal wetlands policy
should address both wetlands restoration and wetlands conversion.
The Administration has sought to accelerate wetlands restoration
through the Wetlands Reserve Program. To date, this program has
permanently restored 125,000 acres of critical wetlands from cropland at a cost of less than $1,000 per acre.
The conversion of natural wetlands to cropland has been regulated by the Federal Government under both Section 404 of the
Clean Water Act and a provision of the farm bill called
‘‘Swampbuster.’’ Under Section 404, permits are often required for
the conversion of wetlands; the Army Corps of Engineers and the
Environmental Protection Agency share responsibility for granting
the permits. Under the Swampbuster provision, agricultural producers can sometimes be denied farm program benefits if they cultivate a native wetland.
The Administration has worked to resolve a variety of wetlands
policy issues by streamlining administrative procedures for issuing
wetland conversion permits, clarifying the delineation of wetlands
that are subject to regulation, promoting flexibility in wetlands regulation so as to achieve wetlands preservation at a lower cost, and
providing incentives for States and localities to engage in watershed planning and thus reduce conflicts arising from permit-by-permit decisionmaking. For example, to reduce regulatory duplication



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and delays, the Administration has designated the Natural Resources Conservation Service (formerly the Soil Conservation Service) as the lead Federal agency for wetlands delineation on agricultural lands under both the farm bill and the Clean Water Act. The
Administration has also exempted 53 million acres of converted agricultural wetlands from regulation and endorsed the use of mitigation banking. Mitigation banking allows environmental damages
from a given wetland conversion to be offset by the prior creation
or restoration of other wetlands. It thus allows valuable development to proceed while protecting wetlands and making the permitting process more flexible and cost-effective.
Critics of Federal wetlands regulation have argued that restrictions on private wetlands conversion constitute a government ‘‘taking’’ for which private landowners should be compensated. Such
claims are part of a broad and important public debate on the appropriate scope of the takings doctrine (Box 4–3).
Food safety. When consumers cannot easily determine for themselves the healthfulness and safety of the foods they buy, they cannot appropriately reward producers for providing these attributes
even though they value them. Government can enhance social welfare in these circumstances by undergirding markets with food
safety protection. This undergirding of markets takes four forms:
inspection of meats and other foods for contaminants, standards for
pesticide residues on food, regulation of the pesticides themselves
and their availability to farmers, and consumer information
through education and labeling.
Food safety policy has evolved to address public demands for protection, but not always in cost-effective ways. Inspection programs
need to provide food producers with appropriate incentives to prevent contamination, while at the same time keeping regulatory design standards to a minimum. Overproliferation of prescriptive
standards can prevent firms from developing the protection systems best suited to their facilities. Appropriate incentives can be
provided through effective Federal contaminant detection programs, combined with penalties and remedies for contamination.
The Administration’s pathogen reduction initiative is an important step in this direction. This initiative provides for the recall of
meat and poultry products that pose a threat to public health, the
assessment of penalties when health standards or inspection procedures are violated, and the introduction of the latest pathogen detection technology in a meat inspection system that has become
outmoded. The Administration is moving toward a system based on
detecting the microbial contaminants that are the sources of
foodborne illness rather than relying on visual inspection alone.
This reform should permit the cost-effective achievement of public



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Box 4–3.—The Takings Debate

Federal, State, and local governments regulate land use in a
variety of ways, to protect their citizens from harmful
externalities and to preserve public resources, including wildlife, water quality, and open space. State and local authorities,
for example, routinely make decisions about zoning and permits that constrain the uses of private lands and the buildings
allowed on them. Such constraints protect residential and
other property from harm by noxious development on neighboring property. Federal land use regulations include wetlands
protection and endangered species preservation.
Compensation for some regulatory actions affecting property
values is required by the Fifth Amendment to the Constitution,
which forbids the government to take private property for public use without just compensation. This provision establishes
and protects the institution of private property, thus laying the
foundation for economic growth financed largely by private investment.
Recent legislative debate has centered on the extent to which
landowners should be compensated for regulatory actions affecting the value of their property in situations in which compensation is not constitutionally mandated. Under many proposals for expanded compensation, the government would thus
be required to provide compensation when zoning, environmental, or other regulations prevent landowners from using
their property in ways that harm other property owners or the
public.
An expanded compensation requirement could harm the
economy in at least two ways. First, it would tend to discourage Federal, State and local governments from a critical task
of microeconomic policy: that of addressing market failures,
such as externalities or the underprovision of public goods, in
order to protect health, safety, and the environment. For example, enactment of some proposals to expand compensation
could discourage environmental regulations that prevent landowners from storing barrels of toxic waste near a neighborhood
or school. Second, an expanded compensation requirement
might give landowners an incentive to alter the use of their
land in order to increase the likelihood or amount of compensation. If environmental resources could be protected only by
paying off those who would benefit from damaging them, then
landowners, for example, would have an incentive to seek compensation by proposing environmentally damaging projects
that they might never have otherwise considered.




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health goals, the importance of which has been highlighted by recent episodes of contamination by the intestinal bacterium E. coli.
The Federal Government determines pesticide residue standards
according to criteria laid out in the Federal Food, Drug, and Cosmetic Act (FFDCA). The so-called Delaney clause in this act requires that processed foods contain no additives that, in any quantity, could potentially cause cancer. For residues on raw agricultural commodities, in contrast, the FFDCA gives regulators greater
flexibility in determining the amounts of chemical residues allowed.
The zero-risk standard implicit in the Delaney clause requires that
even safe amounts of pesticide residues not be allowed in processed
foods, no matter how much the application of pesticide might reduce the cost of producing food.
The government’s pesticide registration process has been criticized for costly delays and a statutory apparatus that can sometimes prevent the substitution of less toxic new pesticides for more
toxic older ones. To address these problems, the Administration has
proposed a periodic review of all registered pesticides and an expedited registration process for those pesticides that present reduced
risk and for minor use pesticides. Beyond these administrative reforms, efficiency dictates that pesticide registration decisions be
guided by benefit-cost criteria. If regulation is imposed even though
the benefits of reduced risk do not justify the costs, the Nation
loses an opportunity to redirect resources toward more effective
risk-reduction activities.
Finally, government policy can be used to help consumers become
better informed about the foods they purchase. To promote this
end, Federal grading and labeling standards should focus on providing the information about nutrition, food safety, and other
health concerns that consumers may lack, and not on cosmetic attributes (such as fruit size and external blemishes) that consumers
can readily observe for themselves. Beyond grading and labeling,
the government can usefully promote access to additional information about food product attributes, whether it concerns the use of
additives, irradiation, or other food production processes that consumers may care about.
Research and development. The U.S. Government has a long and
distinguished history of sustaining research that advances agricultural production capabilities. Today agricultural research confronts
new challenges as the farm economy strives to sustain its high productivity, meet a growing concern with the environmental effects of
agricultural practices, and find new uses for farm products. Research and development on bioenergy is a prime example of Federal Government efforts to respond to these new challenges.
Biomass from tree and grass crops may become an important
new fuel source for electricity generation in future decades. To fos


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ter this emerging technology, the Administration is pursuing a collaborative interagency effort to promote research, development, and
demonstration of new bioenergy-generating technologies and feedstock crop systems. Studies using economic and technological models of biomass production have produced preliminary estimates indicating that a commercially viable biomass industry could represent a significant share of new U.S. electric generating capacity
within a couple of decades. Commercial viability is judged in these
studies without incorporating any environmental benefits of biomass generation, even though two such potential benefits are foreseen. First, fuel crops are suitable for production on highly erodible
land, giving farmers a potentially profitable alternative crop that
also promotes erosion control and water quality improvement. Second, biomass power can help to reduce net greenhouse gas emissions to the extent they supplant fossil fuels: both types of fuel release carbon dioxide when combusted, but growing biomass crops
reabsorb it from the atmosphere—fossil fuels do not.
Bioenergy crops could also provide an important new source of
agricultural income in future decades. Some forecasts suggest that
as many as 50 million cropland acres could, under favorable conditions, be devoted to feedstock production. New agricultural activities of this kind, together with rural bioenergy generation, may
help reinvigorate America’s rural economy.
The Federal Government has an important economic role to play
in promoting biomass power generation for two reasons. First, private markets are likely to fail to capture the promised environmental benefits. Second, research and development in this infant
technology is likely to be a public good that merits government support, because its benefits are difficult to appropriate.

POLICIES FOR MORE EFFICIENT TRANSPORTATION
About 12 percent of national income is spent on transportation
services, including efforts to reduce the environmental impacts of
transportation. However, several types of external costs of motor
vehicle usage are not reflected in prices. As a result, excessive driving-related social harms are likely to occur.
For example, traffic congestion and wear on roads will be excessive when individuals’ driving and road use decisions do not take
these costs fully into account. Similarly, the tax deductibility of
businesses’ expenses for employee parking constitutes a subsidy,
which artificially encourages driving. The environmental costs of
motor vehicle fuel use are also important externalities. Although
new-car tailpipe emissions per mile traveled have decreased at
least 76 percent and possibly as much as 96 percent since the late
1960s, total travel has increased by two-thirds, consumers have
shifted vehicle purchases toward light trucks with lower fuel econ


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omy and higher emissions, and older, more polluting vehicles remain on the road longer than before. Vehicle traffic is responsible
for roughly 40 percent of emissions of ozone precursors and is an
important source of toxic air pollutants, as well as a source of polluting runoff into waterways. The transportation sector is also a
significant contributor to greenhouse gas emissions.
When externalities are significant, government policy can promote economic efficiency by seeking to ensure that private agents
pay the full costs of their transportation decisions. Many of these
costs are interrelated and therefore demand integrated regulatory
approaches. Such approaches are consistent with the Administration’s commitment to exploring more effective regulation by exploiting synergies between achieving economic and environmental goals.
For example, policies to reduce peak traffic congestion, if carefully
designed, can also reduce some pollution problems, and conversely,
policies that increase the total cost of driving by making drivers
pay the environmental costs of vehicle usage also will limit road
congestion.
The challenge is to design a menu of policies that achieves objectives set for pollution and congestion reduction at minimum cost.
Needlessly rigid emissions and fuel economy standards can raise
the cost of regulatory compliance, by limiting flexibility and incentives to innovate.
Overly prescriptive vehicle inspection and maintenance programs
have been criticized as costly and ineffective at emission reduction.
Finally, vehicle environmental standards that are not well integrated with approaches to emissions reductions from other sources
lead to economic waste when the marginal cost of emissions reduction varies across sources. Social science research can suggest new
tools for addressing those regulatory problems (Box 4–4).
Greater regulatory flexibility and reliance on economic incentives
would provide opportunities for vehicle users, manufacturers, fuel
suppliers, and local regulators to develop innovative, cost-effective
solutions. This would tend to alleviate congestion and pollution,
and encourage the development of environmentally beneficial
changes in technology. One step forward would involve making current vehicle emission standards more flexible by allowing automakers to trade vehicle emission credits. Companies that can
cheaply overcomply with average per mile emission standards
could sell excess credits to those facing higher compliance costs.
Such policies are similar in spirit to tradable emissions allowances
for sulfur dioxide (Box 4–5).
Economic efficiency may also be increased through greater flexibility in the control of mobile and other pollution sources, although
more experimentation is needed to determine the size of the likely
social benefits. For example, ‘‘cash for clunkers’’ programs, which



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Box 4–4.—Social Science Research and Environmental Policy

Social science provides an important link between science
and technology investments and the Nation’s social concerns,
including economic development, health, and environmental
quality. In particular, social and economic research helps to develop knowledge that decisionmakers can use in formulating
cost-effective, incentive-based environmental policy instruments.
The further development of policies establishing tradable
rights or allowances for pollutant emissions or the use of natural resources provides an example. Such policies have emerged
from over a quarter-century of social science research and are
now in active use in the United States and other countries to
regulate a variety of activities, including local and regional air
pollution emissions and catches from open-access fisheries.
Current support for social science research should allow the expansion of similar trading systems to cover other problems
such as vehicle emissions and water pollution, generating important resource savings for the Nation as a whole.
Beyond contributing to policy design, social science research
undergirds efforts to better understand the benefits to society
of public resource preservation and environmental protection.
This information is important for setting rational standards for
resource protection. Important examples of research issues now
under study include tradeoffs between environmental and
other risks and the valuation of nonmarket environmental attributes. The techniques developed for environmental resource
valuation and policy design should find applications in numerous other areas, including worker safety, health, and investment in human capital.
purchase and remove from service older, high-emissions vehicles,
may be a cost-effective way of reducing emissions quickly, and industrial emitters may be willing to pay the costs as an alternative
to tighter controls on their own sources. In addition, automobile
sellers may be able cost-effectively to reduce total emissions in an
airshed by, for example, subsidizing the purchase of low-emission
lawn mowers.

GLOBAL CLIMATE CHANGE
The external costs of environmental pollution and degradation
are often local or regional in nature—this is true, for example, of
the costs associated with certain farming practices, such as pesticide use, discussed earlier in this chapter. But scientists and
economists also recognize the possibility of environmental



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Box 4–5.—Clearing the Air on Emissions Allowances

Beginning January 1, 1995, 110 of the Nation’s dirtiest coalburning plants must be in possession of an ‘‘allowance’’ for
every ton of sulfur dioxide (SO2) they emit. Each plant will receive an annual allotment of tradable allowances. Firms that
can reduce emissions at low cost, to the point where they emit
less than their annual allotment of SO2, can sell their unused
allowances. Firms that face high costs of cleanup can purchase
allowances and emit more than their initial allotment. If firms
are allowed to buy and sell allowances freely, the overall cleanup objective will be achieved at minimum total cost, and the
price of allowances will equal the cost of reducing emissions
through the cheapest alternative means.
Trading in allowances thus far has been thin, but most sales
in 1994 cleared at between $140 and $170 per ton. Taken at
face value, this range of prices suggests that the cost of reducing SO2 emissions will be much lower than most analysts had
expected when the program was being devised. The low prices
reflect the decline in price for low-sulfur coal, a decline that is
itself partly due to the flexibility of the new program. As a result, fuel switching is now a cheaper means of achieving emissions targets than had been expected.
However, some State utility commissions continue to favor
installation of scrubbers over other methods of cleanup. This
reduces the demand for allowances and hence artificially depresses their price. In addition, by ruling that most or all allowance-related cost savings must be passed on to customers,
some State commissions have weakened the incentives for utilities to choose the least-cost method of achieving emissions reductions. On balance, the early results from SO2 allowance
trading are encouraging. But greater benefits should be realized if State utility commissions avoid distorting the incentives
for choosing the least expensive abatement strategies.
externalities on a global scale. A potentially important example is
the accumulation of greenhouse gases in the earth’s atmosphere.
This buildup, which derives from a variety of human activities, including those that use fossil fuels, agriculture, and deforestation,
poses an uncertain but potentially great long-term danger to the
global biosphere and human well-being. The best scientific evidence
indicates that the release of carbon dioxide, methane, and other
gases that trap heat in the Earth’s atmosphere has already reached
levels well above those of preindustrial times. At current rates of
growth in emissions worldwide, the concentration of carbon dioxide
in the atmosphere by the middle of the next century will be equiva


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lent to twice its current atmospheric concentration. Because these
gases linger for a long time in the atmosphere, the effects of past
emissions would persist even with significant reductions in current
emissions.
The effects of greenhouse gas accumulation on ecosystems and
human well-being have received extensive international scrutiny in
an effort to develop a range of agreement on the impacts and to
identify the limits of current knowledge. A number of analysts believe that significant negative impacts could result. Possible effects
include a rise in sea levels, inundating some island nations as well
as some inhabited coastal areas; shifts in optimal growing regions
for crops, due to changes in temperature and moisture patterns
that hamper agricultural productivity in some regions (even while
increasing it in others); threats to human health from greater heat
exposure and changes in the incidence of disease; and threats to
‘‘unmanaged’’ ecosystems, with adverse effects on biodiversity. The
possibility that the global climate changes discontinuously—that
significant effects do not occur until greenhouse gases accumulate
beyond a certain threshold—must also be considered.
The potential for harmful climate change, combined with uncertainty about the likelihood and magnitude of adverse effects, suggests the value of taking action to reduce these risks and their impacts. This action can take a variety of forms, including a slowing
of emissions, investment in greater adaptation capacity, and accumulation of additional knowledge about the threats and possible
technological responses.
Climate change is inherently a long-term issue. The effects of
any actions taken today will benefit the current generation’s children and grandchildren. Reducing greenhouse gas emissions is also
inescapably a global problem: no country acting alone can, as a
practical matter, reduce the total flow of emissions, or reverse their
effects. To date, the vast bulk of greenhouse gas emissions has
come from activities in the advanced industrialized countries. In
the absence of significant technical change, however, economic
progress and increased energy use in what are now the lower and
middle-income countries will cause an enormous swelling of emissions. Moreover, the effects of climate change and efforts to mitigate them will differ in different countries. For example, low-lying
island nations will be affected more severely than the United
States. These differences in vulnerability and the debate over the
apportionment of responsibility for greenhouse gas control complicate the effort to achieve and implement international agreements to deal with the problem.
Despite these complications, the United States and most members of the world community have signed the Framework Convention on Climate Change, which was announced during the Earth



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Summit in Rio de Janeiro in 1992. This convention sets out a longterm objective of limiting greenhouse gas concentrations and a
commitment to negotiate interim steps to attain that long-term
goal. An interim aim of the more industrialized countries of the
world is to reduce their rates of greenhouse gas emissions to 1990
levels by the year 2000. Beyond this initial step, the Administration currently is developing a decision framework to guide U.S. climate policy in the 21st century, and to support the next round of
international negotiations on climate measures.
In devising strategies to curtail greenhouse gas emissions, several objectives are important.
Cost-effectiveness. Cost-effective greenhouse gas control policies
must rely as much as possible on economic incentives, to motivate
the responses of the literally billions of people responsible for
greenhouse gas-emitting activities.
Concern for the future. Cost-effective policies also need to provide
appropriate insurance against the threat of climate change to future generations. The concept of ‘‘sustainability’’ may provide relevant insights (Box 4–6).
Flexibility. Because the potential damages from climate change
are related directly to the long-term accumulation of greenhouse
gases, and not just to the annual rate of emissions, it is important
to address long-term greenhouse gas concentrations while providing flexibility in the timing of emissions reductions. Such flexibility
would allow emitters and national policymakers to benefit from
new information about climate change hazards and technologies,
and to adjust behavior and policies to differing near-term economic
development objectives. Flexibility also is needed in the pursuit of
measures aimed at mitigation, adaptation, and technology development.
Comprehensiveness. Given the global scope of the issue, it will become increasingly important to coordinate national responses in
order to avoid excessively costly or perverse outcomes. For example,
focusing only on emissions in today’s advanced industrialized countries would do little to prevent the ‘‘leakage’’ of emissions to other
countries that are expanding their industrial bases.
Compatibility with diverse international interests. In the short
run it is unlikely that developing countries will make substantial
efforts to curb their greenhouse gas emissions without technical
and financial assistance from the more developed countries, which
are likely to take the lead in developing low-carbon energy and
other technologies. This observation suggests that there are benefits to be had from helping developing countries improve their capacity to monitor their emissions and analyze policy options; from
supporting measures in those countries that will both lower emissions and improve economic growth; and from assisting in develop


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ing a technological capacity in developing countries for reducing
emissions in the future.
To translate these principles into practice, the Administration
has initiated a Climate Change Action Plan to lower the rate of
greenhouse gas emissions in 2000 to 1990 levels, through largely
voluntary measures that focus on education and expanding the use
of cost-effective technologies with lower greenhouse gas emissions.
Examples include Green Lights, an initiative to promote the use of
energy-efficient lighting; Natural Gas Star, promoting efforts to reduce methane leaks; and the Motor Challenge, designed to assist
in the promulgation of high-efficiency motor systems. However, the
difficulty of achieving the targeted emissions reductions even with
this program underscores the challenge that the climate change
issue presents. The Administration is considering other potentially
cost-effective measures for slowing U.S. emissions after 2000, including emissions reductions in the transportation sector and encouraging greater use of biomass fuels.
To support international progress in addressing climate change,
the Federal Government has invested in a ‘‘country studies’’ program that provides technical and financial support for developing
and transitional countries to understand better their own greenhouse gas emissions sources, vulnerabilities to climate change, and
options for cost-effective mitigation. Ultimately over 50 countries
are expected to develop joint programs with the United States as
a result of the country studies. Such assessments of international
circumstances provide a foundation for the diffusion of cost-effective emissions reduction strategies to other countries, and for the
‘‘joint implementation’’ pilot program initiated by the Administration. Joint implementation permits U.S. emitters of greenhouse
gases to achieve emissions reduction goals by undertaking mitigation activities in and with other countries, where the costs of greenhouse gas control may be much lower than in the United States.
Joint implementation is thus an important example of the use of
flexible, cost-effective policies to meet the divergent interests of the
world’s nations.

ENCOURAGING ECONOMIC GROWTH
As the analysis in Chapter 3 indicates, technological change is an
important determinant of the economy’s potential growth rate. Recognizing this, the Administration has worked to support technological innovation by the private sector and to improve the effectiveness of Federal spending on science and technology. This section provides an overview of the Administration’s science and technology policy, focusing on efforts to facilitate the telecommuni


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Box 4–6.—‘‘Sustainability’’ and Economic Analysis

The concept of sustainability, commonly invoked in debates
about environmental, economic, and social values and policies,
involves a number of important economic issues. One of these
is intergenerational equity. The growing scale of human impact
on the planet’s ecosystems creates concern about the kind of
environment we will leave to future generations. The economic
methodology used in policy evaluation can in principle incorporate distributional effects across generations. Doing so requires attention to ethical concerns in setting the social discount rate, and to the collective bequest values experienced by
the current generation in providing for our descendants.
A second fundamental concern involves the substitutability of
other forms of wealth—physical capital and knowledge—for the
services of the natural environment that are lost as natural
systems are degraded. If substitution is relatively easy, as
often assumed in economic analysis, then concern for the future largely reduces concern about the overall level of savings
across generations, without regard to whether the saving takes
the form of preserved ecological assets or other forms of
wealth. But if substitution possibilities are more limited when
human impacts are large, then greater concern for natural
preservation is warranted.
Several other economic ideas also are relevant to discussions
about sustainability. The concept of fully valuing all the consequences of pressures on the environment, including irreversible losses and the value of preserving options, is an economic
approach for setting priorities in the use of scarce resources for
environmental protection. The concept of cost-effectiveness—
meeting environmental and other policy targets at minimum
cost, typically by employing economic incentives and by allowing flexibility in the means for attaining goals—also is important.
The criticisms of economic analysis in the sustainability debate point to important directions for further study. For instance, equity concerns may receive inadequate consideration
in standard benefit-cost analyses. This omission is especially
important to overcome for issues that have substantial distributional impacts over time. Similarly, information provided
by ecologists about the complex and interdependent functioning of natural systems should be considered in economic policy
analyses.




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cations revolution, and on efforts to restructure Federal research
and development programs.

TELECOMMUNICATIONS
The telecommunications industry plays a crucial role in our economy. Like the railroad and highway infrastructures built by earlier
generations, the telecommunications infrastructure brings people
together and helps firms reach their customers and suppliers
quickly and cheaply. As a result, our lives are enriched and our
firms and workers are more productive.
The vast opportunities created by recent advances in communications and information services will likely transform the economy
and the way we live and work. Innovation in this sector is continuing at a rapid rate. Within just the past decade, the facsimile (fax)
machine and the cellular telephone have ceased to be curiosities
and are now commonplace. Television news is now transmitted instantaneously from the field to the studio by satellite. Access to the
Internet computer network is spreading beyond the government
and academic researchers that were its original users, to involve
private individuals, businesses, and other government functions as
well. The number and variety of cable television channels continue
to grow. More and more, people work from home or on the road by
computer and modem, far from their offices. The power and sophistication of personal computers in homes and offices have grown by
leaps and bounds.
Even more important advances in technology are on the horizon.
Technical change will permit private industry to make new products and services available. Two-way, interactive, broadband service will someday be the norm, although it is not yet clear whether
the emerging broadband network will be formed from wires, fiber
optic lines, wireless technologies, or hybrids thereof. The computing
power available to consumers of multimedia services provided by
the emerging information infrastructure will undoubtedly rise,
though it remains to be seen whether that power will be lodged in
a server outside the house or office, or within the home or office
through a personal computer or a set-top box connected to a television.

Legislative Proposals and the Prospects for Growth
The Administration seeks Federal legislation to accelerate the
progress of the telecommunications and information services revolution. The Vice President has articulated five principles on which
legislative and administrative reform of telecommunications policy
should be based: policy should encourage private investment in the
national information infrastructure, should promote and protect
competition, should provide open access to the infrastructure for
consumers and service providers, should preserve and advance uni


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versal service to avoid creating a society of information ‘‘haves’’ and
‘‘have-nots,’’ and should ensure flexibility so that the newly adopted
regulatory framework can keep pace with rapid technological and
market changes.
New Federal legislation consistent with these principles can be
expected to accelerate the development of the national information
infrastructure in three ways: by reducing uncertainty about the
course of national and State regulation, by promoting competition
throughout the telecommunications and information services industries, and by providing a mechanism for removing existing regulatory restrictions as the development of competition makes them
unnecessary. Private industry will thereby be encouraged to invest
more aggressively in information infrastructure and to develop new
services more rapidly. The new legislation sought would also reduce the likelihood that regulation will distort the choice of technology or other investment decisions. It would allow beneficial regulatory changes to occur more quickly, more consistently, and with
greater certainty than would be achieved through market-by-market regulatory reforms in the States and by the Federal Communications Commission (FCC).
According to a study by the Council of Economic Advisers, reform
of the Nation’s regulatory framework could add over $100 billion
(in discounted present value) to GDP over the next decade by encouraging greater private investment to develop and deploy new
telecommunications services, and by spurring new entry and greater competition throughout the telecommunications and information
sector. An acceleration of private investment and of the pace at
which new services become available could increase GDP through
three transmission mechanisms.
First, each new job in the telecommunications and information
sector should produce greater output per hour worked than the average new job in the economy. Hence, when the economy shifts inputs, especially workers, into this high-value-added sector, national
wealth will increase even at full employment. This process is impeded today because existing regulations restrict entry and otherwise create distortions that limit the sector’s output. Many of these
regulations have been necessary in the past to prevent even worse
distortions resulting from the exercise of market power by monopolists. But as developments in technology shrink the potential scope
of this monopoly power, and as regulatory reforms encourage competition, the economy can shift resources into this more productive
sector, and so increase social wealth. As this happens, however, the
sector’s marginal productivity advantage over other sectors should
eventually diminish.
Second, the new information infrastructure will boost productivity throughout the economy. Geographically distant firms will be



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able to behave more like neighbors, and new ways of working will
produce changes in the innovation process, increasing the likelihood of future discoveries. If new legislation can accelerate the investments needed to develop the national information infrastructure, so that new services come on line more quickly than they
would have otherwise, these productivity gains will be realized
more quickly.
Third, appropriate legislation is likely to encourage industry to
invest in the new technologies sooner than it otherwise would.
Should the economy exhibit a tendency to operate at less than full
employment at any time during the next decade, the resulting
higher level of overall domestic investment would tend to offset the
loss of potential GDP.

Reinventing Spectrum Allocations
The FCC allocates portions of the electromagnetic spectrum for
each communications service—radio and television broadcasting,
cellular telephone, and so on—and issues licenses to would-be service providers. For many years the FCC selected for licenses those
applicants that it believed would best serve the public interest. It
made this determination by holding hearings to compare applicants’ business plans, experience, and backgrounds. Because the
number of competing licensees allowed in a given geographic market is limited, successful applicants have frequently earned substantial profits.
Critics of the elaborate comparative hearing process argue that
its length, administrative burden, and cost to applicants outweigh
any benefit to the public. The reason for choosing the one winning
candidate over the many losers, all of which may be basically qualified, is often obscure. Often the successful applicant earns profits
not shared by the public, thus appropriating much of the value of
the public resource.
About a decade ago, the Congress authorized the FCC to use lotteries to choose among competing applicants in licensing some services. Lotteries took much less time than comparative hearings.
They were criticized, however, because often the lucky winner, having paid the government nothing for the license, would turn around
and sell it for a high price. This process merely delayed getting licenses into the hands of the firms that would eventually build the
communications facilities and operate the services. And, like the
comparative hearings, the lotteries failed to compensate the public
for the private use of the resource. To address these problems, the
spectrum allocation process is being reinvented to substitute public
auctions for lotteries in some cases.
Economists have long recognized the advantages of auctioning
spectrum licenses. An auction puts the license directly in the hands
of the applicant who values it most, and is thus likely to provide



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the most aggregate value to the public. An auction also allows the
public to share in the financial benefits that accrue from the use
of the resource. Auctions are compatible with the pursuit of other
societal goals: applicants can continue to be screened for basic
qualifications, and license uses can be regulated as necessary to
protect the public interest. Even with these restrictions, using auctions to license spectrum is more efficient and less costly than lotteries and comparative hearings.
In 1993 the Congress authorized the FCC to invite competitive
bids for initial licenses for spectrum dedicated to commercial subscription uses. The first auctions, for spectrum devoted primarily to
advanced and two-way paging, took place in 1994 and yielded substantially more revenue to the government than some industry
forecasters had predicted. Auctions for spectrum devoted to personal communications services (PCS) are anticipated to generate
billions of dollars over the next several years.

SCIENCE AND TECHNOLOGY
Scientific discovery and technological innovation play central
roles in increasing productivity and economic growth. In the long
run, it is the discovery of new ideas—better ‘‘recipes,’’ as distinct
from merely more cooking in the traditional way with more of the
same limited supply of ingredients—that reduces the cost to society
of producing any given amount of goods. Ultimately these cost reductions will translate into some combination of lower prices for
consumers, higher wages for workers, and higher profits for investors. Over time these changes can lead to significant, cumulative
increases in living standards. Today the pace of scientific and technological progress is accelerating in tandem with the pace of the
product cycle in international markets. These twin accelerations
blur the lines and shrink the intervals that formerly separated
basic from applied research, fundamental science from engineering
and technical progress, and technological innovations from their
initial commercial applications.
Wherever they originate, in the laboratory or on the factory floor,
new scientific and technological ideas are often expensive to discover, yet cheap to replicate. It still costs something to draft the
blueprint that captures the new idea, and something to make each
unit of the product that embodies it, but once created, the idea itself is easily and often beneficially copied. Thus the economic returns to one company’s investment in innovation can pass quickly
to others. Economists have estimated that, because of this tendency
of new ideas to become rapidly diffused, innovators typically capture less than half the total social returns to their investments in
research and development (R&D). In short, the difficulty of establishing and enforcing property rights to new ideas reduces the eco


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nomic incentive for private companies to invest in a socially and
economically optimal level of R&D. Bolstering that incentive is
therefore an important efficiency-enhancing function of government. Government can do so through enhanced patent protection—
while bearing in mind the potential inefficiencies in production and
innovation that can occur with even temporary market power—and
through public support for R&D.
Even before this Administration came into office, historic
changes in the global distribution of wealth and power had sparked
a public reexamination of the nature and extent of Federal support
for the Nation’s science and technology enterprise. Much of this attention focused on the implications for Federal R&D spending of
the end of the cold war and the growing technical competence of
foreign-based firms in areas where U.S.-based industry had traditionally been the world leader. To respond to these changes, this
Administration has reoriented the Federal R&D effort from primarily defense-related investments toward investments in a broader set of national goals, including health, prosperity, environmental
responsibility, and improved quality of life, in addition to national
security. Although the United States is still in the midst of a major
transition in the way both the public and the private sector manage the development and commercialization of science and technology, recent changes are beginning to show positive results.

Trends in National R&D
Together industry, government, and universities in the United
States have typically spent more money on R&D activities than
their counterparts in any other country—an estimated $176 billion
in 1994, or 2.6 percent of GDP. Indeed, in 1992, the most recent
year for which comparative data are available, the United States
spent 28 percent more on R&D than did Japan, Germany, and
France combined. However, these countries collectively spent nearly as much as the United States on nondefense R&D. As a percentage of GDP, U.S. spending for civilian R&D stood at 2.1 percent in
1992, compared with 2.4 percent in Germany and 2.8 percent in
Japan.
Long-term real growth in U.S. R&D has also been slow: just 0.9
percent per year on average between 1985 and 1993, compared
with 5.3 percent per year between 1975 and 1985. This slowdown
of total R&D growth has been paralleled by slower growth in private R&D. In 1994 R&D spending by U.S. industry decreased by
0.5 percent in real terms; this followed an average annual real
growth rate of only 1.2 percent between 1986 and 1993, compared
with a robust real annual growth rate of 6.7 percent between 1976
and 1985.
Some of the slowdown in R&D spending may reflect the recent
recession. The slowdown may also reflect recent corporate cost-cut


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ting drives that have shifted R&D spending toward in-house development of technologies closer to commercialization and that have
prompted collaborative research, which is less costly to individual
firms. (More than 350 multifirm collaborative research ventures,
among them many R&D consortia, have been created in the United
States since 1985, as well as more than 1,000 university-industry
research centers, 72 percent of which were established with State
or Federal support.) Finally, the slowdown in R&D spending reflects the end of the cold war. R&D spending by industry is highly
concentrated in the United States—eight industries account for
more than 80 percent of the total—and the top two, aircraft and
communications equipment, are closely related to defense.
The deceleration of growth in spending for R&D has been accompanied by a shift in the sources of R&D funds and a shift in where
the R&D is actually performed. Nongovernmental sources of funding have become increasingly important. Universities’ share of
R&D performance rose to 12 percent by 1993 from just 9 percent
in 1985. Although Federal spending on all university research has
risen, the share of university research funding that comes from the
government has declined and recent financial problems of some
universities may jeopardize their direct expenditures on research.
Meanwhile industrial support for academic research has grown
dramatically, from 3.9 percent of the total in 1980 to 7.3 percent
in 1993. Industrial firms are still responsible for performing most
of the Nation’s R&D—$125 billion worth, or 71 percent in 1994—
but even if their increased support for academic research is included, their share of the total national R&D effort has fallen since
1985.
Recent trends in U.S. R&D investment leave some analysts concerned that the Nation is spending too little on the basic research
that will drive tomorrow’s revolutionary breakthroughs. This concern is supported by empirical evidence that suggests there are
large unexploited economic gains to be realized from raising our society’s level of scientific activity and technological research and development; in the past, the social rate of return on such investments has been high. As a central component and stimulus of U.S.
innovation, Federal R&D investment can lead technological innovation nationwide and affect the Nation’s military posture, a variety
of important social objectives, and the competitive performance of
U.S.-based firms in domestic and foreign markets.

Confronting the Cold War Legacy
This Administration has realigned Federal spending for R&D so
that it more equally balances civilian and military priorities. The
purpose of this shift is not only to strengthen civilian industry, but
also to promote the cost-effective development of new technologies
for national defense and stimulate the creation of an integrated ci


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vilian-military industrial base. The Administration is also
reorienting the Federal Government’s R&D portfolio toward the
achievement of important social objectives that would otherwise be
inadequately addressed. These include the development of cleaner
and more efficient transportation systems, more rapid and widespread diffusion of technological and managerial innovations to
small and medium-sized manufacturers, environmental remediation, and pollution prevention.
The Administration’s R&D strategy relies on a combination of
grant programs in which industry and government share the costs;
national initiatives in areas such as manufacturing, transportation,
high-speed computing and telecommunications, and environmental
technology; defense reinvestment efforts; and enhanced technologytransfer mechanisms (for example, the increased use of cooperative
research and development agreements, or CRADAs, which ease private companies’ access to the scientific and technological resources
in U.S. Government laboratories). These programs require Federal
agencies to work more closely with commercial industry to
strengthen the technological underpinnings of the entire economy.
Reflecting cold war concerns, national security long commanded
the largest share of Federal R&D funds. Spending priorities shifted
even further—dramatically so—toward defense programs in the
1980s. The defense share of Federal R&D spending reached its
most recent peak in 1987, when it accounted for 69 percent of the
total. The defense share declined from 59 percent to 56 percent between 1992 and 1994, indicating progress toward the Administration’s goal of restoring a 50–50 split by 1998.
The national security focus of U.S. R&D spending during the cold
war has also affected the agenda for government support of much
industrial and university-based science. During the late 1980s, for
example, the Defense Department provided 32 percent of all funds
for academic engineering research. While Federal funds account for
just one-fourth of the money private industry spends to support
R&D, 76 percent of that Federal support goes to aerospace and
communications equipment firms, primarily for development of
weapons and related systems of military application. The cold war
emphasis on defense also affected the structure and objectives of
the Nation’s Federal laboratory system.
In an era of increasing budget pressure—an era, too, in which
commercial technology development defines the leading edge in key
strategic areas—the maintenance of a defense industrial base separate from commercially oriented industry is in many areas economically inefficient. Recognizing this, the Defense Department is
now working more closely with firms engaged in commercial and
dual-use production than in the past (dual-use goods are those with
both military and commercial uses). Dual-use R&D programs, in


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cluding the Administration’s Technology Reinvestment Project
(TRP), are a different—and more economically efficient—way of
carrying out the Defense Department’s traditional R&D activities.
The TRP has played a role in facilitating new partnerships between
defense and commercial industry. Combined with the procurement
reforms discussed earlier, the program is expected to make the Defense Department a more attractive customer for civilian producers. It is also exposing traditional defense contractors to innovative
management and production techniques that can lower their costs
and encourage more rapid technology transfer from the commercial
sector.
Other important examples of Defense Department dual-use R&D
initiatives include the development of flat panel display technology
(Box 4–7) and microwave and millimeter wave monolithic integrated circuit technology (MIMIC). Commercial applications for
MIMIC devices include their use in collision avoidance systems for
automobiles, satellite communications, and portable telephones.
The development of dual-use components that can be built on the
same production line as the military-only versions has resulted in
lower cost devices for the military and new, commercially marketable products for U.S. firms. Commercial technology cannot supply
defense needs in all instances—tanks and nuclear attack submarines, for example, require technology that is defense-unique.
But a great many defense needs can be served more efficiently—
and less expensively—by commercial firms and facilities. Indeed, as
flexible manufacturing systems are developed and more widely
adopted, it will be increasingly possible to produce in a single plant
both low-volume military equipment and high-volume commercial
equipment.

Private Innovation and Public Goods
Beyond reorienting the government’s own R&D portfolio, this Administration has worked on many fronts to increase the level of private innovation—by supporting public-private partnerships for the
provision of industry-specific public goods, by supporting the extension of the R&D tax credit (discussed in Chapter 3), and by proposing changes in intellectual property law that will increase the incentives for efficient creation and use of private inventions.
Industry-specific public goods. It has already been noted that individual firms typically have too little incentive to invest in R&D,
because an innovation and its payoffs may pass quickly to other
firms and to consumers, who paid little or nothing to create the innovation in the first place. The constant creation and rapid diffusion of scientific discovery and technological innovation are good for
the economy as a whole, but investment in innovation may not appear to be a prudent move for any individual firm.



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Box 4–7.—The National Flat Panel Display Initiative

Today’s computers display information in one of two ways:
on cathode ray tubes, the bulky devices now used in television
sets and most desktop computers; or on flat panel displays, the
thin, light, rugged screens used in laptop computers. Flat panel
displays are already key components in many consumer products: facsimile machines, portable telephones, compact disc
players, and videocassette recorders, as well as laptops. They
will also transform future battlefields, where they will be used
to satisfy the huge demand for information from myriad sensors, providing real-time intelligence to combatants in aircraft,
ships, tanks, and the infantry.
A recently completed interagency study of flat panel displays
shows them to be increasingly important in military applications. But with 95 percent of supply controlled by foreign producers, whose willingness to work with the Defense Department cannot be taken for granted, access to the latest flat
panel display technologies for timely incorporation into defense
systems is not assured. The Department of Defense requires
early, certain, and affordable access in order to integrate displays into systems and to work out tactics for their use in military situations.
To answer these national security concerns, the Defense Department is implementing the National Flat Panel Display Initiative, a 5-year, $587 million program of support for research
and development into flat panel displays, including research on
their manufacture. Part of this precompetitive R&D funding is
focused on ensuring that the research leads to actual products
that will be used in important military applications. A portion
will go to an innovative program in which firms with a demonstrated commitment to build current-generation displays
share with the Pentagon the burden of developing dual-use
technology for next-generation products and manufacturing
processes. Matching funds will be awarded in competitions
open to a variety of flat panel display technologies.
A similar logic is at work with regard to investments in industryspecific public goods. Investments in a particular technological
breakthrough may create large economic benefits for the industry
as a whole, from which no single producer or subset of producers
can be excluded, even though the breakthrough was financed and
achieved by others.
The Commerce Department’s Advanced Technology Program
(ATP) is a policy experiment to test whether government-industry




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partnerships can overcome market barriers to the provision of industry-specific public goods. Take, for example, the barriers that
have impeded some potentially lucrative technical improvements in
the materials and manufacturing processes for printed-wiring
boards (PWBs). PWBs comprise the backbone and much of the
nervous system of virtually every modern electronic product. Each
increase in the speed and complexity of electronic devices has increased the density of the PWB’s lacework of copper lines, which
must be embroidered to tiny plated holes. By the early 1990s,
PWBs were beginning to reach the fundamental physical limits imposed by both materials and manufacturing processes. PWB market analysts understood that relatively minor material or process
improvements could result in sizable cost savings for the entire industry, yet no single company or group of companies was willing
to risk a large-scale investment.
The ATP stepped into the breach, agreeing to help finance a 5year research plan developed by an industry consortium, as long as
the consortium’s members were themselves willing to put up at
least half of the money. The $28 million effort began in 1991. A
study conducted in 1993 found that after 2 years the project had
already saved the participants about $13.5 million simply by helping them to avoid redundant research, to share results more rapidly, and to access each other’s specialized know-how and facilities.
The ATP itself is only 4 years old, and the Administration is creating long-term and intermediate performance measures in order to
rigorously evaluate its economic impact. This effort to promote innovation in the private sector is itself an innovation in the relationship between industry and the government, one that was begun
during the previous Administration.
Intellectual property. Incentives for technological innovation are
affected by the regime of intellectual property rights, including patents and copyrights. Absent well-defined and effectively enforced
intellectual property rights, rivals could readily duplicate new inventions or writings without offering compensation; this reduces
the innovator’s likely profit and mutes the incentive to develop and
market his or her creations in the first place.
The economics of patent protection have long been understood as
posing the following policy tradeoff: patent protection encourages
innovation, but that social benefit comes at the cost of allowing
some successful innovators to price the resulting products well
above marginal cost. In recognition of this tradeoff, patent protection is granted for a limited term of years. Yet appropriate public
policy toward innovation must also recognize a second tradeoff, involving the scope rather than the term of patents.
The scope or breadth of patents refers to the extent to which a
new innovation must differ from an existing one in order to avoid



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infringing on the latter’s patent rights. Under some circumstances,
narrowing the scope of patent rights would increase aggregate innovation rates. When an inventor’s patent rights are broad in
scope, extending to a relatively wide range of similar innovations,
later inventors will not be permitted to use their own innovations
that fall within that broad penumbra of similarity, without the first
inventor’s permission. Recognizing that such permission will frequently involve negotiating a payment to the first inventor (a negotiation in which the second inventor will sometimes have little bargaining leverage), the second inventor may be discouraged from exploring his or her new ideas to begin with. Or, if the second innovation is produced but the first and second innovators dispute its
value, and in consequence are unable to reach a bargain, the second innovation may not be used until the patent expires. Giving
broad scope to patent rights may thus discourage potential
innovators from undertaking R&D effort in areas likely to produce
follow-on inventions. Yet in other cases, narrowing the scope of intellectual property rights would reduce aggregate innovation rates
by lowering the value of initial innovations, thus reducing the incentive for initial innovation.
In part to promote innovation, the U.S. Patent and Trademark
Office has proposed legislation to permit greater third-party participation in patent reexamination proceedings. Under this proposal, industry experts and rivals would have a greater opportunity
to present information about novelty or obviousness to the patent
examiner after a patent is issued. In addition, the Department of
Justice has drafted proposed new antitrust guidelines for the licensing and acquisition of intellectual property. By clarifying the
conditions under which trade restraints involving intellectual property, like those involving other forms of property, can harm competition and run afoul of the antitrust laws, the Justice Department seeks to explain how antitrust law and intellectual property
protections can be harmonized to encourage innovation and efficiency, and so benefit consumers.

CONCLUSION
Adam Smith published The Wealth of Nations in 1776, the same
year Thomas Jefferson wrote the Declaration of Independence.
Since that time the United States has become a vastly larger and
more prosperous Nation. One reason is that, throughout our history, government has worked in partnership with the private sector
to promote competition, discourage externalities, and provide public
goods. The policy challenges that face us vary from generation to
generation, and government institutions appropriate for addressing
one era’s problems must be reinvented for the next. But in every



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era, the role of government in helping remedy market failures remains central for enhancing the Nation’s well-being.




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CHAPTER 5

Improving Skills and Incomes
BETWEEN 1973 AND 1994 the U.S. economy created 37 million
additional jobs. This growth in employment absorbed an unprecedented number of new entrants, including millions of baby-boomers
and women, into the work force and surpassed the record of the
other large industrial nations. During this same period, however,
slow productivity growth in the United States was reflected in slow
growth in average real compensation. Indeed, real compensation
per employed person increased more slowly in the United States
than in the other large industrial countries (Chart 5–1). Even
worse, income growth stagnated in the middle of the income distribution and declined sharply for those at the low end, causing insecurity and falling living standards for many Americans. The
large declines in the real wages of less educated and lower paid
workers were associated with increased inequality in family incomes and with growing rates of poverty among working families.
For a growing number of workers without college degrees or significant on-the-job training, the American dream faded.
This chapter examines the factors that underlie the disappointing growth in the incomes of most American workers over the past
20 years and describes this Administration’s policy responses.
The sluggish growth of incomes is due to dramatic changes in
technology and in global competition that have affected industrialized economies around the world, reducing the relative demand
for workers with less education and training. Industrialized nations
have differed in their response to these common changes. Since
1973, the U.S. economy has created more jobs than all of the European Community. But at the same time the other industrialized
economies have experienced more rapid growth in wages and productivity and slower growth in inequality.
Although these differing patterns appear to suggest a trade-off
between rapid job growth and high wage and productivity growth,
this Administration believes that such a trade-off is not inevitable.
To sustain rapid job growth while increasing growth in wages and
productivity, the Administration has undertaken an ambitious
agenda of lifelong learning to help American workers respond to
the challenges and grasp the opportunities afforded by the new economic realities.



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Chart 5-1 Growth in Real Compensation per Person Employed
Real compensation has grown more slowly in the United States than in the other
major industrialized countries.
Average annual percent change
10

8

6

4

2

0
United States

Canada

United Kingdom

Japan

1965-73

France

Germany

Italy

1973-93

Note: Data for Canada begin with 1966.
Source: Organization for Economic Cooperation and Development.

WHAT HAS HAPPENED TO WAGES AND INCOMES
Compared with the preceding decades, family incomes over the
last 20 years have either grown more slowly or actually declined
at all income levels. This discouraging picture emerges no matter
what statistical measure of compensation or inflation one chooses
(Box 5–1).

SLOW GROWTH IN PRODUCTIVITY AND AVERAGE
WAGES
Growth in average real compensation declined from 3.0 percent
a year between 1948 and 1973 to 0.7 percent a year between 1973
and 1993. This decline parallels a similar drop in worker productivity growth, from 2.5 percent per year to only 0.9 percent. If real
compensation had continued to grow at the same rate after 1973
as it had in the previous 25 years, the average compensation of a
full-time worker in the United States in 1993 would have been
$62,400 instead of $40,000.
The slowdown in wage growth can be seen within the span of a
single individual’s career. Sixty-two percent of men aged 22 to 26
in 1967 enjoyed earnings growth of over 40 percent by 1979; only
9 percent suffered earnings declines. In contrast, only 42 percent
of young men in the 1980s enjoyed wage gains over 40 percent,



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while the proportion of those with wage declines tripled to 26 percent.

Box 5–1.—Measuring Trends in Pay and Inequality

Measures of changes in real pay differ across a number of dimensions: how inflation is adjusted for; whether pay is measured as wages per hour or earnings per year; whether it is limited to cash wages or includes benefits (the latter is referred
to as total compensation); and whether the mean or the median is chosen as the measure of central tendency. All standard
measures of pay show both a slowing of overall growth and a
concentration of the bad news among those with less than a
college degree; nevertheless, different measures show somewhat different patterns over the last few decades (Chart 5–2).
Mean and median wages differ. The mean is the average of
all wages earned, whereas the median is the wage of the worker who falls precisely at the middle of the distribution, with
half of all workers earning more and half less. Because wages
at the high end of the distribution have risen much more rapidly since 1973 than those in the middle, the mean wage has
risen more rapidly than the median.
Wages differ from total compensation. Total compensation includes such benefits as health insurance and employers’ contributions to pensions in addition to wages. Expenditures on
these benefits, led by rising prices for health care, have grown
rapidly since 1973. Thus, hourly compensation continues to
grow more rapidly than wages, although both have slowed in
the last 2 decades.
Hourly wages differ from annual earnings because the number of hours worked per year is not constant. The trend in
overall hours is not clear, with employers, but not employees,
reporting declining hours. This divergence may be due to an increase in unpaid overtime or work at home, but it remains an
area of active research.
The method of adjusting for inflation makes a difference. As
noted in Chapter 2, it is possible that actual increases in workers’ cost of living have been smaller than trends in the
consumer price index (CPI) would suggest. Consequently,
standard measures that rely on the CPI may understate the
growth in real pay. But the basic finding of slower wage
growth since 1973 holds for all standard measures of inflation
(although all suffer from possible mismeasurement of quality
changes). In any case, the finding that wage dispersion has
grown holds regardless of how inflation is measured.




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Chart 5-2 Growth in Various Measures of Real Pay
Most measures of wages and earnings show a flattening of growth after 1973.
Index, 1963=100

150

Average Hourly Compensation
140

130

Average Annual Earnings

120

110

Average Hourly Wage

Median Hourly Wage

100
1963

1967

1971

1975

1979

1983

1987

1991

Note: CPI-U-X1 is used as the deflator.
Sources: Department of Commerce and Department of Labor.

SLOWDOWN FOR MOST, STAGNATION FOR MANY
What growth there has been has not been shared by all Americans. The median real hourly wage fell by 6 percent from 1973 to
1993. The middle of the income distribution was hurt more by the
slowdown than the top, largely reflecting a dramatic shift in the rewards offered in the labor market against those without a college
degree or a high level of skill (Chart 5–3). For example, the average real wage of male high school graduates fell 20 percent, from
$14.02 per hour in 1973 (measured in 1993 dollars) to $11.19 per
hour in 1993. The decline was even steeper for male high school
dropouts, whose average wage fell 27 percent over the same period,
from $11.85 to $8.64 per hour. At the same time, the average hourly wage for males with a college degree but no further education
fell by 9 percent, from $19.41 to $17.62. Hourly wages of those with
a college degree and 2 or more years of additional education fell by
only 2 percent, from $22.20 to $21.71. Trends for women show a
similar though less extreme widening in the wage differential between those who went to college and those who did not (Chart 5–
4). Wage dispersion also increased within demographic and skill
groups. The wages of individuals of the same age, education, and
sex, working in the same industry and occupation, were more unequal in the early 1990s than 20 years earlier.



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Chart 5-3 Real Hourly Wages for Men by Level of Education
Real wages have fallen for men of all education levels, but those with the least
education have been hurt the most.
1993 dollars
25

20

15

10

5

0
High High School
School Dropouts High School
Dropouts
Graduates
High School Grads

Some
Some College
College
1973

College
Graduates
College Grads

College Years
College + 2plus
2 or More Years

1993

Source: Economic Policy Institute.

Chart 5-4 Real Hourly Wages for Women by Level of Education
Women with at least some college education have seen modest wage gains, while
wages have fallen for those without.
1993 dollars
25

20

15

10

5

0
High High School
School Dropouts High School
Dropouts
Graduates
High School Grads

Some
Some College
College
1973

Source: Economic Policy Institute.




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1993

College
Graduates
College Grads

College Years
College + 2plus
2 or More Years

Another perspective on the decline in real wages can be seen by
examining trends at points in the wage distribution other than the
median (Chart 5–5). Between 1973 and 1993 real hourly wages of
full-time male workers at the 10th percentile (that is, those whose
wages are just above those of the lowest-paid 10 percent of workers) declined 16 percent, while real hourly wages at the median fell
12 percent. Over the same two decades, workers at the 90th percentile eked out a wage gain of 2 percent. The net effect is that levels of wage inequality for men have been greater in recent years
than at any time since 1940. Women received wage increases
throughout the wage distribution, but the gains were concentrated
at the top. Women at the 10th percentile earned 6 percent higher
wages, while those at the 90th percentile had gains of 24 percent
(Chart 5–6).
The decline in wages for high school graduates was matched by
a decline in benefits coverage. For example, whereas the proportion
of the work force with education past college who have companyor union-provided health insurance has remained almost constant
at over 75 percent since 1979, the comparable proportion of those
with less education has declined markedly. In 1992, only 60 percent of high school graduates and fewer than 40 percent of those
who did not graduate from high school had company- or union-provided health insurance.
As already noted, women were an important exception to the
broad pattern of wage declines. Overall, the median real hourly
wage of women who worked full time, year round, rose by 9 percent
from 1973 to 1993, and rose as a proportion of the median wage
for men from 63 percent in 1973 to 78 percent in 1993. Much of
the improvement in women’s earnings relative to those of men was
due to the growing labor market experience of working women. In
1975 the average working woman had put in not much more than
half (57 percent) the years of full-time work that the average male
worker had; by 1987 that figure had risen to 73 percent. A second
important factor was that women increasingly went to work in
higher paid occupations that had previously been dominated by
males. Statistics from several traditionally male professions reveal
the size of the shift: from 1970–92 the proportion of female graduates from medical schools rose from 8 percent to 36 percent; the
proportion graduating from law schools rose from 5 percent to 43
percent; and the proportion from dental schools from less than 0.1
percent to 32 percent.

FAMILY INCOMES
Incomes have stagnated for many American families as well as
for individual workers. Family income as reported in U.S. statistics
differs from annual earnings per worker both because there can be



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Chart 5-5 Real Hourly Wages for Men by Wage Percentile
Real wages have declined for all but the highest-paid male workers.
1993 dollars
25

20

15

10

5

0
10th Percentile

25th Percentile

Median
1973

75th Percentile

90th Percentile

1993

Source: Department of Labor.

Chart 5-6 Real Hourly Wages for Women by Wage Percentile
Women at all wage levels received increases in pay, but those at the top gained the most.
1993 dollars
25

20

15

10

5

0
10th Percentile

25th Percentile

Median
1973

Source: Department of Labor.




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75th Percentile
1993

90th Percentile

more (or fewer) than one wage earner in a family and because family income includes nonwage income such as interest, dividends,
profits, and government transfer payments.
The median family income in the United States grew a meager
0.2 percent in the entire 20 years between 1973 and 1993—although hardly impressive, this performance at least was better
than the outright decline in median hourly wages. In addition,
there was a significant widening in the family income distribution.
Average incomes rose 25 percent for those families in the upper
fifth of the distribution, but fell by 15 percent among the poorest
fifth of families (Chart 5–7). An important reason why median family incomes rose slightly while the median wage was declining is
that married women now work more hours for pay. Between 1973
and 1992 the proportion of married couple families in which the
wife worked for pay grew from 42 percent to 59 percent and those
wives who worked for pay worked more hours.
Chart 5-7 Average Family Income by Quintile
Incomes have fallen for the poorest forty percent of families.
Thousands of 1993 dollars
200

150

100

50

0
Lowest Quintile Second Quintile Third Quintile
1973

Fourth Quintile Highest Quintile Top 5 Percent
1993

Source: Department of Commerce.

RISING POVERTY
From 1960 to 1973 the Nation’s overall poverty rate fell from 22
percent to 11 percent; it then rose to 15 percent by 1993. Poverty
rates for children have been even higher: 27 percent in 1960, 14
percent in 1973, and 23 percent in 1993. The observed rise in poverty remains even after taxes and transfers are accounted for: pov


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erty rates by this measure rose from 9 percent in 1979 to 12 percent in 1993 (comparable figures are not available prior to 1979).
The increase in poverty has occurred in spite of slow growth in average income over the last 20 years.
A large portion of the rise in poverty is due both to the increase
in wage inequality discussed above and to a rise in the proportion
of female-headed households. The proportion of children under 18
who live with one parent has nearly tripled, from 9 percent in 1960
to almost 27 percent in 1992. More than half of the children born
in America today will spend time living in a single-parent home,
either because of divorce or because the parents were never married. Because the poverty rate in female-headed families with children is higher, at 46 percent, than in other families, increases in
the proportion of families headed by a single parent increase the
poverty rate.
Many explanations for the increase in single parenthood have
been proposed, ranging from the rise in women’s labor force participation (which has increased women’s ability to live without a husband), to the falling wages and employment of the men they might
marry, to cultural changes reducing the stigma of divorce and
unwed motherhood.
Some have blamed the rise in female-headed households on the
welfare system. Although the current system has a number of problems (discussed in Chapter 1), careful studies have concluded that
it has not played a major role in the increase in female-headed
households. Nationwide, average benefits under the aid to families
with dependent children (AFDC) and food stamp programs rose
from 1964 to 1972, and during those years single-parenthood rates
did rise; however, those rates continued to rise over the next 14
years even as the level of benefits fell by 20 percent in inflationadjusted terms. In addition, States with more generous AFDC benefits do not have a higher proportion of children in single-parent
households. Although welfare has not caused most of the changes
in family structure, the welfare system does have aspects that discourage marriage—elements of the Administration’s welfare reform
proposal, discussed in Chapter 1, address these problems.

THE DECLINING FORTUNES OF BLACK AMERICANS
Black workers have been particularly harmed by recent earnings
trends. After a decade of progress following the Civil Rights Act of
1964, the trend in the relative earnings of blacks to whites reversed. In the early 1960s, the wage gap between black and white
men of similar age and with similar education was over 20 percent.
This gap closed to less than 10 percent in the mid-1970s, but a significant proportion of this gain has since eroded. In addition, the
employment-to-population ratio for black men over 20 years old has



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declined, from about 6 percentage points less than the rate for
whites to about 9 percentage points, over the last 20 years. The
drop in employment is due to a decline in black labor force participation as well as increases in black unemployment. In some innercity neighborhoods as few as 40 percent of black men are employed—that is less than three-fifths the male employment rate for
the Nation as a whole.
In contrast to the decline in relative earnings, years of school
completed and test scores among blacks have risen relative to
whites. The difference in high school dropout rates between blacks
and whites has narrowed sharply. From 1973 to 1992, dropout
rates for blacks fell from 12.3 percentage points more than for
whites to only 4.1 percentage points more. Black educational attainment (as measured by the National Assessment for Educational
Progress) generally increased significantly from 1978 to 1992, while
white test scores rose only slightly. But in many inner-city districts
the dropout rate remains above 50 percent, and Hispanic dropout
rates remain very high.
Inner cities have experienced poor job opportunities, more concentrated poverty, and low-quality schools. At the same time a majority of young black male high school dropouts have turned to illegal activities for income. Surveys indicate that young black men
are more likely now than a decade ago to perceive greater rewards
from crime than from regular employment. Young persons’ participation in crime has adverse effects on their likelihood of future employment, especially if their activities lead to incarceration. These
problems feed on each other: a child’s chances of attending a lowquality school, becoming a teen parent, dropping out of school, living with only one parent, and having parents who do not work for
pay are all associated with living in a poor neighborhood.
Racial and ethnic discrimination remains a significant barrier for
minorities in the job market. Direct measures of discrimination in
employment are available from experiments in which similarly
qualified white and black candidates, or Anglo and Hispanic candidates, applied for the same job. In one such experiment, white
applicants were found to be 24 percent more likely to receive significantly better treatment than black applicants, and Anglo applicants were 22 percent more likely to receive significantly better
treatment than Hispanic applicants. In addition, among applicants
who reached the interview stage, whites were over four times more
likely to be offered a job than were blacks with similar qualifications.
Government antidiscrimination efforts became less aggressive in
the 1980s, and this may account for some of the persistence of discrimination. An analysis of data collected by the Office of Federal
Contract Compliance Programs (OFCCP) shows that enforcement



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of affirmative action rules between 1974 and 1980 improved the job
opportunities of black men and women as well as white women
with Federal contractors. In the 1980–84 period the activities of the
OFCCP were not as spirited as previously, and coverage by Federal
affirmative action policies was no longer associated with gains in
black and female employment.

CHANGES IN THE ECONOMY
Although a complete explanation of the declining economic fortunes of so many American workers and families is lacking, most
economists believe that a shift in the demand for labor in favor of
more highly skilled, more highly educated workers has played a
key role. Such a shift is consistent with the fact that even though
the percentage of the labor force with a college degree increased
from 16.4 percent in 1973 to 27 percent in 1993, the same period
saw a pronounced increase in the relative wages of college graduates (Charts 5–3 and 5–4).
In part, the shift in demand in favor of more educated workers
reflects a shift in employment away from those goods-producing
sectors that have disproportionately provided high-wage opportunities for blue-collar men, toward medical, business, and other services that disproportionately employ college graduates and women.
In addition, employment has grown in such low-wage sectors as retail trade. These interindustry shifts appear to explain some of the
decline in the wages of high school graduates over the last 20
years.
Intensifying global competition is also cited as a factor in putting
downward pressure on the wages of less educated workers. However, a number of studies have found that the easily measured direct effects of trade on the wage distribution were small, implying
that the vast majority of the demand shift originated domestically.
These effects of trade may be larger if the internationalization of
the U.S. economy also affects wages indirectly—for example, if the
threat of increased import competition or of the relocation of a factory to another country undermines workers’ bargaining power. It
is not known how important such effects have been. Trade may
also become a more important factor in the future, as international
commerce continues to expand.
Immigration has increased the relative supply of less skilled
labor in the United States and has contributed to the increasing inequality of income, but the effect has been small. One study found
that immigration explained less than 1 percent of the change in the
college-high school wage differential between 1980 and 1988. Although immigration flows were considerably larger in the late
1980s than the early 1980s, this study makes it seem unlikely that



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the recent contribution of immigration could be more than a few
percent of the total change.
Within-industry shifts in labor demand away from less educated
workers are the most important factor behind their eroding wages,
not the shift out of manufacturing. On the basis of current research—much of which remains anecdotal or indirect in nature—
most economists believe that such shifts in turn are primarily the
result of economy-wide technological and organizational changes in
how work is performed. The computerization of work appears important. Recent empirical evidence indicates that workers who use
computers are paid on average 15 percent higher wages than those
who do not. And the use of computers in the workplace has increased significantly in recent years: between 1984 and 1993 the
share of the labor force using computers on the job increased from
25 percent to 47 percent.
In addition to shifts in labor demand, two institutional factors
appear to have contributed to the increase in earnings inequality
over the last 20 years. One of these is the decline in the proportion
of workers belonging to unions. Empirical evidence suggests that
unions tend to raise wages for workers who would otherwise be in
the bottom half of the wage distribution. The share of the labor
force belonging to unions fell from 26 percent in 1973 to 16 percent
(and only 11 percent of the private sector labor force) today. According to recent studies, the precipitous decline in unionization explains a modest but significant portion of the increase in wage inequality during the last 15 years, especially among men.
The decline in the real value of the minimum wage has further
contributed to greater wage dispersion. Adjusted for inflation, by
1995 the minimum wage has fallen by about 50 cents since 1991
and is 29 percent below its 1979 level, leaving it at its second-lowest level since the 1950s. Because women are almost twice as likely
as men to work at minimum-wage jobs, the erosion of its value has
had its largest effect at the lower end of the female wage distribution. Recent empirical research finds that modest increases in the
minimum wage from historically low levels in the late 1980s were
associated with reductions in both wage and income inequality
without significant adverse effects on employment.
Of workers affected by the most recent (April 1990) increase in
the minimum wage, 36 percent were the only wage earner in the
family, and the average minimum-wage worker contributed about
half of his or her family’s total earnings. Contrary to some press
reports emphasizing the youth of minimum-wage recipients, 70
percent were aged 20 and over. In part because of the changes in
the wage structure discussed above, workers affected by this
change in the minimum wage were more likely to be poor than in
the past. About 20 percent of minimum-wage earners were poor,



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and another 13 percent were near poor (earning between 100 and
150 percent of the poverty line).

IMPROVING EDUCATION AND TRAINING
It is becoming increasingly difficult for those without higher education to earn enough to support a traditional middle-class standard of living. Increasingly, however, a high school education is not
enough. Fewer high-wage jobs remain for high school graduates,
and even many workers with college educations face the prospect
of stagnant wages. This is a fundamental change in the economy.
Although government is not the cause, it has the ability and the
responsibility to improve the way Americans are educated and
trained so as to mitigate this adverse trend.
This Administration views education as, ideally, a lifelong process for all workers, particularly in the changing economic environment of today. Improved education and training opportunities not
only should have a direct effect in increasing the incomes of those
who take advantage of them, but may as a side effect improve the
incomes of unskilled workers as well, as their relative supply is decreased.
In designing programs to promote lifelong learning, Federal policies operate in an environment where education is primarily the
province of States and localities, and training is provided primarily
by employers. Thus, the Federal Government’s most effective role
is often to serve as a catalyst for change.
Evaluations of many of the Federal Government’s education and
training programs have questioned their efficacy, although careful
studies have found some programs to be highly successful. In designing new programs, the Administration has attempted to learn
from these experiences, to imitate the successes and avoid the failures. In predicting future performance, it would be excessively pessimistic simply to extrapolate from the past failures; on the other
hand, it would perhaps be overly optimistic to believe that we can
bring all programs up to the level of the most successful just by
replicating their best features. Yet there are certain features that
many successful programs have in common—such as integrating
different services to address problems with multiple aspects, and
providing incentives that reward success—whose scope for broader
application is far from exhausted.

THE QUALITY OF AMERICAN EDUCATION
By many measures, the quality of education in the United States
has improved in recent years. Test scores in reading, writing,
mathematics, and science have generally risen over the past decade
for almost all ages and racial and ethnic groups. As noted above,



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dropout rates have fallen, declining most sharply for black students. Enrollments in both preschool and postsecondary school
have increased. Preschool enrollment rates have risen since 1970
from 14 percent of children aged 3 to 4 years to one-third. The percentage of high school graduates who enrolled in college following
graduation increased from 49 percent in 1980 to 62 percent in
1992. Few other countries have postsecondary enrollment rates as
high as those in the United States.
The United States still has far to go, however, to ensure that all
its young people are acquiring the knowledge and skills they need
to obtain high-paying jobs and adapt to future changes in the economy. High school dropout rates, for example, are still high, nearly
13 percent overall, and the dropout rate for Hispanics is over twice
as high. Comparisons of U.S. and foreign test scores give additional
cause for concern. Although test scores are imperfect measures of
school quality, scores of U.S. students have generally risen. However, in the math portion of the International Assessment of Educational Progress in recent years, the United States remains among
the industrialized world’s laggards. U.S. students at both the 9year-old and 13-year-old levels not only trail their Taiwanese and
Korean counterparts—the world leaders in this area—but also lag
behind students in every other major nation participating in the
test.

THE IMPLICATIONS OF RISING RETURNS TO
EDUCATION
Numerous studies have established that workers with more education earn substantially higher wages than workers with similar
characteristics, such as age, experience, race, and sex, but with less
education. However, this relation does not necessarily imply that
raising the educational level of those who are now undereducated
will lift their earnings substantially. It may be that those students
who obtain the most schooling are those who start out with greater
ability. Nevertheless, a number of innovative studies that address
this problem still support the conclusion that, on average, students
at all skill levels gain substantially from additional education.
These results are consistent with the thesis that for many students
growing up in low-income households, limitations on access to information and to funds for paying for education, not lack of payoff
from further schooling, are major causes of their lower educational
attainment.

POLICIES TO PROMOTE A LIFETIME OF LEARNING
The Goals 2000: Educate America Act, enacted last year, sets
eight ambitious national education goals to be achieved by the end
of the decade:



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• School readiness. All children will start school ready to learn.
• Improved student achievement. All students will demonstrate
competence in challenging subject matter in core academic subjects.
• Best in math and science. U.S. students will be first in the
world in mathematics and science achievement.
• Safe, disciplined, and drug-free schools. Every school will be
free from violence, disruptive behavior, and illegal drugs.
• Increased graduation rate. The high school graduation rate will
improve to at least 90 percent.
• Teacher education and professional development. All teachers
will have the opportunity to acquire the knowledge and skills
needed to prepare their students for the next century.
• Parental involvement. Every school will promote parent-teacher
partnerships that will increase parents’ involvement in the social and academic enrichment of their children.
• Adult literacy and lifelong learning. Every adult will be literate
and possess the skills necessary to compete in a global economy.
These goals establish a framework for a lifetime of continuous
learning, starting before kindergarten and continuing throughout
adulthood. New opportunities for all Americans to engage in lifelong learning should help rebuild the American dream that working hard and playing by the rules will lead to a higher standard
of living.

Readiness to Learn
The first national goal is to ensure that all children start school
ready to learn. Even good schools will have trouble educating children who come to school unprepared to learn because of poor nutrition or for other reasons. Some of these children will always find
themselves struggling to catch up. The Administration is committed to expanding two programs that promote early cognitive and
physical development and help prepare children for school. The
first is the Special Supplemental Food Program for Women, Infants, and Children (WIC), which provides food supplements and
health education to 6 million low-income pregnant women, new
mothers, and their children up to age 5 annually. Funding for WIC
increased from $2.6 billion in 1992 to $3.5 billion in 1995, with $3.8
billion proposed for 1996. The WIC program has been shown to
save the government money as well as increase children’s health
(Box 5–2). The second program, Head Start, also has a proven
track record. Head Start is an intensive preschool program designed to improve the cognitive and social functioning, health status, and school readiness of low-income youth. Head Start funding
has increased from $2.2 billion in fiscal 1992 to $3.5 billion in fiscal
1995, with $3.9 billion proposed for 1996. The new funding has



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been focused on improving program quality for children already in
the program and in expanding the new ‘‘Early Head Start’’ program for children in the first 3 years of life.
Box 5–2.—What Works: Preparing Students to Learn

WIC has been shown by many studies to be highly effective
in improving the health status of infants. In addition, WIC appears to be a money saver: for every dollar spent on the prenatal WIC program, approximately $3.50 is saved in medicaid
and other costs due to lower incidence of low-birthweight
births and improved health. To the extent that poor prenatal
care and infant health are associated with future behavioral
and academic problems, the benefits of WIC are even greater.
Head Start and other preschool programs have also demonstrated their ability to improve preparedness for school. Numerous studies have found that participation in Head Start
produces immediate gains in health and in scores on tests of
intellectual ability, emotional maturity, and school readiness.
They also find, however, that these gains in test scores decline
over time. Nevertheless, some Head Start and other similar
programs that have been evaluated over many years have
found that participants are less likely to be assigned to special
education classes, and are less likely to be held back a grade.

Improving Student Achievement
The Goals 2000 act provides a framework for comprehensive
State and local efforts to improve both teaching and learning,
based on clear and challenging academic standards for all students.
The framework of Goals 2000 is meant to encourage the alignment
of various aspects of the educational system including curriculum
design, student assessments, teachers’ professional development,
and instructional materials. These systemic reforms are voluntary,
and their design in each State will be a group effort including parents, business people, educators, and others.
The 1991 reforms adopted in Kentucky are an example of the
type of alignment Goals 2000 is intended to promote in other
States. Kentucky adopted six broad goals and further refined these
in 62 specific academic expectations. One of the goals, for example,
is that students should be able to apply principles from mathematics, science, social studies, and other disciplines to real-life situations. In science, this goal translates into such concrete expectations as that students should be able to recognize and use patterns
such as cycles and trends to understand past events and make predictions. The State’s major employers have been involved through


186

out the reforms, helping to ensure that the schools’ expectations
match the needs of employers and future graduates.
The State’s new goals are accompanied by new assessment procedures that combine traditional multiple-choice questions with tests
requiring students to solve practical problems, and with evaluations of each student’s best classroom work collected throughout
the year. This new assessment better measures the full range of
each student’s progress. The assessment also is used to evaluate
schools’ success in improving student performance; schools that do
well will receive monetary rewards, while unsuccessful schools will
be required to develop plans for improvement. Coupled with the increased accountability, Kentucky is decentralizing decision making
to school-based councils of teachers, parents, and principals on
matters such as curriculum and assignment of staff. In addition,
resources for professional development have been increased and
family and youth service centers have been established at low income schools to provide and coordinate services for families such as
child care, family counseling, and referrals to service agencies.
Results in Kentucky are preliminary so far, but encouraging.
After 2 years, average test scores in core academic subjects increased markedly at all grade levels tested. Time will tell if these
results are sustained and translate into better careers for Kentucky’s graduates.
The reforms embedded in Goals 2000 and its companion legislation, the Improving America’s Schools Act, are part of the Administration’s effort to move away from rigid rules to a new model where
the Federal Government provides seed money and technical assistance for States and local school districts to engage in their own reform efforts, keyed to high standards. The acts enhance local flexibility by providing States and local school districts the opportunity
to better coordinate the activities of federally funded programs in
their areas. Both acts allow States and school districts to apply for
waivers of Federal rules that impede their plans for school improvement. The objective is to create a system in which highly
skilled teachers can focus on achieving clear, widely agreed-on
goals, assisted by parents and the community, who in turn can look
to a set of well-defined standards by which to hold educators and
school systems accountable.

Increasing Graduation Rates
Goals 2000 also focuses on reducing dropout rates. In addition,
the Improving America’s Schools Act ensures that Federal funds
will be available to middle and high schools with very high poverty
rates—schools that also have a high proportion of students at risk
of dropping out.
This goal is important both to students at risk of dropping out
and to society as a whole. On average high school dropouts earn



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35 percent less per year than high school graduates with no additional education, and 70 percent less than college graduates, leading the average high school dropout to pay far less in taxes over
the course of his or her working life than the average high school
graduate. Dropouts are also more likely than graduates to end up
on welfare or in prison. For example, on any given day in 1992 almost one-quarter of all males between 18 and 34 who had not received a conventional high school diploma—but less than 4 percent
of those who had—were either in prison, on probation, or on parole.
According to preliminary Department of Labor estimates, the typical young female high school dropout receives on average more
than twice as much in food stamps and public assistance payments
as high school graduates and almost five times as much as those
with at least some college.
The present value of total welfare, prison, and parole costs averages about $69,000 over the course of an adult lifetime for each individual who does not graduate from high school, but only about
$32,000 for each high school graduate who does not attend college,
and only $15,000 for those who attend college. (These figures are
calculated as the net present value at age 18 of the costs of criminal justice and welfare incurred between the ages of 18 to 54, using
1992 data. Costs are discounted at a 4-percent annual rate.) Thus,
ignoring differences in taxes paid, a program capable of influencing
young people who would otherwise drop out of high school to graduate and behave like other high school graduates would reduce
spending on welfare and the criminal justice system by about
$37,000 in present value terms for each youth induced to graduate.
These figures are almost the reverse of public spending on education and training: on average, the typical college graduate is the
beneficiary of over $29,300 in public spending between the ages of
16 and 24, while the typical high school graduate receives about
$13,900 and the typical high school dropout less than $6,500.
However, because high school dropouts differ from graduates
along many dimensions other than the fact of dropping out, these
calculations do not necessarily translate into potential gains for society whenever a student is kept in school to graduation. Furthermore, many dropout prevention programs are too new to have accumulated a substantial record of long-term results, and the current,
incomplete state of research makes conclusions somewhat premature. Nevertheless, a number of programs for at-risk youth have
been reliably evaluated and found to dramatically reduce dropout
rates over several years of operation; in addition, the best of these
programs appear to save the government money.
The evidence suggests that many students at risk of dropping out
are helped by guidance, academic assistance, career information,
and general support in order to stay in school and succeed. After


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school and summer programs and linkages to postgraduation jobs
and schooling can be effective in keeping children in school and in
improving academic achievement and other outcomes. The difficulty in improving the poor labor market prospects of youth once
they have dropped out underscores the importance of efforts to reduce the number of dropouts. Although the current, incomplete
state of research makes conclusions somewhat premature, two general observations may be hazarded.
First, it is possible to prevent students from dropping out, but it
is difficult. A number of programs for at-risk youth have been reliably evaluated and found to reduce dropout rates substantially;
many others, however, have not been so successful. Second, it is
difficult to make initial gains last. Several programs have shown
a pattern of marked improvement in attendance and academic
achievement during their first year, but these initial gains often
disappear over the next few years. Fortunately, there are models
of integrated programs that have been effective in dramatically reducing dropout rates over several years of operation (Box 5–3).

From School to Work
The School-to-Work Opportunities Act, proposed by the Administration and passed by the Congress in 1994, addresses the increasingly poor job prospects of high school graduates by providing
States and localities with venture capital to build systems that prepare young people to pursue a variety of options after completing
high school: a good first job, career-oriented training, or college.
The School-to-Work initiative funds partnerships among businesses, labor representatives, and educators to offer young people
learning experiences in both school-based and work-based settings
that will help provide them the knowledge and skills they will need
to make a smooth transition into the world of work.
The School-to-Work initiative creates the opportunity for students to learn in a setting that connects academics with problems
in a real workplace. The program integrates classroom instruction
with work experience, structured training, mentoring at job sites,
and matching of students with participating employers. Whenever
possible, students are paid for their work. School-to-Work opportunities bring the workplace into the classroom, combining quality
coursework at school with hands-on learning and training in a
work environment. By the end of a course of study, students will
have received a high school diploma, an industry-recognized skill
certificate, and, for some, a diploma for completion of 1 or 2 years
of postsecondary education.
In 1994 all 50 States received Federal funding to plan and develop School-to-Work Opportunities systems, and 8 States were already implementing comprehensive systems. In almost all cases,
employers are directly contributing to the development of industry


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Box 5–3.—What Works: The QUOP Experiment

The Quantum Opportunities Program (QUOP) is an experiment in the use of community-based organizations to improve
the academic and social competencies of disadvantaged students by providing continuing adult support throughout their
high school years. In each of several cities, QUOP programs
offer tutoring, adult mentoring, career and college planning,
and other services and activities to children from families receiving AFDC, starting in the ninth grade. There is also a financial incentive: participating students receive small stipends
and bonuses for completing segments of program activities, as
well as payments into a trust fund for their eventual postsecondary education. Because participants were randomly chosen, the program provides a test of whether the combination of
a rich array of services and tangible financial rewards for success, sustained over the whole of a high school career, can induce students to stay in school and out of trouble, and go on
to college.
Over 4 years the average QUOP student participated in
1,286 hours of educational activities beyond regular school
hours and accumulated $2,300 in his or her postsecondary account. Overall 4-year costs of the program were $10,600 per
enrollee. At the end of the program’s demonstration period an
evaluation comparing randomly selected participants and
nonparticipants (controls) found that 63 percent of QUOP students, but only 42 percent of controls, had graduated from high
school. Only 23 percent of QUOP students had dropped out,
versus 50 percent of the controls. And 42 percent of QUOP students, compared with 16 percent of controls, were enrolled in
postsecondary education. Participants were also half as likely
to report engaging in criminal activity and one-third less likely
to have had children. The experiment was small, following only
100 students at four of the sites, and results varied widely
across sites, yet for the experiment as a whole all these differences in outcomes were statistically significant.
The results of integrated programs such as QUOP defy the
common presupposition that disadvantaged youth will not take
advantage of, or cannot benefit from, enhanced educational offerings. Rather they support the notion that many students
need both academic help such as tutoring and the incentive of
being assured that academic success has a payoff, in the form
of better prospects for employment or college.




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based standards in broad clusters of occupations. By 2000 almost
half a million young Americans are expected to have entered
School-to-Work programs during their last 2 years of high school.
To the extent School-to-Work programs are successful, they should
benefit many students by connecting academic learning with problem solving in an actual workplace, thus making learning more relevant; they should also provide valuable labor market experience
and connections. These programs should also benefit businesses by
increasing the number of trained workers with experience in specific fields.

Better Access to Education After High School
Creating a system of lifelong learning for adults is another essential part of Goals 2000. The Administration is creating a system
with a number of components, each applying not just to the traditional path of college education immediately following high school,
but also to continuing education and training for those who have
jobs or are between jobs.
Reformed student loans will reduce the burden of borrowing for
college and for continuing education. Under the new Federal Direct
Loan Program, individuals can borrow money for college directly
from the Federal Government and can tailor their repayments to
suit their financial circumstances. Borrowers will be able to choose
from among four repayment plans—standard, extended, graduated,
and income contingent—and to switch plans as their needs change.
The standard plan, the one most widely used today, will continue
to allow students to repay their loans in fixed monthly payments
over 10 years. The extended plan provides for a smaller fixed payment but a longer term, from 12 to 30 years. Under the graduated
plan, also with a 12- to 30-year term, the size of the monthly payment starts smaller than in the first two plans and increases over
time according to a predetermined schedule; this should reduce the
repayment burden in the early years when incomes are likely to be
modest. Finally, the income contingent (or ‘‘pay-as-you-can’’) plan
takes the notion of graduated payment a step further: monthly payments are determined by the borrower’s actual income. This choice
of plans makes it easier for graduates to start businesses, work in
their communities, or meet other family responsibilities by better
matching their loan service to their varying incomes.
In addition to lightening the burden of loan repayment, the Student Loan Reform Act restructures the Federal student loan program itself, phasing in direct lending to students over the next few
years. Direct lending will significantly reduce the costs of the loan
program by eliminating middlemen, thus streamlining the system.
The savings are estimated at approximately $6.8 billion over a 5year period.



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AmeriCorps, the national service program, lets Americans earn
money for education while gaining practical experience as they
serve American communities. Twenty thousand participants entered the program in 1994. By 1996 an estimated 100,000
AmeriCorps members will have served American communities.
AmeriCorps participants will devote themselves to community service projects, chosen by local nonprofit organizations, such as teaching in urban school districts, wildlife habitat restoration, immunization of children, crime deterrence, and low-income housing restoration. In 1994 participants earned a $7,640 yearly stipend for
living expenses and a $4,725 yearly grant for college or graduate
school.
Additional initiatives to make continuing education affordable include the proposed income tax deduction and expanded use of individual retirement accounts for educational expenses, as discussed
in Chapter 1. Both of these proposed changes in the tax code are
intended to further lower the financial burden of pursuing postsecondary education.

FACILITATING LIFELONG LEARNING AND CAREERLONG JOB MOBILITY
Training on the job or in a work-related setting tends to be especially well tailored to the requirements of the workplace. One study
of work-related training, while not fully capturing the vital but
hard-to-measure effect of informal on-the-job training, showed that
the impact of such training on wages is of similar magnitude to
that of more traditional schooling. (As with measures of the returns
to education, these measures of the returns to training may be
over- or understated if there are other, unobserved differences between those who do and do not receive training.)
Provision of on-the-job training is skewed in favor of those already relatively well educated. Among young college graduates 35
percent received training from their employers between 1986 and
1991, whereas only 19 percent of high school graduates and 9 percent of high school dropouts received any training during that time
period.
Formal on-the-job training is considerably less common in the
United States than in other industrialized nations such as Germany and Japan. Large Japanese companies train their workers
far more than do their U.S. counterparts, partly because employees
there are much less likely to switch employers. In Germany, high
levels of training take place in formal apprenticeship systems that
are supported by the government as well as by powerful industry
and union federations.




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Skill Standards
Skill standards can play an important role in increasing the supply of highly skilled workers and smoothing their transitions between jobs. The United States is unique among its major competitors in lacking formal mechanisms for national certification of most
worker skills. This lack diminishes the portability of training and
reduces the incentives for employees to invest in increasing their
skills.
The National Skills Standards Act creates a framework for voluntary development of work force skills standards in broad clusters
of occupations. The law promotes standards that include both the
skills needed in the high-performance workplace (such as problem
solving and teamwork) and industry-specific skills. Many industry
groups are already at work designing their standards for occupations in their industries. A blue-ribbon National Skill Standards
Board is being established to stimulate the development and adoption of the new voluntary skill standards.
Skill standards can also help alleviate imperfections in the market for training. Often training provided by one employer is useful
to another. Thus, when trained workers change employers, the benefits to the first employer of its investments in training may be
captured by the second. This reduces employers’ incentives to train.
Skill certificates developed in cooperation with industry leaders
should reduce this market imperfection, since employees would be
more willing to pay for training if it leads to a certificate that another company recognizes and will pay a premium for. These payments to employers for training may take the implicit form of lower
wages during the training period, just as they do for traditional
union apprentices or medical residents. Because of this implicit or
explicit payment, employers would take less of a risk when they
provide training. Some economic theory predicts that making general training more visible to the market will increase turnover, but
in fact turnover is lower at many companies that pay for publicly
certified training. The reason for the divergence of theory and evidence is unclear, although it may be that company-sponsored education increases worker loyalty, or there may be a selection effect,
whereby hard-working employees are both less likely to quit and
more likely to take advantage of company-sponsored education.

Building a Reemployment System
Each year more than 2 million U.S. workers permanently lose
their jobs through no fault of their own, when plants close or there
are mass layoffs. Although most dislocated workers find new jobs
within 15 weeks of their job loss, it is estimated that 15 percent
of all workers who were displaced between 1987 and 1991 remained unemployed for over 6 months. Older workers and those
with less education were the least likely to find a new job after dis


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placement. Of those involuntarily displaced workers fortunate
enough to find new employment, 47 percent suffered a decrease in
their wages.
Just as the Administration’s education policies focus on smoothing the transition from school to work, its labor policies focus on
smoothing the transition from work to work and on increasing
skills to avoid job loss. Workers often find the path from one job
to the next beset with hurdles. Many do not know what other jobs
are available, and having found out, discover they lack the skills
to fit into any of them. And some who clear both those obstacles
find that their new jobs do not work out, because for one reason
or another employee and employer do not fit together well. These
bad matches can increase turnover and reduce satisfaction and productivity.
To address these problems, the Nation’s unemployment system is
undertaking a transition of its own—to a reemployment system. A
key element of the new system is one-stop career centers for all
workers. The Administration is working with the States to create
a nationwide network of local centers, offering job counseling and
allowing workers to apply for jobless benefits and sign up for training programs all in one place.
An important element of the reemployment system is an easily
accessible store of labor market information. The one-stop centers
will build a data base of training providers. The data base could
include such information as records of training providers’ completion and placement rates and the average starting wages of their
graduates. The centers will also provide information on job openings; on local employment trends, including the wages and skill requirements of occupations in demand; and on relevant Federal,
State, and local programs.
The Extended Unemployment Compensation Act, passed in 1993,
requires that all States establish and utilize a system for profiling
all new unemployment insurance claimants to identify, and refer to
job search assistance, those who are likely to exhaust their regular
unemployment benefits and are at risk of experiencing long-term
unemployment. In 1995 this program, similar to successful programs implemented in several States (Box 5-4), is expected to help
an additional 150,000 Americans who have lost their jobs.
As one-stop centers, improved training and assistance between
jobs, and improved labor market information come together to create a national reemployment system, movement between jobs
should become smoother, and the economy should be able to operate at a lower rate of unemployment without the risk of pushing
up inflation.




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Box 5–4.—What Works: Profiling and Job Search Assistance

During the 1980s five States experimented with programs to
change the focus of their unemployment insurance systems
from passive provision of income support to active efforts at reemployment. The programs profiled unemployment insurance
applicants and targeted those most at risk for long spells of unemployment for participation in intensive job search assistance
and counseling. All of the experimental initiatives realized cost
savings, the key to which proved to be finding new jobs for
most newly unemployed workers quickly. The results demonstrated that it is cost-effective to focus job search assistance
on those most at risk for long spells of unemployment.
The programs were rigorously evaluated through random assignment of clients to either an experimental group which participated in the program, or a control group which did not. On
average, those receiving job search assistance found new employment from half a week to 4 weeks sooner than similar individuals in the control group. This reduction in unemployment
not only benefited the workers themselves, but also saved the
government between $1.80 and $4.80 for each dollar invested
in profiling and job search assistance.

Facilitating Retraining
Needs for increased training are not well matched with the current complicated system of dozens of government-assisted training
programs, each with its own rules, regulations, and restrictions.
Therefore, the Administration has proposed replacing this complex
system with a single coherent, choice-based system for adults. This
proposal will consolidate nearly 70 current training or related programs. Dislocated or low-income workers would be eligible for ‘‘skill
grants’’ of up to $2,620 per year for 2 years, enough to cover tuition, supplies, and fees at a typical community college. Unlike the
current system, in which government agencies often choose what
training workers will receive and who will provide it, the new skill
grants could be used at any eligible training provider, including
community colleges and private technical schools.
An important element of this new system will be the labor market information system described above, in which users have access
to the track records of local education, training, and job placement
providers. With this information available, the power of the market
and of informed consumer choice should work to weed out ineffective programs and reward those that help workers get the skills
they need.




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POLICIES TO IMPROVE WORKPLACES
Policies to increase the supply of skilled workers are important
but may not be sufficient unless jobs are available that utilize the
enhanced skills. Skills alone may not lead to high wages, high productivity, or even interesting work. This Administration is pursuing a number of policies to enhance the trend toward workplaces
that rely on high levels of skill, lifelong learning, and continuous
skill improvement.
High-performance workplaces typically are quite different from
traditional ones. They have been transformed so as to give employees greater ability and the incentive to improve their workplaces.
Workers’ ability to generate good ideas is often strengthened by
high levels of training and of information sharing. Forms of worker
empowerment vary widely but often include work teams and forms
of representative participation such as elected committees of workers or union representatives. Incentive schemes vary as well but
typically reward individuals for learning new skills, reward groups
of workers for their collective success, and build cohesiveness and
solidarity more than individualistic competition. Motivation is also
supported when companies ensure that the efficiency gains
achieved by implementing workers’ suggestions do not end up costing them their jobs.
Although it is difficult to obtain reliable nationwide data on the
extent of employee involvement in decisionmaking, the evidence is
that employee involvement and other plans spread rapidly during
the 1980s. By the early 1990s the vast majority of very large U.S.
companies had experimented with at least a small amount of employee involvement in at least a portion of their organizations, and
many smaller companies were experimenting as well. At the same
time, however, only a minority of companies reported widespread
implementation of an integrated set of high-performance workplace
practices.
The effects of the high-performance workplace can be impressive.
The Department of Labor recently reviewed a host of studies on the
effects of high-performance work practices on organizational performance. The result is a collage of evidence that a coordinated
change in work organization can pay handsome rewards. For example, a multiyear study of steel finishing lines identified four distinct
human resource management systems. The more innovative production lines had introduced problem-solving teams, higher levels
of training, innovative incentive compensation systems, and higher
levels of employment security, while the most traditional lines had
few or none of these practices. The more innovative lines enjoyed
significantly higher productivity. The most innovative lines ran 98
percent of the scheduled time, while the untransformed plants ran



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only 88 percent of the scheduled time; plants intermediate in their
introduction of innovative human resource policies were also intermediate in productivity. Plants with more innovative practices also
produced higher quality steel. A separate study of steel mini-mills
found that high-involvement plants not only excelled in quality and
productivity, but also enjoyed lower turnover. These results have
been replicated in a number of other industries, as well as in multiindustry studies. Several studies find that these innovative workplace practices are associated with financial gains, such as higher
cash flow and stock market value.

MARKETS AND THE HIGH-PERFORMANCE
WORKPLACE
If high-performance workplaces are so productive, why do they
remain relatively rare in the United States? A number of factors
can inhibit their spread, even when they hold the promise of improved outcomes for both workers and employers.
One problem is imperfect information in financial markets. Relative to other companies, high-performance workplaces usually invest heavily in employees’ skills and in the company’s reputation
as a trustworthy employer and business partner. These investments frequently take years to pay off. Managers are able to inform investors about their investments through many avenues. Yet
investors will almost always have better information on, and thus
likely pay more attention to, investments that are reported in publicly available financial statements, comparable across time and between companies. Informing investors about investments in human
resources is more difficult because no common language exists to
describe them in a way that allows outsiders to assess their value.
Partly because of these communication problems, corporate managers in a recent survey rated employee satisfaction, turnover, and
training expenditures the 3 least important out of 19 measures of
financial and nonfinancial performance to report to outside investors. These measures not only lagged earnings (ranked first) and
capital expenditures (14th), but even lost out to corporate ethics
statements (16th).
Because human resource investments are so hard to monitor,
they may be especially sensitive to cutbacks during downturns in
a corporation’s cash flow. These information problems, plus the
general difficulty that investors have in knowing whether managers are investing for the long run, can lead to inefficiently few
high-performance workplaces.
The long-term commitment of high-performance organizations to
their work forces can have favorable macroeconomic effects. Under
reasonable assumptions, each firm that avoids layoffs helps stabilize demand for other firms’ products, which the original firm’s



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workers, by keeping their jobs, are able to continue purchasing.
High-performance organizations usually try to build trust and protect their investments in workers by minimizing layoffs. Thus,
when an economy has many high-performance workplaces it may
well find that its recessions become less severe.
The present system of unemployment insurance may well encourage layoffs. Employers in most States pay unemployment insurance
premiums that are not closely related to their record of past layoffs.
As a result, companies that avoid layoffs implicitly subsidize those
that frequently lay off workers.
Another set of problems centers around deficiencies in the incentive system facing American managers. Many American managers
have spent years in workplaces designed for top-down control, not
for encouraging initiative from low-level workers. In addition, new
work practices diffuse slowly partly for the same reason management initiatives often diffuse slowly—learning takes time. A number of innovations ranging from hybrid corn varieties to the divisional corporate structure have taken a generation or longer to
spread to half the companies that would eventually adopt them,
and employee involvement appears to be no exception.
A legal difficulty augments these problems: some high-performance work practices have been subject to challenge under U.S.
labor law, which has developed within a decades-long adversarial
system of worker-management relations. Some forms of substantive
employee involvement have been found to be in violation of the National Labor Relations Act, because they are deemed the equivalent
of ‘‘company-dominated unions’’ or blur the legal line between
workers and managers.
The policy response of the Administration to the problems facing
high-performance workplaces is to remove obstacles and to improve
the quality and delivery of information that can facilitate privatesector initiatives. The Department of Labor has created a new Office of the American Workplace to reduce barriers that impede organizations from adopting high-performance work structures. Its
initiatives include creating a clearinghouse of information on highperformance workplaces, creating educational programs for unions
and for CEOs to learn how to work better together, and working
with institutional investors such as pension funds to better measure which companies are investing in their people for the long run.
To examine a broad range of workplace issues, including the legal
difficulties mentioned above, the Administration appointed a Commission on the Future of Worker-Management Relations (Box 5–5).
The Administration is expanding the National Institute of Standards and Technology’s (NIST) Manufacturing Extension Partnership (MEP). MEP centers provide small- and medium-sized manufacturers with access to public and private resources, information,



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Box 5–5: Reforming Workplace Regulation

In March 1993 the secretaries of Labor and Commerce announced the formation of the Commission on the Future of
Worker-Management Relations to study what, if any, changes
should be made in U.S. workplace laws and regulations to facilitate employee participation and reduce labor-management
conflict. In January 1995 the Commission released a number
of recommendations. These recommendations, and the reasoning behind them, included the following:
• In the 1920s and early 1930s many companies created
company-dominated unions, largely in an effort to keep
out independent unions. In response, the 1935 National
Labor Relations Act banned company unions. Its definition of illegal company unions is very broad, however,
and encompasses many legitimate employee involvement
groups.
Recommendation: Continue to ban company unions, but
amend the act to permit employee involvement groups
that improve productivity and safety and only incidentally discuss employment terms and conditions.
• A company must hold an election on union representation if 30 percent of its workers sign a petition calling
for such an election. But often the election is delayed for
months by legal challenges such as disputes about the
size of the bargaining unit. In addition, in about one out
of four companies holding elections, a worker is dismissed for being pro-union; companies face no threat of
punitive fines or sanctions for these illegal acts.
Recommendation: Elections should generally take place
within 2 weeks of the request, with disputes settled
afterward. Speedy elections should reduce the number of
labor law violations, hence reducing concerns about the
lack of penalties.
• Millions of American workers are injured and thousands
killed on the job each year, yet safety regulations are
often burdensome and ineffective and do not permit companies and workers to tailor their decisions to local conditions.
Recommendation: Require all but the smallest workplaces to have a formal safety program, meeting minimum standards such as regular safety training and investigation of all serious accidents. In workplaces with
high-quality safety programs, regulators should reduce
penalties and the frequency of inspections.




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and services designed to increase firms’ use of appropriate technologies and modern manufacturing practices. Building work force
skill and a work environment that fosters a culture of continuous
improvement is a major factor in companies’ ability to benefit from
these technologies. Thus, the Administration’s MEP program is
helping U.S. industry to move toward adoption of the high-performance workplace model. NIST is working with the Department of
Labor’s Office of the American Workplace and its Employment and
Training Administration to create linkages between the extension
centers and training and modernization services. In the future,
small manufacturers will be able to work with a local MEP center
for needs ranging from new technology to redesigning the entire
workplace.
One means of promoting high-performance workplaces is through
recognition programs, most notably the Malcolm Baldrige National
Quality Award (Box 5–6). Because of its past success in encouraging quality performance, the award program is being expanded to
make schools and health care enterprises eligible.
Box 5–6.—What Works: The Baldrige Award

The Malcolm Baldrige National Quality Award measures
companies’ progress on a number of quality goals. The company (or division) must provide evidence that it incorporates a
focus on quality into management practices, works closely with
suppliers, trains workers in quality techniques, and meets customers’ desires. The completed application must be less than
70 pages. The examination process begins with a board of examiners scoring the written application. The examiners are
recognized quality practitioners themselves, whose feedback
the contestants value. High scorers then have site visits led by
a senior examiner, and winners are selected by a panel of
judges.
The Baldrige Award has been an effective catalyst for managerial change. More than 1 million copies of the award criteria
have been distributed, and the award serves as the model in
many companies’ internal evaluations of their move to high
performance.
Although few companies have won the coveted award, its effects are more broadly felt. For example, one truck engine
manufacturer that was having serious quality problems applied for the Baldrige Award as a way of ‘‘turning a harsh spotlight on itself.’’ Although the company did not come close to
winning, the feedback it received led to valuable new practices
concerning worker training and listening to truckers’ complaints. Defect rates plunged from 10 percent to below 1 percent in only 2 years.



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REINVENTING GOVERNMENT AS A HIGHPERFORMANCE WORKPLACE
Reinventing government, as noted in Chapter 1, is crucial for creating a government that works better and costs less. One key element of this reinvention is to turn the Federal Government itself
into a high-performance employer, one that relies on the skills and
motivates the creativity of its employees (Box 5–7).
Box 5–7.—What Works: Empowering Civil Servants to Better
Serve Citizens

One goal of the Vice President’s reinventing government initiative is to empower Federal employees. Simply by listening
to their good suggestions, the government can become a better
provider of services. An example of empowered civil servants
making good policy at the front line involves the restoration of
the Santa Monica Freeway after California’s Northridge earthquake of January 1994.
The Santa Monica Freeway is one of the most important
transportation corridors in the United States, and for each day
that it was shut down the local economy suffered about $1 million in lost output. However, the highway administration often
takes over a year just to develop a plan, solicit bids, review
proposals, and award funding for a major project such as rebuilding the Santa Monica. Fortunately, the Chief of District
Operations for the Federal Highway Administration in Sacramento had some ideas for improving the process.
The main ideas were to speed up the bidding process and to
award large bonuses to contractors who finished ahead of the
date proposed in their bid (and impose equally large penalties
on contractors who missed deadlines). By accelerating the competitive bidding process and rewarding speedy completion, the
Chief of District Operations and other empowered Federal employees helped finish in 84 days projects that would normally
have taken 2 years. In addition, thanks to cooperation between
groups ranging from Amtrak and the Army Corps of Engineers
to the city’s transportation department, traffic patterns were
quickly rerouted, averting gridlock.
Reinventing procurement, as described in Chapter 4, is another
key aspect of reinventing government. Part of reinventing procurement involves purchasing more goods and services on the basis of
expected quality as well as low price. In the private sector many
large customers have increasingly relied on certifications of the
quality processes of their suppliers, often using certifications very
similar—or even identical—to those of the Baldrige Award.



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The Administration, drawing on successful private sector experience, is also beginning to use existing supplier certifications and
awards to improve procurement. These efforts to promote purchasing from high-quality suppliers should not only save the government money but also increase the quality of U.S. jobs, because
high-quality suppliers tend to rely on their workers for help in improving quality.

CONCLUSION
The U.S. labor market is a leader among the industrialized nations in job creation. At the same time, however, wages have stagnated for many Americans and declined markedly for those at the
bottom of the income ladder.
No single policy will reverse this disappointing performance, but
taken together, the policies described in this chapter can enhance
the chances of all Americans to live prosperous, middle-class lives.
These policies will increase the likelihood that children will be born
healthy, enter school ready to learn, and stay there long enough to
learn the skills they will need in the workplace of the future. Policy
innovations in the labor market promise new entrants better prospects for finding a satisfying first job, and all workers a greater
likelihood of smoother transitions between jobs and of continued
learning on their jobs and throughout their careers. If successful,
these policies will promote higher productivity and rising living
standards, as well as make work more interesting for all.




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CHAPTER 6

Liberalizing International Trade
SINCE THE SECOND WORLD WAR the United States has
taken the lead in championing liberalized trade and open markets.
A series of trade negotiations at a variety of levels has produced
a world economy that is far more open, integrated, and efficient
than that of the 1950s. For the global economy this has meant an
extraordinary expansion of income, not only in the industrialized
world but shared by those developing countries that were willing
to promote international trade. For producers, trade liberalization
has meant access to lower cost supplies and the ability to reap returns on investment over a much larger market. For consumers it
has meant wider choices, higher quality, lower prices, and higher
real incomes.
In the 1950s almost all trade was in commodities or manufactured goods, transported by sea, and trade barriers consisted of tariffs and quotas. Levels of trade protection were high, and negotiating reductions was relatively easy. Trade negotiations today are
severalfold more difficult. Tariffs, which are easily observed and
compared, are now much less important. Tighter integration among
economies has shifted the emphasis of negotiations to domestic
practices that inhibit trade, while new, nontariff trade barriers
have been devised to take the place of those reduced through negotiation. Trade in intellectual property, technology-intensive goods,
and a wide array of services has changed the product landscape,
and trade now takes place among a much wider group of countries.
In the 1990s, firms regularly operate subsidiaries in their major
overseas markets, blurring the definition of what is a national firm.
Their foreign direct investment has both pushed the expansion of
trade and, in many industries, been pulled by the necessity to be
in close touch with customers, so that rules governing foreign investment now have a direct effect on trade. All of these changes
have made the pursuit of effective trade liberalization more challenging.
This Administration, like its predecessors, has responded to
these changes by pursuing liberalization and the promotion of exports at a variety of negotiating levels. The American approach has
been that of nondiscrimination: negotiated reductions in trade barriers should apply to all trading nations; individual nations should
not cut deals that benefit themselves at the expense of others. This



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principle of U.S. diplomacy goes back to the Nation’s early history
as a new entrant in the trading world, but it has roots in both fairness and economic efficiency. Nondiscrimination as a goal received
powerful support from the disastrous experience of discriminatory
trade and payment regimes during the Great Depression. Often
called the most-favored-nation (MFN) principle, since each participant receives the same treatment accorded the ‘‘most-favored nation,’’ nondiscrimination formed the basis of the postwar trade
order.
Even though nations will seek concessions by others in areas of
most immediate interest to themselves, nondiscrimination makes
trade liberalization a public good—what is produced by one country
in negotiation with another is available to all. This gives rise to the
coordination problem shared by all public goods, that of getting
each party to participate rather than sit back and let others do the
liberalizing, free-riding on their efforts. The solution to this dilemma requires commitment on the part of the major trading nations, coupled with ingenuity and the artful use of the fear of exclusion. Thus, while the United States has continued to support multilateral liberalization efforts, it has been forceful in bilateral negotiations as well, and has also pursued liberalization on a regional
basis, both as a way of extending market opening and as a way of
pressing for greater liberalization in the full multilateral arena.
This Administration has achieved remarkable success at each of
these three levels of trade negotiations. After 7 years of negotiating
and two missed final deadlines, the Administration brought the
most ambitious of postwar multilateral negotiations, the Uruguay
Round, to a successful conclusion. At the regional level the Administration brought about the enactment of the North American Free
Trade Agreement (NAFTA) with Canada and Mexico, and has
reached agreements to move toward free trade in the entire Western Hemisphere and in the Asia-Pacific region. At the bilateral
level the Administration has concluded a number of agreements,
the most important of them within the Framework for a New Economic Partnership with Japan.
In its first 2 years in office the Administration has achieved more
in international trade policy than any other postwar administration. The agreements it has reached and implemented change the
landscape of future trade issues. This chapter reviews those agreements and their consequences for the United States and the world
trading order, and then explores the issues that will govern future
trade relations.




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MULTILATERAL INITIATIVES: THE URUGUAY
ROUND AND THE WORLD TRADE ORGANIZATION
The Uruguay Round took a full 7 years (1986–93) to complete,
and the resulting agreement is by far the most extensive and comprehensive yet concluded under the General Agreement on Tariffs
and Trade, or GATT (Table 6–1). It goes beyond all previous GATT
agreements in three respects (Box 6–1). First, it deals more directly
and extensively with nontariff barriers to trade than any past
agreement. Second, it brings several major product sectors under
international trade rules for the first time. Finally, the agreement
goes a long way toward establishing a single set of trade rules applicable to all member countries, limiting the ability of countries to
pick and choose what trade obligations they will accept. The Uruguay Round agreement offers huge benefits for the United States
and for the other signatories and will shape the future of multilateral trade negotiations.
TABLE 6–1.—GATT Negotiating Rounds
Negotiating round

Dates

Number of
participants

Tariff cut
achieved
(percent)

Comments

Geneva ..................
Annecy ...................
Torquay ..................
Geneva ..................
Dillon Round .........

1947
1949
1951
1956
1960–61

23
13
38
26
26

#73

Kennedy Round .....

1964–67

62

35

Antidumping agreement signed

Tokyo Round ..........

1973–79

99

33

Addressed nontariff as well as tariff barriers; codes (optional) on government procurement, dumping, subsidies, standards, and customs valuation

Uruguay Round .....

1986–93

125

40

Addressed nontariff as well as tariff barriers; covered
new areas of agriculture, services, intellectual property; strengthened dispute settlement

Note.—Tariff cuts achieved are those agreed to by the major industrial countries on industrial products. The tariff cut
achieved in the first five negotiations is an estimate. Tariffs fell from an average of about 40 percent at the time of GATT’s
founding to 7 percent by the beginning of the Tokyo Round.
Source: General Agreement on Tariffs and Trade.

TARIFF AND NONTARIFF MEASURES
Even in the traditional areas of trade negotiation the Uruguay
Round marks a significant achievement. The agreement reduces
average industrial product tariffs by 34 percent overall, and by 40
percent for industrial countries. Tariffs were eliminated entirely in
‘‘zero-for-zero’’ agreements in several sectors, including pharmaceuticals, steel, construction equipment, medical equipment, and
paper. Overall, the Round is estimated to result in a $744 billion
cut in world tariffs over the next 10 years. In addition, many countries agreed for the first time to bind (cap) a significant portion of
their tariffs, giving up the possibility of future rate increases above
the bound levels. The increase in tariff bindings among less devel


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Box 6–1.—Uruguay Round Highlights

Tariffs. The Uruguay Round agreement achieved a 34-percent average reduction of industrial product tariffs. Most of
these tariffs are now bound (capped).
Agriculture. The agreement converts quotas and other trade
restraints to bound tariffs. It requires cuts in export and domestic subsidies and minimum market access commitments.
Textiles and clothing. The agreement eliminates quotas on
textile and clothing imports over a 10-year period.
Services. The agreement extends MFN treatment, national
treatment, and other principles to service sectors in which
countries make specific market-opening commitments. Specific
sectoral commitments were negotiated or are being negotiated.
Intellectual property. Patent, trademark, and copyright protections are recognized as trade obligations and strengthened.
Rules governing trade. So-called voluntary export restraints
are forbidden, and country-specific import safeguard measures
are allowed only in limited circumstances. Antidumping procedures become subject to limited duration (‘sunset’) provisions
and improved standards of transparency and procedural fairness. Subsidies are divided into categories: those prohibited
outright, those subject to countervailing duties if they cause injury to producers in other countries, and those explicitly declared exempt from such duties.
Trade-related investment measures. Measures requiring foreign subsidiaries to achieve a specified minimum level of domestic content in their production or requiring that imports be
balanced by equivalent exports, as well as certain other measures, are to be eliminated within 2 years for developed countries, and within 5 years for less developed countries.
‘‘Single undertaking.’’ With the exception of a few sectoral
agreements, a single set of trade rules applicable to all signatories is established.
World Trade Organization (WTO). The agreement ends the
ambiguous foundation for world trade that the GATT had provided, regularizing and creating a legal basis for previous
GATT practice. The WTO provides a single umbrella for trade
agreements in goods, services, intellectual property, and other
areas.
Dispute settlement. Disputes involving all WTO matters are
subject to a single dispute settlement process. Losers in a
panel decision may take the matter to a new Appellate Body
but no longer have the ability to block panel decisions. Retaliation is authorized in the absence of a settlement.




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oped countries was striking: by the end of the Round 73 percent of
their industrial product tariffs, covering over 60 percent of total imports, were bound.
The Round made significant progress in reducing or eliminating
nontariff barriers. The government procurement agreement
strengthens the provisions of the earlier Tokyo Round code, opening a wider range of markets for signatory countries. In addition,
the Round made extensive efforts to eliminate quantity restraints
on trade and require countries to rely instead on price (tariff)
measures. In the textile and apparel sector, the various bilateral
quotas that have arisen to control international trade are to be
raised, and phased out entirely by 2005. In agriculture, quantitative restraints and other nontariff barriers to trade are to be replaced by tariffs of equivalent restrictiveness. Finally, the safeguards agreement prohibits the use of voluntary export restraints.
The elimination of quantity restraints on trade, even when replaced by tariffs that reduce trade by the same amount, is an important liberalizing step. With a quota, when imports reach the
quota limit, the domestic market is completely insulated from foreign competition. Quotas effectively carve up the market, whereas
tariffs maintain competition. The anticompetitive effect is most
striking if domestic producers collude to raise prices. Under a
quota, imports cannot respond and thus provide no brake on domestic price increases, whereas under a tariff, imports increase at
the tariff-inclusive price, limiting the ability of producers to raise
prices.

NEW SECTORS
The Uruguay Round achieved significant liberalizations in the
traditional areas of trade negotiations, but what made it a breakthrough agreement was its extension of trade disciplines to three
new areas: agriculture, services, and intellectual property.

Agriculture
The Uruguay Round for the first time brings agriculture, a sector
that accounts for 13 percent of world trade, under international
trade rules. Measures to support farm incomes in the industrial
countries have led to a variety of trade-restraining measures, excess production, and an expensive system of export subsidization
that has done little to increase world demand for agricultural products but has greatly depressed world agricultural prices.
The agriculture agreement requires that nontariff barriers to agricultural trade be converted to their tariff equivalents, and that
the resulting tariffs be reduced by a minimum of 15 percent in each
tariff line and by an average of 36 percent overall. Countries are
also required to grant minimum market access in products where
there has been little or no trade. This means the end of the bans



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on rice imports in Japan and the Republic of Korea, and commitments by all countries to increase wheat, corn, rice, and barley imports by a total of 3.5 million metric tons.
The agreement also contains first steps to reduce agricultural
subsidies. Export subsidies must be reduced by 36 percent in value
from 1986–90 levels over 6 years, and the volume of subsidized exports by 21 percent. Since current U.S. and European subsidy levels exceed this base, the actual reduction will be considerably higher. Domestic subsidies that increase output must be reduced by 20
percent from their 1986–90 levels.
Since the United States has a strong underlying comparative advantage in agriculture, the mutual reduction in trade barriers and
subsidization will be to the distinct advantage of U.S. producers.
Because European export subsidization in the base period used for
calculating reductions was 14 times that of the United States, and
domestic support 4 times as great, the European Union’s subsidy
reductions will dwarf those of the United States. As a result of
world income gains and the realignment of world sales due to the
Uruguay Round agreement, annual U.S. agricultural exports are
expected to increase by somewhere between $4.7 billion and $8.7
billion by 2005.

Services
The second new area opened by the Uruguay Round is international trade in services. This trade has grown to $1 trillion per
year and now accounts for over a fifth of all international trade.
Services trade liberalization is of major concern to the United
States, the world’s largest services exporter, with annual exports of
over $170 billion and a surplus of $59 billion in 1993.
The General Agreement on Trade in Services (GATS) is the first
multilateral agreement covering services trade issues. The GATS
has two distinct components. The first is a general statement of
principles, such as national treatment and MFN treatment, that
cover trade in services, along with descriptions of how these are to
be interpreted in individual sectors (Box 6–2). Recognizing the differing ways in which services trade can take place, the GATS covers cross-border trade, movement of persons, and investment issues. The agreement creates a general obligation to offer MFN
treatment to signatories, requires transparency in regulation of
services, and brings services trade disputes under the general dispute settlement mechanism of the WTO.
The first component of the services agreement does not in itself
create any liberalization of services trade. Liberalization is provided in the second component, where each country lists the sectors
to which it will apply GATS obligations, as well as any exceptions
to those obligations that it will maintain in each sector. Once a sector and its exceptions are listed, those commitments are bound,



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Box 6–2.—National Treatment, MFN, and Market Access Under
the GATT and the GATS

The fundamental principles on which the GATS is based
mirror in many ways those applied to goods within the GATT,
but there are some important differences.
Most-Favored-Nation Treatment
GATT: A country agrees to treat goods from other
GATT members no less favorably than it treats those
from any other foreign supplier, on tariffs and other
measures that affect the import or export of goods.
GATS: Identical, except that there is a one-time opportunity to exempt specific service sectors from MFN obligations, for a period of up to 10 years.
National Treatment
GATT: Once foreign goods have entered a country and
paid any tariffs or other customs duties, they must be
treated no less favorably than domestically produced
goods, and subject to no taxes or charges that are not
also levied on domestically produced goods.
GATS: The same, but only for sectors listed by countries in their sectoral commitments, and subject to any
exceptions listed in those commitments.
Market Access
GATT: No obligation.
GATS: No explicit definition. However, countries agree
not to impose various limitations (on total value or quantity, extent of foreign investment or ownership, or number of persons employed) in sectors in which they make
commitments.
and no further limitations on trade may be applied. The sectoral
commitments, although neither as extensive as originally sought by
the United States nor as far-reaching as those under NAFTA, do
contain important liberalizations. Most country commitments include a standstill on new barriers, which is significant in many
countries where services sector regulation is just beginning to develop. Countries made broad commitments in trade in professional
services and tourism and agreed not to restrict access to telecommunications services to resident foreign-owned service providers. Negotiations on specific commitments in financial services,
basic telecommunications, and maritime transport services were
not completed by the end of the Round and are to continue. Despite



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the negotiations that remain, the GATS is a breakthrough, not only
for the specific liberalizations that it contains but also because it
establishes the framework for further liberalization of trade in
services, just as the GATT did for goods in 1947.

Intellectual Property Protection
The extension of multilateral trade rules to intellectual property
protection is a further area where the Uruguay Round broke new
ground. The Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs) adopts and strengthens existing conventions on intellectual property, adds protection for several new areas
including integrated circuits and computer software, and provides
a mechanism to enforce intellectual property rights. It also extends
national and MFN treatment to intellectual property holders. The
agreement, with just a few exceptions, eliminates the ability of
countries to deny patentability to certain categories of inventions
such as pharmaceuticals and restricts forced licensing of technology.
Enforceability was a major concern in the negotiation. Principles
of intellectual property law are set out in the agreement, along
with requirements for transparency in application procedures, and
disputes are covered in the general WTO dispute settlement mechanism. In return for substantial concessions on protection and enforceability, less developed countries received a lengthy transition
period: 5 years for most of these countries and 11 years for the
least developed ones.

WIDENING PARTICIPATION
A failing of past trade negotiations was the limited number of
countries that were active negotiating participants—many countries remained on the sidelines as free riders on others’ liberalizations. Moreover, by the time the Uruguay Round was launched,
GATT obligations had become a kind of a la carte system, where
countries were free to subscribe to the agreements they chose and
abstain from others. The Uruguay Round reversed this trend, both
increasing the number of countries making concessions and achieving a much greater uniformity in the rights and obligations of
GATT (now WTO) members.
The increased participation of countries in the negotiations was
in large part due to a sea change in ideology in developing countries in favor of privatization, economic liberalization, and competition, as described in more detail below. But it also had much to do
with the fact that the Uruguay Round was a ‘‘grand bargain,’’ linking concessions by less developed countries on tariffs, services, and
intellectual property with liberalization of trade in textiles, apparel, and agriculture.



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The Uruguay Round has also done much to establish a single
rulebook for international trade competition. In contrast to previous negotiations the outcome of the Uruguay Round, and WTO
membership, is a single undertaking. With few exceptions (notably
the agreement on government procurement), countries joining the
WTO agree to all of its obligations—the GATT itself, the GATS, the
TRIPs agreement, dispute settlement procedures, and others. Finally, the increasing perceived value of trade liberalization in many
market economies and the breakdown of central planning in the
economies in transition have resulted in a large number of new applicants for WTO membership, including China and Russia. Their
accession negotiations require both adoption of WTO obligations
and initial liberalization of trade, expanding the number of countries trading by a single set of rules.

DISPUTE SETTLEMENT
Strengthening the GATT dispute settlement mechanism has been
a longstanding goal of the United States; indeed, it was listed first
among the principal U.S. negotiating objectives in the Omnibus
Trade and Competitiveness Act of 1988. The previous GATT dispute mechanism suffered from long delays, the ability of accused
parties to block decisions of GATT panels that went against them,
and inadequate enforcement. The dispute settlement agreement addresses each of these issues. It guarantees the formation of a dispute panel once a case is brought and sets time limits for each
stage of the process. The decision of the panel may be taken to a
newly created Appellate Body, but the accused party can no longer
block the final decision. A country that loses a dispute must either
bring the offending practice into conformity, offer suitable compensation to the aggrieved parties, or face retaliation, which is now
authorized under the agreement. Furthermore, this strengthened
mechanism now becomes the single dispute settlement mechanism
for the WTO, covering the GATT, the GATS, the agreement on intellectual property, and other agreements.
The dispute settlement issue has been important to the United
States because this country has been the most frequent user of the
GATT dispute mechanism. Frustration with the old mechanism
was one of the factors behind the development and use of Section
301 of the Trade Act of 1974, which allows the United States to retaliate against ‘‘unjustifiable’’ or ‘‘unreasonable’’ foreign practices
that hinder U.S. commerce. The new dispute settlement mechanism changes the sequence in which Section 301 is used but does
little else to limit its use. Section 301 requires that, if a case involves an existing trade agreement, the United States must use the
dispute settlement provisions of that agreement. If the United
States wins a WTO case, and if the losing party does not then



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change its practice or offer suitable compensation, Section 301 retaliation is authorized by the WTO.
Perhaps the most important use of Section 301 has been in the
promotion of U.S. interests in cases not covered by multilateral
trade rules, such as services and intellectual property in the past.
Here Section 301 can be used as before both to promote U.S. interests and to prompt multilateral negotiations on new liberalization.
Even with modifications in the use of the legislation, the package
of the new dispute settlement mechanism plus Section 301 is a far
stronger vehicle for defending U.S. interests. A strengthened dispute settlement mechanism and multilateral backing for retaliation
greatly increase the leverage the United States will have in protecting its trading rights.

THE WORLD TRADE ORGANIZATION AND
U.S. SOVEREIGNTY
The GATT of 1947 was unusual in that it started out as a trade
agreement, not an organization. Through improvisation and experience its small secretariat became an effective coordinating body for
multilateral trade negotiations. The Uruguay Round establishes a
World Trade Organization to bring under a single umbrella a variety of trade agreements negotiated under GATT auspices along
with the single dispute settlement mechanism, and to regularize
and clarify the practice that had been built up under the GATT.
Although both the single undertaking and strengthened dispute
settlement were U.S. objectives in the Round from the beginning,
their achievement and the creation of the WTO have raised fears
in some quarters that the United States might be surrendering sovereignty to an international organization over which it would have
little control.
These fears are unwarranted. The WTO is an administrative
body, designed to facilitate trade negotiations and dispute settlement among its members, not a legislature for creating obligations.
Its charter explicitly links it to the decisions and customary practice under the GATT, including the dependence on consensus in
reaching decisions. Although the principle of one country, one vote
has always characterized the GATT, in fact GATT votes were almost never taken; decisions were reached on the basis of consensus
among members. In practice, the United States has always had a
major influence over the course of GATT policy, not because it has
had a larger formal vote but, in baldest terms, because it brought
the largest market to the table. The WTO does not change this.
What the WTO does is to define fallback requirements if consensus
is not reached. These are both limited in scope and stringent. Interpretations of agreements and waivers of obligations require a
three-fourths majority of the entire membership (not just of those



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voting), and the creation of a new obligation on a country is possible only if that country accepts it. In any case, each member has
the ability to leave the WTO with 6 months’ notice.
The most fundamental reason why U.S. sovereignty is not diminished by the WTO is that WTO agreements and dispute panel decisions do not have legal force in the United States (or in other member countries)—they are not ‘‘self-actuating.’’ In situations where
existing U.S. legislation is contravened or new legislation required,
it is up to the Congress whether to take that action. If the United
States were to lose a dispute panel decision on a matter of fundamental national interest, it need not bring U.S. law or practice
into conformity. The United States could instead offer compensation through liberalization in other areas, or accept equivalent foreign retaliation through increased barriers to U.S. exports. Panels
rule on disputes that arise on rules and disciplines that WTO members have agreed to; they do not create new obligations. Furthermore, U.S. negotiators were particularly careful to limit the scope
of panel review in cases involving national health and safety standards.
To allay concerns about the operation of the WTO, the Administration supports the establishment of a WTO Dispute Settlement
Review Commission. The commission, which will consist of five
Federal appellate judges, will review all final WTO dispute settlement reports adverse to the United States to determine whether
the panel has exceeded its authority or acted outside the scope of
the agreement. Following three determinations by the commission
in any 5-year period that panels have so exceeded their brief, any
member of the Congress may introduce a joint resolution to disapprove U.S. participation in the WTO. If the resolution is enacted
by the Congress and signed by the President, the United States
would withdraw from the WTO. By focusing informed, high-level
attention on the operation of the WTO, the review commission
should help develop a fair, effective, and widely accepted dispute
settlement system within the organization.
Of course, the Uruguay Round agreement and the WTO do place
obligations on the United States, but the balance of obligations in
this accord is favorable, both because the United States had considerable influence on the Uruguay Round outcome, and because this
country has a transparent, rules-based system and the WTO represents a convergence toward a system of this type. This point is
important to consider when weighing the strengthened dispute settlement apparatus of the WTO. As with any legal institution, the
force of dispute settlement will be established through use and experience. The U.S. interest in strengthening a rules-based international trading system implies that the United States should actively bring cases to dispute settlement and, in general, abide by



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the results. This is not to say that the United States should ignore
fundamental national interests in deciding whether to implement
a WTO panel decision, but simply that our willingness to be bound
by international trade disciplines will in large part determine
whether those disciplines will be observed by others.

FUTURE MULTILATERAL NEGOTIATIONS
The Uruguay Round of multilateral trade negotiations was such
an ambitious and far-reaching undertaking that much of the multilateral trade agenda for the next few years will consist of developing experience with the agreement. Nonetheless, there are a few
sectors where negotiations still need to be completed, new areas
opened up by the agreement that need to be fleshed out, and areas
that were not covered in the Round that will clearly form the basis
of the future multilateral trade agenda.
Four sectoral negotiations in services were incomplete at the end
of 1993 when the Round was drawn to a close: financial services,
basic telecommunications, audiovisual services, and maritime
transport services. In both financial services and basic telecommunications, a U.S. commitment to national treatment under
the services agreement and a standstill on new measures would
commit our vast and generally unrestricted markets to foreign competition. Therefore, in exchange, the United States has insisted on
a relatively high level of liberalizing commitments by its trading
partners as part of any agreement.
Although agreements were reached in other service sectors, liberalization in services generally is still in its infancy. Further bargaining on specific service sector liberalizations will take up much
of the trade agenda for the next several years. The Uruguay Round
agreement also sets the stage for continued negotiations on agriculture, covering further reductions in subsidies and tariff rates,
and expansion of the volume of imports subject to lower duties
under tariff-rate quotas.
The trading world rarely stands still for a negotiation to conclude, and certainly not for one that lasted as long as the Uruguay
Round. New trade issues have arisen in the interim that will occupy trade negotiators. The most prominent of these—trade and
the environment, competition policy, investment rules, and labor
standards—are described in more detail below. In many cases these
issues arose in regional and bilateral negotiations, to which this
discussion now turns.

PLURILATERAL INITIATIVES
Possibly the most distinctive legacy of this Administration in
international trade is the foundation it has laid for the develop


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ment of open, overlapping plurilateral trade agreements as stepping stones to global free trade. The Administration’s plurilateral
initiatives in North America, the rest of the Western Hemisphere,
and Asia embody principles of openness and inclusion consistent
with the GATT. They will serve as vehicles for improving access to
foreign markets and easing trade tensions, and as models for future multilateral liberalization through the WTO in areas such as
intellectual property rights, services, investment, and environmental and labor standards.

DYNAMIC EMERGING MARKETS
The recent U.S. emphasis on regional agreements responds to a
massive shift taking place in the global economy. The economies of
the world have long been categorized as either industrialized or
less developed economies. Today, however, these distinctions are
becoming obsolete as emerging economies in Asia, Latin America,
and elsewhere are quickly approaching the ranks of the rich, industrialized countries. In the future these emerging economies are expected to grow rapidly and generate a larger share of world output
and trade. The World Bank forecasts that developing economies
will grow by 60 percent over the next decade, double the growth
forecast for the industrialized countries. The share of gross world
product produced in developing countries is expected to reach onequarter by 2002, up from roughly one-fifth in 1972 (Chart 6–1).
And purchasing-power-parity estimates, a more accurate method of
making comparisons across countries, would attribute an even
greater share of world output to developing countries.
Export and investment opportunities in emerging markets in
Latin America and Asia will be a key engine of growth for the U.S.
economy over the next decade. Exports are projected to grow far
faster than other components of U.S. national income over that period. And this trend is already apparent. Over the last 7 years,
U.S. exports of goods and services accounted for over one-third of
economic growth, and export-related jobs grew over five times faster than total employment.
Much of this dynamism is driven by demand from newly industrializing and developing countries. Exports to emerging markets in
Latin America and Asia are growing much faster than those to our
traditional export markets. Already, U.S. exports to developing
countries exceed exports to our traditional customers, Europe and
Japan. This trend will continue, since emerging Asian and Latin
American economies are expected to grow more than twice as fast
as Europe and Japan.
Both Latin America and Asia are seeing a virtual explosion in
the number of households with middle-class incomes and consumption patterns. By one estimate, China, India, and Indonesia will to


215

Chart 6-1 Income Growth in Industrialized and Developing Countries
The share of world income received by developing countries is expected to reach
one-fourth by 2002.
Trillions of 1987 dollars
30

25

20

15

10

5

0
1972

1982
Industrialized
countries

1992
East
Asia

Latin
America

2002
Other
countries

Source: International Bank for Reconstruction and Development.

gether have over 700 million middle-class consumers by the year
2010. That is roughly the current population of the United States,
Europe, and Japan combined. As consumers in emerging markets
join the middle class, their demand for household goods will soar,
whereas in the United States and Europe most households already
own such goods.
The rapid growth rates of emerging economies reflect a combination of factors, including technological catch-up to the most industrialized countries and, in many Latin American countries, recovery from the recessions associated with overindebtedness in the
first half of the 1980s. More generally, economic theory predicts
that lower income countries will grow faster than those with higher
incomes, provided they are following sound economic policies. Because lower income countries have less infrastructure and plant
and equipment, additional investments will be particularly productive. Less developed countries can also adopt and adapt technology
that has already been discovered and developed in the rich countries. But there are prerequisites to taking advantage of additional
capital and technology, among them stable political systems and
sound economic policies. Broad access to primary education, an
open economy, and sound macroeconomic policies all contribute to
strong growth.




216

The most dynamic emerging economies have generally embraced
market-oriented economic policies and opened themselves to the
world economy. Not only have they lowered barriers to trade and
investment, but they have adopted stable fiscal and monetary policies and transparent regulations. Many have also succeeded in improving the educational attainment of their work forces and have
benefited from high rates of saving and accompanying high rates
of investment. Sound economic policies will enable these countries
to continue to take advantage of world capital flows and technological advances from abroad.
This rapid economic growth creates a number of opportunities for
the United States. First, demand for U.S. products rises as the
worldwide market grows. Many of these emerging economies will
have particularly large demands for investment goods, transportation systems and products, infrastructure, environmental technologies, information systems, energy technologies, and financial
services. These are all sectors in which the United States is particularly competitive.
In addition, countries that are growing rapidly are likely to invest more than they save. As long as they enjoy high growth rates
and pursue sound economic policies, foreign capital will be readily
available to finance this excess of investment over saving. Greater
capital inflows in turn will permit greater imports from strong exporting countries such as the United States. Larger markets will
also allow firms both in the United States and abroad to exploit
greater economies of scale, as their fixed costs are spread across
greater sales.
The Administration’s regional initiatives in the Americas and in
the Asia-Pacific community are critical for placing the United
States squarely at the fulcrum of two of the most dynamic regions
in the world.

REGIONAL BLOCS AS BUILDING BLOCKS
From a purely economic point of view, the effects of increased regional integration are well understood. The establishment of principles and dispute resolution procedures governing international
transactions regularizes and improves the environment for
intraregional flows of goods, services, and investment. A
plurilateral trade agreement generates an increase in trade among
member countries, due to reductions in the cost of importing from
each other that are associated with lower tariffs and enhanced
market access. Thus, for example, in 1993, 55 percent of the trade
flows of countries that belong to the European Union (EU) involved
other EU member markets. In general, cheaper imports and more
efficient production patterns should improve the well-being of the
participating countries. But plurilateral liberalization may also re


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duce trade with countries that are not members, since imports from
nonmember countries do not benefit from the reduction of trade
barriers. Trade diversion arises when members of a plurilateral
trade arrangement switch from importing goods from the lowestcost nonmember market to importing from members, even though
the tariff-free cost of the goods in nonmember countries is lower
than that in member countries. The beneficial trade creation effects
are more likely to outweigh the harmful trade diversion effects if
barriers to imports from nonmember countries are not allowed to
rise—a condition that is codified in Article XXIV of the GATT.
Trade creation is also more likely to outweigh trade diversion
when the ‘‘natural’’ costs of trade such as freight and insurance are
low among members, because of geographical proximity or shared
borders, and high between members and nonmembers. In general,
countries trade the most with countries that are geographically
close: proximity and shared borders lower transportation costs and
thereby lower the total cost of imports. It is for this reason that
plurilateral agreements are so often regional in nature.
Plurilateral trade initiatives generally take one of two forms.
Customs unions, like the European Union, require members to remove all barriers to trade with other member countries and to
maintain a common external tariff toward nonmember countries.
As a member of a customs union, when Germany wants to change
its tariffs on imports from nonmembers, it must first persuade
France, Spain, and all the other EU members to do the same. In
contrast, free trade areas such as NAFTA liberalize internally but
do not impose any restrictions on members’ external trade policies.

Stumbling Blocks
Traditionally, economists have voiced concerns that an increased
emphasis on plurilateralism might divert attention and energy
away from multilateralism and result in harmful trade diversion.
And indeed, certain types of preferential trade agreements can undermine the multilateral system.
In general, preferential trade agreements that reduce the discretion of member countries to pursue trade liberalization with
nonmembers are more likely to become stumbling blocks. Thus, for
instance, members of customs unions are unable either to negotiate
tariff reductions with nonmembers individually or to reduce external tariffs unilaterally. In contrast, NAFTA allows its members to
enter into trade agreements with outsiders, and indeed Mexico has
negotiated separate free trade agreements with several other Latin
American countries since signing NAFTA.
In addition, as a bloc expands, its bargaining power in international negotiations and its market power in international commerce grow, especially if it imposes a common external tariff. This
may have the undesirable effect that the bloc finds it advantageous



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to increase barriers to outsiders. These harmful effects are unlikely
to arise in a free trade area as opposed to a customs union, and
when external barriers are constrained by WTO disciplines.

Building Blocks
When structured according to principles of openness and inclusiveness, regional blocs can be building blocks rather than stumbling blocks for global free trade and investment. Seen in this light,
carefully structured plurilateralism is a complement rather than an
alternative to U.S. multilateral efforts.
There are a variety of ways in which plurilateral agreements can
serve as building blocks for multilateral market opening. First,
plurilateral accords may achieve deeper economic integration
among members than do multilateral accords because the commonality of interests is greater and the negotiating process simpler. The multilateral framework of the WTO achieves liberalization by requiring each member to extend any new trade preferences
to all trade partners on a nondiscriminatory basis. Although this
principle is intended to generate broad liberalization across countries, it may have the unintended effect that countries are less willing to offer concessions to certain of their trade partners because
they must then offer the same concessions to over 100 other countries. Plurilateral agreements, by achieving both greater depth and
breadth in their disciplines, can support the multilateral system by
forging ahead on issues that are likely to be incorporated in future
multilateral negotiating rounds.
Second, a self-reinforcing process is set in place by the creation
of a free trade area. As the market encompassed by a free trade
area expands, it becomes increasingly attractive for outsiders to
join in order to receive the same trade preferences as member
countries. Companies from nonmember countries find themselves
at an increasing competitive disadvantage as the free trade area
expands, and they petition their national governments to apply for
membership.
Third, plurilateral liberalization encourages partial adjustment of
workers out of the import-competing industries in which the country’s comparative advantage is weak, and into exporting industries
in which its comparative advantage is strong. As adjustment proceeds, the portion of the work force that benefits from trade expansion and liberalization rises, and the portion that loses out declines, which in turn builds political support for liberalization in a
self-reinforcing process.
For all of these reasons, when plurilateral agreements are structured according to principles of openness, they tend to overlap and
expand, building toward global free trade from the bottom up.




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Open Regionalism
Open regionalism refers to plurilateral agreements that are
nonexclusive and open to new members to join. It requires first
that plurilateral initiatives be fully consistent with Article XXIV of
the GATT, which prohibits an increase in average external barriers. Beyond that, it requires that plurilateral agreements not constrain members from pursuing additional liberalization either with
nonmembers on a reciprocal basis or unilaterally. Because member
countries are able to choose their external tariffs unilaterally, open
agreements are less likely to develop into competing bargaining
blocs. Finally, open regionalism implies that plurilateral agreements both allow and encourage nonmembers to join. This facilitates the beneficial domino effect described above.
To ensure that its plurilateral initiatives strengthen the multilateral trading system and enhance market opening globally, the
United States is pursuing a policy of open regionalism. The Administration is working to lay the foundations for a world with several
overlapping, open plurilateral arrangements, with the United
States playing a leadership role in North America, Asia, and Latin
America, rather than two or three competing blocs.

THE NORTH AMERICAN FREE TRADE AGREEMENT
On January 1, 1994, a historic trade agreement between the
United States, Canada, and Mexico went into force. In both the
level and the scope of the disciplines covered, NAFTA is the most
far-reaching and forward-looking trade agreement ever adopted by
these three countries. NAFTA provides for phased elimination of
tariff and most nontariff barriers for both industrial and agricultural products, protection of intellectual property rights, investment rules, liberalization of services trade, and an innovative dispute settlement mechanism (Box 6–3).

The Economic Effects of NAFTA
It is far too early to evaluate the full economic impact of NAFTA,
since the provisions have been in place for only 1 year and many
of the measures are being phased in over 10 to 15 years. There is
a widespread consensus that NAFTA’s overall net impact will be
positive. But it is important to keep in mind that Mexico’s GDP is
only about 4 percent that of the United States, and that the United
States had a preexisting free trade agreement with Canada when
NAFTA was signed.
There are a number of reasons why NAFTA will benefit the United States. First, prior to NAFTA, Mexico had trade barriers that
were 2.5 times higher on average than those in the United States.
Thus it is Mexico that will undertake the greater reduction in trade
barriers. Second, although investment barriers in Mexico have been



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Box 6–3.—NAFTA Highlights

• Phaseout of most tariffs and nontariff barriers in industrial products over 10 years, including for all textiles and
apparel that have substantial regional content
• Phaseout of tariffs and most nontariff barriers in agricultural products over 15 years
• Investment rules ensuring national treatment, eliminating most performance requirements in all sectors, and
reduced barriers to investment in the Mexican petrochemicals and financial services sectors
• Liberalization of financial, land transportation, and telecommunications services markets
• Mechanisms for enforcement of national labor and environmental laws
• A dispute resolution mechanism
• Protection of intellectual property rights
• Funds for environmental cleanup and community adjustment along the border
lowered, making it easier to establish operations there, the fact
that trade barriers are also being reduced makes investment in
Mexico less necessary. Evidence suggests that most U.S. direct investment abroad is intended to gain market access, not to exploit
low-wage workers or lax regulations. And indeed, some U.S. investments in Mexico have already increased U.S. exports dramatically.
For instance, one major U.S. discount store chain has opened 9
stores in Mexico. The chain’s Mexico City store alone sells $1 million worth of merchandise on an average weekend, most of which
is imported directly from the United States.
Third, although wages are lower in Mexico than in the United
States, the productivity of Mexican workers is also lower than that
of U.S. workers. Moreover, companies make plant location decisions
based on a variety of factors in addition to wages, including telecommunications and transportation infrastructure and business
services, all of which are more sophisticated in the United States.
Perhaps most important is the simple fact that trade liberalization encourages specialization that benefits both countries. Thus,
while NAFTA is expected to raise production in Mexico of goods
that require a lot of low-skilled labor hours, there should be a concomitant increase of production in the United States of goods that
require highly skilled labor. Specialization allows both types of
goods to be produced more cheaply, lowering the cost of living for
the population on both sides of the border. Moreover, increased
trade and investment associated with NAFTA should result in
higher income in Mexico, which in turn will translate into greater



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demand for U.S. exports, and increased investment and employment in export industries in the United States.
Although the beneficial effects will take years to manifest themselves fully, the results to date confirm the view that NAFTA is
good for the United States, Mexico, and Canada. So far there is little evidence of the sucking sound that critics had alleged would accompany NAFTA. Indeed, the sounds most associated with NAFTA
are those of trains, trucks, and ships loading cargo bound for destinations across the border. Overall, U.S. exports to Mexico grew by
21.7 percent in the first three quarters of last year over the same
period in 1993—more than twice the growth rate of U.S. exports
overall. Imports from Mexico have also increased by 22.8 percent,
but much of this import growth is associated with the strength of
the economic recovery in the United States during the period, and
would most likely have taken place in the absence of NAFTA, since
U.S. barriers on many Mexican imports were already low.
While the rapid growth in trade between the United States and
Mexico testifies to the opportunities created by NAFTA, it is important to emphasize that the bilateral balance of trade is not a scorecard by which to judge the success or failure of the agreement. The
United States gains from its imports from as well as its exports to
Mexico, from the ability to specialize and compete more effectively
in world markets, and from the opportunities opened up to U.S.
firms in Mexico as it develops. Trade between the two countries
will grow rapidly, but the trade balance will fluctuate, depending
on macroeconomic conditions in the two countries, just as the rapid
growth in the U.S. economy boosted U.S. imports during the past
year.
The NAFTA also benefits the United States through the more
prosperous and stable Mexico that it fosters. This is particularly
important, since the United States and Mexico are so closely linked
by geography as well as economy. As Mexican wealth and political
stability increase, the result is not only a larger market for U.S.
exporters, but also higher environmental standards and reduced illegal immigration.

NAFTA and the Peso
On December 22, 1994, the Mexican Government decided to
abandon the fixed exchange rate between the Mexican peso and the
dollar, allowing the peso to float. The decision came after intense
pressure on the peso in foreign exchange markets had severely depleted Mexico’s international reserves. The pressure resulted from
Mexico’s inability to finance its large current account deficit, which
reached almost $30 billion in 1994, or about 7.6 percent of GDP.
Following Mexico’s debt repayment problems in the early 1980s,
its government pursued a course of macroeconomic stabilization
that included fiscal restraint, wage and price restraints, and a tar


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get range for the dollar value of the peso. As part of its inflationfighting measures, starting in the late 1980s, the government adjusted the target range for the peso more slowly than the rate of
inflation. By 1994 the peso had appreciated significantly in real
terms, making foreign goods cheaper for Mexican consumers. Real
appreciation was accompanied by increasing trade and current account deficits, which were financed by borrowing from foreign investors, a large portion of which took the form of short-term portfolio investment. As the Mexican presidential election approached
in 1994, an uprising in the State of Chiapas and the subsequent
assassination of the ruling party’s candidate contributed to investor
uncertainty. As investors lost confidence and the inflow of portfolio
capital dried up, the government found it increasingly difficult to
maintain its exchange-rate policy, and eventually it decided to let
the market determine the value of the peso.
Shortly afterward, the Mexican Government announced a comprehensive economic plan to restore confidence and stabilize the
economy. At the request of the Mexican Government, the United
States organized a financial stabilization package of $18 billion designed to restore investor confidence and give the Mexican Government breathing room to implement its economic package. The package included multilateral and private sector participation.
However, despite the decision to float the peso and the announcement of the international support package, pressures on the peso
continued. Investors became increasingly reluctant to roll over maturing short-term obligations of the Mexican Government and, in
some cases, of Mexican banks. The flight from Mexican assets also
showed signs of spreading to other emerging markets.
In order to restore confidence in emerging financial markets, the
President decided to expand U.S. financial support for Mexico to
$20 billion. The U.S. support includes short- and medium-term
swaps (an exchange of dollars for pesos for a specified period of
time) and longer term loan guarantees. The Treasury’s Exchange
Stabilization Fund is providing a substantial portion of this support. In addition, the Federal Reserve is providing a part of the
support, in the form of short-term swaps. These guarantees and
swaps are structured to provide maximum protection for U.S. assets and to encourage the Mexican Government to return to private
sector financing as soon as possible. In order to make use of the
guarantees, the Mexican Government will be required to pay large
up-front insurance fees. All drawings will be backed by claims on
the proceeds from oil exports. The swap facility must be fully repaid; it is not a grant. The United States has had a swap line with
Mexico for over 50 years, and Mexico has repaid all of its drawings.
Additional financial support will come from a variety of sources.
The International Monetary Fund (IMF) made a commitment to



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provide a total of $17.8 billion, from a combination of its own resources and contributions from member countries. The Bank for
International Settlements committed $10 billion in short-term financing, Canada committed itself to provide a $1 billion swap facility, and Argentina and Brazil committed themselves to arrange $1
billion in financial assistance to Mexico.
Together, these resources will enable the government of Mexico
to refinance its debt and shift to longer term maturities, thereby
easing the current liquidity squeeze. The support package imposes
stringent financial conditions. Mexico must implement an economic
plan that includes reductions in government spending, an incomes
policy to reduce inflation, and tight control of credit. Mexico has
also pledged to accelerate the privatization of key industries and
increase access for U.S. and other foreign investors. These measures are designed to ensure that Mexico will be able to restructure
and service its debt and to restore economic stability and growth.
It is also important to understand that NAFTA neither contributed to the peso devaluation nor in any way affected the U.S. Government’s response. Indeed, the NAFTA measures adopted by Mexico to lock in market reforms and provide safeguards for foreign investors have, if anything, shored up investor confidence and mitigated the peso depreciation. The United States is providing support
to Mexico because we have a stake in the stability of a country
with whom we share a 2,000-mile border and important commercial ties. There is no commitment under NAFTA to do so.

NAFTA Side Agreements
NAFTA includes three innovative side agreements that reflect
the Administration’s commitment to ensure that expanded trade
does not result in deterioration of environmental or labor standards
on either side of the border or in damaging import surges. The
labor and environmental side agreements define guiding principles
and create institutions to ensure that each member country enforces its own laws protecting labor and the environment. They are
described in detail below. The side agreement on import surges creates an early warning mechanism to identify sectors where rapid
growth of imports is likely to generate significant dislocation of domestic workers. If a domestic industry is threatened by serious injury from an import surge during the NAFTA transition period, a
temporary snapback to pre-NAFTA duties is permitted as a safeguard. However, if exports from a NAFTA member do not account
for a substantial share of total imports or do not contribute significantly to the threat of injury, the member country’s exports must
be excluded from safeguard actions.




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Adjustment
Although the United States chose to join NAFTA because it will
benefit U.S. consumers, shareholders, farmers, and workers generally, it was also recognized that some jobs in some industries
would be threatened by increased imports from Mexico. NAFTA
contains a number of provisions intended to mitigate these adjustment costs. First, the elimination of trade barriers is phased in
over 10- to 15-year horizons in industries where liberalization is expected to require significant adjustment. Second, there are safeguard provisions (described above) permitting the temporary imposition of trade restrictions when surges in imports cause serious injury to a domestic industry. Third, the U.S. implementing legislation established a Transitional Adjustment Assistance (TAA) program for workers who experience or are threatened with job loss
or reduction to part-time status as a direct result of either increased imports from or a shift of production to Mexico or Canada,
to help them retool and reengage. There is no requirement that the
dislocation be directly related to NAFTA, although it must have occurred after NAFTA went into effect. Assistance includes employment services, training, income support following exhaustion of unemployment insurance, job search allowances, and relocation allowances.
As of November 1, 1994, the NAFTA-TAA program had approved
assistance for over 12,000 workers. In two-thirds of these cases, the
dislocation was associated with either a shift of U.S. production to
or increased imports from Mexico. Eighty-eight percent of the
NAFTA-TAA-certified layoffs were in manufacturing firms, 9 percent were in agriculture, and 3 percent were in services industries.
Within manufacturing, the apparel, industrial machinery and
equipment, electronic and other electric equipment, and instruments and related products industries accounted for 72 percent of
the certified layoffs. Most of the firms that have qualified for
NAFTA-TAA so far are smaller manufacturers producing apparel
or parts and components with either less skilled workers or less sophisticated factory equipment.
The NAFTA-TAA program indicates that increased trade with
Mexico and Canada has had an adverse effect on some workers, although the number of job losses has been small relative to the
100,000 jobs estimated to have been created through expanded exports to Mexico. Reemployment data on NAFTA-TAA-certified
workers are not yet available, so it is too early to tell how longlived the job displacement effects will be. However, it is important
to recognize that layoffs and other displacements are a constant
feature of the U.S. economy, and that relative to overall annual job
losses for workers with over 3 or more years on the job (1.5 million



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per year on average between 1991 and 1993), the displacement associated with NAFTA is very small.

NAFTA and Open Regionalism
NAFTA is both the United States’ most significant plurilateral
initiative to date and a likely model for such initiatives in the future. As such, it is worth noting that NAFTA is consistent with
open regionalism along all the dimensions discussed above. First,
it explicitly prohibits any increase in external barriers, and indeed
external barriers in all three of the member countries are scheduled to fall as part of the Uruguay Round agreement. Second, it imposes no constraints on the ability of member countries to lower
their barriers to nonmember countries, and indeed Mexico has
granted trade preferences to several nonmember countries since
the agreement was signed. And third, NAFTA contains a provision
specifying that the members can choose to admit additional members. Indeed, the President, together with the Prime Minister of
Canada and the President of Mexico, announced the start of accession negotiations with Chile in December 1994.

SUMMIT OF THE AMERICAS
On December 9, 1994, the President convened the first-ever hemispheric summit held in the United States—and the first to be attended solely by democratically elected leaders. The summit celebrated an unprecedented conjuncture in the hemisphere’s history.
For the first time, all 34 leaders share a common commitment to
democracy and open markets. Many of the Latin American leaders
have put their countries on a course of stable, sustainable economic
growth by taking difficult steps to address the indebtedness, rampant inflation, and high unemployment that robbed this region of a
decade of growth.
The cornerstone of the summit was the call by all leaders for the
creation of a Free Trade Area of the Americas (FTAA) by 2005.
This will create a market of over 850 million consumers with a
combined income of roughly $13 trillion. It will also level the playing field for U.S. exporters, who currently face Latin American
trade barriers over three and one-half times those in the United
States. It is critical to secure a commitment to work toward a hemispheric free trade area now, even though it will take years to
achieve, in order to set the standard in the region and ensure that
subregional integration initiatives are consistent with the goal of
creating the FTAA and with the multilateral system.
The President tangibly demonstrated his commitment to this
goal by announcing that the United States along with our NAFTA
partners Mexico and Canada will initiate negotiations with Chile
on accession to NAFTA. The inclusion of Chile would expand the
total population of NAFTA to 381 million and its combined income



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to 30 percent of the world’s total. The United States is an important trade partner for Chile; U.S. exports already account for over
20 percent of Chile’s total imports.
The decision to start accession discussions with Chile reflects the
enormous progress that country has made in achieving macroeconomic stability, liberalization of trade and investment policy,
convertibility of the currency, improvement of living standards, and
alleviation of poverty. Through a combination of stabilization and
liberalization measures, Chile has achieved sustained real growth
of 7 percent on average over the past 8 years. It has brought its
external tariffs down by 79 percent since 1975. These measures
have led to significant inflows of foreign capital, and the ratio of
foreign debt to GDP has been reduced by nearly 60 percent since
1985. At the same time, inflation has fallen to 10 percent per year
and unemployment is a low 4.5 percent.
At the Summit of the Americas the leaders set in place a process
for achieving free trade in the hemisphere. Over the next several
months members of existing subregional trade groups such as
NAFTA will hold consultations on achieving regional trade liberalization. The United States will initiate discussions to determine interim steps with each of the countries in the region through previously established Trade and Investment Councils. The Administration will hold discussions with the Congress and with the United States’ NAFTA partners on NAFTA expansion. In addition, the
Organization of American States’ Special Committee on Trade will
develop a compendium of all existing trade agreements within the
hemisphere to increase transparency and identify areas of potential
trade facilitation, such as customs harmonization. Meetings of the
countries’ ministers are scheduled for June 1995 and March 1996
to review progress and further define the work program.

Economic Impact
The southern Americas (here defined to include Central America,
the Caribbean except for Cuba, and South America) make up one
of the most economically dynamic regions in the world. Sustained
income growth in the region reflects in part a robust recovery from
the recessions associated with the debt crisis of the early 1980s,
and in part significant structural reforms on the domestic front and
in trade policy. Many of the countries in the region are expected
to continue to experience high growth rates due to the reduction of
both debt levels and inflation through macroeconomic stabilization
measures. The southern Americas account for about 6.5 percent of
world population and 3.5 percent of world income. Brazil is by far
the largest country in this region, with over 40 percent of the region’s income and population.
As income in this region grows, its imports from the United
States will grow even faster. Over the past 5 years, exports from



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the United States to the southern Americas have grown almost 10
percent per year—far faster than the region’s income growth. By
far the greatest share of the region’s imports—29 percent—come
from the United States. This reflects in many cases geographical
proximity, as well as historical and cultural ties. Interestingly,
however, Brazil’s largest trade partner is not the United States but
the European Union, which accounts for 25 percent of Brazil’s
trade compared with 22 percent for the United States. Overall, the
southern Americas currently account for nearly 8 percent of U.S.
exports, as shown in Chart 6–2.
Chart 6-2 U.S. Merchandise Exports by Region in 1993
By far the majority of U.S. exports go to our NAFTA partners, Western Europe, and the
APEC countries. The southern Americas take nearly half of the remainder.
Rest of World
8.0%
Canada and Mexico
30.5%

Southern Americas
7.9%

China and Japan
12.2%

Other Asian
APEC countries
16.9%

Western Europe
24.4%

Note: The southern Americas include Central America, the Caribbean except for Cuba, and South America.
Percents do not add to 100 because of rounding.
Source: Department of Commerce.

As noted above, Latin American tariffs are over three and onehalf times those in the United States on average. Thus, trade liberalization is likely to result in increased market opportunities for
U.S. products and associated export and job growth. A variety of
studies have analyzed the impact of a possible hemispheric trade
agreement on the U.S. economy. Most of these studies find that the
effects of expanding NAFTA southward will be beneficial for both
the U.S. economy and our regional trade partners.
In addition to the direct beneficial effect of cheaper imports from
the United States and expanded export opportunities, countries in
the southern Americas would benefit from the enhanced credibility
of their market reforms that a trade liberalization agreement with



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the United States or NAFTA would bring. This commitment to a
liberal trade regime should increase investment by both domestic
and foreign investors and contribute to long-term growth. This is
good for the United States both because it will improve the prospects for peace and political stability in the region and because it
will further raise the purchasing power of southern American consumers, increasing their spending on U.S. goods.
If instead the United States should fail to recognize the historic
opportunity that this conjuncture represents, and if we do not work
to improve access to southern American markets for both trade and
investment, U.S. companies and workers will lose out to foreign
competitors. Most countries in the southern Americas have already
joined one of four preferential subregional trading blocs. Most of
these subregional blocs have plans to adopt a common external tariff (CET). This will make it more difficult for countries to liberalize
individually and will result in diversion of imports in favor of member-country products and away from U.S. products. In the case of
Mercosur—the largest group, whose membership includes Argentina and Brazil—a CET was scheduled to go into effect in January
1995 on products accounting for roughly half of imports from
nonmember countries. Coverage will be expanded to all products by
early in the next century. Led by Brazil, Mercosur is also working
to conclude agreements with Chile and Bolivia, as well as with the
European Union, and has plans to create a South American Free
Trade Area. Unless we move soon, U.S. exporters will be at a disadvantage relative to their competitors inside these blocs.

ASIA-PACIFIC ECONOMIC COOPERATION
Asia-Pacific Economic Cooperation (APEC) was first established
in 1989 as a regional forum for economic cooperation. APEC has
since expanded to include 18 members: Australia, Brunei, Canada,
Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New
Zealand, Papua New Guinea, the Philippines, Singapore, South
Korea, Taiwan, Thailand, and the United States.
At the President’s invitation, the leaders of the APEC countries
met in 1993 in Seattle. There they put forth their vision of an AsiaPacific economic community. Last November in Bogor, Indonesia,
the APEC leaders established a common frame of reference for
achieving that vision. They made a political commitment to eliminate barriers to trade and investment in the region by the year
2020. All countries will begin to liberalize at a common date, but
the pace of implementation will take into account the differing levels of economic development among APEC economies: the industrialized countries will achieve free and open trade and investment no
later than 2010, and the developing economies no later than 2020.
The leaders also reaffirmed their support for the multilateral trad


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ing system and APEC’s continued commitment to global trade liberalization and to the WTO-consistency of any APEC trade and investment initiatives. The APEC leaders instructed their ministers
to work together to develop a detailed blueprint, laying out an action plan and timetable to achieve progressive liberalization in the
region. The leaders will review this blueprint at their meeting in
Japan in 1995.
Over the next year the Administration will work to ensure that
the action plan describes comprehensively and in detail the process
by which Asia-Pacific free trade and investment will be achieved.
The Administration will consult closely with the Congress and the
U.S. business community as it works with our APEC partners to
develop a plan that addresses the widest possible range of barriers
to the free flow of goods, services, and capital. APEC may focus initially on trade facilitation issues, such as standards conformance
and customs simplification. The liberalization process will build on
the Uruguay Round’s achievements, possibly accelerating the implementation of commitments in the early stages of APEC liberalization, and also on the work program undertaken by APEC’s Committee on Trade and Investment. Negotiators may work on issues
not covered adequately in the WTO and issues of particular importance to APEC members—including investment, intellectual property, rules of origin, some service sectors, government procurement,
competition policy, and infrastructure, as well as elimination of tariffs and nontariff barriers.

The Economic Importance of the Asia-Pacific Region to the
United States
APEC’s markets are critical to U.S. exporters, both for their size
and because of their dynamism. The 14 Asian APEC economies already account for $135 billion, or nearly 30 percent of U.S. exports
in 1994 (Chart 6–2). By comparison, Western Europe accounts for
less than one-quarter. The Asian APEC economies are among our
fastest-growing export markets: U.S. exports to Asian APEC members grew 9.9 percent per year on average over the past decade,
compared with 8.3-percent growth in U.S. exports to the rest of the
world. Their aggregate income of nearly $6 trillion accounted for
one-quarter of world income in 1992 and is projected to grow 4.4
percent per year in real terms over the next decade. U.S. exports
to the region are projected to grow even faster than income, at a
rate of 6.4 percent per year.
Although the opportunities for U.S. businesses are tremendous,
the obstacles are often very large. Between 1989 and 1992, automobile sales in Malaysia, the Philippines, and Thailand doubled,
but tariffs on automobile imports into these countries remain high
at between 17 and 57 percent. Studies estimate that Asian APEC
members will invest $1.1 trillion in infrastructure projects over the



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next 6 years. China, which alone accounts for nearly half of this
planned investment, has tariffs of 38 percent on machinery and
equipment and 15 percent on steel. Overall, manufactured imports
into Asian APEC markets face tariffs much higher than the average tariff on imports into the United States. Market-opening initiatives through APEC will help reduce these barriers, creating tremendous opportunities for U.S. companies and workers.
U.S. companies must remain actively engaged in the region or
risk losing out to Asian competitors. Currently 58 percent of total
imports by Asian APEC economies are from other Asian APEC
economies—over three times the share from the United States. And
this intra-Asian share is growing rapidly. The liberalization measures that APEC members will undertake will be critical in ensuring that U.S. firms are able to compete on equal terms in this
large, booming market.

BILATERAL NEGOTIATIONS
At any time the United States is engaged in several negotiations
with individual countries on trade issues or disputes. These bilateral negotiations are less glamorous than multilateral or
plurilateral trade initiatives, but they are extremely important in
opening up markets, settling disputes, and protecting U.S. trading
rights. In addition, these negotiations are often where new trade issues are first discussed or tested. Although the United States has
bilateral negotiations at one time or another with almost every
country with which we trade, we focus here on two bilateral relationships of particular importance, those with Japan and China,
and on the Administration’s broader export strategy.

JAPAN
One of the most prominent of our bilateral trade relations, and
the one that generates the most negotiating activity, is that with
Japan. This is to be expected given the size of the trade involved
($155 billion in total trade in 1993, the second largest among our
trading partners), the size of the bilateral trade imbalance (a U.S.
deficit of $60 billion, our largest with any country), and the character of the barriers to foreign goods within Japan.
Last year’s Report examined the character of the Japanese economy and Japanese trade in detail. Japan has relatively low formal
trade barriers outside the agricultural sector. Yet at the same time
Japan has strikingly low levels of import penetration in many sectors in which there is very large mutual trade among most industrialized countries. Japanese domestic prices for traded goods are
often significantly above world market prices, even after accounting
for taxes, tariffs, and higher distribution charges.



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Although there are examples of foreign firms that have done very
well in the Japanese market, there are also widespread complaints,
and not just from American firms, that the Japanese market is
closed to outsiders. The barriers are often subtle and take a variety
of forms. Government licensing, regulation, and administrative
guidance, restrictions on product specifications or pricing, and procurement practices all can be difficult for foreign firms to satisfy,
and often difficult even to discover. In other cases private practices,
such as control over distribution channels, group affiliations, or
share crossholdings, make it difficult for foreign firms to sell or invest in Japan. The fact that the barriers vary from industry to industry, and are often opaque, means that negotiations are extremely detailed, sector-specific, and time-consuming. The Market
Oriented Sector Specific (MOSS) negotiations of 1985–86 were the
first of a series of targeted attempts to open individual markets.
The Semiconductor Trade Agreement in 1986 also focused on the
effective opening of a single sector. The Structural Impediments
Initiative (SII) of 1989–90 took a somewhat different approach, focusing on the macroeconomic balance between national saving and
investment that lies behind both Japan’s large global current account surplus and the large deficit in the United States, while at
the same time tackling a series of regulatory and competition issues that stood in the way of increased foreign sales in Japan.
The President and the Japanese Prime Minister announced their
Framework for a New Economic Partnership at the July 1993 economic summit in Tokyo. The Framework contained macroeconomic
goals and five sectoral and structural ‘‘baskets’’ for talks between
the two nations. The macroeconomic goals included a shift to domestic demand-led growth in Japan to reduce its current account
surplus, and a reduction in the U.S. fiscal deficit and an increase
in the U.S. saving rate. The baskets were government procurement, regulatory reform and competitiveness, major sectors (most
prominently, automobiles and parts), economic harmonization, and
follow-up on the implementation of existing agreements.
Negotiations were complicated by two major changes in Japan’s
government, and in addition, talks broke down temporarily in February 1994. Despite their rocky path, a series of results and agreements were reached in the fall of 1994. Both sides made progress
in macroeconomic policy that should narrow the overall deficit in
each country. The Congress passed the Administration’s deficit reduction program in August 1993, and the Japanese Diet voted to
increase government spending and cut income taxes, while postponing a planned increase in consumption taxes. Japan’s fiscal measures have contributed to its emergence from recession, and its current account surplus has fallen as a percentage of GDP and should
fall further in the near term.



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In the economic harmonization basket, the United States reached
an agreement on intellectual property protection last August that
enhances the ability of U.S. inventors to apply for and be granted
patent protection in Japan. In procurement, the United States
reached agreements in telecommunications equipment and services
covering purchases both by the government and by the dominant
Japanese telecommunications firm (in which the government still
owns the majority share), a combined market of $11 billion per
year. The agreements call for more complete information about procurement plans to be made available at an earlier stage, full consideration of international standards for equipment, and the use of
overall best value to judge competing bids. A similar agreement
was reached in medical technology products and services, a market
of $2.6 billion per year.
Two agreements were reached in financial services. In insurance,
a market worth $320 billion per year, Japan agreed to ease restrictions on the introduction of new products, ease rate restrictions on
policies to large customers, and deregulate the industry in such a
way as not to prejudice the interests of foreign insurers, who are
now active in only a small, specialized segment of the market. In
January 1995 the United States and Japan reached an agreement
to further liberalize the Japanese financial sector. The Japanese
Government agreed to open the $200 billion public pension fund
market to foreign investment advisory services, relaxed the conditions for issuing corporate debt, agreed to introduce a domestic derivatives market, and eliminated various restrictions on cross-border capital movements.
In the $4.5 billion flat glass industry, where the existence of restrictive practices had been confirmed by Japan’s Fair Trade Commission, an agreement was reached in December committing Japanese distributors to carry imported glass, and requiring the Japanese Government to consider foreign glass in public procurement.
The one critical area where no agreement has been reached is
automobiles and parts, the largest single sector in the Framework
talks. The issues in these negotiations are access to the Japanese
auto dealership network, the removal of regulations that limit foreign sales of replacement auto parts, and increased participation in
the original-equipment auto parts market, including participation
in the design stage. In response to the meager progress in the automobile trade talks, the Administration initiated a Section 301 investigation in October covering the replacement parts sector, where
the involvement of the Japanese Government is clearly defined,
and made it clear that the United States expected progress in the
original-equipment parts and automobile markets as well.
From the beginning, the Administration has insisted that the
Framework negotiations should lead to agreements that produce



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significant, measurable results. The two countries agreed that objective criteria, either qualitative, quantitative, or both, be used to
evaluate the agreements over time as to whether tangible progress
was being achieved. Arguments over these criteria were the most
controversial part of the Framework. The Administration was widely criticized, both in Japan and elsewhere, for attempting to ‘‘manage trade’’ or set market share targets.
These criticisms are and were disingenuous. None of the agreements set market share targets, either for U.S. firms or for foreign
firms generally. A wide range of objective indicators was suggested
and ultimately agreed to, with different indicators for different sectors depending on the characteristics of each sector. Furthermore,
none of the market access concessions are limited to U.S. firms;
Japanese market-opening measures are available to all on an MFN
basis.
The Administration intends to continue to explore market-opening measures with Japan, and to ensure that agreements lead to
tangible increases in opportunities for U.S. and other foreign suppliers to sell in Japan. In addition to the negotiations on automobiles and auto parts, the Administration is now engaged in discussions on reducing barriers to foreign investment in Japan and
more rigorous enforcement of Japanese antitrust laws.
The Framework negotiations on deregulation have recently taken
on increased importance due to internal developments in Japan.
The high cost to Japan of its extensive regulation of the economy
has become increasingly apparent, and there is growing demand
within the Japanese business community for deregulation. The
United States has both specific and general interests in a thoroughgoing deregulation of the Japanese economy. Many of the sectoral
issues concern regulatory barriers, and the United States has presented detailed requests for regulatory changes. But the United
States also has a strong interest in generalized deregulation of the
Japanese economy, which would reduce barriers to entry for all
firms in Japan, both domestic and foreign.
Despite the length and occasional acrimony surrounding sectoral
liberalization negotiations with Japan, the talks work. One study
has shown that U.S. exports to Japan in those sectors covered by
trade negotiations increased almost twice as fast as total U.S. merchandise exports to Japan, and estimated that the negotiations
were responsible for an additional $5 billion in annual U.S. exports. It is also important to emphasize that it is not only the United States but also the Japanese consumer who gains from these
agreements, in the form of lower prices and a wider choice of goods.




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CHINA
The Administration is pursuing a carefully balanced economic
policy toward China that takes into account the tremendous opportunities for U.S. exports associated with that country’s rapid
growth, as well as its geopolitical importance and Americans’ concerns about China’s protection of human rights. The goals of U.S.
policy are threefold: promotion of U.S. commercial interests, to
raise standards of living in the United States; encouragement of
continued economic reform within China and its integration into
the world economy, with the expectation that these will help realize U.S. foreign policy goals including democratization and protection of human rights and the environment; and promotion of global
cooperation and integration in the interests of peace and prosperity.

Economic Importance
China’s economy is large, dynamic, and relatively poor. Although
it is estimated to be the world’s third-largest economy in purchasing-power-parity terms, China’s per capita income even by that
measure is roughly one-tenth that of the United States. Measures
based on current exchange rates rank China eighth in total output
and yield a per capita income nearly 50 times smaller than that
of the United States. Even if China’s recent real growth rates of
9 percent per year (the highest in the world) are maintained, it will
be decades before per capita income in China approaches those of
developed countries today.
For much of its history since the 1949 communist revolution,
China maintained a virtually closed, centrally planned economy,
which was accompanied by economic stagnation. Sweeping economic reforms undertaken since the late 1970s have contributed to
explosive growth and a decline in central government control. In
the agricultural sector this has taken the form of decollectivization
and a return to smallholder farming. In the industrial sphere the
management of state-controlled firms has been decentralized, and
the government has permitted the rapid growth of township and
village enterprises; private enterprises now account for half of industrial output. By the early 1990s prices for 95 percent of retail
sales, 90 percent of sales of agricultural commodities, and 85 percent of capital goods sales were determined by the market. Factor
markets have also been liberalized: state control of labor markets
has been reduced, and previously repressed capital markets have
been allowed to develop in fits and starts, although they remain
primitive by Western standards.
As the government has instituted market reforms and liberalized, China’s economy has become increasingly integrated into the
global economy. China’s share of world trade grew from 0.6 percent
in 1977 to 2.5 percent in 1993—making it the world’s 11th-largest



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exporter. Similarly, flows of foreign direct investment into China
exceeded $25 billion in 1993, in marked contrast to the prereform
years when such investment was prohibited. And these two trends
are closely related: firms with foreign equity participation accounted for two-thirds of the expansion of exports in 1992 and
1993.
China has run global trade deficits in most years since reforms
were initiated—indeed, China registered a deficit last year of $12.2
billion. However, China has run a growing bilateral trade surplus
with the United States, which reached $22.8 billion in 1993.
China’s persistent surplus with the United States in part reflects
its specialization in inexpensive mass-market consumer goods.
China similarly runs bilateral surpluses with Japan and Europe for
this reason. Moreover, increases in the bilateral surplus with the
United States since the mid-1980s in large part reflect the movement of labor-intensive production of goods such as shoes, garments, and toys from Hong Kong and Taiwan to China, to take advantage of lower wages. Table 6–2 makes clear that the increase
in the U.S. deficit with China has partially been offset by declines
in the deficits with Hong Kong and Taiwan.
TABLE 6–2.— U.S. Trade Deficits with China, Hong Kong, and Taiwan
[Millions of dollars]
Year

Total

China

Hong
Kong

Taiwan

1987 ................................................................................................................

25,876

2,796

5,871

17,209

1993 ................................................................................................................

31,392

22,777

−319

8,934

Source: Department of Commerce, Bureau of the Census.

The Chinese trade regime has been liberalized in several ways.
The role of state trading firms in intermediating international
trade has been greatly reduced. Export subsidies have largely been
eliminated. The former system of multiple exchange rates for differing types of transactions was unified and the currency devalued;
the yuan is now convertible for most categories of transactions. As
trade has been liberalized, China’s trade pattern has increasingly
conformed to conventional theories, with China exporting labor-intensive products and importing capital goods. Nonetheless, China’s
trade regime has remained selectively protectionist, with multiple
overlapping barriers to trade in some goods and discriminatory
rules on investment and services. The absence of effective protection for intellectual property rights has cost U.S. businesses hundreds of millions of dollars in lost sales.
Ultimately the combination of rapid economic growth and greater, albeit uneven, trade openness means that China will be a major
market for U.S. goods and services. China’s market presents the



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greatest growth opportunities in aerospace, power generation
equipment, environmental technologies, and computers, among
merchandise exports. Among services there are opportunities in financial (including insurance), information, distribution, accounting,
audiovisual, and legal services.

Most-Favored-Nation Status
China is subject to the Jackson-Vanik Amendment to the Trade
Act of 1974, since the U.S. Government defines China as a
nonmarket economy. The amendment requires that each year, in
order for China to qualify for MFN status, the President must
issue a waiver certifying either that China does not impede emigration or that providing MFN status will lead to increased emigration. In May 1994 the President renewed MFN status for China in
the context of a broader policy that includes delinking MFN renewal from human rights issues other than emigration; a ban on
imports of Chinese munitions; maintenance of the U.S. economic
sanctions imposed in response to the Tiananmen Square tragedy,
including denial of Chinese participation in Overseas Private Investment Corporation and Trade and Development Agency programs; and a vigorous and broad-based human rights policy. The
President determined that renewal of MFN status offered the best
way to promote the full range of U.S. interests in China, including
human rights, strategic, and economic interests. Moreover, the
President determined that China had made sufficient progress on
the conditions he had imposed when renewing China’s MFN status
in May 1993—in particular, on compliance with a 1992 agreement
on the treatment of prison labor, in addition to guaranteeing freedom of emigration.
The decision to pursue a vigorous human rights policy separately
from MFN renewal reflected a determination that protection of
human rights is most likely to be achieved through a combination
of carefully targeted initiatives and China’s continued economic reform and integration with the world economy. The Administration
is promoting human rights in China by a variety of means including increasing international broadcasting to China, support for
nongovernmental organizations (NGOs) there, encouragement of
multilateral participation in our human rights initiatives, and development, in consultation with the business and NGO communities, of a set of ethical principles for business conduct as models
for all companies engaged in international business.
The decision also recognized that substantial economic disruption
in both China and the United States would accompany MFN revocation, along with significant damage to the broader bilateral relationship. Revocation of MFN status would result in tariff increases
on Chinese imports of 5 to 10 times their current level, depending
on the product. The ultimate effect on consumer prices and con


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sumption would depend on the particular demand and supply elasticities in each product market, but they would likely be large, with
estimates of decreased Chinese imports ranging from $6 billion to
$15 billion annually.
MFN renewal ultimately will promote the goal of improved
human rights protection more effectively than revocation would, because increased foreign trade contributes to China’s integration
with the world economy, economic decentralization, and the growth
of a middle class. As the economy has grown and become increasingly decentralized, a new business society has developed that is
independent of the state. Further, with greater wealth and access
to foreign goods and to modern telecommunications, Chinese citizens are increasingly exposed to a broader set of ideas, undermining the government’s monopoly on information. The result is a diffusion of economic power and information, creating the preconditions for a civil society, and with it more pluralistic forms of
governance and a greater respect for human rights.

Bilateral Issues
Despite China’s economic reforms, a variety of barriers still frustrate U.S. exporters, and lack of enforcement of intellectual property laws costs U.S. firms in the computer software, publishing,
and audiovisual industries hundreds of millions of dollars a year.
Although China committed itself to protect copyrights, patents, and
trademarks for foreign goods in the U.S.-China Bilateral Trade
Agreement of 1979, compliance has been a recurrent problem. In
May 1991 the U.S. Government launched an investigation under
the Special 301 provision of the trade act of 1988. In January 1992
the United States and China signed a memorandum of understanding that committed the Chinese Government to strengthen patent,
copyright, and trade secret laws; to provide patent protection for
products as well as processes; to join two international conventions
on copyrights; and to treat software as a literary work under Chinese law, resulting in protection for 50 years.
Although China subsequently carried out all the institutional
and legal changes, enforcement has remained a problem. China
continues to be a major producer of pirated compact discs and computer software, often in joint ventures with Taiwanese and Hong
Kong partners; the pirated goods are increasingly exported to third
markets. In response, negotiations were begun in 1993 to strengthen Chinese enforcement of existing laws, and the United States initiated a second Special 301 investigation in June 1994. In January
1995 the U.S. Trade Representative released a preliminary retaliation list in an attempt to persuade the Chinese to be more forthcoming in the negotiations. China itself would benefit by improving
its protection of intellectual property rights. Other countries in the
region have significantly strengthened their protection of intellec


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tual property rights in recent years, recognizing that it is an essential step in order to have access to cutting-edge technology and investment from abroad, as well as to encourage innovation at home.
U.S. exporters also encounter a wide array of market access
problems. Starting in the mid-1980s, the U.S. Government has held
a series of bilateral negotiations to persuade Chinese authorities to
reduce the number, secrecy, and severity of administrative barriers
to imports, including import licensing requirements, quantitative
restrictions, and product testing and certification requirements, as
well as to increase the transparency of trade rules.
The United States initiated an investigation under Section 301
in October 1991. The Chinese Government signed a memorandum
of understanding in October 1992, following publication of a U.S.
retaliation list. Under the agreement China committed itself to dismantle 90 percent of all import restrictions, to eliminate import
substitution regulations, to reduce tariffs and eliminate the import
regulatory tax, to improve transparency, and to base all
phytosanitary and sanitary standards and testing on sound scientific principles. In return, the United States agreed to terminate
the Section 301 investigation, to work with China on its accession
to the GATT (now the WTO) and to liberalize restrictions on Chinese access to technology. To date, there has been little progress
in increasing the transparency of approval processes for import licenses or quotas, or in eliminating restrictions on the imports of
agricultural products through sanitary and phytosanitary standards; however, negotiations with China to resolve these issues are
continuing.

WTO Accession
China has applied for membership in the WTO, and formal negotiations for accession have been in progress since 1988. The United
States has consistently made clear that it wants China to become
a member of the WTO, and the Administration is working with
China and our other trade partners toward this goal. But the United States and the other WTO members are determined that China
must join on commercial, not concessional, terms. This is critical
for maintaining the integrity of the global trading system and integrating China into it. Moreover, implementing transparent trade
rules and promoting open trade and investment should strengthen
China’s economy and lock in its economic gains.
Every country that joined the GATT in the past agreed to adhere
to basic obligations. These include transparency of the trade regime, uniform application of trade rules, national treatment for
goods, and a foreign exchange regime that does not obstruct trade.
These basic obligations are the foundation of GATT rules; without
them the other disciplines are meaningless. Thus, for instance,
there is no point in agreeing on disciplines for trade laws if, as is



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currently the case in China, they are not uniformly applied
throughout the country. Similarly, there is no point in negotiating
market access agreements if, as in China today, the trade rules are
not transparent.
Although U.S. relations with Japan and China are both very important, they are only part of a large number of bilateral trade relationships. Market-opening negotiations and, on occasion, trade
disputes are a normal and continuing part of U.S. trade policy.
This Administration has put strong emphasis on opening markets
for U.S. exports. But its bilateral negotiations are only part of a
broader strategy to promote U.S. exports.

THE NATIONAL EXPORT STRATEGY
The Administration has focused on encouraging American exports by eliminating U.S. export barriers and by improving the efficiency of U.S. export promotion efforts. The Administration’s Trade
Promotion Coordinating Committee unveiled the National Export
Strategy in September 1993. Since then the Administration has
succeeded in meeting the goals it had set out: removing obstacles
to exporting, improving trade finance, supporting U.S. bidders in
global competition, helping small and medium-sized U.S. firms
enter export markets, and promoting U.S. exports of environmental
technologies and services.
The Administration has implemented almost all of the 65 objectives laid out in the 1993 National Export Strategy report:
• Unnecessary export controls have been eliminated for computers, affecting $30 billion worth of exports. Most authorization
requirements for the export of telecommunications equipment
have been eliminated.
• The value of exports requiring licenses has fallen to one-third
its previous level, and the licensing process has been streamlined.
• Trade finance has been buttressed by increasing the limit on
project finance through the Overseas Private Investment Corporation from $50 million to $200 million. Coordination with
State and local sources of trade finance has improved, and
partnerships with the private sector are being encouraged.
• Export assistance centers have been opened throughout the
country, providing ‘‘one-stop shopping’’ for small businesses
seeking Federal export information and financing assistance.
• The Administration has countered the advocacy efforts of foreign governments with efforts of its own on behalf of U.S. exporters, helping U.S. firms compete and win over 90 major contracts worth a total of $20 billion. These contracts include a
multi-billion-dollar Saudi Arabian telecommunications procurement, power and energy projects throughout Asia, and a



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project to build an environmental surveillance and air traffic
control system in Brazil.
Efforts have also been made to discourage and counter the ‘‘tied
aid’’ practices of other nations: concessional loans or grants that
are only available to recipient governments if they procure equipment produced by the donor country’s firms. Worldwide, the proportion of aid that is tied has decreased dramatically since 1992—
the result of new tied aid guidelines adopted through the Organization for Economic Cooperation and Development (OECD, whose
membership includes the major donor countries), and of the U.S.
Government’s subsequent aggressive enforcement of these guidelines. These guidelines make many new aid projects ineligible for
tied aid financing and therefore open to international market competition.
Further, the National Export Strategy has focused on new opportunities in the economies expected to grow especially quickly in the
coming years. These ‘‘big emerging markets’’ include China, Taiwan, Hong Kong, Korea, Indonesia, India, Mexico, Argentina,
Brazil, Poland, Turkey, and South Africa.
A year ago the Administration set the goal of raising total U.S.
exports to $1 trillion by 2000. The success of this past year has led
the Administration to raise this goal to $1.2 trillion, which would
represent almost a doubling of the 1993 export level.

NEW ISSUES IN TRADE NEGOTIATIONS
Since the mid-1980s, when the blueprint for the Uruguay Round
negotiations was determined, a series of new trade issues have
arisen that will occupy negotiators for the next several years. While
these issues—trade and the environment, competition policy, rules
on investment, and trade and labor standards—have already made
a limited appearance in multilateral discussion, they have played
a greater role in recent plurilateral and bilateral negotiations.
Progress achieved in those negotiations will likely have a significant influence on future negotiations at the multilateral,
plurilateral, and bilateral levels.

TRADE AND THE ENVIRONMENT
Protection of the environment and an open trading system are
sometimes seen as conflicting goals. Many environmentalists are
concerned that free trade will come at the expense of the environment, and many free traders are concerned that efforts to incorporate environmental concerns into the international trading system will degenerate into disguised protectionism. However, there is
no inherent conflict between liberalizing trade and protecting the
environment, and the Administration has focused on potential



241

complementarities between good trade policies and sound environmental policies.
In fact, free trade and environmentalism have much in common.
In both cases the benefits from achieving progress are spread
across a wide group of people, while the interests that are harmed
are more concentrated. Trade liberalization benefits consumers
(and workers producing exports) but may harm workers in importcompeting sectors. Similarly, environmental protection benefits a
diffuse group of people, while the cost is concentrated on a smaller
group, those overusing environmental resources. Thus, while the
gains from liberalized trade and a cleaner environment outweigh
the losses in the aggregate, it still can be difficult to achieve
progress, since the costs of the action are concentrated on a small
group who vociferously oppose action, while the benefits may be so
diffuse as to make it difficult to mobilize potential supporters.
Moreover, both trade liberalization and international environmental issues require the use of multilateral tools. Without such
tools there is a tendency for countries to engage in damaging environmental and trade policies designed to further their own interests at the expense of their neighbors. Multilateralism can ensure
that progress is made on enough fronts so that all countries gain
from trade and a protected environment. The GATT and its successor the WTO are well suited for tackling world trade issues. But
there is as yet no analogous forum for comprehensively addressing
global environmental issues. Instead there are a variety of international agreements and organizations committed to working on
environmental problems.
There are also complementarities between good trade policies
and good environmental policies. Agricultural protection in industrialized countries is a case in point. The protection of developedcountry agriculture leads to more intensive farming, often of lands
that are of marginal use, causing unnecessary soil erosion, loss of
biological diversity, and the excessive use of pesticides and chemicals. Liberalizing trade in agriculture and lowering agriculture production subsidies can lead to a pattern of world farming that
causes less environmental damage.
Also, high trade barriers to labor-intensive imports, such as
clothing, from developing countries lead these countries instead to
export products that are intensive in natural resources, causing environmental damage. In addition, high-value-added natural resource-based products such as wood or paper products often face
high tariff barriers, whereas the raw natural resource itself does
not; this forces developing countries to rely on exports of unprocessed natural resources while denying them the revenue gains from
the downstream products.



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Just as trade policy improvements have the potential to help the
environment, environmental policy improvements can lead to economic gains. For instance, making polluters pay for the cost of the
environmental resources they use encourages efficient resource allocation and undistorted world trade. The elimination of government underpricing of public natural resources can also reduce
trade distortions.
Empirical evidence on the relationship between trade and the environment reinforces the notion that the two are not in conflict. For
instance, trade liberalization may act to increase income levels
through more-efficient resource allocation. In fact, the evidence
suggests that openness to world trade is one of the strongest predictors of rapid income growth in less developed countries. Income
growth in turn has beneficial effects on the environment. One
study suggests that, as a country’s income per capita rises beyond
a point around $5,000, its environmental record improves. As people can afford to, they devote more resources to environmental protection, and political pressures for environmental protection increase.
Most evidence suggests that international differences in environmental compliance costs have not had a significant impact on trade
and investment flows, primarily because these costs are almost always a very small fraction of value added in production. In the
United States, for example, pollution abatement costs in over 93
percent of all industries are less than 2 percent of value added.
Such small differences are unlikely to cause firms to migrate to
take advantage of differential costs of environmental regulation;
other considerations are far more important.
It is important to put aside the notion that trade itself is the
cause of environmental degradation. Although economic activity
certainly may diminish environmental resources, international
trade, like trade among the States, is simply a means of making
economic activity more efficient. The above examples and the available empirical evidence suggest that trade itself need not pose a
particular threat to the environment. By the same token, most
often the best response to an environmental problem is not to restrict trade. Instead, policies aimed directly at an environmental
problem are likely to be more effective. For instance, if the use of
a particular input in a firm’s production is causing pollution, it is
most effective to address the use of the input itself, rather than
limit trade in the resulting product.
NAFTA demonstrates how trade liberalization can serve as an
impetus for improved environmental policies. NAFTA specifically
ensures its members’ right to safeguard the environment, and it
encourages all the NAFTA parties to strengthen their environmental efforts. NAFTA maintains all existing U.S. health, safety,



243

and environmental standards. It allows States and cities to enact
even tougher standards, while providing mechanisms to encourage
all parties to harmonize their standards upward. The NAFTA side
agreement on the environment created a new North American
Commission on Environmental Cooperation, with a council made
up of the three countries’ top environmental officials. There is a
mechanism to ensure that countries effectively enforce their own
environmental laws, and a provision that guarantees public participation in monitoring of environmental laws. Finally, two new institutions have been established to fund and implement environmental infrastructure projects along the U.S.-Mexican border. The
North American Development Bank (NADBank) will make loans
for environmental cleanup and community adjustment on both
sides of the U.S.-Mexican border. The NADBank will work closely
with the new U.S.-Mexican Border Environment Cooperation Commission, which will review and certify proposals for environmental
infrastructure projects.
NAFTA shows that it is possible to use trade concessions as a
carrot to encourage environmental improvements, rather than
using trade penalties as a stick to punish poor environmental behavior. Without NAFTA it is unlikely that there would have been
an incentive for the member countries to strengthen their commitments to environmental cooperation. NAFTA also sets an example
for other trade agreements in the use of international mechanisms
and national commitments to ensure that free trade is compatible
with enhanced environmental protection and sustainable development.
Environmental concerns were also addressed in the most recent
Uruguay Round negotiations. The preamble of the agreement establishing the WTO recognizes the importance of environmental
concerns. This is the first time that a broad multilateral trade
agreement has recognized sustainable development as a guiding
principle. The WTO negotiators have agreed to establish a full
WTO Committee on Trade and the Environment to ensure the responsiveness of the multilateral trading system to environmental
objectives. Issues this committee will tackle include, first, whether
countries may use their trade policies in a way that discriminates
between like products on the basis of the processes and production
methods used; second, the relationship of the GATT to international environmental agreements; third, the circumstances under
which countries may use trade measures to protect the environment; and fourth, the scope of the exceptions for environmental
measures provided by the GATT under Article XX, which covers
measures necessary to protect human, animal, and plant life.




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COMPETITION POLICY AND TRADE
The relationship between national competition policies and international trade has emerged as an important issue for future negotiations. Historically, concern with international cartels has motivated discussions of competition and trade policy; the current revival of interest, however, is driven primarily by questions of market access. As tariffs and other formal trade measures have fallen,
domestic barriers to competition have come under increasing scrutiny. Barriers to foreign entry can arise for numerous reasons. Government procurement practices, either through explicit ‘‘buy national’’ policies or through carefully drawn or nontransparent product specifications, can favor domestic over foreign producers.
Health and safety standards, inspection procedures, and other
product regulations can also operate as protectionist barriers.
These areas have already been subject to extensive negotiation,
and agreements were concluded in the last two GATT negotiating
rounds that require transparency and nondiscrimination in procurement and product standards.
The most intense interest, however, now falls on barriers that
can arise from the practices of private firms. These are often vertical restraints—control over distribution channels, exclusive sales
arrangements or refusals to deal, rebates on sales—that impede
new entrants. These barriers may also derive from close affiliations
among firms within corporate groups that effectively limit sales by
outsiders. Vertical and other private restraints on trade have been
the subject of negotiations between the United States and Japan in
the SII and the Framework negotiations (discussed above). Since
GATT rules do not cover restrictive practices by private parties, except as they are supported by government measures, there is particular interest in the role of national competition policy authorities
in fostering market access in these cases.
The second area of concern about anticompetitive business practices is the advantages they might create for sales in other markets. If industries are characterized by economies of scale or learning effects (in which production efficiency rises as cumulative output grows), greater output or longer production runs resulting from
limited imports could confer a cost advantage on domestic producers. Restrictions on competition at home may also change the character of global competition among oligopolistic firms. When restrictions are successful in creating monopoly power at home (a less
price-elastic home than foreign demand), sales in foreign markets
at a lower price than at home (dumping) are a predictable result.
Alternatively, collusion among domestic producers in the home
market to maintain prices in the face of declining demand, perhaps
under the auspices of an officially sponsored recession cartel, can



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result in venting of surplus production in foreign markets, increasing the instability and operating risks in markets that are open.
Although there is increasing overlap between trade and competition policies, there has been little coordination of international
trade policy with antitrust policy. In large part this is because the
practices that trade and competition policy deal with are distinct.
International trade negotiations under the GATT have dealt with
government actions that restrict trade or discriminate against foreign goods. Private practices that discourage imports have been beyond the GATT’s reach, except to the extent that government
measures support or are necessary to sustain those restraints.
Antitrust policies, in contrast, can be effective in dealing with the
actions of private parties. However, antitrust laws in some countries do not cover government-owned firms, and antitrust laws seldom apply to other governmental activities.
The extension of international trade disciplines in the GATT has
clearly increased competition. As trade barriers have dropped, the
extent of effective competition in domestic traded-goods industries
has risen. Indeed, Justice Department guidelines now take the extent of international competition explicitly into account, as do the
agencies in charge of competition policy in other nations.
However, the extent to which existing competition policy can be
harnessed to increase trade liberalization is less clear-cut. Many of
the private barriers to entry fall in the area of nonprice vertical restraints to trade, where there is appropriately no presumption of
illegality. In many instances vertical restraints, such as exclusive
dealing arrangements or ownership interests in distributors, can
increase efficiency and ensure product and service quality, even as
they act as barriers to new entry. Competition, and not entry opportunities for individual firms, is protected under U.S. antitrust
law, and in the absence of evidence of restraints on competition in
the domestic market it may be difficult to win a case on the
grounds that a new firm cannot gain entry.
One area in which competition policy may have beneficial results
is antidumping policy, the most prominent of U.S. policies against
unfair trade. In the United States, duties are assessed on imports
sold at ‘‘less than fair value,’’ in other words, at a price that is either less than the price at which the good is sold in the home market, less than the sales price in a third-country market, or less
than the calculated cost of production. If dumping is found, and if
the dumped goods are determined to cause injury to the domestic
industry, duties are assessed to bring the price of the goods up to
‘‘fair value.’’
There are two rationales for antidumping laws. The first is that
the sale of imported goods at less than fair value may be part of
a strategy of predatory pricing, designed to force American com


246

petitors out of business. The second rationale, and one that directly
addresses why only foreign firms are subject to antidumping procedures, is that dumping arises from an asymmetry in competitive
conditions between the home market of the dumping firm and the
market in which goods are sold. Restricted competition in the
dumper’s home market creates a situation in which dumping is
profitable, creates opportunities for the dumping firm that are not
available to firms based in the more competitive market in which
goods are dumped, and is therefore seen as unfair. Recent advances
in trade theory suggest that such advantages may be possible, depending on the competitive characteristics of the industry.
The value of a competition policy approach is that it may allow
a more careful distinction between pricing practices that are unfair
and those that simply reflect normal cyclical and market variations. A well-developed body of antitrust law exists to deal with
predatory pricing. The courts consider such factors as the size and
strength of rivals, the ease of entry in the industry, whether the
pricing practices are likely to force firms out of business, and
whether the alleged predator could eventually recover its losses
from its current low price. Foreign firms selling in the U.S. market
are subject to U.S. antitrust law, and the Justice Department and
the Federal Trade Commission have brought cases against foreign
firms that affect U.S. competition. Competition policy addresses not
only predation but also other unfair trade practices, such as vertical restraints, and seeks to avoid the conditions that enable firms
to engage in unfair practices.
Ideally, the problem of competitive asymmetry could be addressed by policies that increase competition in the home market
of the dumping firm. The progressive reduction of trade barriers,
the negotiated elimination of other market access barriers, and the
interpenetration of major markets by foreign direct investment all
tend to both increase and equalize the competitive environment
across markets. Indeed, within some regional groupings where integration has proceeded sufficiently, such as the European Union and
the Closer Economic Relations arrangement between Australia and
New Zealand, competition policy has entirely replaced dumping review as a means to control unfair trade practices, just as within a
single national economy.
Efforts on competition policy and trade will take place on a variety of fronts. Differences in antitrust philosophy and accumulated
case law across major countries make harmonization of competition
policies unlikely in the foreseeable future, except in closely integrated regional groups. But the global character of most markets
has been the impetus for increasing consultation and cooperation
among competition policy agencies, and this is likely to lead to
some convergence in practice and approach. There is also likely to



247

be increased cooperation in cases that span international boundaries, such as a recent case involving the leading U.S. software producer. As this cooperation increases, one possible step would be an
agreement to remove the antitrust exemptions for market division
and price fixing by exporters; these exemptions are contained in
various national laws including the Webb-Pomerene Act and the
Export Trading Company Act of 1982 in the United States and the
Export Trade Act of 1952 in Japan. In addition, to facilitate future
cooperation, the United States is preparing to negotiate antitrust
mutual assistance agreements. These agreements would provide a
framework for joint prosecution of international cartels and for effective case-by-case assistance.
Trade negotiations, from the bilateral to the multilateral level,
will continue to focus on market access issues, and thus inevitably
deal with entry barriers and competition policy. The approach so
far has been piecemeal, barrier by barrier and sector by sector; this
is particularly evident in services negotiations, but also true of recent U.S.-Japan bilateral negotiations. The key to faster progress
will be whether general principles that cut across sectors can be
formulated. For example, these might deal with the definition of
national treatment in markets where entry is by individual license,
or the access of foreign firms to private industry associations that
have a regulatory role or provide services necessary for participation in the domestic market.

INVESTMENT
Increasing emphasis on market access will push investment issues to the fore of future trade negotiations, just as it has elevated
competition policy issues. This is particularly true of trade in services, where delivery often depends on having a physical presence
in the market where the services are sold. But such presence is
also crucial for many manufactured goods, where design must be
tailored to market requirements, where service and reputation are
important, or where fast response is key.
Thus, whereas foreign direct investment was once seen as a substitute for international trade, it is increasingly viewed as a complement or even a necessary component of trade. The evidence on
U.S. outward foreign direct investment bears this out. Roughly 60
percent of U.S. exports are sold by American firms that have operations abroad. The evidence also indicates that the countries where
U.S. exports are most successful are the same countries where U.S.
firms have the largest investments, and where investment restrictions are lowest. Furthermore, nearly $1 of every $5 in sales by
U.S. companies abroad is earned by American sales affiliates or
wholesaling companies that have established local facilities to sell
U.S. exports. Access to foreign markets is the strongest motivation



248

for investing overseas, not lower production costs. Only about 8
percent of the production of U.S. companies abroad is exported
back to the United States; the vast majority is sold abroad in the
local market.
The investment issue is a clear example of the progress that can
be achieved when negotiations are limited to a small group of nations. The investment rules in NAFTA contain most of what is desired in an investment accord, including guarantees on right of establishment, national treatment for foreign investors once established, freedom to repatriate earnings, and transparency in the
rules governing foreign investment. The Administration is encouraging similar liberalization in its regional efforts in Latin America
and Asia. These principles have also been advanced in U.S. bilateral investment treaties; 12 comprehensive treaties have been
signed since 1993, including treaties with the former Soviet republics of Georgia, Ukraine, and Belarus.
Progress in regional and bilateral negotiations should spur multilateral agreements on investment issues. Last September the Administration called for a June 1995 launch of negotiations in the
OECD to establish a multilateral investment accord. This agreement would go beyond bilateral investment treaties and existing
OECD undertakings, and would require the removal of existing
barriers to investment in all OECD countries.

TRADE AND LABOR STANDARDS
The international promotion of labor standards is an important
goal of this Administration. The Administration negotiated an innovative NAFTA side agreement on labor standards, and it pressed
for and got agreement to include discussion of the relationship between workers’ rights and international trade in the meetings of
the Preparatory Committee of the WTO. In the Uruguay Round implementing legislation, the Congress directed the President to seek
a working party on labor standards within the WTO.
The labor side agreement to NAFTA, the North American Agreement on Labor Cooperation, provides a mechanism for the three
NAFTA partners to address interactions between national labor
standards in an environment of expanded trade and investment.
The agreement commits each country to promote a set of guiding
principles subject to its domestic law, but does not establish common minimum standards. The principles include freedom of association and the rights to organize and bargain collectively, as well
as prohibitions on forced labor and restrictions on child labor. The
agreement emphasizes a cooperative program aimed at improving
labor standards in all three countries through technical assistance
and the exchange of information. It also contains mechanisms to
encourage the enforcement of national labor laws in the three coun


249

tries and provisions to make the laws more transparent. Enforcement mechanisms include public channels of communication, exchanges of information, and consultations at a variety of levels. If
a conflict arises between countries over a persistent pattern of failure to enforce national occupational safety and health, child labor,
minimum wage laws, or technical labor standards, in circumstances that are related to trade, the agreement provides for
binding arbitration and assessment of penalties.
The promotion of labor standards has a long history in international diplomacy and U.S. policy. The International Labor Organization (ILO) was established shortly after the First World War
to promote agreement on labor standards and to monitor progress
in achieving them. The United States tried, unsuccessfully, to add
a labor article to the GATT in 1953, and tried to incorporate these
issues in the Tokyo Round and the Uruguay Round negotiations.
Adherence to labor standards is also a condition for country participation in the Caribbean Basin Initiative and the U.S. Generalized
System of Preferences, and for eligibility for Overseas Private Investment Corporation insurance. Furthermore, since 1988, denial of
workers’ rights has been defined as an unfair trade practice in Section 301 of the Trade Act of 1974 and may be subject to action if
it harms U.S. economic interests.
Although there is no fixed definition of core labor standards,
widely accepted standards reflected in ILO Conventions and U.S.
trade law include freedom of association, the right to organize and
bargain collectively, freedom from forced labor, and a minimum age
for the employment of children. Core labor standards represent
fundamental human and democratic rights in the workplace, rights
that should prevail in all societies whatever their level of development. They are also necessary to ensure that individuals have the
freedom and the information necessary to make their own choices
about occupations, earnings, and working conditions. The observance of labor standards can strengthen work force productivity as
a whole by raising health and worker morale, and raise the general
educational level by keeping children in school. In the absence of
such standards, firms may find it difficult to respect workers’
rights on their own.
A related concern is that countries could, by routinely abusing
workers’ rights, lower labor costs so as to gain an unfair advantage
in international trade. This would certainly be the case if a particular foreign industry obtained the advantages of a labor force whose
rights were not guaranteed—for example, because it had access to
a conscript labor force. Whether foreign industries can reap the advantages of abuse of labor rights when such abuse pervades an entire economy is less certain. It is possible to artificially depress
labor costs in the short run, but over longer periods of time any ad


250

vantage gained by the overall abuse of labor standards may be
minimal or nonexistent.
The Administration is committed to a multilateral process designed to build consensus and encourage adoption of core labor
standards. There is widespread agreement, for instance, that
standards should be appropriate to a country’s level of development. The ability to compensate workers is limited by overall productivity (output per worker) in the economy, and that compensation may be paid in some combination of wages and better workplace characteristics, in proportions that may vary across societies.
The Administration’s goals are to achieve broad support for trade
at home and abroad by ensuring that the benefits of trade are
widely shared by those engaged in the production of internationally
traded goods and services, and ultimately to raise living standards
worldwide.

DOMESTIC POLICY AND TRADE POLICY
International trade has been and will remain a powerful source
of growth, opportunity, and challenge for the American economy.
The Yankee trader and the clipper ship were trademarks of this
country early in its development, and today the United States remains the world’s largest exporter and importer. Recognition of the
gains from liberalizing trade go back to our beginnings as a Nation,
and recent changes in the nature of goods and services trade, together with advances in theoretical understanding, have served to
strengthen this conclusion (Box 6–4).
However, few things bring only benefits, and structural adjustment and change are the essence of a dynamic economy. The most
potent force in the modern economy has been technological change,
which can result in painful adjustments for firms, workers, and
communities, even as it raises overall living standards over time.
The mechanization of agriculture, the replacement of mechanical
technology with electronics (in cash registers, adding machines,
typewriters, and aircraft), and the growth of large retail stores all
displaced workers. Recent technological change associated in part
with increasing computerization is likely to have increased the demand for skilled workers across a broad range of industries, leading to a rise in the wages of skilled relative to unskilled labor (an
issue discussed in Chapter 5).
Trade adds to the opportunities and dynamism of the economy,
and to the adjustments required over time. Attempts to estimate
the relative importance of international trade in economic restructuring have assigned a much larger role to technological change
and other factors, but international trade competition has surely
played a part, as discussed in Chapter 5. When import competition



251

Box 6–4.—The Gains from International Trade

By allowing each country to specialize in the production of
the goods and services in which it is most efficient, trade raises
the value of production and welfare in all trading countries.
However, the gains from international trade go well beyond
this basic tenet of comparative advantage. In industries where
there are increasing returns to scale, international trade creates a larger market and lower unit costs, further raising the
total output that can be produced. An integrated world market
also allows technological development and production startup
costs to be spread over a larger number of units.
But the largest gains from international trade may come
from the competition that international markets provide. When
competition is imperfect, the opening of markets to trade dilutes monopoly rents, lowering prices and raising output and
welfare. International trade introduces new technologies (Box
3–7 in Chapter 3), spurs domestic producers to raise product
quality, increases the range of goods available to consumers,
and lowers product prices. A recent cross-country study of productivity at the firm level suggests that achieving and maintaining high productivity requires that companies compete directly against the best firms in the global economy, and evidence shows that, along with rates of aggregate saving and investment, openness to international trade is a significant determinant of faster growth. This is the reason why more and
more developing countries have unilaterally lowered their
trade barriers, and the search for higher growth was the primary motive for the Single Market Program of the European
Union.
increases, there are pressures for protection to slow or halt the fall
in production and employment in the affected industry. Indeed,
many of the trade barriers in the United States and other developed countries arose to protect output in industries where employment was declining.
Raising or maintaining import barriers imposes costs on the rest
of the economy through higher prices. Estimates place the total
costs to consumers of U.S. tariff and nontariff barriers as high as
$70 billion per year. Since protection often is applied to ‘‘cheap
goods’’ or to consumer staples such as clothing and food products,
these costs fall most heavily on the poor. The costs extend beyond
consumers, to higher costs for other industries that use the protected products as inputs. Furthermore, one cannot reduce imports
while leaving exports unchanged; overall levels of exports and imports are linked through the macroeconomic balance between na


252

tional saving and investment and through the exchange rate. Thus,
reducing imports would ultimately slow the growth of U.S. exports,
upon which the jobs of over 10 million Americans now depend.
In addition to its high cost, trade protection is far from a solution
to industrial adjustment. In most protected industries adjustment
pressures arise from changing technologies and demand, and import protection has been able to slow employment declines only
marginally. Estimated costs per job saved through protection run
very high; one study put the average consumer cost per job maintained at $170,000, which is six times the earnings of the average
U.S. worker.
The President’s policy to ‘‘compete, not retreat’’ rests on the recognition that a dynamic economy, with its associated opportunities
and despite its hardships, provides the best prospects for increasing incomes for Americans over time. The Administration has chosen to continue to press for further trade liberalization in order to
open up foreign markets for U.S. exports, while at the same time
vigorously promoting U.S. commercial interests abroad. But the
commitment to embrace change requires a commitment to assist
individuals when they are hurt by it. In other words, sound domestic policy is a necessary concomitant of sound international trade
policy and reinforces the case for liberalization. Thus the Administration has advocated income support for those who lose their jobs
due to trade displacement, as in the NAFTA Transitional Adjustment Assistance program, and has advocated greater investment in
human capital, through programs of training and retraining, both
to ease adjustment and to raise the incomes of Americans.

CONCLUSION
While recognizing the difficult adjustments that international
trade may bring about, one should not lose sight of the significant
gains that this country has reaped from its engagement in international markets. Since 1987, U.S. exports have grown at a rate of
almost 10 percent per year in real terms, well outstripping export
growth in Japan and the European Union, and reversing the decline in the U.S. share of world exports that occurred earlier in the
1980s. Export growth has been responsible for about one-third of
total output growth since 1990, and it made the most recent recession considerably less severe than it otherwise would have been. As
detailed in Chapter 2, export growth was a significant component
in the strong performance of the American economy in 1994.
Growth of exports has also been an important contributor in moving Americans toward higher paying jobs. The accompanying rise
in U.S. imports has also been beneficial, providing consumers with
more choices and raising the purchasing power of American in


253

comes. Competition from abroad has made U.S. firms more efficient, more quality-conscious, and, in the end, more competitive.
The United States will continue to reap large gains from international trade. In the near term, recoveries in Europe and Japan
will boost U.S. exports and help narrow this country’s trade deficit.
The longer term trends are also quite favorable for the United
States. The positive changes in economic policy in many developing
and transition economies will lead to faster growth and a sharp
rise in their imports of capital goods, a sector in which U.S. competitiveness is very high. Both multilateral and plurilateral trade
agreements have led to much larger reductions in the trade barriers of our partner countries than in our own already low barriers,
and this will continue as APEC and the Western Hemisphere move
toward free trade. The new areas that have recently been suggested for international negotiations—agriculture, services, intellectual property, competition policy—are all areas where the competitive balance is strongly in the United States’ favor. Finally,
strengthening of the underlying rules and the international dispute
settlement system will lead to a convergence toward a rules-based,
transparent, and nondiscriminatory world trading system, much
like the one the United States already has. The balance of concessions and prospective gains from this convergence are greatly to
our advantage.
This Administration will continue to pursue a more open world
trading system, through multilateral, plurilateral, and bilateral
trade negotiations. These negotiations will seek to lower barriers to
trade in conventional sectors and to extend market liberalization to
newer sectors and issues. Although we negotiate on a variety of
levels, the basic goal is always the same: the advancement of open
markets on a nondiscriminatory basis. This goal has characterized
our bilateral negotiations, which have sought open markets, not
special entry for American firms. In plurilateral negotiations we
have emphasized the principle of openness to new entrants. The
United States also has a strong interest in strengthening the underlying rules of the trading system and the dispute settlement
process, both because to do so fosters more efficient and fairer
trade, and because it results in the kind of system in which American firms most comfortably operate and compete.




254

Appendix A
REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE
COUNCIL OF ECONOMIC ADVISERS DURING 1994




LETTER OF TRANSMITTAL
COUNCIL OF ECONOMIC ADVISERS
Washington, D.C., December 30, 1994
MR. PRESIDENT:
The Council of Economic Advisers submits this report on its
activities during the calendar year 1994 in accordance with the
requirements of the Congress, as set forth in section 10(d) of the
Employment Act of 1946 as amended by the Full Employment and
Balanced Growth Act of 1978.
Sincerely,
Laura D’Andrea Tyson, Chair
Joseph E. Stiglitz, Member
Martin N. Baily, MemberNominee




257

Council Members and their Dates of Service
Name

Position

Oath of office date

Edwin G. Nourse .......................
Leon H. Keyserling ....................

Chairman ..................................
Vice Chairman ..........................
Acting Chairman ......................
Chairman ..................................
Member .....................................
Vice Chairman ..........................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Chairman ..................................
Member .....................................
Member .....................................
Member .....................................
Member .....................................
Member .....................................
Chair .........................................
Member .....................................

August 9, 1946 ........................
August 9, 1946 ........................
November 2, 1949 ....................
May 10, 1950 ...........................
August 9, 1946 ........................
May 10, 1950 ...........................
June 29, 1950 ..........................
September 8, 1952 ..................
March 19, 1953 .......................
September 15, 1953 ................
December 2, 1953 ....................
April 4, 1955 ............................
December 3, 1956 ....................
May 2, 1955 .............................
December 3, 1956 ....................
November 1, 1958 ....................
May 7, 1959 .............................
January 29, 1961 .....................
January 29, 1961 .....................
January 29, 1961 .....................
August 3, 1962 ........................
November 16, 1964 ..................
May 17, 1963 ...........................
September 2, 1964 ..................
November 16, 1964 ..................
February 15, 1968 ....................
February 2, 1966 ......................
February 15, 1968 ....................
July 1, 1968 .............................
February 4, 1969 ......................
February 4, 1969 ......................
February 4, 1969 ......................
January 1, 1972 .......................
September 9, 1971 ..................
March 13, 1972 .......................
July 23, 1973 ...........................
October 31, 1973 .....................
September 4, 1974 ..................
June 13, 1975 ..........................
July 22, 1975 ...........................
January 22, 1977 .....................
March 18, 1977 .......................
March 18, 1977 .......................
June 6, 1979 ............................
August 20, 1980 ......................
February 27, 1981 ....................
June 12, 1981 ..........................
July 14, 1981 ...........................
October 14, 1982 .....................
December 10, 1982 ..................
April 18, 1985 ..........................
July 1, 1985 .............................
August 18, 1986 ......................
February 2, 1989 ......................
June 9, 1989 ............................
October 3, 1989 .......................
November 13, 1991 ..................
November 13, 1991 ..................
July 27, 1993 ...........................
February 5, 1993 ......................
July 27, 1993 ...........................

John D. Clark ............................
Roy Blough ................................
Robert C. Turner .......................
Arthur F. Burns .........................
Neil H. Jacoby ...........................
Walter W. Stewart .....................
Raymond J. Saulnier .................
Joseph S. Davis .........................
Paul W. McCracken ...................
Karl Brandt ...............................
Henry C. Wallich .......................
Walter W. Heller ........................
James Tobin ..............................
Kermit Gordon ...........................
Gardner Ackley ..........................
John P. Lewis ............................
Otto Eckstein .............................
Arthur M. Okun .........................
James S. Duesenberry ...............
Merton J. Peck ...........................
Warren L. Smith ........................
Paul W. McCracken ...................
Hendrik S. Houthakker ..............
Herbert Stein .............................
Ezra Solomon ............................
Marina v.N. Whitman ................
Gary L. Seevers .........................
William J. Fellner ......................
Alan Greenspan .........................
Paul W. MacAvoy .......................
Burton G. Malkiel ......................
Charles L. Schultze ...................
William D. Nordhaus .................
Lyle E. Gramley .........................
George C. Eads .........................
Stephen M. Goldfeld .................
Murray L. Weidenbaum .............
William A. Niskanen ..................
Jerry L. Jordan ...........................
Martin Feldstein ........................
William Poole ............................
Beryl W. Sprinkel .......................
Thomas Gale Moore ..................
Michael L. Mussa ......................
Michael J. Boskin ......................
John B. Taylor ...........................
Richard L. Schmalensee ...........
David F. Bradford .....................
Paul Wonnacott .........................
Alan S. Blinder ..........................
Laura D’Andrea Tyson ...............
Joseph E. Stiglitz ......................




258

Separation date
November 1, 1949.
January 20, 1953.
February 11, 1953.
August 20, 1952.
January 20, 1953.
December 1, 1956.
February 9, 1955.
April 29, 1955.
January 20, 1961.
October 31, 1958.
January 31, 1959.
January 20, 1961.
January 20, 1961.
November 15, 1964.
July 31, 1962.
December 27, 1962.
February 15, 1968.
August 31, 1964.
February 1, 1966.
January 20, 1969.
June 30, 1968.
January 20, 1969.
January 20, 1969.
December 31, 1971.
July 15, 1971.
August 31, 1974.
March 26, 1973.
August 15, 1973.
April 15, 1975.
February 25, 1975.
January 20, 1977.
November 15, 1976.
January 20, 1977.
January 20, 1981.
February 4, 1979.
May 27, 1980.
January 20, 1981.
January 20, 1981.
August 25, 1982.
March 30, 1985.
July 31, 1982.
July 10, 1984.
January 20, 1985.
January 20, 1989.
May 1, 1989.
September 19, 1988.
January 12, 1993.
August 2, 1991
June 21, 1991
January 20, 1993.
January 20, 1993
June 26, 1994.

Report to the President on the Activities of the
Council of Economic Advisers During 1994
The Council of Economic Advisers was established by the Employment Act of 1946 to provide the President with objective economic analysis and advice on the development and implementation
of a wide range of domestic and international economic policy issues.
The Chair of the Council
Laura D’Andrea Tyson continued to chair the Council during
1994. Dr. Tyson, a member of the President’s Cabinet, is on leave
from the University of California, Berkeley, where she is Professor
of Economics and Business Administration. As Chair, Dr. Tyson is
responsible for communicating the Council’s views on economic developments directly to the President through personal discussions
and written reports.
Dr. Tyson also represents the Council at Cabinet meetings and
various other high-level meetings including those of the National
Security Council focusing on economic issues, deliberations of the
National Economic Council, daily White House senior staff meetings, budget team briefings with the President, and many other formal and informal sessions with the President, senior White House
staff, and other senior government officials. Dr. Tyson is also the
Council’s chief public spokesperson. She guides the work of the
Council and exercises ultimate responsibility for the work of the
professional staff.
The Members of the Council
Joseph E. Stiglitz is the other current Member of the Council of
Economic Advisers. Dr. Stiglitz is on leave from Stanford University where he is the Joan Kenney Professor of Economics. The
Council’s other Member, Alan S. Blinder, left the Council upon his
appointment by the President to be Vice Chairman of the Board of
Governors of the Federal Reserve System. The President has nominated Martin Neil Baily to succeed Dr. Blinder as a Member of the
Council. Dr. Baily is on leave from the University of Maryland
where he is Professor of Economics. He currently serves as Dr.
Tyson’s chief macroeconomic adviser while awaiting a confirmation
hearing before the Senate Banking Committee. Members of the



259

Council are involved in the full range of issues within the Council’s
purview and are responsible for the daily supervision of the work
of the professional staff. Members represent the Council at a wide
variety of interagency and international meetings and assume
major responsibility for selecting issues for the Council’s attention.
The small size of the Council permits the Chair and Members to
work as a team on most policy issues. There continues to be, however, an informal division of subject matter among the Members.
Dr. Stiglitz is primarily responsible for microeconomic and sectoral
analysis and regulatory issues. Member-nominee Baily is primarily
responsible for domestic and international macroeconomic analysis
and economic projections. All three Members, under Dr. Tyson’s
lead, are also heavily involved in international trade issues. Finally, all three Council Members participate in the deliberations of
the National Economic Council (NEC). Dr. Tyson is one of six members of the NEC Principals Committee.
MACROECONOMIC POLICIES

One of the primary functions of the Council is to advise the
President on all major macroeconomic issues throughout the year.
The Council prepared for the President, the Vice President, and the
White House senior staff a comprehensive series of memoranda
monitoring key economic indicators and analyzing current macroeconomic events. During 1994 the Council also prepared special
analyses of economic policy issues and briefing papers on extraordinary economic events, such as California’s Northridge earthquake
disaster in January and the Mexican financial situation later in the
year. Council senior economists also prepared in-depth studies of
potential output, structural budget deficits, and a regular monitor
of inflationary trends.
The Council played a leading role in discussions of macroeconomic policy issues with officials from the Department of the
Treasury, the Office of Management and Budget (OMB), and other
members of the President’s economic policy team, and was a key
participant in the formulation of the Administration’s economic
policies through various Cabinet and sub-Cabinet working groups.
As part of this effort, the Council provided an economic assessment
of various policy initiatives that are under discussion in the Congress, including the proposed balanced budget amendment to the
Constitution (see Chapter 1), dynamic scoring of the budget (see
Chapter 2), and welfare reform (see Chapter 1). The Council also
carefully monitored the response of the interest-sensitive sectors of
the economy to the series of monetary tightening steps taken by
the Federal Reserve beginning in February.
The Council, the Department of the Treasury, and the OMB—the
economic ‘‘Troika’’—are responsible for producing the economic
forecasts that underlie the Administration’s budget proposals. The



260

Council, under the leadership of Dr. Baily collaborating with Dr.
Tyson and Council senior economists, initiates the forecasting process twice each year. The first forecast is published in the summer
as part of the Administration’s mid-session budget review. In preparing the forecasts the Council solicits input from a wide variety
of sources, and leading private sector forecasters visited the Council before each of the forecasting rounds to give their views on current conditions and the economic outlook.
At Dr. Tyson’s direction, the Council established the President’s
Economic Policy Advisory Board, comprised of distinguished academic and other private sector economists. Members of the Board
are recognized scholars in the fields of international trade, macroeconomics, microeconomics, labor markets, and financial markets.
The Board meets approximately every 6 months to advise the
Council and other high-ranking members of the Administration’s
economic policy team on current policy issues.
The Council continued its ongoing efforts to improve the general
public’s understanding of economic issues through regular briefings
with the White House financial and general press corps, periodic
discussions with distinguished outside economists and forecasters,
presentations before civic groups, and meetings with business and
labor leaders and with representatives from foreign countries. The
Chair and the other Members made numerous presentations to outside organizations to explain the Administration’s economic agenda. Dr. Tyson, Dr. Stiglitz, Dr. Blinder, and Dr. Baily also regularly
exchanged views on the macroeconomy with the Chairman and
Members of the Board of Governors of the Federal Reserve System.
Finally, the Council continued to work to improve the quality of
government economic statistics. On several occasions the Council
met with experts from other government agencies in seminars on
topics ranging from the scope of forthcoming revisions to the national income statistics to measuring unemployment. The Council
also sought increased funding for economic and demographic statistics in deliberations over Federal budget priorities.
INTERNATIONAL ECONOMIC POLICIES

International economic issues occupied much of the efforts of the
Council in 1994. Dr. Tyson and the other Members helped formulate Administration policies that brought the Uruguay Round negotiations of the General Agreement on Tariffs and Trade to completion and subsequent Congressional approval. The Council also provided analyses of the implications of the Uruguay Round agreements and the North American Free Trade Agreement for the U.S.
economy.
The Council was intensely involved in the preparatory work for
the Administration’s major regional initiatives at the November
Asia-Pacific Economic Cooperation (APEC) meeting in Bogor, Indo


261

nesia and the December Summit of the Americas in Miami, which
Dr. Tyson attended. Dr. Tyson was actively involved in the negotiations under the U.S.-Japan Framework for a New Economic Partnership and in the ongoing examination of U.S. relations with
China and its place in the world trading system.
The Council continued its active role in the Organization for Economic Cooperation and Development (OECD). The Council leads
the U.S. delegation to the OECD’s semiannual Economic Policy
Committee meetings, and Dr. Tyson is the Committee’s Chair. Dr.
Baily was a member of the OECD’s Working Party 3 on macroeconomic policy coordination. Dr. Stiglitz headed the U.S. delegation to OECD Working Party 1 on microeconomic and structural issues. Senior staff participated in Asia-Pacific experts’ meetings in
Sydney and Jakarta. The Council was also active in the preparations for the economic summit of the Group of Seven (G-7) nations
in Naples which Dr. Tyson attended.
MICROECONOMIC POLICIES

The Council continued to participate actively in a broad range of
Administration microeconomic initiatives in 1994. The breadth of
this activity reflects the Administration’s belief in the utility and
significance of microeconomic policy.
Dr. Tyson and Dr. Stiglitz both served on the Administration’s
Welfare Reform Task Force, which developed the Work and Responsibility Act. Dr. Tyson also served on the Community
Empowerment Board, the committee responsible for implementation of the empowerment zone and enterprise community provisions of the Omnibus Budget Reconciliation Act of 1993. Dr. Tyson
was also a member of the Administration’s Health Care Task
Force, with particular responsibility for assessing the likely economic effects of various reform options. In addition, Dr. Tyson
served as a member of the President’s National Science and Technology Council (NSTC).
Dr. Stiglitz chaired the NSTC Subcommittee on Social and Economic Sciences Research under the NSTC Committee on Environment and Natural Resources, where he was a strong advocate for
the application of research findings in economics and other social
sciences to the policy development process. He is an active participant in the Intergovernmental Panel on Climate Change and is a
lead author in its forthcoming report. Dr. Stiglitz has been particularly active in the Administration’s environmental policymaking efforts. He also participated in an interagency working group formed
to assess the condition of the oil and gas industry. In addition, Dr.
Stiglitz served on the Administration’s Natural Disaster Task
Force, the Task Force on Floodplain Management, and the Earthquake Task Force.



262

Dr. Tyson and Dr. Stiglitz also played key roles in the Administration’s reinventing government efforts, particularly with respect
to the Departments of Energy, Transportation, and Housing and
Urban Development. Dr. Stiglitz continued as co-chair of the subgroup on benefit-cost analysis of the Administration’s Regulatory
Working Group and co-chairs the working group on reviewing regulation of financial services. Dr. Tyson and Dr. Stiglitz have also
been very active in the Administration’s efforts to formulate policy
in telecommunications; in June, Dr. Stiglitz supervised the preparation of a Council White Paper, titled ‘‘Economic Benefits of the
Administration’s Legislative Proposals for Telecommunications.’’
The Council has engaged in a number of efforts aimed at improving the Nation’s agricultural and resource management policies.
With the support of the Vice President’s office, the Council and the
Office of Science and Technology Policy initiated an interagency
working group on bioenergy. This work included the evaluation of
the prospective economic viability of bioenergy in future decades
and strategies for research, development, and demonstration. The
Council, primarily through Dr. Tyson and Dr. Stiglitz, has been a
key participant in Administration deliberations on reauthorization
of the farm bill.
WEEKLY ECONOMIC BRIEFINGS

Dr. Tyson continued to conduct an oral weekly economic briefing
for the President, the Vice President, and the President’s other
principal economic advisers. The Council, in cooperation with the
Office of the Vice President, prepares a written Weekly Economic
Briefing of the President, which serves as the basis for the oral
briefing. The briefing includes analyses of current economic developments, more extended treatments of a wide range of economic issues and problems, and summaries of news on different regions
and sectors of the economy.
The Staff of the Council of Economic Advisers
The professional staff of the Council consists of the Chief of Staff,
the Senior Statistician, thirteen senior economists, six staff economists, and two research assistants. The professional staff and their
areas of concentration at the end of 1994 were:
Chief of Staff and General Counsel
Thomas P. O’Donnell




263

Senior Economists
Jonathan B. Baker .............. Regulation, Industrial Organization, and
Law
S. Lael Brainard .................. International Economics
Robert S. Dohner ................. International Economics
Michael R. Donihue ............. Macroeconomics and Forecasting
Robert D. Innes .................... Agriculture
Sally M. Kane ...................... Science and International Environmental
Policy
David I. Levine .................... Labor, Welfare, and Education
Eileen Mauskopf .................. Macroeconomics and Finance
Mark J. Mazur ..................... Public Finance
Ellen E. Meade .................... International Economics
Jay S. Stowsky ..................... Science and Technology
Michael A. Toman ............... Environment and Natural Resources
David W. Wilcox .................. Macroeconomics and the Weekly Economic
Briefing of the President

Senior Statistician
Catherine H. Furlong

Staff Economists
Kimberly A. Clausing .......... International Economics
Maya N. Federman .............. Labor, Education and Agriculture
Carolyn Fischer ................... Public Finance, Environment, and Natural
Resources
Christopher L. Foote ........... Macroeconomics
F. Halsey Rogers .................. Macroeconomics and the Weekly Economic
Briefing of the President
Eric D. Wolff ........................ Industrial Organization, Regulation, and
Technology

Senior Research Assistant
D. W. Clark Dees .................

International Economics and
Macroeconomics

Research Assistant
Timothy S. Simcoe

Statistical Office
Mrs. Furlong manages the Statistical Office. The Statistical Office maintains and updates the Council’s statistical information,
oversees the publication of the Economic Indicators and the statistical appendix to the Economic Report, and verifies statistics in
Presidential and Council memoranda, testimony, and speeches.
Susan P. Clements .............. Statistician



264

Linda A. Reilly ..................... Statistical Assistant
Brian A. Amorosi ................. Research Assistant
Margaret L. Snyder ............. Secretary

The Administrative Office
Elizabeth A. Kaminski ........ Administrative Officer
Catherine Fibich .................. Administrative Assistant

Office of the Chair
Alice H. Williams ................. Executive Assistant to the Chair
Sandra F. Daigle .................. Executive Assistant to the Chair and
Assistant to the Chief of Staff
Lisa D. Branch ..................... Executive Assistant to Dr. Stiglitz
Francine P. Obermiller ....... Executive Assistant to Dr. Baily

Staff Secretaries
Mary E. Jones
Rosalind V. Rasin
Mary A. Thomas

Mrs. Thomas also served as Executive Assistant for the Weekly
Economic Briefing of the President.
Michael Treadway provided editorial assistance in the preparation of the 1995 Economic Report.
Robert E. Cumby, Georgetown University, and David M. Cutler,
Harvard University, served as consultants during the year. Student
interns during the year were Kristen E. Bowers, William P. Cowin,
William B. Ferretti, James C. Hritz, Ethan D. Kaplan, Christina
M. McCall, Michael G. Rand, Rachelle M. Rowe, Jesse Shapiro,
Megan L. Shiflet, Adam R. Skilken, Nathan K. Sleeper, Megan R.
Sweeney, Chi-Hwa Holly Tang, Anna R. Tryon, and Raymond A.
Wolff.
DEPARTURES
The Council’s senior economists, in most cases, are on leave of
absence from faculty positions at academic institutions or from
other government agencies or research institutions. Their tenure
with the Council is usually limited to 1 or 2 years. Most of the senior economists who resigned during the year returned to their previous affiliations. They are David M. Cutler (Harvard University),
Warren E. Farb (Department of Commerce), Alan J. Krupnick (Resources for the Future), Erik R. Lichtenberg (University of Maryland), Marcus Noland (Institute for International Economics), and
Matthew D. Shapiro (University of Michigan). Those going on to
new positions were Robert E. Cumby (Georgetown University), William T. Dickens (The Brookings Institution), Constance R. Dunham
(Office of the Comptroller of the Currency), Pamela F. Short (The



265

Rand Corporation), and Robert F. Wescott (International Monetary
Fund).
Staff economists are generally graduate students who spend 1
year with the Council and then return to complete their dissertations. Those who returned to their graduate studies in 1994 are
Kevin C. Murdock (Stanford University), Jeremy B. Rudd (Princeton University), Elizabeth A. Schneirov (University of Wisconsin),
and Darryl S. Wills (Massachusetts Institute of Technology) and
Peter R. Orszag (London School of Economics). Kimberly J. O’Neill
accepted a position with the National Economic Council/Domestic
Policy Council.
Public Information
The Council’s Annual Report is the principal medium through
which the Council informs the public of its work and its views. It
is an important vehicle for presenting the Administration’s domestic and international economic policies. Annual distribution of the
Report in recent years has averaged about 45,000 copies. The Council also has primary responsibility for compiling the monthly Economic Indicators, which is issued by the Joint Economic Committee
of the Congress and has a distribution of approximately 10,000.




266

Appendix B
STATISTICAL TABLES RELATING TO INCOME,
EMPLOYMENT, AND PRODUCTION




CONTENTS
NATIONAL INCOME OR EXPENDITURE:
B–1.
B–2.
B–3.
B–4.
B–5.
B–6.
B–7.
B–8.
B–9.
B–10.
B–11.
B–12.
B–13.
B–14.
B–15.
B–16.
B–17.
B–18.
B–19.
B–20.
B–21.
B–22.
B–23.
B–24.
B–25.
B–26.
B–27.
B–28.

B–29.
B–30.

Gross domestic product, 1959–94 .....................................................
Gross domestic product in 1987 dollars, 1959–94 ...........................
Implicit price deflators for gross domestic product, 1959–94 .........
Fixed-weighted price indexes for gross domestic product, 1987
weights, 1959–94 ............................................................................
Fixed-weighted and alternative quantity and price indexes for
total GDP, 1959–94 ........................................................................
Changes in fixed-weighted and alternative quantity and price indexes for total GDP, 1959–94 ........................................................
Gross domestic product by major type of product, 1959–94 ...........
Gross domestic product by major type of product in 1987 dollars,
1959–94 ...........................................................................................
Gross domestic product by sector, 1959–94 .....................................
Gross domestic product by sector in 1987 dollars, 1959–94 ...........
Gross domestic product by industry, 1947–92 .................................
Gross domestic product by industry in 1987 dollars, fixed 1987
weights, 1977–92 ............................................................................
Gross domestic product of nonfinancial corporate business, 1959–
94 .....................................................................................................
Output, costs, and profits of nonfinancial corporate business,
1959–94 ...........................................................................................
Personal consumption expenditures, 1959–94 .................................
Personal consumption expenditures in 1987 dollars, 1959–94 .......
Gross and net private domestic investment, 1959–94 ....................
Gross and net private domestic investment in 1987 dollars,
1959–94 ...........................................................................................
Inventories and final sales of domestic business, 1959–94 ............
Inventories and final sales of domestic business in 1987 dollars,
1959–94 ...........................................................................................
Foreign transactions in the national income and product accounts, 1959–94 ..............................................................................
Exports and imports of goods and services and receipts and payments of factor income in 1987 dollars, 1959–94 .........................
Relation of gross domestic product, gross national product, net
national product, and national income, 1959–94 .........................
Relation of national income and personal income, 1959–94 ...........
National income by type of income, 1959–94 ...................................
Sources of personal income, 1959–94 ...............................................
Disposition of personal income, 1959–94 .........................................
Total and per capita disposable personal income and personal
consumption expenditures in current and 1987 dollars, 1959–
94 .....................................................................................................
Gross saving and investment, 1959–94 ............................................
Personal saving, flow of funds accounts, 1946–94 ...........................

269



Page
274
276
278
280
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
304
306

307
308
309

Page
B–31.

Median money income (in 1993 dollars) and poverty status of
families and persons, by race, selected years, 1973–93 ...............

310

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY:
B–32.
B–33.
B–34.
B–35.
B–36.
B–37.
B–38.
B–39.
B–40.
B–41.
B–42.
B–43.
B–44.
B–45.
B–46.
B–47.
B–48.

Population by age group, 1929–94 ....................................................
Civilian population and labor force, 1929–94 ..................................
Civilian employment and unemployment by sex and age, 1947–
94 .....................................................................................................
Civilian employment by demographic characteristic, 1954–94 ......
Unemployment by demographic characteristic, 1954–94 ...............
Civilian labor force participation rate and employment/population ratio, 1948–94 ......................................................................
Civilian labor force participation rate by demographic characteristic, 1954–94 ..........................................................................
Civilian employment/population ratio by demographic characteristic, 1954–94 ..........................................................................
Civilian unemployment rate, 1948–94 .............................................
Civilian unemployment rate by demographic characteristic,
1954–94 ...........................................................................................
Unemployment by duration and reason, 1950–94 ...........................
Unemployment insurance programs, selected data, 1962–94 ........
Employees on nonagricultural payrolls, by major industry, 1946–
94 .....................................................................................................
Hours and earnings in private nonagricultural industries, 1959–
94 .....................................................................................................
Employment cost index, private industry, 1980–94 ........................
Productivity and related data, business sector, 1950–94 ................
Changes in productivity and related data, business sector, 1950–
94 .....................................................................................................

311
312
314
315
316
317
318
319
320
321
322
323
324
326
327
328
329

PRODUCTION AND BUSINESS ACTIVITY:
B–49.
B–50.
B–51.
B–52.
B–53.
B–54.
B–55.
B–56.
B–57.
B–58.

Industrial production indexes, major industry divisions, 1947–94
Industrial production indexes, market groupings, 1947–94 ...........
Industrial production indexes, selected manufactures, 1947–94 ...
Capacity utilization rates, 1948–94 ..................................................
New construction activity, 1929–94 ..................................................
New housing units started and authorized, 1959–94 .....................
Business expenditures for new plant and equipment, 1947–94 .....
Manufacturing and trade sales and inventories, 1952–94 .............
Manufacturers’ shipments and inventories, 1952–94 .....................
Manufacturers’ new and unfilled orders, 1952–94 ..........................

330
331
332
333
334
336
337
338
339
340

Consumer price indexes for major expenditure classes, 1950–94
Consumer price indexes for selected expenditure classes, 1950–
94 .....................................................................................................
Consumer price indexes for commodities, services, and special
groups, 1950–94 ..............................................................................
Changes in special consumer price indexes, 1958–94 .....................
Changes in consumer price indexes for commodities and services,
1929–94 ...........................................................................................
Producer price indexes by stage of processing, 1950–94 .................
Producer price indexes by stage of processing, special groups,
1974–94 ...........................................................................................
Producer price indexes for major commodity groups, 1950–94 ......
Changes in producer price indexes for finished goods, 1958–94 ....

341

PRICES:
B–59.
B–60.
B–61.
B–62.
B–63.
B–64.
B–65.
B–66.
B–67.

270



342
344
345
346
347
349
350
352

Page

MONEY STOCK, CREDIT, AND FINANCE:
B–68.
B–69.
B–70.
B–71.
B–72.
B–73.
B–74.
B–75.
B–76.

Money stock, liquid assets, and debt measures, 1959–94 ...............
Components of money stock measures and liquid assets, 1959–94
Aggregate reserves of depository institutions and monetary base,
1959–94 ...........................................................................................
Bank credit at all commercial banks, 1972–94 ................................
Bond yields and interest rates, 1929–94 ..........................................
Total funds raised in credit markets, 1985–94 ................................
Mortgage debt outstanding by type of property and of financing,
1940–94 ...........................................................................................
Mortgage debt outstanding by holder, 1940–94 ..............................
Consumer credit outstanding, 1952–94 ............................................

353
354
356
357
358
360
362
363
364

GOVERNMENT FINANCE:
B–77.
B–78.
B–79.
B–80.
B–81.

B–82.
B–83.
B–84.

B–85.
B–86.
B–87.
B–88.

B–89.

Federal receipts, outlays, surplus or deficit, and debt, selected
fiscal years, 1929–96 ......................................................................
Federal budget receipts, outlays, surplus or deficit, and debt, as
percent of gross domestic product, 1934–96 .................................
Federal receipts and outlays, by major category, and surplus or
deficit, 1940–96 ...............................................................................
Federal receipts, outlays, and debt, fiscal years, 1983–96 .............
Relation of Federal Government receipts and expenditures in the
national income and product accounts to the budget, fiscal
years, 1992–96 ................................................................................
Federal Government receipts and expenditures, national income
and product accounts (NIPA), 1978–96 ........................................
Federal and State and local government receipts and expenditures, national income and product accounts (NIPA), 1959–94
Federal and State and local government receipts and expenditures, national income and product accounts (NIPA), by major
type, 1959–94 ..................................................................................
State and local government receipts and expenditures, national
income and product accounts (NIPA), 1959–94 ...........................
State and local government revenues and expenditures, selected
fiscal years, 1927–92 ......................................................................
Interest-bearing public debt securities by kind of obligation,
1967–94 ...........................................................................................
Maturity distribution and average length of marketable interestbearing public debt securities held by private investors, 1967–
94 .....................................................................................................
Estimated ownership of public debt securities by private investors, 1976–94 ...................................................................................

365
366
367
368

370
371
372

373
374
375
376

377
378

CORPORATE PROFITS AND FINANCE:
B–90.
B–91.
B–92.
B–93.
B–94.
B–95.
B–96.
B–97.

Corporate profits with inventory valuation and capital consumption adjustments, 1959–94 .............................................................
Corporate profits by industry, 1959–94 ............................................
Corporate profits of manufacturing industries, 1959–94 ................
Sales, profits, and stockholders’ equity, all manufacturing corporations, 1952–94 .........................................................................
Relation of profits after taxes to stockholders’ equity and to sales,
all manufacturing corporations, 1947–94 .....................................
Sources and uses of funds, nonfarm nonfinancial corporate business, 1947–94 ..................................................................................
Common stock prices and yields, 1955–94 .......................................
Business formation and business failures, 1950–94 .......................

271



379
380
381
382
383
384
385
386

Page

AGRICULTURE:
B–98.
B–99.
B–100.
B–101.
B–102.
B–103.

Farm income, 1945–94 .......................................................................
Farm output and productivity indexes, 1948–91 .............................
Farm input use, selected inputs, 1948–94 .......................................
Indexes of prices received and prices paid by farmers, 1975–94
U.S. exports and imports of agricultural commodities, 1940–94 ...
Farm business balance sheet, 1950–93 ............................................

387
388
389
390
391
392

INTERNATIONAL STATISTICS:
B–104. International investment position of the United States at yearend, 1985–93 ...................................................................................
B–105. U.S. international transactions, 1946–94 .........................................
B–106. U.S. merchandise exports and imports by principal end-use category, 1965–94 ................................................................................
B–107. U.S. merchandise exports and imports by area, 1985–94 ..............
B–108. U.S. international trade in goods on balance of payments (BOP)
and Census basis, and trade in services on BOP basis, 1974–
94 .....................................................................................................
B–109. International reserves, selected years, 1952–94 ..............................
B–110. Industrial production and consumer prices, major industrial
countries, 1969–94 ..........................................................................
B–111. Civilian unemployment rate, and hourly compensation, major industrial countries, 1969–94 ...........................................................
B–112. Foreign exchange rates, 1969–94 ......................................................
B–113. Growth rates in real gross domestic product, 1976–94 ...................

393
394
396
397

398
399
400
401
402
403

NATIONAL WEALTH:
B–114. National wealth, 1946–93 ..................................................................
B–115. National wealth in 1987 dollars, 1946–93 .......................................

404
405

SUPPLEMENTARY TABLES:
B–116. Historical series on gross domestic product and selected other
NIPA series, 1929–59 .....................................................................
B–117. Selected per capita product and income series in current and
1987 dollars, 1959–94 .....................................................................

272



406
407

General Notes
Detail in these tables may not add to totals because of rounding.
Unless otherwise noted, all dollar figures are in current dollars.
Symbols used:
p Preliminary.
.... Not available (also, not applicable).
Data in these tables reflect revisions made by the source agencies from
January 1994 through early February 1995.

273



NATIONAL INCOME OR EXPENDITURE
TABLE B–1.—Gross domestic product, 1959–94
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption expenditures

Gross private domestic investment
Fixed investment

Year or quarter

Gross
domestic
product

Nonresidential
Total

Durable
goods

Nondurable
goods

Services

Total
Total
Total

Structures

Producers’
durable
equipment

Residential

Change
in
business
inventories

1959 .........................

494.2

318.1

42.8

148.5

126.8

78.8

74.6

46.5

18.1

28.3

28.1

4.2

1960
1961
1962
1963
1964

.........................
.........................
.........................
.........................
.........................

513.3
531.8
571.6
603.1
648.0

332.4
343.5
364.4
384.2
412.5

43.5
41.9
47.0
51.8
56.8

153.1
157.4
163.8
169.4
179.7

135.9
144.1
153.6
163.1
175.9

78.7
77.9
87.9
93.4
101.7

75.5
75.0
81.8
87.7
96.7

49.2
48.6
52.8
55.6
62.4

19.6
19.7
20.8
21.2
23.7

29.7
28.9
32.1
34.4
38.7

26.3
26.4
29.0
32.1
34.3

3.2
2.9
6.1
5.7
5.0

1965
1966
1967
1968
1969

.........................
.........................
.........................
.........................
.........................

702.7
769.8
814.3
889.3
959.5

444.6
481.6
509.3
559.1
603.7

63.5
68.5
70.6
81.0
86.2

191.9
208.5
216.9
235.0
252.2

189.2
204.6
221.7
243.1
265.3

118.0
130.4
128.0
139.9
155.2

108.3
116.7
117.6
130.8
145.5

74.1
84.4
85.2
92.1
102.9

28.3
31.3
31.5
33.6
37.7

45.8
53.0
53.7
58.5
65.2

34.2
32.3
32.4
38.7
42.6

9.7
13.8
10.5
9.1
9.7

1970
1971
1972
1973
1974

.........................
.........................
.........................
.........................
.........................

1,010.7
1,097.2
1,207.0
1,349.6
1,458.6

646.5
700.3
767.8
848.1
927.7

85.3
97.2
110.7
124.1
123.0

270.4
283.3
305.2
339.6
380.8

290.8
319.8
351.9
384.5
423.9

150.3
175.5
205.6
243.1
245.8

148.1
167.5
195.7
225.4
231.5

106.7
111.7
126.1
150.0
165.6

40.3
42.7
47.2
55.0
61.2

66.4
69.1
78.9
95.1
104.3

41.4
55.8
69.7
75.3
66.0

2.3
8.0
9.9
17.7
14.3

1975
1976
1977
1978
1979

.........................
.........................
.........................
.........................
.........................

1,585.9
1,768.4
1,974.1
2,232.7
2,488.6

1,024.9
1,143.1
1,271.5
1,421.2
1,583.7

134.3
160.0
182.6
202.3
214.2

416.0
451.8
490.4
541.5
613.3

474.5
531.2
598.4
677.4
756.2

226.0
286.4
358.3
434.0
480.2

231.7
269.6
333.5
406.1
467.5

169.0
187.2
223.2
274.5
326.4

61.4
65.9
74.6
93.9
118.4

107.6
121.2
148.7
180.6
208.1

62.7
82.5
110.3
131.6
141.0

−5.7
16.7
24.7
27.9
12.8

1980
1981
1982
1983
1984

.........................
.........................
.........................
.........................
.........................

2,708.0
3,030.6
3,149.6
3,405.0
3,777.2

1,748.1
1,926.2
2,059.2
2,257.5
2,460.3

212.5
228.5
236.5
275.0
317.9

682.9
744.2
772.3
817.8
873.0

852.7
953.5
1,050.4
1,164.7
1,269.4

467.6
558.0
503.4
546.7
718.9

477.1
532.5
519.3
552.2
647.8

353.8
410.0
413.7
400.2
468.9

137.5
169.1
178.8
153.1
175.6

216.4
240.9
234.9
247.1
293.3

123.3
122.5
105.7
152.0
178.9

−9.5
25.4
−15.9
−5.5
71.1

1985
1986
1987
1988
1989

.........................
.........................
.........................
.........................
.........................

4,038.7
4,268.6
4,539.9
4,900.4
5,250.8

2,667.4
2,850.6
3,052.2
3,296.1
3,523.1

352.9
389.6
403.7
437.1
459.4

919.4
952.2
1,011.1
1,073.8
1,149.5

1,395.1
1,508.8
1,637.4
1,785.2
1,914.2

714.5
717.6
749.3
793.6
832.3

689.9
709.0
723.0
777.4
798.9

504.0
492.4
497.8
545.4
568.1

193.4
174.0
171.3
182.0
193.3

310.6
318.4
326.5
363.4
374.8

185.9
216.6
225.2
232.0
230.9

24.6
8.6
26.3
16.2
33.3

1990 .........................
1991 .........................
1992 .........................
1993 .........................
1994 p .......................

5,546.1
5,724.8
6,020.2
6,343.3
6,736.9

3,761.2
3,902.4
4,136.9
4,378.2
4,627.0

468.2
456.6
492.7
538.0
590.9

1,229.2
1,257.8
1,295.5
1,339.2
1,393.8

2,063.8 808.9
2,188.1 744.8
2,348.7 788.3
2.501.0 882.0
2,642.2 1,037.5

802.0
746.6
785.2
866.7
979.8

586.7
557.0
561.4
616.1
697.5

201.6
182.9
171.1
173.4
182.6

385.1
374.1
390.3
442.7
514.9

215.3
189.6
223.8
250.6
282.3

6.9
−1.8
3.0
15.4
57.7

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

....................
....................
....................
....................
....................
....................
....................
....................
....................

3,195.1
3,547.3
3,869.1
4,140.5
4,336.6
4,683.0
5,044.6
5,344.8
5,597.9

2,128.7
2,346.8
2,526.4
2,739.8
2,923.1
3,124.6
3,398.2
3,599.1
3,836.6

246.9
297.7
328.2
354.4
406.8
408.8
452.9
458.3
459.5

787.3
839.8
887.8
939.5
963.7
1,029.4
1,105.8
1,173.5
1,260.7

1,094.6
1,209.3
1,310.4
1,446.0
1,552.6
1,686.4
1,839.5
1,967.3
2,116.4

464.2
614.8
722.8
737.0
697.1
800.2
814.8
825.2
756.4

510.5
594.6
671.8
704.4
715.9
740.9
797.5
795.0
780.3

397.7
426.9
491.5
511.3
491.7
514.3
560.2
568.8
584.4

168.9
154.6
184.1
195.4
168.4
180.0
186.8
198.0
195.7

228.8
272.3
307.3
315.9
323.3
334.3
373.4
370.8
388.7

112.8
167.7
180.4
193.1
224.2
226.5
237.3
226.2
195.8

−46.3
20.2
51.0
32.6
−18.8
59.3
17.3
30.2
−23.9

1991: I ......................
II .....................
III ...................
IV ....................

5,636.8
5,705.9
5,759.9
5,796.6

3,841.4
3,885.7
3,927.0
3,955.7

449.3
452.0
463.8
461.2

1,253.0
1,259.6
1,261.3
1,257.2

2,139.0
2,174.1
2,202.0
2,237.3

732.8
733.1
756.5
756.8

750.7
746.0
747.1
742.4

568.1
561.6
554.5
543.7

193.1
188.4
178.1
172.0

374.9
373.2
376.4
371.7

182.6
184.4
192.7
198.7

−17.9
−12.9
9.3
14.3

1992: I ......................
II .....................
III ...................
IV ....................

5,896.8
5,971.3
6,043.6
6,169.3

4,044.4
4,097.8
4,154.0
4,251.3

480.1
483.3
495.7
511.6

1,276.5
1,281.7
1,299.6
1,324.3

2,287.8
2,332.8
2,358.6
2,415.4

747.7
787.9
795.5
822.0

754.0
784.0
790.2
812.7

544.2
562.0
565.8
573.6

173.3
172.9
169.6
168.6

370.9
389.2
396.2
405.1

209.8
222.0
224.4
239.1

−6.3
3.9
5.3
9.3

1993: I ......................
II .....................
III ...................
IV ....................

6,235.9
6,299.9
6,359.2
6,478.1

4,294.6
4,347.3
4,401.2
4,469.6

516.1
531.2
541.9
562.8

1,327.1
1,334.2
1,340.2
1,355.2

2,451.4
2,481.9
2,519.1
2,551.6

853.8
869.7
882.2
922.5

833.7
851.1
868.3
913.5

589.8
609.3
619.0
646.3

170.6
172.3
173.9
176.7

419.2
437.0
445.1
469.6

243.9
241.8
249.3
267.2

20.1
18.6
13.9
9.0

1994: I ......................
II .....................
III ...................
IV p .................

6,574.7
6,689.9
6,791.7
6,891.1

4,535.0
4,586.4
4,657.5
4,728.9

576.2
580.3
591.5
615.6

1,368.9
1,381.4
1,406.1
1,418.9

2,589.9 966.6 942.5
2,624.7 1,034.4 967.0
2,659.9 1,055.1 992.5
2,694.5 1,093.9 1,017.1

665.4
683.3
709.1
732.0

172.7
181.8
184.6
191.3

492.7
501.5
524.5
540.8

277.1
283.6
283.4
285.1

24.1
67.4
62.6
76.8

See next page for continuation of table.




274

TABLE B–1.—Gross domestic product, 1959–94—Continued
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

Government
purchases
Federal

Net
exports Exports Imports

Total
Total

National
defense

Nondefense

State
and
local

Final
sales of
domestic
product

Gross
domestic purchases 1

Addendum:
Gross
national
product 2

Percent change
from preceding
period
Gross
Gross
domes- domestic
tic
purproduct chases 1

−1.7

20.6

22.3

99.0

57.1

46.4

10.8

41.8

490.0

495.8

497.0

8.7

9.1

1960
1961
1962
1963
1964

...........
...........
...........
...........
...........

2.4
3.4
2.4
3.3
5.5

25.3
26.0
27.4
29.4
33.6

22.8
22.7
25.0
26.1
28.1

99.8
107.0
116.8
122.3
128.3

55.3
58.6
65.4
66.4
67.5

45.3
47.9
52.1
51.5
50.4

10.0
10.6
13.3
14.9
17.0

44.5
48.4
51.4
55.8
60.9

510.1
528.9
565.5
597.5
643.0

510.9
528.4
569.1
599.8
642.5

516.6
535.4
575.8
607.7
653.0

3.9
3.6
7.5
5.5
7.4

3.0
3.4
7.7
5.4
7.1

1965
1966
1967
1968
1969

...........
...........
...........
...........
...........

3.9
1.9
1.4
−1.3
−1.2

35.4
38.9
41.4
45.3
49.3

31.5
37.1
39.9
46.6
50.5

136.3
155.9
175.6
191.5
201.8

69.5
81.3
92.8
99.2
100.5

51.0
62.0
73.4
79.1
78.9

18.5
19.3
19.4
20.0
21.6

66.8
74.6
82.7
92.3
101.3

693.0
756.0
803.8
880.2
949.8

698.8
767.9
812.9
890.6
960.7

708.1
774.9
819.8
895.5
965.6

8.4
9.5
5.8
9.2
7.9

8.8
9.9
5.9
9.6
7.9

1970
1971
1972
1973
1974

...........
...........
...........
...........
...........

1.2
−3.0
−8.0
.6
−3.1

57.0
59.3
66.2
91.8
124.3

55.8
62.3
74.2
91.2
127.5

212.7
224.3
241.5
257.7
288.3

100.1
100.0
106.9
108.5
117.6

76.8
74.1
77.4
77.5
82.6

23.3
25.9
29.4
31.1
35.0

112.6
124.3
134.7
149.2
170.7

1,008.4
1,089.2
1,197.1
1,331.9
1,444.4

1,009.5
1,100.2
1,215.0
1,349.0
1,461.8

1,017.1
1,104.9
1,215.7
1,362.3
1,474.3

5.3
8.6
10.0
11.8
8.1

5.1
9.0
10.4
11.0
8.4

1975
1976
1977
1978
1979

...........
...........
...........
...........
...........

13.6
−2.3
−23.7
−26.1
−23.8

136.3
148.9
158.8
186.1
228.9

122.7
151.1
182.4
212.3
252.7

321.4
341.3
368.0
403.6
448.5

129.4
135.8
147.9
162.2
179.3

89.6
93.4
100.9
108.9
121.9

39.8
42.4
47.0
53.3
57.5

192.0
205.5
220.1
241.4
269.2

1,591.5
1,751.7
1,949.4
2,204.8
2,475.9

1,572.3
1,770.7
1,997.8
2,258.8
2,512.5

1,599.1
1,785.5
1,994.6
2,254.5
2,520.8

8.7
11.5
11.6
13.1
11.5

7.6
12.6
12.8
13.1
11.2

1980
1981
1982
1983
1984

...........
...........
...........
...........
..........

−14.7
−14.7
−20.6
−51.4
−102.7

279.2
303.0
282.6
276.7
302.4

293.9
317.7
303.2
328.1
405.1

507.1
561.1
607.6
652.3
700.8

209.1
240.8
266.6
292.0
310.9

142.7
167.5
193.8
214.4
233.1

66.4
73.3
72.7
77.5
77.8

298.0
320.3
341.1
360.3
389.9

2,717.5
3,005.2
3,165.5
3,410.6
3,706.1

2,722.8
3,045.3
3,170.2
3,456.5
3,879.9

2,742.1
3,063.8
3,179.8
3,434.4
3,801.5

8.8
11.9
3.9
8.1
10.9

8.4
11.8
4.1
9.0
12.2

1985
1986
1987
1988
1989

...........
...........
...........
...........
...........

−115.6
−132.5
−143.1
−108.0
−79.7

302.1
319.2
364.0
444.2
508.0

417.6
451.7
507.1
552.2
587.7

772.3
833.0
881.5
918.7
975.2

344.3
367.8
384.9
387.0
401.6

258.6
276.7
292.1
295.6
299.9

85.7
91.1
92.9
91.4
101.7

428.1
465.3
496.6
531.7
573.6

4,014.1
4,260.0
4,513.7
4,884.2
5,217.5

4,154.3
4,401.2
4,683.0
5,008.4
5,330.5

4,053.6
4,277.7
4,544.5
4,908.2
5,266.8

6.9
5.7
6.4
7.9
7.2

7.1
5.9
6.4
6.9
6.4

1990 ...........
1991 ...........
1992 ...........
1993 ...........
1994 p ........

−71.4
−19.9
−30.3
−65.3
−102.1

557.1
601.1
638.1
659.1
716.1

628.5
620.9
688.4
724.3
818.2

1,047.4
1,097.4
1,125.3
1,148.4
1,174.5

426.5
445.8
449.0
443.6
436.6

314.0
322.8
314.2
302.7
292.1

112.5
123.1
134.8
140.9
144.5

620.9
651.6
676.3
704.7
737.9

5,539.3
5,726.6
6,017.2
6,327.9
6,679.1

5,617.5
5,744.7
6,050.5
6,408.6
6,838.9

5,567.8
5,740.8
6,025.8
6,347.8
..............

5.6
3.2
5.2
5.4
6.2

5.4
2.3
5.3
5.9
6.7

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

......
......
......
......
......
......
......
......
......

−29.5
−71.8
−107.1
−135.5
−133.2
−143.2
−106.0
−73.9
−71.6

265.6
286.2
308.7
304.7
333.9
392.4
467.0
523.8
577.6

295.1 631.6
358.0 657.6
415.7 727.0
440.2 799.2
467.1 849.7
535.6 901.4
573.1 937.6
597.7 994.5
649.2 1,076.5

281.4
289.7
324.7
356.9
373.1
392.5
392.0
405.1
436.5

205.5
222.8
242.9
268.6
278.6
295.8
296.8
302.5
322.5

75.9
66.9
81.9
88.3
94.5
96.7
95.2
102.6
114.0

350.3
367.9
402.2
442.4
476.6
509.0
545.7
589.3
640.0

3,241.4
3,527.1
3,818.1
4,107.9
4,355.4
4,623.7
5,027.3
5,314.6
5,621.8

3,224.6
3,619.1
3,976.2
4,276.0
4,469.8
4,826.2
5,150.7
5,418.7
5,669.5

3,222.6
3,578.4
3,890.2
4,156.2
4,340.5
4,690.5
5,054.3
5,365.0
5,630.0

............
............
............
............
............
............
............
............
............

................
................
................
................
................
................
................
................
................

1991: I ........
II ......
III .....
IV .....

−32.9
−11.6
−21.2
−13.7

576.6
602.1
601.9
623.7

609.4
613.8
623.1
637.5

1,095.5
1,098.7
1,097.6
1,097.9

451.7
450.1
443.2
438.3

331.8
326.6
320.9
311.6

119.9
123.5
122.3
126.6

643.8
648.6
654.4
659.7

5,654.7
5,718.8
5,750.6
5,782.3

5,669.6
5,717.5
5,781.1
5,810.4

5,664.0
5,719.0
5,769.3
5,810.7

2.8
5.0
3.8
2.6

.0
3.4
4.5
2.0

1992: I ........
II ......
III .....
IV .....

−9.9
−31.2
−37.8
−42.2

631.8
632.7
638.8
649.2

641.7
663.9
676.6
691.4

1,114.5
1,116.8
1,131.9
1,138.1

445.2
443.2
452.9
454.8

312.2
310.0
318.6
316.0

133.0
133.2
134.2
138.7

669.3
673.6
679.1
683.3

5,903.1
5,967.4
6,038.3
6,160.0

5,906.6
6,002.6
6,081.4
6,211.4

5,907.7
5,979.1
6,049.4
6,167.0

7.1
5.2
4.9
8.6

6.8
6.7
5.4
8.8

1993: I ........
II ......
III .....
IV .....

−49.6
−63.3
−77.0
−71.2

646.8
660.1
649.0
680.3

696.4
723.5
726.0
751.4

1,137.1
1,146.3
1,152.9
1,157.2

446.9
445.2
442.7
439.8

307.0
305.8
299.0
299.1

139.9
139.4
143.6
140.7

690.2
701.2
710.2
717.4

6,215.8
6,281.4
6,345.4
6,469.2

6,285.5
6,363.3
6,436.3
6,549.3

6,243.9
6,303.3
6,367.8
6,476.2

4.4
4.2
3.8
7.7

4.9
5.0
4.7
7.2

1994: I ........
II ......
III .....
IV p ...

−86.7
−97.6
−109.6
−114.3

674.2
704.5
730.5
755.3

760.9
802.1
840.1
869.6

1,159.8
1,166.7
1,188.8
1,182.6

437.8
435.1
444.3
429.2

291.7
291.7
300.5
284.4

146.1
143.5
143.8
144.8

722.0
731.5
744.5
753.4

6,550.6
6,622.5
6,729.1
6,814.3

6,661.4
6,787.5
6,901.3
7,005.5

6,574.0
6,682.5
6,779.6
..............

6.1
7.2
6.2
6.0

7.0
7.8
6.9
6.2

1959 ...........

1 Gross

domestic product (GDP) less exports of goods and services plus imports of goods and services.
plus net receipts of factor income from rest of the world.
Source: Department of Commerce, Bureau of Economic Analysis.

2 GDP




275

TABLE B–2.—Gross domestic product in 1987 dollars, 1959–94
[Billions of 1987 dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Personal consumption
expenditures

Gross private domestic investment
Fixed investment

Year or
quarter

Gross
domestic
product

Nonresidential
Total

Durable
goods

Nondurable
goods

Services

Total
Total
Total

Structures

Producers’
durable
equipment

Residential

Change
in
business
inventories

1959 ...................

1,928.8

1,178.9

114.4

518.5

546.0

296.4

282.8

165.2

74.4

90.8

117.6

13.6

1960
1961
1962
1963
1964

...................
...................
...................
...................
...................

1,970.8
2,023.8
2,128.1
2,215.6
2,340.6

1,210.8
1,238.4
1,293.3
1,341.9
1,417.2

115.4
109.4
120.2
130.3
140.7

526.9
537.7
553.0
563.6
588.2

568.5
591.3
620.0
648.0
688.3

290.8
289.4
321.2
343.3
371.8

282.7
282.2
305.6
327.3
356.2

173.3
172.1
185.0
192.3
214.0

80.8
82.3
86.1
86.9
95.9

92.5
89.8
98.9
105.4
118.1

109.4
110.1
120.6
135.0
142.1

8.1
7.2
15.6
16.0
15.7

1965
1966
1967
1968
1969

...................
...................
...................
...................
...................

2,470.5
2,616.2
2,685.2
2,796.9
2,873.0

1,497.0
1,573.8
1,622.4
1,707.5
1,771.2

156.2
166.0
167.2
184.5
190.8

616.7
647.6
659.0
686.0
703.2

724.1
760.2
796.2
837.0
877.2

413.0
438.0
418.6
440.1
461.3

387.9
401.3
391.0
416.5
436.5

250.6
276.7
270.8
280.1
296.4

111.5
119.1
116.0
117.4
123.5

139.1
157.6
154.8
162.7
172.9

137.3
124.5
120.2
136.4
140.1

25.1
36.7
27.6
23.6
24.8

1970
1971
1972
1973
1974

...................
...................
...................
...................
...................

2,873.9
2,955.9
3,107.1
3,268.6
3,248.1

1,813.5
1,873.7
1,978.4
2,066.7
2,053.8

183.7
201.4
225.2
246.6
227.2

717.2
725.6
755.8
777.9
759.8

912.5
946.7
997.4
1,042.2
1,066.8

429.7
475.7
532.2
591.7
543.0

423.8
454.9
509.6
554.0
512.0

292.0
286.8
311.6
357.4
356.5

123.3
121.2
124.8
134.9
132.3

168.7
165.6
186.8
222.4
224.2

131.8
168.1
198.0
196.6
155.6

5.9
20.8
22.5
37.7
30.9

1975
1976
1977
1978
1979

...................
...................
...................
...................
...................

3,221.7
3,380.8
3,533.3
3,703.5
3,796.8

2,097.5
2,207.3
2,296.6
2,391.8
2,448.4

226.8
256.4
280.0
292.9
289.0

767.1
801.3
819.8
844.8
862.8

1,103.6
1,149.5
1,196.8
1,254.1
1,296.5

437.6
520.6
600.4
664.6
669.7

451.5
495.1
566.2
627.4
656.1

316.8
328.7
364.3
412.9
448.8

118.0
120.5
126.1
144.1
163.3

198.8
208.2
238.2
268.8
285.5

134.7
166.4
201.9
214.5
207.4

−13.9
25.5
34.3
37.2
13.6

1980
1981
1982
1983
1984

...................
...................
...................
...................
...................

3,776.3
3,843.1
3,760.3
3,906.6
4,148.5

2,447.1
2,476.9
2,503.7
2,619.4
2,746.1

262.7
264.6
262.5
297.7
338.5

860.5
867.9
872.2
900.3
934.6

1,323.9
1,344.4
1,368.9
1,421.4
1,473.0

594.4
631.1
540.5
599.5
757.5

602.7
606.5
558.0
595.1
689.6

437.8
455.0
433.9
420.8
490.2

170.2
182.9
181.3
160.3
182.8

267.6
272.0
252.6
260.5
307.4

164.8
151.6
124.1
174.2
199.3

−8.3
24.6
−17.5
4.4
67.9

1985
1986
1987
1988
1989

...................
...................
...................
...................
...................

4,279.8
4,404.5
4,539.9
4,718.6
4,838.0

2,865.8
2,969.1
3,052.2
3,162.4
3,223.3

370.1
402.0
403.7
428.7
440.7

958.7
991.0
1,011.1
1,035.1
1,051.6

1,537.0
1,576.1
1,637.4
1,698.5
1,731.0

745.9
735.1
749.3
773.4
784.0

723.8
726.5
723.0
753.4
754.2

521.8
500.3
497.8
530.8
540.0

197.4
176.6
171.3
174.0
177.6

324.4
323.7
326.5
356.8
362.5

202.0
226.2
225.2
222.7
214.2

22.1
8.5
26.3
19.9
29.8

1990 ...................
1991 ...................
1992 ...................
1993 ...................
1994 p ................

4,897.3
4,867.6
4,979.3
5,134.5
5,342.3

3,272.6
3,259.4
3,349.5
3,458.7
3,578.5

443.1
425.3
452.6
489.9
531.5

1,060.7
1,047.7
1,057.7
1,078.5
1,109.3

1,768.8
1,786.3
1,839.1
1,890.3
1,937.8

746.8
683.8
725.3
819.9
955.5

741.1
684.9
722.9
804.6
903.1

546.5
515.4
525.9
591.6
672.4

179.5
160.6
149.8
147.7
150.4

367.0
354.9
376.2
443.9
522.0

194.5
169.5
196.9
213.0
230.6

5.7
−1.1
2.5
15.3
52.4

1982:
1983:
1984:
1985:
1986:
1987:
1988:
1989:
1990:

.............
.............
.............
.............
.............
.............
.............
.............
.............

3,759.6
4,012.1
4,194.2
4,333.5
4,427.1
4,625.5
4,779.7
4,856.7
4,867.2

2,539.3
2,678.2
2,784.8
2,895.3
3,012.5
3,074.7
3,202.9
3,242.0
3,265.9

272.3
319.1
347.7
369.6
415.7
404.7
439.2
436.8
433.2

880.7
915.2
942.9
968.7
1,000.9
1,014.6
1,046.8
1,058.9
1,057.5

1,386.2
1,443.9
1,494.2
1,557.1
1,595.8
1,655.5
1,716.9
1,746.3
1,775.2

503.5
669.5
756.4
763.1
705.9
793.8
785.0
769.5
695.7

548.4
640.2
708.4
732.9
725.9
733.9
764.1
744.6
716.6

417.2
449.6
509.6
525.5
495.5
510.6
538.8
536.7
540.2

173.2
162.6
189.5
198.3
170.4
177.9
175.7
179.8
172.8

244.0
287.0
320.1
327.2
325.0
332.7
363.1
356.9
367.4

131.2
190.6
198.8
207.4
230.5
223.3
225.3
208.0
176.3

−44.9
29.3
47.9
30.2
−20.1
59.9
20.9
24.9
−20.9

1991: I ...............
II ..............
III .............
IV .............

4,842.0
4,867.9
4,879.9
4,880.8

3,242.9
3,259.5
3,269.8
3,265.3

420.6
421.9
431.3
427.7

1,049.5
1,051.7
1,049.3
1,040.4

1,772.8
1,785.9
1,789.2
1,797.3

670.0
671.5
696.0
697.9

686.4
683.4
685.6
684.4

522.2
518.3
514.4
506.9

169.8
165.3
155.8
151.4

352.5
353.0
358.6
355.5

164.2
165.1
171.2
177.5

−16.4
−11.9
10.4
13.5

1992: I ...............
II ..............
III .............
IV .............

4,918.5
4,947.5
4,990.5
5,060.7

3,311.4
3,325.4
3,357.6
3,403.4

443.4
443.8
454.5
468.8

1,051.1
1,049.3
1,056.4
1,074.2

1,817.0
1,832.3
1,846.7
1,860.4

687.2
725.5
733.3
755.2

693.5
721.3
728.1
748.6

506.8
524.8
531.2
540.9

152.5
151.9
148.4
146.3

354.3
372.9
382.8
394.6

186.7
196.5
196.9
207.7

−6.3
4.2
5.2
6.6

1993: I ...............
II ..............
III .............
IV .............

5,075.3
5,105.4
5,139.4
5,218.0

3,417.2
3,439.2
3,472.2
3,506.2

472.5
483.7
492.7
510.8

1,070.0
1,074.3
1,081.7
1,088.0

1,874.8
1,881.2
1,897.8
1,907.4

789.2
806.2
821.8
862.5

770.7
787.3
808.8
851.7

560.3
581.0
597.9
627.2

147.2
147.3
147.5
148.7

413.0
433.7
450.3
478.5

210.4
206.3
211.0
224.5

18.5
18.9
13.0
10.8

1994: I ...............
II ..............
III .............
IV p ...........

5,261.1
5,314.1
5,367.0
5,426.8

3,546.3
3,557.8
3,584.7
3,625.1

521.7
522.2
529.6
552.4

1,098.3
1,104.3
1,113.4
1,121.1

1,926.3
1,931.4
1,941.8
1,951.7

898.9
950.9
967.3
1,004.9

873.4
891.7
910.2
936.9

643.6
657.9
680.0
708.2

144.1
151.0
151.6
154.9

499.4
506.9
528.4
553.3

229.9
233.8
230.2
228.7

25.4
59.2
57.1
68.0

IV
IV
IV
IV
IV
IV
IV
IV
IV

See next page for continuation of table.




276

TABLE B–2.—Gross domestic product in 1987 dollars, 1959–94—Continued
[Billions of 1987 dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Net exports of goods and
services
Year or
quarter

Government
purchases
Federal

Net
exports Exports Imports

Total
Total

National
defense

Nondefense

State
and
local

Final
sales of
domestic
product

Gross
domestic purchases 1

Addendum:
Gross
national
product 2

Percent change
from preceding
period
Gross
Gross
domes- domestic
tic
purprod- chases 1
uct

1959 ...........

−21.8

73.8

95.6

475.3

265.7 ............ ............

209.6

1,915.2

1,950.6

1,939.6

5.5

5.8

1960
1961
1962
1963
1964

...........
...........
...........
...........
...........

−7.6
−5.5
−10.5
−5.8
2.5

88.4
89.9
95.0
101.8
115.4

96.1
95.3
105.5
107.7
112.9

476.9
501.5
524.2
536.3
549.1

259.0
270.1
287.3
285.7
281.8

............
............
............
............
............

............
............
............
............
............

217.9
231.4
236.9
250.6
267.3

1,962.7
2,016.6
2,112.5
2,199.6
2,324.9

1,978.5
2,029.3
2,138.6
2,221.4
2,338.1

1,982.8
2,037.1
2,143.3
2,231.8
2,358.1

2.2
2.7
5.2
4.1
5.6

1.4
2.6
5.4
3.9
5.3

1965
1966
1967
1968
1969

...........
...........
...........
...........
...........

−6.4
−18.0
−23.7
−37.5
−41.5

118.1
125.7
130.0
140.2
147.8

124.5
143.7
153.7
177.7
189.2

566.9
622.4
667.9
686.8
682.0

282.1
319.3
350.9
353.1
340.1

............
............
............
............
............

............
............
............
............
............

284.8
303.1
317.0
333.7
341.9

2,445.4
2,579.5
2,657.5
2,773.2
2,848.2

2,476.9
2,634.2
2,708.9
2,834.4
2,914.5

2,488.9
2,633.2
2,702.6
2,815.6
2,890.9

5.5
5.9
2.6
4.2
2.7

5.9
6.4
2.8
4.6
2.8

1970
1971
1972
1973
1974

...........
...........
...........
...........
...........

−35.2
−45.9
−56.5
−34.1
−4.1

161.3
161.9
173.7
210.3
234.4

196.4
207.8
230.2
244.4
238.4

665.8
652.4
653.0
644.2
655.4

315.0 ............ ............
290.8 ............ ............
284.4 209.6
74.8
265.3 191.3
74.1
262.6 185.8
76.8

350.9
361.6
368.6
378.9
392.9

2,868.0
2,935.2
3,084.5
3,230.9
3,217.2

2,909.1
3,001.8
3,163.6
3,302.7
3,252.2

2,891.5
2,975.9
3,128.8
3,298.6
3,282.4

.0
2.9
5.1
5.2
−.6

−.2
3.2
5.4
4.4
−1.5

1975
1976
1977
1978
1979

...........
...........
...........
...........
...........

23.1
−6.4
−27.8
−29.9
−10.6

232.9
243.4
246.9
270.2
293.5

209.8
249.7
274.7
300.1
304.1

663.5
659.2
664.1
677.0
689.3

262.7
258.2
263.1
268.6
271.7

184.9
179.9
181.6
182.1
185.1

77.8
78.3
81.4
86.5
86.6

400.8
401.1
401.0
408.4
417.6

3,235.6
3,355.3
3,499.0
3,666.3
3,783.2

3,198.6
3,387.1
3,561.1
3,733.3
3,807.4

3,247.6
3,412.2
3,569.0
3,739.0
3,845.3

−.8
4.9
4.5
4.8
2.5

−1.6
5.9
5.1
4.8
2.0

1980
1981
1982
1983
1984

...........
...........
...........
...........
...........

30.7
22.0
−7.4
−56.1
−122.0

320.5
326.1
296.7
285.9
305.7

289.9
304.1
304.1
342.1
427.7

704.2
713.2
723.6
743.8
766.9

284.8
295.8
306.0
320.8
331.0

194.2
206.4
221.4
234.2
245.8

90.6
89.4
84.7
86.6
85.1

419.4
417.4
417.6
423.0
436.0

3,784.6
3,818.6
3,777.8
3,902.2
4,080.6

3,745.7
3,821.2
3,767.7
3,962.8
4,270.5

3,823.4
3,884.4
3,796.1
3,939.6
4,174.5

−.5
1.8
−2.2
3.9
6.2

−1.6
2.0
−1.4
5.2
7.8

1985
1986
1987
1988
1989

...........
...........
...........
...........
...........

−145.3
−155.1
−143.1
−104.0
−73.7

309.2
329.6
364.0
421.6
471.8

454.6
484.7
507.1
525.7
545.4

813.4
855.4
881.5
886.8
904.4

355.2
373.0
384.9
377.3
376.1

265.6
280.6
292.1
287.0
281.4

89.5
92.4
92.9
90.2
94.8

458.2
482.4
496.6
509.6
528.3

4,257.6
4,395.9
4,513.7
4,698.6
4,808.3

4,425.1
4,559.6
4,683.0
4,822.6
4,911.7

4,295.0
4,413.5
4,544.5
4,726.3
4,852.7

3.2
2.9
3.1
3.9
2.5

3.6
3.0
2.7
3.0
1.8

1990 ...........
1991 ...........
1992 ...........
1993 ...........
1994 p .........

−54.7
−19.5
−32.3
−73.9
−114.2

510.5
542.6
578.8
602.5
654.8

565.1
562.1
611.2
676.3
769.0

932.6
944.0
936.9
929.8
922.5

384.1
386.7
373.5
356.6
337.3

283.6
281.4
261.4
243.7
226.5

100.4
105.3
112.2
113.0
110.7

548.5
557.2
563.3
573.1
585.2

4,891.6
4,868.7
4,976.9
5,119.3
5,289.8

4,951.9
4,887.2
5,011.6
5,208.4
5,456.5

4,916.5
4,882.3
4,985.7
5,140.3
..............

1.2
−.6
2.3
3.1
4.0

.8
−1.3
2.5
3.9
4.8

1982:
1983:
1984:
1985:
1986:
1987:
1988:
1989:
1990:

......
......
......
......
......
......
......
......
......

−19.0
−83.7
−131.4
−155.4
−156.0
−136.0
−102.7
−67.4
−36.8

280.4
291.5
312.8
312.0
342.9
386.1
438.2
487.7
520.4

299.4
375.1
444.2
467.4
498.9
522.1
540.9
555.0
557.2

735.9
748.1
784.3
830.5
864.8
893.0
894.5
912.6
942.4

316.0
322.2
341.7
363.7
377.5
391.6
378.4
376.1
386.5

229.4
242.9
254.3
272.1
282.2
295.0
285.7
281.5
285.7

86.6
79.3
87.4
91.6
95.3
96.6
92.7
94.7
100.8

419.9
425.9
442.6
466.7
487.3
501.4
516.1
536.5
555.8

3,804.5
3,982.8
4,146.2
4,303.3
4,447.2
4,565.6
4,758.7
4,831.8
4,888.0

3,778.6
4,095.8
4,325.5
4,488.9
4,583.1
4,761.5
4,882.4
4,924.1
4,904.0

3,791.7
4,046.6
4,216.4
4,349.5
4,430.8
4,633.0
4,789.0
4,875.1
4,895.4

............
............
............
............
............
............
............
............
............

................
................
................
................
................
................
................
................
................

1991: I ........
II .......
III ......
IV ......

−20.4
−13.8
−27.1
−16.9

519.0
544.0
544.8
562.6

539.4
557.8
571.8
579.4

949.5
950.6
941.3
934.4

395.2
394.1
383.6
374.1

292.1
288.5
279.3
265.8

103.1
105.7
104.3
108.2

554.3
556.5
557.7
560.4

4,858.4
4,879.8
4,869.5
4,867.3

4,862.4
4,881.7
4,907.0
4,897.6

4,866.1
4,880.0
4,889.1
4,893.9

−2.1
2.2
1.0
.1

−3.4
1.6
2.1
−.8

1992: I ........
II .......
III ......
IV ......

−17.9
−34.1
−38.9
−38.5

571.0
573.1
580.5
590.7

588.8
607.1
619.4
629.3

937.8
930.7
938.5
940.6

372.9
368.3
376.0
377.0

260.9
257.5
264.6
262.4

112.0
110.8
111.4
114.6

564.9
562.4
562.5
563.6

4,924.8
4,943.2
4,985.3
5,054.1

4,936.4
4,981.5
5,029.4
5,099.2

4,929.1
4,955.5
4,997.2
5,061.0

3.1
2.4
3.5
5.7

3.2
3.7
3.9
5.7

1993: I ........
II .......
III ......
IV ......

−57.6
−69.3
−86.3
−82.2

589.2
600.2
595.3
625.2

646.8
669.6
681.6
707.4

926.5
929.3
931.8
931.5

361.6
358.3
355.6
351.1

248.2
246.8
240.9
238.7

113.3
111.5
114.7
112.4

564.9
571.0
576.2
580.4

5,056.8
5,086.5
5,126.5
5,207.2

5,132.9
5,174.7
5,225.8
5,300.2

5,083.9
5,110.1
5,148.4
5,218.7

1.2
2.4
2.7
6.3

2.7
3.3
4.0
5.8

1994: I ........
II .......
III ......
IV p ...

−104.0
−111.8
−117.0
−124.1

619.6
643.9
666.5
689.0

723.6
755.6
783.5
813.1

919.9
917.1
932.0
920.9

341.7
334.7
343.5
329.2

228.5
226.1
233.0
218.6

113.2
108.7
110.5
110.6

578.3
582.4
588.5
591.8

5,235.7
5,254.9
5,310.0
5,358.8

5,365.1
5,425.8
5,484.0
5,550.9

5,267.7
5,310.5
5,359.9
..............

3.3
4.1
4.0
4.5

5.0
4.6
4.4
5.0

IV
IV
IV
IV
IV
IV
IV
IV
IV

1 Gross

domestic product (GDP) less exports of goods and services plus imports of goods and services.
plus net receipts of factor income from rest of the world.
Source: Department of Commerce, Bureau of Economic Analysis.

2 GDP




277

TABLE B–3.—Implicit price deflators for gross domestic product, 1959–94
[Index numbers, 1987=100, except as noted; quarterly data seasonally adjusted]
Personal consumption
expenditures

Year or quarter

Gross
domestic
product

Gross private domestic investment:
Fixed investment
Nonresidential

Total

Durable
goods

Nondurable
goods

Services

Total
Total

Structures

Producers’
durable
equipment

Residential

1959 ...................................................

25.6

27.0

37.4

28.6

23.2

26.4

28.1

24.4

31.2

23.9

1960
1961
1962
1963
1964

...................................................
...................................................
...................................................
...................................................
...................................................

26.0
26.3
26.9
27.2
27.7

27.5
27.7
28.2
28.6
29.1

37.7
38.3
39.1
39.7
40.4

29.1
29.3
29.6
30.1
30.5

23.9
24.4
24.8
25.2
25.6

26.7
26.6
26.8
26.8
27.1

28.4
28.2
28.6
28.9
29.2

24.2
24.0
24.1
24.4
24.7

32.1
32.2
32.4
32.6
32.8

24.0
24.0
24.0
23.8
24.1

1965
1966
1967
1968
1969

...................................................
...................................................
...................................................
...................................................
...................................................

28.4
29.4
30.3
31.8
33.4

29.7
30.6
31.4
32.7
34.1

40.6
41.3
42.3
43.9
45.2

31.1
32.2
32.9
34.3
35.9

26.1
26.9
27.8
29.0
30.2

27.9
29.1
30.1
31.4
33.3

29.6
30.5
31.5
32.9
34.7

25.4
26.3
27.2
28.6
30.5

32.9
33.6
34.7
36.0
37.7

24.9
25.9
26.9
28.4
30.4

1970
1971
1972
1973
1974

...................................................
...................................................
...................................................
...................................................
...................................................

35.2
37.1
38.8
41.3
44.9

35.6
37.4
38.8
41.0
45.2

46.4
48.3
49.2
50.3
54.1

37.7
39.0
40.4
43.7
50.1

31.9
33.8
35.3
36.9
39.7

34.9
36.8
38.4
40.7
45.2

36.5
39.0
40.5
42.0
46.4

32.7
35.2
37.8
40.7
46.3

39.4
41.7
42.2
42.7
46.5

31.4
33.2
35.2
38.3
42.4

1975
1976
1977
1978
1979

...................................................
...................................................
...................................................
...................................................
...................................................

49.2
52.3
55.9
60.3
65.5

48.9
51.8
55.4
59.4
64.7

59.2
62.4
65.2
69.1
74.1

54.2
56.4
59.8
64.1
71.1

43.0
46.2
50.0
54.0
58.3

51.3
54.5
58.9
64.7
71.2

53.3
56.9
61.3
66.5
72.7

52.0
54.7
59.2
65.2
72.5

54.1
58.2
62.4
67.2
72.9

46.6
49.6
54.6
61.3
68.0

1980
1981
1982
1983
1984

...................................................
...................................................
...................................................
...................................................
...................................................

71.7
78.9
83.8
87.2
91.0

71.4
77.8
82.2
86.2
89.6

80.9
86.4
90.1
92.4
93.9

79.4
85.7
88.6
90.8
93.4

64.4
70.9
76.7
81.9
86.2

79.2
87.8
93.1
92.8
93.9

80.8
90.1
95.3
95.1
95.7

80.8
92.5
98.6
95.5
96.1

80.9
88.5
93.0
94.8
95.4

74.8
80.9
85.2
87.3
89.7

1985
1986
1987
1988
1989

...................................................
...................................................
...................................................
...................................................
...................................................

94.4
96.9
100.0
103.9
108.5

93.1
96.0
100.0
104.2
109.3

95.4
96.9
100.0
102.0
104.2

95.9
96.1
100.0
103.7
109.3

90.8
95.7
100.0
105.1
110.6

95.3
97.6
100.0
103.2
105.9

96.6
98.4
100.0
102.8
105.2

98.0
98.5
100.0
104.6
108.9

95.7
98.4
100.0
101.9
103.4

92.0
95.8
100.0
104.2
107.8

1990 ...................................................
1991 ...................................................
1992 ...................................................
1993 ...................................................
1994 p .................................................

113.3
117.6
120.9
123.5
126.1

114.9
119.7
123.5
126.6
129.3

105.7
107.3
108.9
109.8
111.2

115.9
120.0
122.5
124.2
125.7

116.7
122.5
127.7
132.3
136.4

108.2
109.0
108.6
107.7
108.5

107.3
108.1
106.7
104.1
103.7

112.3
113.9
114.2
117.4
121.4

104.9
105.4
103.8
99.7
98.6

110.7
111.9
113.7
117.6
122.4

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

..............................................
..............................................
..............................................
..............................................
..............................................
..............................................
..............................................
..............................................
..............................................

85.0
88.4
92.3
95.5
98.0
101.2
105.5
110.1
115.0

83.8
87.6
90.7
94.6
97.0
101.6
106.1
111.0
117.5

90.6
93.3
94.4
95.9
97.8
101.0
103.1
104.9
106.1

89.4
91.8
94.2
97.0
96.3
101.5
105.6
110.8
119.2

79.0
83.7
87.7
92.9
97.3
101.9
107.1
112.7
119.2

93.1
92.9
94.8
96.1
98.6
101.0
104.4
106.8
108.9

95.3
95.0
96.4
97.3
99.2
100.7
104.0
106.0
108.2

97.5
95.1
97.2
98.5
98.8
101.2
106.3
110.1
113.3

93.8
94.9
96.0
96.5
99.5
100.5
102.8
103.9
105.8

86.0
88.0
90.7
93.1
97.3
101.5
105.3
108.8
111.1

1991: I ................................................
II ..............................................
III .............................................
IV .............................................

116.4
117.2
118.0
118.8

118.5
119.2
120.1
121.1

106.8
107.1
107.5
107.8

119.4
119.8
120.2
120.8

120.7
121.7
123.1
124.5

109.4
109.2
109.0
108.5

108.8
108.4
107.8
107.3

113.8
114.0
114.3
113.6

106.4
105.7
105.0
104.6

111.2
111.7
112.5
111.9

1992: I ................................................
II ..............................................
III .............................................
IV .............................................

119.9
120.7
121.1
121.9

122.1
123.2
123.7
124.9

108.3
108.9
109.1
109.1

121.4
122.1
123.0
123.3

125.9
127.3
127.7
129.8

108.7
108.7
108.5
108.6

107.4
107.1
106.5
106.0

113.7
113.8
114.3
115.2

104.7
104.4
103.5
102.6

112.4
113.0
114.0
115.1

1993: I ................................................
II ..............................................
III .............................................
IV .............................................

122.9
123.4
123.7
124.1

125.7
126.4
126.8
127.5

109.2
109.8
110.0
110.2

124.0
124.2
123.9
124.6

130.8
131.9
132.7
133.8

108.2
108.1
107.4
107.3

105.3
104.9
103.5
103.0

115.9
116.9
117.9
118.8

101.5
100.8
98.8
98.1

115.9
117.2
118.2
119.0

1994: I ................................................
II ..............................................
III .............................................
IV p ...........................................

125.0
125.9
126.5
127.0

127.9
128.9
129.9
130.4

110.5
111.1
111.7
111.4

124.6
125.1
126.3
126.6

134.4
135.9
137.0
138.1

107.9
108.4
109.0
108.6

103.4
103.9
104.3
103.4

119.8
120.4
121.8
123.5

98.7
98.9
99.2
97.7

120.5
121.3
123.1
124.7

See next page for continuation of table.




278

TABLE B–3.—Implicit price deflators for gross domestic product, 1959–94—Continued
[Index numbers, 1987=100, except as noted; quarterly data seasonally adjusted]
Exports and
imports of goods
and services

Final
sales of
domestic
product

Gross
domestic
purchases 1

Percent
change,
GDP
implicit
price
deflator 2

Government purchases
Federal

Year or quarter
Total
Total

National
Nondefense defense

State
and
local

Exports

Imports

1959 ................................................

28.0

23.4

20.8

21.5 .............. ..............

19.9

25.6

25.4

2.8

1960
1961
1962
1963
1964

................................................
................................................
................................................
................................................
................................................

28.6
29.0
28.9
28.9
29.1

23.8
23.8
23.7
24.3
24.9

20.9
21.3
22.3
22.8
23.4

21.3
21.7
22.8
23.3
23.9

..............
..............
..............
..............
..............

..............
..............
..............
..............
..............

20.4
20.9
21.7
22.3
22.8

26.0
26.2
26.8
27.2
27.7

25.8
26.0
26.6
27.0
27.5

1.6
1.2
2.3
1.1
1.8

1965
1966
1967
1968
1969

................................................
................................................
................................................
................................................
................................................

30.0
31.0
31.8
32.3
33.3

25.3
25.8
26.0
26.2
26.7

24.0
25.0
26.3
27.9
29.6

24.6
25.5
26.5
28.1
29.6

..............
..............
..............
..............
..............

..............
..............
..............
..............
..............

23.5
24.6
26.1
27.7
29.6

28.3
29.3
30.2
31.7
33.3

28.2
29.2
30.0
31.4
33.0

2.5
3.5
3.1
5.0
5.0

1970
1971
1972
1973
1974

................................................
................................................
................................................
................................................
................................................

35.3
36.6
38.1
43.6
53.0

28.4
30.0
32.2
37.3
53.5

31.9
34.4
37.0
40.0
44.0

31.8 .............. ..............
34.4 .............. ..............
37.6
36.9
39.3
40.9
40.5
41.9
44.8
44.5
45.5

32.1
34.4
36.5
39.4
43.5

35.2
37.1
38.8
41.2
44.9

34.7
36.7
38.4
40.8
44.9

5.4
5.4
4.6
6.4
8.7

1975
1976
1977
1978
1979

................................................
................................................
................................................
................................................
................................................

58.5
61.2
64.3
68.9
78.0

58.5
60.5
66.4
70.7
83.1

48.4
51.8
55.4
59.6
65.1

49.3
52.6
56.2
60.4
66.0

48.5
51.9
55.6
59.8
65.8

51.2
54.1
57.7
61.7
66.4

47.9
51.2
54.9
59.1
64.5

49.2
52.2
55.7
60.1
65.4

49.2
52.3
56.1
60.5
66.0

9.6
6.3
6.9
7.9
8.6

1980
1981
1982
1983
1984

................................................
................................................
................................................
................................................
................................................

87.1
92.9
95.2
96.8
98.9

101.4
104.5
99.7
95.9
94.7

72.0
78.7
84.0
87.7
91.4

73.4
81.4
87.1
91.0
93.9

73.5
81.1
87.6
91.6
94.8

73.3
82.1
85.9
89.5
91.3

71.1
76.7
81.7
85.2
89.4

71.8
78.7
83.8
87.4
90.8

72.7
79.7
84.1
87.2
90.9

9.5
10.0
6.2
4.1
4.4

1985
1986
1987
1988
1989

................................................
................................................
................................................
................................................
................................................

97.7
96.9
100.0
105.3
107.7

91.9
93.2
100.0
105.1
107.8

95.0
97.4
100.0
103.6
107.8

96.9
98.6
100.0
102.6
106.8

97.3
98.6
100.0
103.0
106.6

95.7
98.6
100.0
101.4
107.3

93.4
96.4
100.0
104.3
108.6

94.3
96.9
100.0
103.9
108.5

93.9
96.5
100.0
103.9
108.5

3.7
2.6
3.2
3.9
4.4

1990 ................................................
1991 ................................................
1992 ................................................
1993 ................................................
1994 p ..............................................

109.1
110.8
110.2
109.4
109.4

111.2
110.5
109.4
107.1
106.4

112.3
116.3
120.1
123.5
127.3

111.0
115.3
120.2
124.4
129.4

110.7
114.7
120.2
124.2
128.9

112.0
116.9
120.2
124.7
130.5

113.2
116.9
120.1
123.0
126.1

113.2
117.6
120.9
123.6
126.3

113.4
117.5
120.7
123.0
125.3

4.4
3.8
2.8
2.2
2.1

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................
...........................................

94.7
98.2
98.7
97.7
97.4
101.6
106.6
107.4
111.0

98.5
95.4
93.6
94.2
93.6
102.6
106.0
107.7
116.5

85.8
87.9
92.7
96.2
98.3
100.9
104.8
109.0
114.2

89.0
89.9
95.0
98.1
98.8
100.2
103.6
107.7
112.9

89.6
91.7
95.5
98.7
98.7
100.3
103.9
107.5
112.9

87.7
84.3
93.7
96.4
99.2
100.1
102.6
108.4
113.1

83.4
86.4
90.9
94.8
97.8
101.5
105.7
109.9
115.2

85.2
88.6
92.1
95.5
97.9
101.3
105.6
110.0
115.0

85.3
88.4
91.9
95.3
97.5
101.4
105.5
110.0
115.6

..............
..............
..............
..............
..............
..............
..............
..............
..............

1991: I .............................................
II ...........................................
III ..........................................
IV ..........................................

111.1
110.7
110.5
110.9

113.0
110.0
109.0
110.0

115.4
115.6
116.6
117.5

114.3
114.2
115.5
117.2

113.6
113.2
114.9
117.2

116.4
116.9
117.3
117.0

116.1
116.5
117.3
117.7

116.4
117.2
118.1
118.8

116.6
117.1
117.8
118.6

5.0
2.8
2.8
2.7

1992: I .............................................
II ...........................................
III ..........................................
IV ..........................................

110.7
110.4
110.0
109.9

109.0
109.4
109.2
109.9

118.9
120.0
120.6
121.0

119.4
120.4
120.4
120.6

119.7
120.4
120.4
120.4

118.8
120.3
120.5
121.1

118.5
119.8
120.7
121.2

119.9
120.7
121.1
121.9

119.7
120.5
120.9
121.8

3.8
2.7
1.3
2.7

1993: I .............................................
II ...........................................
III ..........................................
IV ..........................................

109.8
110.0
109.0
108.8

107.7
108.1
106.5
106.2

122.7
123.4
123.7
124.2

123.6
124.2
124.5
125.3

123.7
123.9
124.1
125.3

123.5
125.0
125.2
125.1

122.2
122.8
123.3
123.6

122.9
123.5
123.8
124.2

122.5
123.0
123.2
123.6

3.3
1.6
1.0
1.3

1994: I .............................................
II ...........................................
III ..........................................
IV p ........................................

108.8
109.4
109.6
109.6

105.2
106.1
107.2
106.9

126.1
127.2
127.6
128.4

128.1
130.0
129.3
130.4

127.7
129.0
129.0
130.1

129.1
132.0
130.1
130.9

124.9
125.6
126.5
127.3

125.1
126.0
126.7
127.2

124.2
125.1
125.8
126.2

2.9
2.9
1.9
1.6

1 Gross

domestic product (GDP) less exports of goods and services plus imports of goods and services.
change from preceding period; quarterly changes are at annual rates.
Note.—Separate deflators are not calculated for gross private domestic investment, change in business inventories, and net exports of
goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Percent




279

TABLE B–4.—Fixed-weighted price indexes for gross domestic product, 1987 weights, 1959–94
[Index numbers, 1987=100, except as noted; quarterly data seasonally adjusted]
Personal consumption
expenditures
Year or
quarter

Gross
domestic
product

Gross private domestic investment:
Fixed investment
Nonresidential

Total

Durable
goods

Nondurable
goods

Services

Total
Total

Structures

Producers’
durable
equipment

Residential

1959 ...................

................

30.4

54.4

31.4

23.9

................

................

24.1

................

25.0

1960
1961
1962
1963
1964

...................
...................
...................
...................
...................

................
................
................
................
................

30.8
31.1
31.3
31.6
31.9

54.1
53.8
53.4
53.1
53.1

31.8
32.0
32.1
32.5
32.8

24.5
25.0
25.3
25.7
26.1

................
................
................
................
................

................
................
................
................
................

24.1
24.0
24.2
24.5
24.9

................
................
................
................
................

25.1
25.1
25.0
24.7
24.9

1965
1966
1967
1968
1969

...................
...................
...................
...................
...................

................
................
................
................
................

32.2
32.8
33.7
35.0
36.3

52.1
51.3
51.8
53.1
54.2

33.3
34.3
35.1
36.5
38.1

26.7
27.4
28.3
29.6
30.7

................
................
................
................
................

................
................
................
................
................

25.6
26.6
27.5
28.8
30.7

................
................
................
................
................

25.5
26.4
27.2
28.6
30.6

1970
1971
1972
1973
1974

...................
...................
...................
...................
...................

................
................
................
................
................

37.9
39.5
40.8
42.7
46.7

55.1
56.7
57.1
57.8
61.0

39.9
41.1
42.4
45.3
51.3

32.4
34.3
35.9
37.4
40.3

................
................
................
................
................

................
................
................
................
................

32.8
35.2
37.9
40.8
46.3

................
................
................
................
................

31.7
33.5
35.5
38.6
42.7

1975
1976
1977
1978
1979

...................
...................
...................
...................
...................

................
................
................
................
................

50.5
53.3
56.7
60.7
65.8

66.0
69.1
71.7
75.2
80.0

55.3
57.5
60.8
64.7
71.3

43.7
46.9
50.5
54.6
59.0

................
................
................
................
................

................
................
................
................
................

51.5
53.7
57.8
63.7
71.3

................
................
................
................
................

46.7
49.7
54.7
61.4
68.2

1980
1981
1982
1983
1984

...................
...................
...................
...................
...................

................
................
84.8
88.1
91.1

72.6
78.9
83.2
86.7
89.9

84.7
89.5
92.4
93.7
94.9

79.6
86.0
88.8
91.1
93.7

65.3
71.9
77.4
82.4
86.4

................
................
95.6
94.8
94.7

................
................
100.3
98.3
96.8

78.5
87.3
92.9
92.5
94.1

................
................
104.2
101.3
98.3

75.3
81.3
85.3
87.3
89.8

1985
1986
1987
1988
1989

...................
...................
...................
...................
...................

94.3
97.0
100.0
104.0
108.6

93.3
96.1
100.0
104.3
109.5

96.0
97.1
100.0
102.0
104.5

96.2
96.1
100.0
103.8
109.5

90.9
95.8
100.0
105.1
110.7

95.7
97.9
100.0
103.3
106.3

97.3
98.8
100.0
102.8
105.6

96.9
98.5
100.0
104.6
109.0

97.5
99.0
100.0
101.9
103.9

92.1
95.8
100.0
104.3
107.8

1990 ...................
1991 ...................
1992 ...................
1993 ...................
1994p ..................

113.6
118.1
121.9
125.5
128.9

115.2
120.3
124.6
128.1
131.2

106.3
109.1
111.6
113.9
117.0

116.2
120.5
123.0
125.0
126.6

116.8
123.0
128.7
133.5
137.6

109.1
110.8
112.0
114.4
117.5

108.4
110.2
111.2
113.0
115.5

112.4
113.9
114.1
117.3
121.2

106.2
108.3
109.7
110.7
112.5

110.7
111.9
113.6
117.4
122.1

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...............
...............
...............
...............
...............
...............
...............
...............
...............

86.3
89.3
92.3
95.5
98.0
101.3
105.6
110.2
115.3

84.7
88.2
91.0
94.8
97.1
101.6
106.2
111.2
117.9

92.6
94.5
95.2
96.3
97.9
101.0
103.3
105.2
106.9

89.7
92.0
94.4
97.2
96.3
101.5
105.7
111.0
119.7

79.6
84.2
87.9
92.9
97.3
101.9
107.2
112.8
119.5

95.4
94.6
95.1
96.4
98.8
101.0
104.5
107.3
110.0

99.6
97.6
97.0
97.9
99.5
100.7
104.0
106.6
109.4

93.5
92.4
95.3
97.8
99.0
101.2
106.2
110.3
113.3

102.8
100.3
97.9
97.9
99.8
100.5
102.9
104.7
107.4

86.2
88.0
90.8
93.1
97.3
101.5
105.4
108.8
111.1

1991: I .................
II ...............
III ..............
IV ..............

116.8
117.7
118.6
119.4

118.9
119.8
120.8
121.8

108.1
108.7
109.6
110.0

119.8
120.3
120.6
121.3

121.1
122.2
123.6
125.1

110.5
110.6
111.0
110.9

110.2
110.1
110.3
110.4

113.7
113.9
114.3
113.5

108.3
108.1
108.2
108.7

111.3
111.7
112.6
112.1

1992: I .................
II ...............
III ..............
IV ..............

120.5
121.5
122.3
123.2

122.9
124.1
125.2
126.1

110.7
111.5
111.9
112.3

121.9
122.6
123.6
124.0

126.6
128.1
129.4
130.8

111.3
111.6
112.2
112.7

110.8
111.0
111.5
111.6

113.6
113.7
114.2
115.1

109.3
109.6
110.0
109.8

112.4
113.0
113.9
115.1

1993: I .................
II ...............
III ..............
IV ..............

124.4
125.2
125.8
126.6

127.0
127.8
128.3
129.1

112.7
113.7
114.3
115.0

124.7
125.0
124.7
125.4

131.9
133.1
133.9
135.0

113.3
114.1
114.7
115.3

112.2
112.8
113.3
113.7

115.8
116.9
117.8
118.8

110.3
110.7
110.9
111.1

115.7
116.9
118.0
118.8

1994: I .................
II ...............
III ..............
IVp ............

127.5
128.5
129.4
130.3

129.8
130.7
131.8
132.6

115.5
116.7
117.8
118.1

125.4
125.9
127.3
127.7

135.9
137.0
138.1
139.2

116.2
117.0
118.1
118.9

114.4
115.2
116.0
116.4

119.7
120.3
121.7
123.3

111.7
112.5
113.0
112.8

120.2
121.0
122.8
124.5

See next page for continuation of table.




280

TABLE B–4.—Fixed-weighted price indexes for gross domestic product, 1987 weights, 1959–94—Continued
[Index numbers, 1987=100, except as noted; quarterly data seasonally adjusted]
Exports and
imports of goods
and services

Final
sales of
domestic
product

Gross
domestic
purchases 1

Percent
change,
GDP
fixedweighted
price
index 2

Government purchases
Federal

Year or quarter
Total

State
and
local

National
defense

Nondefense

28.6

................

................

21.5

................

................

................

29.0
29.3
30.0
30.6
31.3

................
................
................
................
................

................
................
................
................
................

22.1
22.5
23.4
23.8
24.2

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

27.9
29.0
30.2
31.8
33.7

32.0
32.8
33.9
35.6
37.4

................
................
................
................
................

................
................
................
................
................

24.8
26.0
27.4
28.9
30.8

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

36.2
38.6
41.1
43.7
46.9

40.2
42.9
46.0
48.4
50.2

................
................
46.2
49.0
51.2

................
................
45.2
46.4
47.4

33.1
35.3
37.3
40.1
44.3

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

51.4
54.4
57.7
61.7
66.8

54.6
57.3
60.4
64.1
68.9

55.1
57.8
60.7
64.5
69.6

52.9
55.8
59.4
62.8
66.6

48.9
52.1
55.7
59.9
65.1

................
................
................
................
................

................
................
................
................
................

................
................
................
................
................

........................
........................
........................
........................
........................

................
................
100.4
99.7
99.9

................
................
101.2
97.7
96.8

73.3
79.6
85.0
88.5
92.2

75.2
82.3
88.5
92.2
95.6

76.3
83.3
89.7
93.5
96.9

71.9
79.1
84.7
88.4
91.4

71.9
77.6
82.3
85.5
89.6

................
................
84.9
88.2
91.2

................
................
85.4
88.3
91.0

................
................
................
3.9
3.4

........................
........................
........................
........................
........................

98.2
97.3
100.0
105.7
108.2

94.6
93.8
100.0
105.4
108.5

95.4
97.6
100.0
103.7
107.9

97.9
99.0
100.0
102.8
107.0

98.8
99.5
100.0
103.1
107.1

94.9
97.5
100.0
102.0
106.7

93.5
96.5
100.0
104.3
108.6

94.4
97.0
100.0
104.0
108.6

94.0
96.6
100.0
104.0
108.6

3.5
2.8
3.1
4.0
4.5

1990 ........................
1991 ........................
1992 ........................
1993 ........................
1994p .......................

110.0
112.6
113.9
115.3
118.1

112.4
113.8
115.4
115.2
117.2

112.6
116.8
120.8
124.5
128.6

111.8
116.5
121.5
126.1
131.1

112.1
116.5
122.0
126.6
131.5

110.8
116.6
119.8
124.3
129.9

113.2
117.0
120.3
123.4
126.6

113.6
118.2
122.0
125.6
129.0

113.7
118.1
121.8
125.2
128.5

4.6
4.0
3.2
3.0
2.7

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...................
...................
...................
...................
...................
...................
...................
...................
...................

99.4
100.3
99.3
97.9
97.6
101.7
107.0
108.1
111.9

99.4
97.3
96.0
96.0
93.7
102.8
106.5
108.6
118.3

86.7
89.3
93.9
96.9
98.3
101.0
104.8
109.1
114.4

90.4
92.7
97.7
99.4
99.0
100.2
103.7
108.2
113.5

91.4
93.9
99.3
100.5
99.3
100.3
103.9
108.3
114.0

87.1
88.7
92.6
95.9
98.3
100.1
102.9
107.8
112.0

83.8
86.7
91.1
94.9
97.8
101.5
105.8
109.9
115.1

86.3
89.4
92.3
95.6
98.0
101.3
105.7
110.2
115.4

86.7
89.3
92.1
95.4
97.6
101.4
105.6
110.2
115.9

................
................
................
................
................
................
................
................
................

1991: I .....................
II ....................
III ...................
IV ...................

112.6
112.3
112.3
113.0

115.5
113.0
112.6
114.1

115.8
116.2
117.1
118.0

115.4
115.7
116.7
118.3

115.3
115.5
116.7
118.7

115.8
116.5
116.8
117.1

116.1
116.6
117.4
117.8

116.9
117.8
118.7
119.5

117.0
117.6
118.5
119.3

5.1
3.1
3.3
2.7

1992: I .....................
II ....................
III ...................
IV ...................

113.2
113.8
114.1
114.3

113.9
114.8
116.7
116.4

119.5
120.5
121.4
121.8

120.5
121.3
122.0
122.2

121.0
121.9
122.6
122.7

118.8
119.5
120.2
120.9

118.7
120.0
121.0
121.5

120.6
121.6
122.4
123.3

120.4
121.4
122.4
123.1

3.9
3.3
2.7
2.8

1993: I .....................
II ....................
III ...................
IV ...................

114.7
115.3
115.4
115.6

114.7
115.9
115.0
115.3

123.5
124.3
124.9
125.4

125.0
125.7
126.5
127.0

125.6
126.0
127.0
127.9

123.0
124.7
125.1
124.4

122.4
123.2
123.7
124.1

124.5
125.3
125.9
126.7

124.1
124.9
125.4
126.2

4.2
2.4
2.0
2.4

1994: I .....................
II ....................
III ...................
IVp .................

116.7
117.5
118.4
119.8

114.5
116.2
118.5
119.4

126.7
128.3
129.2
130.1

128.5
130.9
131.9
133.0

129.0
131.1
132.5
133.3

127.2
130.5
130.1
131.8

125.3
126.2
127.1
127.9

127.7
128.6
129.5
130.4

127.0
128.0
129.1
129.9

3.1
2.9
3.0
2.6

Exports

Imports

Total

1959 ........................

................

................

24.6

1960
1961
1962
1963
1964

........................
........................
........................
........................
........................

................
................
................
................
................

................
................
................
................
................

25.1
25.5
26.3
26.8
27.3

1965
1966
1967
1968
1969

........................
........................
........................
........................
........................

................
................
................
................
................

................
................
................
................
................

1970
1971
1972
1973
1974

........................
........................
........................
........................
........................

................
................
................
................
................

1975
1976
1977
1978
1979

........................
........................
........................
........................
........................

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

1 Gross

domestic product (GDP) less exports of goods and services plus imports of goods and services.
change from preceding period; quarterly changes are at annual rates.
Note.—Separate price indexes are not calculated for gross private domestic investment, change in business inventories, and net exports
of goods and services.
Source: Department of Commerce, Bureau of Economic Analysis.
2 Percent




281

TABLE B–5.—Fixed-weighted and alternative quantity and price indexes for total GDP, 1959–94
[Index numbers, 1987=100; quarterly data seasonally adjusted]
Gross domestic product
Quantity indexes
Year or quarter

Current
dollars

Price indexes

Fixed 1987
weights

Chain-type
annual
weights

Benchmark
years
weights

Fixed 1987
weights

Chain-type
annual
weights

Benchmark
year
weights

Implicit
price
deflator

1959 ............................................

10.9

42.5

39.2

38.8

..................

27.8

28.0

25.6

1960
1961
1962
1963
1964

............................................
............................................
............................................
............................................
............................................

11.3
11.7
12.6
13.3
14.3

43.4
44.6
46.9
48.8
51.6

40.1
41.0
43.5
45.4
48.1

39.7
40.7
43.2
45.1
47.8

..................
..................
..................
..................
..................

28.2
28.5
28.9
29.3
29.7

28.4
28.8
29.1
29.5
29.9

26.0
26.3
26.9
27.2
27.7

1965
1966
1967
1968
1969

............................................
............................................
............................................
............................................
............................................

15.5
17.0
17.9
19.6
21.1

54.4
57.6
59.1
61.6
63.3

51.2
54.5
55.9
58.5
60.3

50.8
54.1
55.5
58.0
59.8

..................
..................
..................
..................
..................

30.2
31.1
32.1
33.5
35.1

30.4
31.3
32.3
33.7
35.2

28.4
29.4
30.3
31.8
33.4

1970
1971
1972
1973
1974

............................................
............................................
............................................
............................................
............................................

22.3
24.2
26.6
29.7
32.1

63.3
65.1
68.4
72.0
71.5

60.3
62.3
65.7
69.6
69.2

59.8
61.8
65.3
69.1
68.7

..................
..................
..................
..................
..................

36.9
38.8
40.5
42.7
46.5

37.1
39.0
40.7
43.0
46.7

35.2
37.1
38.8
41.3
44.9

1975
1976
1977
1978
1979

............................................
............................................
............................................
............................................
............................................

34.9
39.0
43.5
49.2
54.8

71.0
74.5
77.8
81.6
83.6

68.7
72.4
76.0
79.9
82.2

68.1
71.8
75.5
79.4
81.7

..................
..................
..................
..................
..................

50.9
53.8
57.3
61.5
66.7

51.1
54.1
57.6
61.4
66.6

49.2
52.3
55.9
60.3
65.5

1980
1981
1982
1983
1984

............................................
............................................
............................................
............................................
............................................

59.6
66.8
69.4
75.0
83.2

83.2
84.7
82.8
86.0
91.4

82.0
84.0
82.2
85.3
91.3

81.7
83.9
82.3
85.5
91.2

..................
..................
84.8
88.1
91.1

72.7
79.4
84.4
87.9
91.1

72.7
79.3
84.3
87.7
90.9

71.7
78.9
83.8
87.2
91.0

1985
1986
1987
1988
1989

............................................
............................................
............................................
............................................
............................................

89.0
94.0
100.0
107.9
115.7

94.3
97.0
100.0
103.9
106.6

94.3
97.0
100.0
103.9
106.6

94.2
96.9
100.0
103.8
106.4

94.3
97.0
100.0
104.0
108.6

94.4
97.0
100.0
103.9
108.5

94.2
96.9
100.0
103.9
108.5

94.4
96.9
100.0
103.9
108.5

1990 ............................................
1991 ............................................
1992 ............................................
1993 ............................................
1994 p ..........................................

122.2
126.1
132.6
139.7
148.4

107.9
107.2
109.7
113.1
117.7

107.9
107.2
109.4
112.2
116.1

107.7
106.9
109.3
112.0
116.0

113.6
118.1
121.9
125.5
128.9

113.2
117.7
121.2
124.6
127.9

113.3
117.8
121.4
124.8
128.1

113.3
117.6
120.9
123.5
126.1

1989: I ..........................................
II ........................................
III .......................................
IV .......................................

113.4
115.2
116.3
117.7

106.1
106.6
106.6
107.0

106.1
106.6
106.6
107.0

105.9
106.4
106.4
106.8

106.9
108.2
109.2
110.2

106.9
108.1
109.0
110.0

106.8
108.0
109.0
110.0

106.9
108.1
109.1
110.1

1990: I ..........................................
II ........................................
III .......................................
IV .......................................

120.3
122.0
123.0
123.3

107.9
108.3
108.1
107.2

108.0
108.4
108.1
107.3

107.7
108.1
107.9
107.0

111.7
112.9
114.3
115.3

111.5
112.7
113.9
114.9

111.5
112.7
114.0
115.0

111.5
112.7
113.8
115.0

1991: I ..........................................
II ........................................
III .......................................
IV .......................................

124.2
125.7
126.9
127.7

106.7
107.2
107.5
107.5

106.7
107.2
107.4
107.4

106.4
106.9
107.2
107.2

116.8
117.7
118.6
119.4

116.4
117.3
118.2
118.9

116.5
117.4
118.3
119.0

116.4
117.2
118.0
118.8

1992: I ..........................................
II ........................................
III .......................................
IV .......................................

129.9
131.5
133.1
135.9

108.3
109.0
109.9
111.5

108.2
108.8
109.6
111.0

108.0
108.6
109.5
110.9

120.5
121.5
122.3
123.2

120.0
120.9
121.6
122.4

120.2
121.1
121.8
122.6

119.9
120.7
121.1
121.9

1993: I ..........................................
II ........................................
III .......................................
IV .......................................

137.4
138.8
140.1
142.7

111.8
112.5
113.2
114.9

111.2
111.7
112.2
113.6

111.0
111.5
112.0
113.4

124.4
125.2
125.8
126.6

123.6
124.3
124.9
125.6

123.8
124.5
125.1
125.8

122.9
123.4
123.7
124.1

1994: I ..........................................
II ........................................
III .......................................
IV p .....................................

144.8
147.4
149.6
151.8

115.9
117.1
118.2
119.5

114.5
115.6
116.7
117.7

114.3
115.5
116.5
117.6

127.5
128.5
129.4
130.3

126.6
127.5
128.4
129.1

126.8
127.7
128.5
129.3

125.0
125.9
126.5
127.0

Note.—For information on these series see Survey of Current Business, April 1992 and March 1993.
Source: Department of Commerce, Bureau of Economic Analysis.




282

TABLE B–6.—Changes in fixed-weighted and alternative quantity and price indexes for total GDP, 1959–94
[Percent change from preceding period; quarterly data at seasonally adjusted annual rates]
Gross domestic product
Quantity indexes
Year or quarter

Current
dollars

Price indexes

Fixed 1987
weights 1

Chain-type
annual
weights

Benchmark
years
weights

Fixed 1987
weights

Chain-type
annual
weights

Benchmark
years
weights

Implicit
price
deflator

1959 ............................................

8.7

5.5

..................

..................

..................

..................

..................

2.8

1960
1961
1962
1963
1964

............................................
............................................
............................................
............................................
............................................

3.9
3.6
7.5
5.5
7.4

2.2
2.7
5.2
4.1
5.6

2.3
2.4
6.1
4.3
5.9

2.3
2.3
6.2
4.4
5.9

..................
..................
..................
..................
..................

1.5
1.2
1.3
1.2
1.4

1.4
1.1
1.3
1.2
1.3

1.6
1.2
2.3
1.1
1.8

1965
1966
1967
1968
1969

............................................
............................................
............................................
............................................
............................................

8.4
9.5
5.8
9.2
7.9

5.5
5.9
2.6
4.2
2.7

6.4
6.5
2.6
4.6
3.1

6.3
6.5
2.7
4.5
3.0

..................
..................
..................
..................
..................

1.9
2.8
3.2
4.4
4.7

1.9
2.9
3.2
4.3
4.7

2.5
3.5
3.1
5.0
5.0

1970
1971
1972
1973
1974

............................................
............................................
............................................
............................................
............................................

5.3
8.6
10.0
11.8
8.1

0
2.9
5.1
5.2
−.6

−.1
3.4
5.5
5.9
−.6

0
3.4
5.7
5.8
−.6

..................
..................
..................
..................
..................

5.3
5.0
4.3
5.6
8.8

5.3
5.0
4.5
5.5
8.6

5.4
5.4
4.6
6.4
8.7

1975
1976
1977
1978
1979

............................................
............................................
............................................
............................................
............................................

8.7
11.5
11.6
13.1
11.5

−.8
4.9
4.5
4.8
2.5

−.7
5.3
4.9
5.2
2.8

−.9
5.5
5.2
5.2
2.9

..................
..................
..................
..................
..................

9.4
5.8
6.4
7.5
8.4

9.4
5.9
6.5
6.6
8.4

9.6
6.3
6.9
7.9
8.6

1980
1981
1982
1983
1984

............................................
............................................
............................................
............................................
............................................

8.8
11.9
3.9
8.1
10.9

−.5
1.8
−2.2
3.9
6.2

−.2
2.5
−2.2
3.8
7.0

0
2.7
−1.9
3.9
6.7

..................
..................
..................
3.9
3.4

9.0
9.2
6.3
4.1
3.6

9.2
9.1
6.4
4.1
3.6

9.5
10.0
6.2
4.1
4.4

1985
1986
1987
1988
1989

............................................
............................................
............................................
............................................
............................................

6.9
5.7
6.4
7.9
7.2

3.2
2.9
3.1
3.9
2.5

3.2
2.9
3.1
3.9
2.6

3.3
2.9
3.2
3.8
2.5

3.5
2.8
3.1
4.0
4.5

3.6
2.7
3.1
3.9
4.4

3.6
2.9
3.2
3.9
4.4

3.7
2.6
3.2
3.9
4.4

1990 ............................................
1991 ............................................
1992 ............................................
1993 ............................................
1994 p ..........................................

5.6
3.2
5.2
5.4
6.2

1.2
−.6
2.3
3.1
4.0

1.2
−.7
2.1
2.5
3.5

1.2
−.7
2.2
2.5
3.5

4.6
4.0
3.2
3.0
2.7

4.4
3.9
3.0
2.8
2.7

4.4
4.0
3.1
2.8
2.7

4.4
3.8
2.8
2.2
2.1

1989: I ..........................................
II ........................................
III .......................................
IV .......................................

8.6
6.3
3.8
5.1

3.2
1.8
0
1.5

3.4
1.7
0
1.5

3.1
1.7
.1
1.5

5.0
4.8
3.8
3.7

5.0
4.6
3.6
3.5

4.9
4.6
3.7
3.6

5.4
4.6
3.8
3.7

1990: I ..........................................
II ........................................
III .......................................
IV .......................................

9.1
5.9
3.1
1.0

3.5
1.5
−.9
−3.2

3.5
1.5
−.8
−3.0

3.5
1.6
−.9
−3.1

5.8
4.4
4.7
3.8

5.6
4.4
4.4
3.7

5.5
4.5
4.6
3.7

5.2
4.4
4.0
4.3

1991: I ..........................................
II ........................................
III .......................................
IV .......................................

2.8
5.0
3.8
2.6

−2.1
2.2
1.0
.1

−2.3
1.7
.8
.2

−2.3
2.0
.9
.1

5.1
3.1
3.3
2.7

5.2
3.2
3.1
2.5

5.1
3.2
3.1
2.6

5.0
2.8
2.8
2.7

1992: I ..........................................
II ........................................
III .......................................
IV .......................................

7.1
5.2
4.9
8.6

3.1
2.4
3.5
5.7

3.0
2.2
3.1
5.2

3.1
2.2
3.3
5.1

3.9
3.3
2.7
2.8

3.8
3.1
2.3
2.5

3.9
3.2
2.4
2.5

3.8
2.7
1.3
2.7

1993: I ..........................................
II ........................................
III .......................................
IV .......................................

4.4
4.2
3.8
7.7

1.2
2.4
2.7
6.3

.5
1.8
1.8
5.1

.5
1.8
1.8
5.1

4.2
2.4
2.0
2.4

4.0
2.3
1.9
2.5

4.0
2.3
1.9
2.4

3.3
1.6
1.0
1.3

1994: I ..........................................
II ........................................
III .......................................
IV p .....................................

6.1
7.2
6.2
6.0

3.3
4.1
4.0
4.5

3.2
4.2
3.6
3.6

3.2
4.1
3.6
3.7

3.1
2.9
3.0
2.6

3.2
2.7
2.8
2.5

3.2
2.7
2.7
2.5

2.9
2.9
1.9
1.6

1 Percent

change in GDP in 1987 dollars.
Source: Department of Commerce, Bureau of Economic Analysis.




283

TABLE B–7.—Gross domestic product by major type of product, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Goods 1

Year or
quarter

Final Change
in
Gross
sales of busidomestic domesness
product
tic
product inventories

Total

Total

Final
sales

Durable goods
Change
in
business
inventories

Final
sales

Change
in
business
inventories

Nondurable goods

Final
sales

Change
in
business
inventories

Services 1

Structures

Auto
output

1959 ................

494.2

490.0

4.2

250.8

246.6

4.2

91.1

3.1

155.5

1.1

181.7

61.7

19.4

1960
1961
1962
1963
1964

................
................
................
................
................

513.3
531.8
571.6
603.1
648.0

510.1
528.9
565.5
597.5
643.0

3.2
2.9
6.1
5.7
5.0

257.1
260.4
281.5
293.2
313.5

253.9
257.4
275.4
287.5
308.5

3.2
2.9
6.1
5.7
5.0

93.8
93.1
103.4
110.0
119.6

1.6
−.1
3.4
2.7
4.0

160.1
164.3
172.0
177.5
188.9

1.6
3.0
2.7
3.0
1.0

195.1
208.6
223.0
238.1
256.9

61.1
62.8
67.0
71.9
77.6

21.3
17.8
22.4
25.1
25.9

1965
1966
1967
1968
1969

................
................
................
................
................

702.7
769.8
814.3
889.3
959.5

693.0
756.0
803.8
880.2
949.8

9.7
13.8
10.5
9.1
9.7

342.9
380.1
395.1
427.4
456.6

333.2
366.3
384.6
418.3
446.8

9.7
13.8
10.5
9.1
9.7

132.4
147.9
154.5
169.1
180.1

6.7
10.2
5.5
4.7
6.4

200.8
218.5
230.2
249.1
266.8

3.0
3.6
5.0
4.4
3.3

276.0
302.8
330.7
363.0
395.8

83.8
86.9
88.5
98.9
107.1

31.1
30.2
27.8
35.0
34.7

1970
1971
1972
1973
1974

................
................
................
................
................

1,010.7
1,097.2
1,207.0
1,349.6
1,458.6

1,008.4
1,089.2
1,197.1
1,331.9
1,444.4

2.3
8.0
9.9
17.7
14.3

467.8
493.0
537.4
616.6
662.8

465.6
485.0
527.5
598.9
648.5

2.3
8.0
9.9
17.7
14.3

182.1
189.4
209.7
242.0
257.1

−.1
2.8
7.2
15.0
11.2

283.5
295.5
317.8
356.9
391.4

2.3
5.2
2.7
2.8
3.1

434.3
477.0
523.6
571.0
631.3

108.6
127.2
145.9
161.9
164.5

28.5
38.9
41.4
45.9
38.8

1975
1976
1977
1978
1979

................
................
................
................
................

1,585.9
1,768.4
1,974.1
2,232.7
2,488.6

1,591.5
1,751.7
1,949.4
2,204.8
2,475.9

−5.7
16.7
24.7
27.9
12.8

715.1 720.8
798.8 782.0
880.4 855.7
989.1 961.2
1,100.2 1,087.5

−5.7
16.7
24.7
27.9
12.8

288.8
323.6
368.3
416.9
474.5

−7.0
10.3
9.7
20.3
9.6

432.0
458.4
487.4
544.3
613.0

1.3
6.4
15.0
7.6
3.1

706.9
782.2
870.4
975.5
1,079.6

163.8
187.5
223.3
268.1
308.8

40.3
55.1
64.2
67.9
66.2

1980
1981
1982
1983
1984

................
................
................
................
................

2,708.0
3,030.6
3,149.6
3,405.0
3,777.2

2,717.5
3,005.2
3,165.5
3,410.6
3,706.1

−9.5
25.4
−15.9
−5.5
71.1

1,176.2
1,324.6
1,315.0
1,407.3
1,591.9

1,185.7
1,299.2
1,330.9
1,412.8
1,520.8

−9.5
25.4
−15.9
−5.5
71.1

502.1
544.2
541.6
579.4
647.0

−2.6
6.2
−16.0
5.5
44.9

683.6
755.0
789.3
833.4
873.8

−6.8
19.2
.1
−11.0
26.2

1,215.4
1,357.4
1,494.2
1,636.3
1,770.7

316.4
348.6
340.4
361.5
414.7

59.2
68.3
65.3
88.3
104.2

1985
1986
1987
1988
1989

................
................
................
................
................

4,038.7
4,268.6
4,539.9
4,900.4
5,250.8

4,014.1
4,260.0
4,513.7
4,884.2
5,217.5

24.6
8.6
26.3
16.2
33.3

1,652.6
1,705.3
1,794.5
1,942.0
2,097.0

1,628.0
1,696.7
1,768.2
1,925.7
2,063.6

24.6
8.6
26.3
16.2
33.3

704.8
730.2
753.5
835.6
891.2

8.6
1.6
21.6
24.3
25.2

923.2
966.5
1,014.7
1,090.1
1,172.5

16.0
7.1
4.7
−8.1
8.1

1,939.0
2,097.3
2,267.2
2,460.9
2,642.1

447.1
466.0
478.2
497.5
511.7

115.8
120.4
118.9
129.1
135.1

1990 ................
1991 ................
1992 ................
1993 ................
1994 p ..............

5,546.1
5,724.8
6,020.2
6,343.3
6,736.9

5,539.3
5,726.6
6,017.2
6,327.9
6,679.1

6.9
−1.8
3.0
15.4
57.7

2,185.2
2,223.9
2,295.0
2,405.8
2,585.8

2,178.4
2,225.7
2,292.0
2,390.4
2,528.1

6.9 933.5
−1.8 934.3
3.0 968.6
15.4 1,032.4
57.7 1,116.6

−2.1
−16.9
−13.0
8.6
37.5

1,244.8
1,291.4
1,323.4
1,358.0
1,411.4

9.0
15.1
16.0
6.7
20.3

2,849.4
3,028.9
3,227.2
3,405.5
3,574.7

511.5
472.0
498.0
532.0
576.4

129.2
120.3
133.3
144.5
159.1

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...........
...........
...........
...........
...........
...........
...........
...........
...........

3,195.1
3,547.3
3,869.1
4,140.5
4,336.6
4,683.0
5,044.6
5,344.8
5,597.9

3,241.4
3,527.1
3,818.1
4,107.9
4,355.4
4,623.7
5,027.3
5,314.6
5,621.8

−46.3
20.2
51.0
32.6
−18.8
59.3
17.3
30.2
−23.9

1,302.2
1,483.0
1,617.5
1,673.7
1,714.5
1,865.4
2,007.0
2,115.9
2,189.0

1,348.5
1,462.8
1,566.5
1,641.1
1,733.3
1,806.1
1,989.7
2,085.7
2,212.9

−46.3
20.2
51.0
32.6
−18.8
59.3
17.3
30.2
−23.9

550.6
620.5
676.3
705.7
751.5
769.3
861.0
893.9
931.0

−41.1
25.5
38.5
10.9
−11.9
37.1
35.3
33.0
−24.1

798.0
842.3
890.2
935.4
981.8
1,036.9
1,128.7
1,191.8
1,281.9

−5.2
−5.3
12.5
21.7
−7.0
22.2
−18.0
−2.8
.3

1,553.3
1,686.1
1,824.7
2,008.9
2,154.1
2,327.6
2,528.5
2,715.2
2,920.5

339.5
378.2
426.9
457.9
468.1
490.1
509.1
513.7
488.4

63.2
101.9
110.4
115.1
122.5
120.9
136.1
131.0
118.8

1991: I .............
II ............
III ..........
IV ..........

5,636.8
5,705.9
5,759.9
5,796.6

5,654.7
5,718.8
5,750.6
5,782.3

−17.9
−12.9
9.3
14.3

2,203.5
2,220.7
2,238.3
2,233.1

2,221.4
2,233.6
2,229.0
2,218.7

−17.9
−12.9
9.3
14.3

923.8
942.2
939.5
931.4

−38.5
−26.4
4.5
−7.2

1,297.6
1,291.4
1,289.5
1,287.3

20.5
13.5
4.8
21.5

2,962.3
3,013.6
3,050.1
3,089.7

471.0
471.6
471.5
473.9

113.2
117.5
128.5
122.0

1992: I .............
II ............
III ..........
IV ..........

5,896.8
5,971.3
6,043.6
6,169.3

5,903.1
5,967.4
6,038.3
6,160.0

−6.3
3.9
5.3
9.3

2,251.7
2,270.3
2,300.5
2,357.7

2,258.0
2,266.4
2,295.2
2,348.3

−6.3
3.9
5.3
9.3

946.8
956.7
971.5
999.5

−24.3
−1.8
−10.7
−15.1

1,311.2
1,309.7
1,323.8
1,348.9

17.9
5.7
16.0
24.4

3,155.8
3,203.1
3,248.4
3,301.5

489.4
498.0
494.7
510.1

123.2
136.3
136.3
137.3

1993: I .............
II ............
III ..........
IV ..........

6,235.9
6,299.9
6,359.2
6,478.1

6,215.8
6,281.4
6,345.4
6,469.2

20.1
18.6
13.9
9.0

2,369.6
2,396.2
2,395.8
2,461.6

2,349.6
2,377.6
2,381.9
2,452.6

20.1 999.1
18.6 1,030.6
13.9 1,026.8
9.0 1,072.9

6.9
3.7
14.9
9.0

1,350.4
1,347.0
1,355.1
1,379.7

13.1
14.8
−1.1
.0

3,350.4
3,383.1
3,429.3
3,459.3

515.9
520.6
534.1
557.2

142.6
146.8
137.5
151.0

1994: I .............
II ............
III ..........
IV p ........

6,574.7
6,689.9
6,791.7
6,891.1

6,550.6
6,622.5
6,729.1
6,814.3

24.1
67.4
62.6
76.8

2,513.2
2,561.2
2,606.2
2,662.7

2,489.1
2,493.7
2,543.6
2,585.9

24.1
67.4
62.6
76.8

20.6
38.2
44.1
46.9

1,390.9
1,394.3
1,417.8
1,442.7

3.5
29.2
18.5
29.9

3,503.8
3,555.4
3,603.6
3,635.9

557.7
573.4
581.9
592.6

162.7
153.4
158.2
162.2

1,098.2
1,099.4
1,125.8
1,143.2

1 Exports and imports of certain goods, primarily military equipment purchased and sold by the Federal Government, are included in services.
Source: Department of Commerce, Bureau of Economic Analysis.




284

TABLE B–8.—Gross domestic product by major type of product in 1987 dollars, 1959–94
[Billions of 1987 dollars; quarterly data at seasonally adjusted annual rates]
Goods 1

Year or
quarter

Final Change
in
Gross
sales of busidomestic domesness
product
tic
inven
product tories

Total

Total

Final
sales

Durable goods
Change
in
business
inventories

Final
sales

Change
in
business
inventories

Nondurable goods

Final
sales

Change
in
business
inventories

Services 1

Structures

Auto
output

1959 ................

1,928.8

1,915.2

13.6

825.2

811.6

13.6

273.8

8.6

537.8

5.0

843.7

259.9

59.5

1960
1961
1962
1963
1964

................
................
................
................
................

1,970.8
2,023.8
2,128.1
2,215.6
2,340.6

1,962.7
2,016.6
2,112.5
2,199.6
2,324.9

8.1
7.2
15.6
16.0
15.7

835.3
840.9
889.6
914.9
967.6

827.1
833.7
874.0
898.9
952.0

8.1
7.2
15.6
16.0
15.7

277.8
273.5
296.5
310.4
334.3

4.6
−.3
8.6
7.5
11.3

549.3
560.2
577.5
588.5
617.6

3.5
7.5
7.0
8.6
4.4

877.3
916.7
956.8
999.9
1,052.6

258.2
266.1
281.7
300.8
320.4

63.8
53.1
63.3
68.9
69.5

1965
1966
1967
1968
1969

................
................
................
................
................

2,470.5
2,616.2
2,685.2
2,796.9
2,873.0

2,445.4
2,579.5
2,657.5
2,773.2
2,848.2

25.1
36.7
27.6
23.6
24.8

1,033.0
1,113.3
1,129.4
1,168.9
1,193.9

1,007.9
1,076.6
1,101.7
1,145.3
1,169.1

25.1
36.7
27.6
23.6
24.8

364.1
399.4
413.7
430.4
438.4

18.3
27.1
14.5
12.8
15.7

643.8
677.2
688.0
714.9
730.7

6.9
9.6
13.1
10.9
9.1

1,102.1
1,168.4
1,226.6
1,277.8
1,324.6

335.4
334.5
329.3
350.1
354.5

83.2
80.4
72.4
86.6
82.9

1970
1971
1972
1973
1974

................
................
................
................
................

2,873.9
2,955.9
3,107.1
3,268.6
3,248.1

2,868.0
2,935.2
3,084.5
3,230.9
3,217.2

5.9
20.8
22.5
37.7
30.9

1,173.0
1,182.0
1,251.0
1,349.8
1,328.2

1,167.1
1,161.3
1,228.4
1,312.1
1,297.3

5.9
20.8
22.5
37.7
30.9

428.0
419.2
458.4
528.0
524.6

−.9
8.9
16.2
31.2
19.6

739.1
742.1
770.0
784.1
772.7

6.9
11.9
6.4
6.5
11.3

1,362.0
1,401.8
1,454.1
1,508.3
1,553.9

338.9
372.1
401.9
410.4
366.1

65.4
85.3
89.9
98.7
79.0

1975
1976
1977
1978
1979

................
................
................
................
................

3,221.7
3,380.8
3,533.3
3,703.5
3,796.8

3,235.6
3,355.3
3,499.0
3,666.3
3,783.2

−13.9
25.5
34.3
37.2
13.6

1,291.8
1,372.7
1,436.9
1,507.3
1,537.1

1,305.7
1,347.2
1,402.6
1,470.1
1,523.5

−13.9
25.5
34.3
37.2
13.6

521.6
540.6
583.6
623.7
654.1

−11.5
17.0
15.6
28.7
11.7

784.1
806.6
819.0
846.4
869.3

−2.5
8.5
18.7
8.5
1.9

1,602.2
1,649.1
1,701.2
1,770.6
1,821.7

327.7
359.0
395.2
425.6
438.0

74.8
96.8
106.0
104.2
94.8

1980
1981
1982
1983
1984

................
................
................
................
................

3,776.3
3,843.1
3,760.3
3,906.6
4,148.5

3,784.6
3,818.6
3,777.8
3,902.2
4,080.6

−8.3
24.6
−17.5
4.4
67.9

1,509.5
1,547.4
1,468.7
1,531.7
1,667.7

1,517.7
1,522.9
1,486.2
1,527.3
1,599.8

−8.3
24.6
−17.5
4.4
67.9

626.4
619.4
578.9
601.5
655.1

−4.3
6.3
−16.0
6.3
45.7

891.4
903.4
907.3
925.8
944.7

−4.0
18.3
−1.5
−1.8
22.3

1,864.3
1,895.7
1,922.8
1,976.8
2,033.1

402.5
400.0
368.8
398.1
447.7

79.1
86.8
79.2
101.7
115.8

1985
1986
1987
1988
1989

................
................
................
................
................

4,279.8
4,404.5
4,539.9
4,718.6
4,838.0

4,257.6
4,395.9
4,513.7
4,698.6
4,808.3

22.1
8.5
26.3
19.9
29.8

1,695.0
1,740.1
1,794.5
1,892.5
1,961.7

1,672.9
1,731.6
1,768.2
1,872.6
1,932.0

22.1
8.5
26.3
19.9
29.8

703.4
731.5
753.5
833.1
868.1

9.3
1.9
21.6
23.3
23.8

969.5
1,000.1
1,014.7
1,039.5
1,063.9

12.9
6.7
4.7
−3.4
6.0

2,115.3
2,185.0
2,267.2
2,349.7
2,403.9

469.4
479.3
478.2
476.4
472.5

125.0
124.4
118.9
127.3
128.0

1990 ................
1991 ................
1992 ................
1993 ................
1994 p ..............

4,897.3
4,867.6
4,979.3
5,134.5
5,342.3

4,891.6
4,868.7
4,976.9
5,119.3
5,289.8

5.7
−1.1
2.5
15.3
52.4

1,973.2
1,952.2
1,991.0
2,081.8
2,223.8

1,967.5
1,953.3
1,988.5
2,066.5
2,171.4

5.7 893.1
−1.1 878.5
2.5 906.7
15.3 977.7
52.4 1,058.5

−1.9
−15.1
−11.2
8.3
33.5

1,074.5
1,074.7
1,081.8
1,088.8
1,112.8

7.5
14.0
13.6
7.0
18.9

2,464.5
2,496.3
2,549.3
2,597.6
2,643.2

459.6
419.2
439.0
455.1
475.3

121.4
108.8
117.6
121.6
130.6

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...........
...........
...........
...........
...........
...........
...........
...........
...........

3,759.6
4,012.1
4,194.2
4,333.5
4,427.1
4,625.5
4,779.7
4,856.7
4,867.2

3,804.5
3,982.8
4,146.2
4,303.3
4,447.2
4,565.6
4,758.7
4,831.8
4,888.0

−44.9
29.3
47.9
30.2
−20.1
59.9
20.9
24.9
−20.9

1,447.7
1,597.8
1,680.9
1,708.1
1,741.8
1,850.8
1,926.0
1,956.9
1,953.5

1,492.6
1,568.5
1,633.0
1,677.9
1,761.8
1,790.9
1,905.0
1,932.0
1,974.3

−44.9
29.3
47.9
30.2
−20.1
59.9
20.9
24.9
−20.9

580.9
639.4
677.6
703.1
750.4
769.4
852.9
862.3
885.7

−41.9
26.7
39.7
11.9
−11.9
36.9
33.5
31.0
−22.4

911.6
929.1
955.3
974.9
1,011.4
1,021.5
1,052.2
1,069.6
1,088.6

−3.0
2.6
8.3
18.3
−8.2
23.0
−12.5
−6.1
1.5

1,942.1
1,998.3
2,058.1
2,148.8
2,208.2
2,290.9
2,372.4
2,430.0
2,477.3

369.8
416.0
455.1
476.5
477.2
483.8
481.3
469.8
436.5

75.3
113.7
122.4
122.4
124.1
120.3
134.6
123.8
110.3

1991: I .............
II ............
III ..........
IV ..........

4,842.0
4,867.9
4,879.9
4,880.8

4,858.4
4,879.8
4,869.5
4,867.3

−16.4
−11.9
−10.4
13.5

1,944.0
1,949.8
1,961.9
1,952.9

1,960.4
1,961.7
1,951.6
1,939.4

−16.4
−11.9
−10.4
13.5

873.2
886.3
880.9
873.6

−34.8
−23.6
4.3
−6.3

1,087.2
1,075.4
1,070.6
1,065.8

18.4
11.7
6.1
19.7

2,478.3
2,499.3
2,501.2
2,506.3

419.7
418.8
416.8
421.6

103.6
108.0
115.6
108.2

1992: I .............
II ............
III ..........
IV ..........

4,918.5
4,947.5
4,990.5
5,060.7

4,924.8
4,943.2
4,985.3
5,054.1

−6.3
4.2
5.2
6.6

1,956.3
1,968.0
1,995.4
2,044.3

1,962.6
1,963.7
1,990.1
2,037.7

−6.3
4.2
5.2
6.6

884.5
891.8
910.6
940.0

−21.6
−1.3
−8.8
−12.9

1,078.1
1,072.0
1,079.5
1,097.7

15.3
5.5
14.0
19.5

2,527.2
2,538.7
2,559.8
2,571.4

435.0
440.8
435.4
445.0

109.9
120.7
119.3
120.4

1993: I .............
II ............
III ..........
IV ..........

5,075.3
5,105.4
5,139.4
5,218.0

5,056.8
5,086.5
5,126.5
5,207.2

18.5
18.9
13.0
10.8

2,043.7
2,069.9
2,078.2
2,135.5

2,025.2
2,051.0
2,065.3
2,124.7

18.5 939.6
18.9 968.8
13.0 977.9
10.8 1,024.7

6.2
4.6
13.5
8.9

1,085.7
1,082.2
1,087.4
1,100.0

12.3
14.3
−.6
1.9

2,584.7
2,588.5
2,606.1
2,611.2

446.9
447.0
455.1
471.3

121.7
123.4
114.2
127.2

1994: I .............
II ............
III ..........
IV p ........

5,261.1
5,314.1
5,367.0
5,426.8

5,235.7
5,254.9
5,310.0
5,358.8

25.4
59.2
57.1
68.0

2,168.8
2,201.3
2,235.5
2,289.6

2,143.3
2,142.1
2,178.4
2,221.6

25.4
59.2
57.1
68.0

19.7
33.7
39.3
41.3

1,101.7
1,103.9
1,115.2
1,130.6

5.7
25.5
17.8
26.6

2,625.8
2,635.8
2,653.9
2,657.0

466.5
476.9
477.6
480.2

135.1
125.9
128.3
133.1

1,041.7
1,038.2
1,063.2
1,091.0

1 Exports and imports of certain goods, primarily military equipment purchased and sold by the Federal Government, are included in services.
Source: Department of Commerce, Bureau of Economic Analysis.




285

TABLE B–9.—Gross domestic product by sector, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Business 1
Year or quarter

Gross
domestic
product

Total 1

Nonfarm 1

Farm

Statistical
discrepancy

Households
and
institutions

General government 2

Total

Federal

State
and
local

1959 ................................................................

494.2

436.9

419.8

18.9

−1.8

12.4

44.9

21.7

23.1

1960
1961
1962
1963
1964

................................................................
................................................................
................................................................
................................................................
................................................................

513.3
531.8
571.6
603.1
648.0

451.4
465.7
500.5
527.1
565.7

434.7
447.9
481.4
508.7
547.2

19.8
20.1
20.2
20.4
19.3

−3.1
−2.2
−1.0
−2.0
−.7

13.9
14.5
15.6
16.7
17.9

48.1
51.6
55.5
59.3
64.4

22.6
23.7
25.2
26.5
28.5

25.5
27.9
30.2
32.9
35.9

1965
1966
1967
1968
1969

................................................................
................................................................
................................................................
................................................................
................................................................

702.7
769.8
814.3
889.3
959.5

614.1
670.1
703.5
765.4
822.5

592.9
644.4
680.5
742.8
799.9

21.9
22.9
22.2
22.7
25.2

−.7
2.8
.8
−.1
−2.6

19.3
21.3
23.4
26.1
29.5

69.3
78.4
87.4
97.8
107.5

30.0
34.3
37.9
41.9
44.9

39.3
44.1
49.5
55.9
62.6

1970
1971
1972
1973
1974

................................................................
................................................................
................................................................
................................................................
................................................................

1,010.7
1,097.2
1,207.0
1,349.6
1,458.6

858.7
931.2
1,025.3
1,151.5
1,242.7

832.5
900.0
991.7
1,102.2
1,193.9

26.2
28.1
32.6
49.8
47.4

.0
3.1
1.1
−.5
1.4

32.4
35.6
39.0
43.0
47.2

119.5
130.4
142.6
155.1
168.8

48.5
51.1
54.9
57.2
61.1

71.1
79.3
87.7
97.9
107.6

1975
1976
1977
1978
1979

................................................................
................................................................
................................................................
................................................................
................................................................

1,585.9
1,768.4
1,974.1
2,232.7
2,488.6

1,346.1
1,507.4
1,691.1
1,921.1
2,147.9

1,291.4
1,450.6
1,633.0
1,858.7
2,069.7

48.8
46.4
47.2
54.7
64.5

6.0
10.4
10.9
7.6
13.8

52.0
57.1
62.4
71.0
78.9

187.7
203.9
220.6
240.7
261.9

66.6
71.0
75.6
81.8
87.1

121.1
132.9
145.0
158.9
174.8

1980
1981
1982
1983
1984

................................................................
................................................................
................................................................
................................................................
................................................................

2,708.0
3,030.6
3,149.6
3,405.0
3,777.2

2,328.9
2,611.7
2,692.1
2,914.8
3,251.1

2,259.2
2,530.9
2,634.4
2,855.5
3,191.6

56.1
69.9
65.1
49.2
68.5

13.6
10.9
−7.4
10.2
−9.0

89.3
100.5
111.6
121.3
132.0

289.8
318.4
345.8
368.9
394.1

96.3
107.7
117.3
125.0
132.2

193.5
210.7
228.5
243.9
261.9

1985
1986
1987
1988
1989

................................................................
................................................................
................................................................
................................................................
................................................................

4,038.7
4,268.6
4,539.9
4,900.4
5,250.8

3,473.5
3,665.7
3,890.8
4,201.0
4,495.9

3,420.3
3,601.5
3,849.5
4,161.8
4,413.7

67.1
62.9
66.0
67.6
81.1

−13.9
1.2
−24.8
−28.4
1.1

141.7
153.3
170.5
187.6
206.1

423.6
449.6
478.7
511.7
548.8

140.3
143.7
151.4
159.8
169.1

283.2
305.9
327.3
351.9
379.8

1990 ................................................................
1991 ................................................................
1992 ................................................................
1993 ................................................................
1994 p ..............................................................

5,546.1
5,724.8
6,020.2
6,343.3
6,736.9

4,725.9
4,847.6
5,090.4
5,371.4
5,721.7

4,633.0
4,767.5
4,996.1
5,293.8
5,662.7

85.1
78.6
85.6
75.3
84.6

7.8
1.5
8.8
2.3
−25.6

227.5
246.7
268.6
285.3
302.7

592.8
630.5
661.2
686.6
712.5

180.1
192.7
199.5
203.6
206.1

412.7
437.9
461.7
483.0
506.3

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

...........................................................
...........................................................
...........................................................
...........................................................
...........................................................
...........................................................
...........................................................
...........................................................
...........................................................

3,195.1
3,547.3
3,869.1
4,140.5
4,336.6
4,683.0
5,044.6
5,344.8
5,597.9

2,724.0
3,046.6
3,330.3
3,561.2
3,718.3
4,016.6
4,327.3
4,569.8
4,756.5

2,674.1
2,986.9
3,283.2
3,501.5
3,656.0
3,970.9
4,291.9
4,476.6
4,670.1

60.0
45.8
67.5
65.7
64.3
70.6
60.8
80.4
81.5

−10.1
13.8
−20.5
−5.9
−2.0
−24.9
−25.4
12.8
4.9

115.5
125.1
135.6
145.6
157.8
177.6
194.3
213.3
235.0

355.6
375.6
403.2
433.6
460.5
488.8
523.0
561.7
606.4

121.1
126.2
134.1
142.4
144.9
153.2
161.3
170.6
182.3

234.5
249.4
269.2
291.2
315.6
335.6
361.7
391.2
424.1

1991: I .............................................................
II ............................................................
III ...........................................................
IV ...........................................................

5,636.8
5,705.9
5,759.9
5,796.6

4,774.2
4,833.7
4,878.4
4,904.0

4,705.9
4,743.9
4,787.7
4,832.4

78.6
83.7
78.5
73.7

−10.3
6.2
12.2
−2.1

238.1
243.9
249.9
254.9

624.5
628.3
631.7
637.7

193.2
192.7
192.1
192.7

431.3
435.6
439.6
445.0

1992: I .............................................................
II ............................................................
III ...........................................................
IV ...........................................................

5,896.8
5,971.3
6,043.6
6,169.3

4,983.4
5,045.4
5,108.0
5,224.9

4,892.8
4,951.2
5,015.9
5,124.3

88.6
82.6
88.4
82.7

2.0
11.5
3.7
18.0

261.2
266.1
270.9
276.1

652.2
659.9
664.7
668.2

200.2
200.5
199.2
198.2

452.0
459.4
465.5
470.0

1993: I .............................................................
II ............................................................
III ...........................................................
IV ...........................................................

6,235.9
6,299.9
6,359.2
6,478.1

5,276.7
5,332.3
5,382.1
5,494.4

5,171.8
5,249.3
5,322.3
5,431.7

79.4
77.3
65.4
79.2

25.5
5.7
−5.5
−16.5

279.7
283.4
286.9
291.0

679.5
684.2
690.2
692.7

204.1
203.6
204.3
202.5

475.4
480.6
485.9
490.2

1994: I .............................................................
II ............................................................
III ...........................................................
IV p ........................................................

6,574.7
6,689.9
6,791.7
6,891.1

5,575.7
5,677.9
5,771.8
5,861.2

5,524.7
5,618.7
5,710.7
5,796.5

87.1
83.2
82.3
85.8

−36.1
−24.0
−21.1
−21.1

295.7
300.1
304.7
310.4

703.3
711.8
715.2
719.5

206.3
208.4
205.4
204.4

497.1
503.4
509.8
515.1

1 Includes

compensation of employees in government enterprises.
of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.

2 Compensation




286

TABLE B–10.—Gross domestic product by sector in 1987 dollars, 1959–94
[Billions of 1987 dollars; quarterly data at seasonally adjusted annual rates]
Business 1
Year or quarter

Gross
domestic
product

Total 1

Nonfarm 1

Farm

Statistical
discrepancy

Households
and
institutions

General government 2

Total

Federal

State
and
local

1959 ..............................................................

1,928.8

1,582.1

1,543.4

45.2

−6.5

80.1

266.5

130.5

136.0

1960
1961
1962
1963
1964

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

1,970.8
2,023.8
2,128.1
2,215.6
2,340.6

1,609.5
1,650.7
1,740.8
1,818.8
1,930.4

1,574.3
1,611.6
1,698.0
1,778.6
1,886.8

46.4
46.9
46.3
47.1
46.0

−11.2
−7.8
−3.6
−6.8
−2.4

86.5
87.5
91.1
93.6
96.5

274.8
285.6
296.2
303.2
313.7

132.1
135.3
141.6
140.9
141.7

142.7
150.3
154.7
162.3
172.0

1965
1966
1967
1968
1969

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

2,470.5
2,616.2
2,685.2
2,796.9
2,873.0

2,045.3
2,162.6
2,208.0
2,303.0
2,366.2

2,001.7
2,109.1
2,158.8
2,258.0
2,326.7

46.1
44.5
46.5
45.1
46.8

−2.5
9.0
2.6
−.1
−7.2

100.4
104.7
108.3
111.8
115.5

324.8
348.9
368.9
382.1
391.3

142.3
155.4
168.1
170.7
171.2

182.5
193.5
200.8
211.4
220.1

1970
1971
1972
1973
1974

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

2,873.9
2,955.9
3,107.1
3,268.6
3,248.1

2,368.4
2,447.4
2,594.8
2,749.7
2,719.6

2,318.9
2,388.6
2,541.3
2,702.0
2,666.0

49.5
50.5
50.7
48.6
50.7

.0
8.3
2.8
−1.0
3.0

114.1
116.7
120.0
123.2
124.3

391.4
391.8
392.2
395.7
404.1

161.6
152.4
143.7
138.0
137.9

229.8
239.5
248.6
257.7
266.2

1975
1976
1977
1978
1979

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

3,221.7
3,380.8
3,533.3
3,703.5
3,796.8

2,684.6
2,840.1
2,987.8
3,144.2
3,226.0

2,619.6
2,768.1
2,914.6
3,083.8
3,155.0

53.1
52.5
53.8
48.2
50.4

11.9
19.5
19.4
12.2
20.6

128.0
128.6
129.8
135.1
138.3

409.1
412.0
415.6
424.2
432.5

137.1
137.0
137.0
138.4
137.5

272.0
275.0
278.6
285.8
295.0

1980
1981
1982
1983
1984

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

3,776.3
3,843.1
3,760.3
3,906.6
4,148.5

3,193.4
3,253.6
3,167.3
3,308.2
3,541.7

3,123.4
3,179.2
3,115.8
3,243.1
3,496.4

51.0
60.8
60.2
53.7
55.1

19.0
13.6
−8.7
11.5
−9.8

142.6
145.6
148.9
151.0
154.9

440.3
443.9
444.2
447.4
451.9

139.2
140.9
142.4
144.8
146.4

301.1
303.0
301.8
302.6
305.4

1985
1986
1987
1988
1989

..............................................................
..............................................................
..............................................................
..............................................................
..............................................................

4,279.8
4,404.5
4,539.9
4,718.6
4,838.0

3,658.1
3,768.3
3,890.8
4,050.6
4,150.5

3,608.6
3,702.8
3,849.5
4,014.8
4,083.4

64.2
64.3
66.0
63.2
66.2

−14.7
1.3
−24.8
−27.4
.9

159.9
166.3
170.5
180.6
190.5

461.8
469.9
478.7
487.4
497.0

148.6
149.0
151.4
153.5
154.2

313.2
320.8
327.3
333.9
342.7

1990 ..............................................................
1991 ..............................................................
1992 ..............................................................
1993 ..............................................................
1994 p ............................................................

4,897.3
4,867.6
4,979.3
5,134.5
5,342.3

4,190.8
4,150.8
4,258.7
4,409.4
4,611.4

4,112.4
4,078.9
4,170.6
4.336.4
4,550.3

71.6
70.7
80.8
71.0
81.7

6.9
1.3
7.3
1.9
−20.6

196.9
202.4
208.5
215.6
223.1

509.5
514.4
512.0
509.6
507.8

156.2
157.2
151.9
146.0
139.0

353.3
357.2
360.1
363.6
368.8

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................

3,759.6
4,012.1
4,194.2
4,333.5
4,427.1
4,625.5
4,779.7
4,856.7
4,867.2

3,166.3
3,411.5
3,583.0
3,706.1
3,786.7
3,969.9
4,104.2
4,161.9
4,154.3

3,116.9
3,349.0
3,548.9
3,646.8
3,724.4
3,925.5
4,074.5
4,085.0
4,076.5

61.1
47.0
56.1
65.5
64.4
69.0
53.8
65.2
73.5

−11.7
15.5
−22.0
−6.2
−2.1
−24.6
−24.1
11.7
4.2

149.6
151.7
156.8
162.3
166.9
173.2
184.7
193.2
199.2

443.8
448.9
454.4
465.1
473.5
482.3
490.7
501.7
513.6

143.2
145.2
147.1
148.7
149.8
152.8
154.0
154.8
157.4

300.6
303.7
307.3
316.5
323.7
329.5
336.7
346.9
356.2

1991: I ...........................................................
II ..........................................................
III .........................................................
IV .........................................................

4,842.0
4,867.9
4,879.9
4,880.8

4,125.0
4,150.2
4,164.3
4,163.9

4,062.4
4,073.3
4,084.3
4,095.6

71.4
71.6
69.6
70.1

−8.9
5.3
10.4
−1.8

199.9
202.0
203.0
204.6

517.0
515.6
512.7
512.2

160.4
158.2
155.9
154.3

356.7
357.4
356.8
357.9

1992: I ...........................................................
II ..........................................................
III .........................................................
IV .........................................................

4,918.5
4,947.5
4,990.5
5,060.7

4,199.6
4,228.5
4,269.6
4,337.2

4,117.3
4,140.3
4,182.0
4,242.7

80.6
78.5
84.5
79.6

1.7
9.7
3.1
14.9

206.6
207.0
209.4
211.2

512.3
512.0
511.5
512.3

153.3
152.1
151.1
151.1

359.0
359.9
360.4
361.2

1993: I ...........................................................
II ..........................................................
III .........................................................
IV .........................................................

5,075.3
5,105.4
5,139.4
5,218.0

4,352.0
4,380.4
4,413.3
4,491.7

4,255.3
4,303.4
4,353.8
4,433.2

75.7
72.3
64.0
72.0

21.0
4.7
−4.5
−13.5

212.2
215.0
217.0
218.1

511.2
510.0
509.1
508.2

149.0
146.9
145.1
143.2

362.1
363.1
364.0
365.1

1994: I ...........................................................
II ..........................................................
III .........................................................
IV p ......................................................

5,261.1
5,314.1
5,367.0
5,426.8

4,532.6
4,583.6
4,635.4
4,694.1

4,486.1
4,521.3
4,567.9
4,626.0

75.9
81.6
84.4
85.0

−29.3
−19.3
−17.0
−16.9

220.1
222.5
223.8
225.9

508.4
508.0
507.9
506.8

141.9
139.9
137.9
136.0

366.5
368.1
369.9
370.8

1 Includes

compensation of employees in government enterprises.
of government employees.
Source: Department of Commerce, Bureau of Economic Analysis.

2 Compensation




287

TABLE B–11.—Gross domestic product by industry, 1947–92
[Billions of dollars]

Year

AgriculGross ture,
domes- fortic
prod- estry,
and
uct
fisheries

Manufacturing
Mining

Construction

Total

TransFiportanance,
tion Whole- Retail insurNonDura- dura- and
sale trade ance,
ble
and
ble public trade
goods goods utilireal
ties
estate

Services

Government

Statistical
discrepancy 1

Based on 1972 SIC:
1947 .....................
1948 .....................
1949 .....................

234.3
260.3
259.3

20.8
24.0
19.4

6.8
9.4
8.1

9.1
11.5
11.5

66.2
74.7
72.3

33.5
38.2
37.2

32.7
36.6
35.1

21.0
23.7
23.9

16.6
18.3
17.6

27.5
30.1
30.3

24.0
27.2
29.4

20.2
21.9
22.6

20.2
20.9
23.1

1.8
−1.2
1.0

1950
1951
1952
1953
1954

.....................
.....................
.....................
.....................
.....................

287.0
331.6
349.7
370.0
370.9

20.7
23.8
23.2
21.1
20.7

9.3
10.2
10.2
10.8
11.0

13.2
15.6
16.9
17.5
17.7

84.1
99.1
103.4
112.4
106.8

45.9
55.6
59.0
66.1
61.0

38.2
43.5
44.3
46.4
45.8

26.6
30.1
32.1
34.1
33.7

19.8
22.5
22.7
23.2
23.5

31.7
34.3
36.3
37.2
38.1

32.3
35.8
39.4
43.7
47.5

24.2
26.4
28.2
30.2
31.6

24.2
30.9
35.6
36.8
37.9

1.0
2.9
1.8
2.8
2.4

1955
1956
1957
1958
1959

.....................
.....................
.....................
.....................
.....................

404.3
426.2
448.6
454.7
494.2

19.8
19.7
19.6
21.9
20.3

12.5
13.6
13.7
12.7
12.5

19.0
21.2
22.1
21.8
23.7

121.4
127.4
132.0
124.6
142.2

70.8
74.0
78.0
70.1
81.7

50.5
53.5
54.0
54.5
60.5

36.7
39.5
41.5
41.7
44.9

26.6
29.0
30.5
31.1
34.2

40.5
42.4
44.6
45.3
49.1

51.4
55.0
59.2
63.9
68.9

35.2
38.7
41.8
44.1
48.4

40.0
42.5
45.4
48.9
51.7

1.2
−2.8
−1.9
−1.1
−1.8

1960
1961
1962
1963
1964

.....................
.....................
.....................
.....................
.....................

513.3
531.8
571.6
603.1
648.0

21.3
21.7
22.1
22.3
21.4

12.9
13.0
13.2
13.5
13.9

24.2
25.2
27.0
28.9
31.5

144.8 82.6
145.3 81.7
159.1 92.1
168.6 98.3
180.5 105.9

62.2
63.6
67.1
70.4
74.6

47.1
48.7
51.7
54.6
58.1

35.3
36.4
38.8
40.5
43.6

50.4
51.7
55.4
57.9
63.5

73.5
78.0
82.4
87.1
92.9

51.6
55.0
59.3
63.4
69.1

55.4
59.1
63.5
68.4
74.1

−3.1
−2.2
−1.0
−2.0
−.7

1965
1966
1967
1968
1969

.....................
.....................
.....................
.....................
.....................

702.7
769.8
814.3
889.3
959.5

24.2
25.4
24.9
25.7
28.5

14.0
14.7
15.2
16.3
17.1

34.6
37.7
39.5
43.3
48.4

199.1
218.2
223.7
244.3
257.8

118.8 80.3
131.1 87.1
134.1 89.6
146.4 97.9
154.4 103.4

62.2
67.1
70.3
76.1
82.5

47.2
51.5
54.8
60.2
65.1

68.0
72.7
78.2
86.6
94.2

99.9
108.0
117.3
126.8
136.4

74.7
82.6
90.8
99.4
110.7

79.5
89.1
98.8
110.7
121.4

−.7
2.8
.8
−.1
−2.6

1970
1971
1972
1973
1974

.....................
.....................
.....................
.....................
.....................

1,010.7
1,097.2
1,207.0
1,349.6
1,458.6

29.8
32.1
37.3
55.0
53.2

18.7
18.9
19.6
23.8
37.0

51.1
56.1
62.5
69.8
73.7

253.1
266.7
294.3
327.6
341.2

146.2
154.2
172.6
195.8
202.2

106.9
112.5
121.7
131.8
139.0

88.0
97.1
108.3
119.1
129.9

68.6
74.3
83.2
93.5
107.1

100.2
109.2
118.9
131.0
136.9

146.3
163.1
176.5
193.1
208.9

120.5
130.3
144.9
163.2
179.4

134.2
146.2
160.4
173.9
189.9

.0
3.1
1.1
−.5
1.4

1975
1976
1977
1978
1979

.....................
.....................
.....................
.....................
.....................

1,585.9
1,768.4
1,974.1
2,232.7
2,488.6

54.9
53.8
54.4
63.3
74.6

42.8
47.5
54.1
61.4
71.2

75.2
85.1
93.9
110.7
124.8

358.8
409.6
466.8
521.9
575.7

207.1
239.9
277.7
317.5
343.8

151.7
169.7
189.1
204.5
231.9

142.3
161.2
179.2
202.2
219.1

117.0
124.8
137.9
157.1
178.6

153.0
172.4
190.4
214.9
233.2

226.7
250.1
283.6
328.6
370.8

199.3
224.1
255.7
294.6
333.0

209.8
229.3
247.1
270.5
293.9

6.0
10.4
10.9
7.6
13.8

1980
1981
1982
1983
1984

.....................
.....................
.....................
.....................
.....................

2,708.0
3,030.6
3,149.6
3,405.0
3,777.2

66.7
81.1
77.0
62.7
83.7

112.6
148.1
146.1
127.9
137.1

128.7
129.4
129.4
137.9
161.2

588.3
653.0
647.5
693.3
773.9

348.9
385.3
372.9
396.0
461.2

239.4
267.7
274.6
297.3
312.7

242.2
273.3
292.1
326.7
358.8

191.6
212.7
216.5
223.6
258.4

244.7
269.3
286.6
321.1
361.3

418.4
469.6
503.9
565.3
619.0

377.0
425.1
469.8
521.3
586.9

324.2
358.1
388.0
415.0
445.9

13.6
10.9
−7.4
10.2
−9.0

84.3 130.6
81.7 82.7
88.5 83.0

179.2
201.9
213.0

798.5 471.5 327.0
829.3 480.0 349.3
878.4 503.2 375.2

378.0
393.8
419.9

276.6 390.9
290.9 418.7
302.6 440.1

681.8
743.5
809.9

650.9
712.8
784.0

481.8
512.1
545.3

−13.9
1.2
−24.8

83.0
87.9
84.2

213.0 877.8 501.9 375.9
227.6 961.0 541.1 419.9
235.9 1,004.6 562.6 442.0

419.8
442.1
463.3

303.1 441.8
331.0 471.7
351.6 502.5

809.7
866.3
926.5

782.5
865.5
948.8

545.3
584.8
627.6

−24.8
−28.4
1.1

1990 ..................... 5,546.1 112.0 103.1
1991 ..................... 5,724.8 107.2 92.0
1992 ..................... 6,020.2 115.5 85.2

240.1 1,024.7 563.7 461.0
223.1 1,032.5 554.3 478.2
222.1 1,063.0 568.0 495.0

481.2
507.0
529.3

363.0 515.7 982.4 1,040.0
373.4 531.9 1,041.1 1,093.3
394.4 557.5 1,106.1 1,182.7

676.3
721.8
755.7

7.8
1.5
8.8

1985 ..................... 4,038.7
1986 ..................... 4,268.6
1987 ..................... 4,539.9
Based on 1987 SIC:

1987 ..................... 4,539.9 88.5
1988 ..................... 4,900.4 90.8
1989 ..................... 5,250.8 104.8

1 Equals gross domestic product (GDP) measured as the sum of expenditures less gross domestic income—that is, GDP measured as the
costs incurred and profits earned in domestic production.

Source: Department of Commerce, Bureau of Economic Analysis.




288

TABLE B–12.—Gross domestic product by industry in 1987 dollars, fixed 1987 weights, 1977–92
[Billions of 1987 dollars]

Year

Gross
domestic
product

AgriManufacturing
Transculportature,
Contion
for- Min- strucDura- Nonand
estry, ing
ble durable public
tion Total
and
goods goods utilifishties
eries

Finance,
Whole- Retail insur- Servsale
ance, ices
trade trade and
real
estate

Government

Statistical
discrepancy 1

Residual 2

Based on
1972 SIC:
1977 ........
1978 ........
1979 ........

3,533.3
3,703.5
3,796.8

63.7 83.5 190.8 741.6 440.9
59.2 85.0 198.8 773.1 460.9
62.4 71.9 200.3 777.1 458.0

300.7
312.2
319.2

314.3
325.1
335.5

170.1 318.0
185.8 338.1
195.8 334.8

596.5 538.9
631.0 573.5
667.4 592.8

475.7
488.3
498.6

19.4
12.2
20.6

20.8
33.4
39.6

1980
1981
1982
1983
1984

........
........
........
........
........

3,776.3
3,843.1
3,760.3
3,906.6
4,148.5

63.2
72.7
73.3
68.4
71.5

424.3
429.7
392.4
402.5
458.4

301.1
317.1
318.7
331.3
333.0

336.3
337.1
331.3
351.7
377.6

190.5
207.5
218.2
224.2
259.5

692.8
704.7
708.4
727.9
762.1

609.0
624.4
629.2
649.5
687.8

508.9
511.6
507.1
512.5
516.9

19.0
13.6
−8.7
11.5
−9.8

45.7
45.3
15.6
20.8
21.0

1985 ........
1986 ........
1987 ........

4,279.8
4,404.5
4,539.9

81.9 83.3 209.0 810.5 468.1
84.5 83.0 209.1 819.1 471.5
88.5 83.0 213.0 878.4 503.2

342.4
347.7
375.2

381.8
386.9
419.9

273.0 421.4
307.1 453.2
302.6 440.1

776.4 722.0
776.6 751.7
809.9 784.0

527.5
536.4
545.3

−14.7
1.3
−24.8

7.7
−4.4
.0

1987 ........
1988 ........
1989 ........

4,539.9
4,718.6
4,838.0

88.5 83.0 213.0 877.8 501.9
85.1 94.2 211.7 923.5 536.4
88.0 83.3 213.1 932.2 543.2

375.9
387.2
389.1

419.8
437.1
449.4

303.1 441.8
311.3 469.7
324.5 483.9

809.7 782.5
846.5 812.8
865.5 845.7

545.3
555.9
567.0

−24.8
−27.4
.9

.0
−1.8
−15.5

1990 ........
1991 ........
1992 ........

4,897.3 95.8 91.8 210.2 928.5 537.0
4,867.6 98.4 92.3 194.8 910.8 525.5
4,979.3 110.3 89.0 201.4 924.6 533.6

391.5
385.4
391.0

462.6
479.1
494.5

319.5 478.1
324.5 473.2
340.9 486.7

868.3 869.4
868.8 871.4
893.4 889.9

581.5
586.7
584.2

6.9
1.3
7.3

−15.3
−33.7
−43.0

79.9
74.2
73.1
71.3
82.0

185.4
174.7
164.9
170.0
190.9

725.4
746.7
711.1
733.8
791.4

320.1
330.6
336.8
365.1
397.7

Based on
1987 SIC:

1 Equals

the current-dollar statistical discrepancy deflated by the implicit price deflator for gross domestic business product.
2 Equals gross domestic product (GDP) in constant dollars measured as the sum of expenditures less the statistical discrepancy in constant dollars and GDP in constant dollars measured as the sum of gross product originating by industry.
Note.—Constant-dollar values are equal to fixed-weighted quantity indexes with 1987 weights divided by 100 and multiplied by the 1987
value of current-dollar GDP.
Source: Department of Commerce, Bureau of Economic Analysis.




289

TABLE B–13.—Gross domestic product of nonfinancial corporate business, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Net domestic product

Year or
quarter

Gross
domestic
product
of
nonfinancial
corporate
business

Domestic income
Consumption
of
fixed
capital

Indirect
business
taxes 1

Corporate profits with inventory valuation and capital
consumption adjustments
ComProfits
pensation of
Profits after tax
employ- Total Profits Profits
ees
before tax
Divi- Undistax liability Total dends tributed
profits

Inventory
valuation
adjustment

1959 ..............
267.5 24.2
243.2 26.0
217.2
171.5
42.6
43.6
20.7
22.9
10.0
12.9
1960 ..............
278.1 25.2
252.9 28.3
224.6
181.2
40.0
40.3
19.2
21.1
10.6
10.6
1961 ..............
285.5 26.0
259.6 29.5
230.1
185.3
40.8
40.1
19.5
20.7
10.6
10.1
1962 ..............
311.7 26.9
284.8 32.0
252.8
200.1
48.2
45.0
20.6
24.3
11.4
13.0
1963 ..............
331.8 28.1
303.7 34.0
269.7
211.1
53.8
49.8
22.8
27.0
12.6
14.4
1964 ..............
358.1 29.5
328.6 36.6
292.0
226.7
60.0
56.0
24.0
32.1
13.7
18.4
1965 ..............
393.5 31.5
362.0 39.2
322.8
246.5
70.3
66.2
27.2
39.0
15.6
23.4
1966 ..............
431.0 34.3
396.7 40.5
356.2
274.0
74.9
71.4
29.5
41.9
16.8
25.1
1967 ..............
453.4 37.5
415.9 43.1
372.8
292.3
71.8
67.5
27.8
39.7
17.5
22.2
1968 ..............
500.5 41.4
459.1 49.7
409.3
323.2
76.0
74.0
33.6
40.4
19.1
21.3
1969 ..............
543.3 45.3
498.0 54.7
443.3
358.8
71.3
70.8
33.3
37.5
19.1
18.4
1970 ..............
561.4 49.7
511.6 58.8
452.8
378.7
57.1
58.1
27.2
31.0
18.5
12.5
1971 ..............
606.4 54.6
551.7 64.5
487.3
402.0
67.2
67.1
29.9
37.1
18.5
18.7
1972 ..............
673.3 61.0
612.4 69.2
543.2
447.1
77.0
78.6
33.8
44.8
20.1
24.7
1973 ..............
754.5 66.2
688.3 76.3
612.0
505.9
83.6
98.6
40.2
58.4
21.1
37.3
1974 ..............
814.6 77.5
737.1 81.4
655.7
556.8
70.6 109.2
42.2
67.0
21.7
45.2
1975 ..............
881.2 93.3
788.0 87.4
700.6
580.3
91.5 109.9
41.5
68.4
24.8
43.6
1976 ..............
994.6 103.8
890.8 95.1
795.7
656.7 111.5 137.3
53.0
84.4
27.8
56.6
1977 .............. 1,124.7 116.2 1,008.5 104.1
904.4
741.8 132.0 158.6
59.9
98.7
32.0
66.8
1978 .............. 1,279.4 132.3 1,147.2 114.6 1,032.6
850.2 146.1 183.5
67.1 116.4
37.2
79.1
1979 .............. 1,423.7 153.0 1,270.7 123.3 1,147.4
964.2 138.1 195.5
69.6 125.9
39.3
86.7
1980 .............. 1,546.5 174.8 1,371.7 139.4 1,232.4 1,053.5 120.7 181.6
67.0 114.6
45.5
69.1
1981 .............. 1,748.6 207.0 1,541.5 167.9 1,373.6 1,164.8 136.9 181.0
63.9 117.1
53.4
63.7
1982 .............. 1,802.8 229.4 1,573.4 169.4 1,404.0 1,209.9 111.5 132.9
46.3
86.7
56.4
30.2
1983 .............. 1,936.1 242.1 1,694.0 185.8 1,508.2 1,271.6 159.9 155.9
59.4
96.4
66.5
29.9
1984 .............. 2,166.5 248.1 1,918.3 206.9 1,711.4 1,409.2 214.3 189.0
73.7 115.4
69.5
45.9
1985 .............. 2,293.6 258.0 2,035.5 220.3 1,815.3 1,503.2 221.4 165.5
69.9
95.6
74.5
21.1
1986 .............. 2,386.3 271.4 2,114.9 231.4 1,883.6 1,581.5 203.8 149.1
75.6
73.5
76.3
−2.8
1987 .............. 2,547.3 281.4 2,265.9 241.0 2,024.9 1,675.0 244.2 212.0
93.5 118.5
77.9
40.6
1988 .............. 2,764.8 297.5 2,467.3 257.1 2,210.2 1,814.2 274.4 256.6 101.7 154.9
82.0
72.9
1989 .............. 2,913.5 317.4 2,596.2 274.2 2,322.0 1,920.2 255.2 232.9
99.5 133.3 101.9
31.5
1990 .............. 3,045.5 329.3 2,716.2 290.4 2,425.8 2,020.9 256.4 232.1
93.9 138.3 118.1
20.1
1991 .............. 3,089.7 341.6 2,748.2 311.7 2,436.5 2,053.1 249.2 212.4
83.1 129.3 124.7
4.6
1992 .............. 3,222.9 352.9 2,870.0 328.9 2,541.1 2,151.0 276.6 253.4
87.8 165.5 136.3
29.2
1993 .............. 3,409.7 361.5 3,048.2 344.0 2,704.2 2,259.2 330.9 293.5 116.8 176.7 159.8
16.9
1994 p ............ .............. 382.2 .............. 365.4 .............. 2,392.4 ............ ............ ............ ............ ............ ............
1982: IV ......... 1,806.3 238.8 1,567.5 172.6 1,394.9 1,213.9 101.5 116.5
40.6
75.9
59.0
16.9
1983: IV ......... 2,037.2 261.5 1,775.7 194.0 1,581.7 1,327.6 175.2 168.1
64.4 103.7
67.4
36.3
1984: IV ......... 2,228.2 258.9 1,969.4 212.4 1,756.9 1,449.7 211.4 169.0
62.6 106.4
68.7
37.7
1985: IV ......... 2,338.8 263.4 2,075.4 223.8 1,851.6 1,540.1 221.4 168.4
71.1
97.2
74.7
22.5
1986: IV ......... 2,422.8 275.8 2,147.1 233.6 1,913.5 1,611.4 198.6 168.5
86.5
82.0
75.2
6.8
1987: IV ......... 2,627.6 286.1 2,341.4 245.4 2,096.0 1,730.1 256.8 224.8
99.6 125.1
84.0
41.2
1988: IV ......... 2,843.2 304.5 2,538.8 263.1 2,275.7 1,868.8 278.5 271.4 107.9 163.5
84.3
79.2
1989: IV ......... 2,951.5 326.5 2,625.0 279.0 2,346.0 1,954.6 240.7 215.9
91.1 124.8 102.3
22.5
1990: IV ......... 3,052.5 336.1 2,716.4 296.6 2,419.8 2,039.3 232.4 226.7
92.0 134.8 117.2
17.5
1991: I ........... 3,058.4 339.7 2,718.7 303.8 2,414.9 2,030.1 243.8 207.9
80.5 127.5 123.1
4.4
II .......... 3,074.8 340.9 2,734.0 306.9 2,427.1 2,039.5 251.8 209.3
81.7 127.6 124.6
3.0
III ......... 3,099.8 342.2 2,757.6 315.6 2,442.0 2,059.7 249.9 214.6
84.8 129.8 124.2
5.6
IV ......... 3,125.9 343.5 2,782.4 320.4 2,462.0 2,083.0 251.3 217.6
85.4 132.2 126.9
5.3
1992: I ........... 3,150.0 345.5 2,804.6 323.3 2,481.3 2,101.1 260.7 232.6
79.3 153.3 125.0
28.3
II .......... 3,194.4 347.7 2,846.7 325.3 2,521.3 2,134.4 271.7 258.6
90.3 168.3 131.5
36.8
III ......... 3,239.4 366.2 2,873.1 329.8 2,543.4 2,165.4 268.2 250.0
86.5 163.6 137.6
26.0
IV ......... 3,307.8 352.1 2,955.7 337.4 2,618.3 2,203.0 305.8 272.2
95.2 177.0 151.1
25.9
1993: I ........... 3,324.4 356.9 2,967.4 336.1 2,631.3 2,225.2 293.5 269.3 106.2 163.0 160.6
2.4
II .......... 3,386.3 358.8 3,027.5 341.3 2,686.2 2,248.5 324.4 293.7 116.7 176.9 156.7
20.2
III ......... 3,428.7 366.5 3,062.2 344.3 2,717.9 2,269.1 334.3 285.7 113.5 172.2 159.4
12.8
IV ......... 3,499.3 363.7 3,135.6 354.3 2,781.3 2,293.9 371.6 325.4 130.8 194.6 162.3
32.2
1994: I ........... 3,568.6 383.7 3,184.8 358.9 2,825.9 2,337.1 372.2 332.8 132.5 200.3 159.5
40.8
II .......... 3,626.7 376.3 3,250.3 362.9 2,887.5 2,373.1 394.7 355.9 143.4 212.5 164.3
48.1
III ......... 3,679.4 382.0 3,297.5 368.4 2,929.0 2,405.1 399.1 365.2 147.1 218.1 157.3
60.8
IV p ...... .............. 386.8 .............. 371.5 .............. 2,454.2 ............ ............ ............ ............ ............ ............

−0.3
−.2
.3
.0
.1
−.5
−1.2
−2.1
−1.6
−3.7
−5.9
−6.6
−4.6
−6.6
−20.0
−39.5
−11.0
−14.9
−16.6
−25.0
−41.6
−43.0
−25.7
−9.9
−8.5
−4.1
.2
9.7
−14.5
−27.3
−17.5
−11.0
5.8
−6.4
−6.2
−18.7
−8.6
−7.6
3.5
−3.8
−10.7
−17.8
−31.7
−13.5
−19.5
10.4
12.1
1.4
−.8
−4.0
−16.6
−7.3
2.1
−11.2
−10.0
3.0
−6.5
−12.3
−14.1
−19.6
−28.8

Total

Total

1 Indirect

business tax and nontax liability plus business transfer payments less subsidies.
Source: Department of Commerce, Bureau of Economic Analysis.




290

Capital Net
con- intersump- est
tion
adjustment
−0.7
−.2
.3
3.2
3.9
4.5
5.3
5.6
5.8
5.6
6.3
5.5
4.7
5.0
5.0
.9
−7.4
−10.9
−10.0
−12.3
−15.9
−17.8
−18.4
−11.5
12.5
29.4
55.6
44.9
46.7
45.0
39.9
35.3
31.1
29.7
43.6
53.3
−6.4
14.7
38.9
56.9
40.8
49.8
38.8
38.3
25.2
25.5
30.5
33.9
34.4
32.1
29.7
25.4
31.5
35.4
40.7
45.7
52.7
51.7
52.9
53.6
55.1

3.1
3.5
4.0
4.5
4.8
5.3
6.1
7.4
8.8
10.1
13.2
17.1
18.1
19.2
22.5
28.3
28.7
27.5
30.6
36.3
45.1
58.2
71.9
82.5
76.7
87.9
90.7
98.3
105.8
121.6
146.6
148.5
134.2
113.5
114.0
..........
79.6
78.9
95.8
90.0
103.5
109.2
128.4
150.7
148.2
141.1
135.8
132.4
127.7
119.5
115.2
109.8
109.5
112.6
113.3
114.4
115.8
116.6
119.6
124.8
..........

TABLE B–14.—Output, costs, and profits of nonfinancial corporate business, 1959–94
[Quarterly data at seasonally adjusted annual rates]

Year or quarter

Gross domestic
product of
nonfinancial
corporate
business
(billions of
dollars)

Current-dollar cost and profit per unit of output (dollars) 1

Total
cost
and
profit 2

Consumption
of
fixed
capital

Indirect
business
taxes 3

Compensation
of
employees

Corporate profits with
inventory valuation and
capital consumption
adjustments
Total

Profits
tax
liability

Net
interest

Profits
after
tax 4

Output
per hour
of all
employees
(1987
dollars)

Compensation
per hour
of all
employees
(dollars)

Current
dollars

1987
dollars

1959 ....................
1960 ....................
1961 ....................
1962 ....................
1963 ....................
1964 ....................
1965 ....................
1966 ....................
1967 ....................
1968 ....................
1969 ....................
1970 ....................
1971 ....................
1972 ....................
1973 ....................
1974 ....................
1975 ....................
1976 ....................
1977 ....................
1978 ....................
1979 ....................
1980 ....................
1981 ....................
1982 ....................
1983 ....................
1984 ....................
1985 ....................
1986 ....................
1987 ....................
1988 ....................
1989 ....................
1990 ....................
1991 ....................
1992 ....................
1993 ....................
1982: IV ...............
1983: IV ...............
1984: IV ...............
1985: IV ...............
1986: IV ...............
1987: IV ...............
1988: IV ...............
1989: IV ...............
1990: IV ...............

267.5
278.1
285.5
311.7
331.8
358.1
393.5
431.0
453.4
500.5
543.3
561.4
606.4
673.3
754.5
814.6
881.2
994.6
1,124.7
1,279.4
1,423.7
1,546.5
1,748.6
1,802.8
1,936.1
2,166.5
2,293.6
2,386.3
2,547.3
2,764.8
2,913.5
3,045.5
3,089.7
3,222.9
3,409.7
1,806.3
2,037.2
2,228.2
2,338.8
2,422.8
2,627.6
2,843.2
2,951.5
3,052.5

928.7
955.6
978.2
1,047.5
1,104.8
1,179.3
1,262.2
1,336.0
1,367.4
1,444.3
1,492.5
1,473.4
1,525.9
1,629.5
1,706.9
1,669.7
1,625.6
1,748.5
1,866.7
1,967.1
1,995.7
1,980.9
2,035.1
2,001.3
2,112.3
2,284.1
2,364.3
2,439.3
2,547.3
2,684.8
2,718.9
2,747.4
2,716.7
2,802.8
2,942.9
1,999.6
2,204.2
2,328.4
2,396.9
2,463.3
2,604.0
2,719.0
2,722.7
2,725.0

0.288
.291
.292
.298
.300
.304
.312
.323
.332
.347
.364
.381
.397
.413
.442
.488
.542
.569
.603
.650
.713
.781
.859
.901
.917
.949
.970
.978
1.000
1.030
1.072
1.109
1.137
1.150
1.159
.903
.924
.957
.976
.984
1.009
1.046
1.084
1.120

0.026
.026
.027
.026
.025
.025
.025
.026
.027
.029
.030
.034
.036
.037
.039
.046
.057
.059
.062
.067
.077
.088
.102
.115
.115
.109
.109
.111
.110
.111
.117
.120
.126
.126
.123
.119
.119
.111
.110
.112
.110
.112
.120
.123

0.028
.030
.030
.031
.031
.031
.031
.030
.032
.034
.037
.040
.042
.042
.045
.049
.054
.054
.056
.058
.062
.070
.082
.085
.088
.091
.093
.095
.095
.096
.101
.106
.115
.117
.117
.086
.088
.091
.093
.095
.094
.097
.102
.109

0.185
.190
.189
.191
.191
.192
.195
.205
.214
.224
.240
.257
.263
.274
.296
.333
.357
.376
.397
.432
.483
.532
.572
.605
.602
.617
.636
.648
.658
.676
.706
.736
.756
.767
.768
.607
.602
.623
.643
.654
.664
.687
.718
.748

0.046
.042
.042
.046
.049
.051
.056
.056
.052
.053
.048
.039
.044
.047
.049
.042
.056
.064
.071
.074
.069
.061
.067
.056
.076
.094
.094
.084
.096
.102
.094
.093
.092
.099
.112
.051
.079
.091
.092
.081
.099
.102
.088
.085

0.022
.020
.020
.020
.021
.020
.022
.022
.020
.023
.022
.018
.020
.021
.024
.025
.026
.030
.032
.034
.035
.034
.031
.023
.028
.032
.030
.031
.037
.038
.037
.034
.031
.031
.040
.020
.029
.027
.030
.035
.038
.040
.033
.034

0.024
.022
.022
.026
.028
.031
.034
.034
.032
.029
.025
.020
.024
.027
.025
.017
.031
.033
.039
.040
.034
.027
.036
.033
.048
.062
.064
.053
.059
.064
.057
.059
.061
.067
.073
.030
.050
.064
.063
.045
.060
.063
.055
.052

0.003
.004
.004
.004
.004
.005
.005
.006
.006
.007
.009
.012
.012
.012
.013
.017
.018
.016
.016
.018
.023
.029
.035
.041
.036
.038
.038
.040
.042
.045
.054
.054
.049
.041
.039
.040
.036
.041
.038
.042
.042
.047
.055
.054

15.443
15.661
16.182
16.675
17.204
17.855
18.074
18.142
18.362
18.858
18.749
18.775
19.484
19.793
19.762
19.231
19.764
20.365
20.767
20.712
20.221
20.265
20.537
20.802
21.594
21.924
22.148
22.733
23.127
23.572
23.189
23.446
23.926
24.648
25.379
21.070
21.893
22.055
22.346
22.891
23.356
23.521
23.146
23.549

2.851
2.969
3.066
3.186
3.287
3.432
3.529
3.720
3.924
4.220
4.508
4.825
5.133
5.430
5.857
6.413
7.056
7.648
8.252
8.951
9.770
10.777
11.754
12.576
13.000
13.526
14.082
14.739
15.207
15.833
16.377
17.246
18.081
18.916
19.483
12.791
13.186
13.732
14.359
14.975
15.517
16.069
16.616
17.623

1991: I .................
II ...............
III ..............
IV ..............

3,058.4
3,074.8
3,099.8
3,125.9

2,702.0
2,704.1
2,719.9
2,740.9

1.132
1.137
1.140
1.140

.126
.126
.126
.125

.112
.113
.116
.117

.751
.754
.757
.760

.090
.093
.092
.092

.030
.030
.031
.031

.060
.063
.061
.061

.052
.050
.049
.047

23.716
23.846
23.993
24.211

17.818
17.984
18.169
18.400

1992: I .................
II ...............
III ..............
IV ..............

3,150.0
3,194.4
3,239.4
3,307.8

2,746.9
2,778.3
2,815.7
2,870.2

1.147
1.150
1.150
1.152

.126
.125
.130
.123

.118
.117
.117
.118

.765
.768
.769
.768

.095
.098
.095
.107

.029
.033
.031
.033

.066
.065
.065
.073

.044
.041
.039
.038

24.286
24.460
24.774
25.085

18.577
18.791
19.052
19.254

1993: I .................
II ...............
III ..............
IV ..............

3,324.4
3,386.3
3,428.7
3,499.3

2,868.4
2,920.5
2,963.3
3,019.5

1.159
1.159
1.157
1.159

.124
.123
.124
.120

.117
.117
.116
.117

.776
.770
.766
.760

.102
.111
.113
.123

.037
.040
.038
.043

.065
.071
.075
.080

.039
.039
.039
.038

24.962
25.239
25.516
25.810

19.365
19.432
19.539
19.608

1994: I .................
II ...............
III ..............

3,568.6
3,626.7
3,679.4

3,062.6
3,098.9
3,131.2

1.165
1.170
1.175

.125
.121
.122

.117
.117
.118

.763
.766
.768

.122
.127
.127

.043
.046
.047

.078
.081
.080

.038
.039
.040

26.018
25.923
26.048

19.855
19.852
20.005

1 Output is measured by gross domestic product of nonfinancial corporate business in 1987 dollars.
2 This is equal to the deflator for gross domestic product of nonfinancial corporate business with the decimal point shifted two places to
the left.
3 Indirect business tax and nontax liability plus business transfer payments less subsidies.
4 With inventory valuation and capital consumption adjustments.
Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor (Bureau of Labor Statistics).




291

TABLE B–15.—Personal consumption expenditures, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Durable goods

Nondurable goods

FurniPersonal
Motor ture
convehiand
sumption
expendi- Total 1 cles houseand
hold
tures
parts equipment

Year or
quarter

Total 1

Food

Cloth- Gasoing
line
and
and
shoes
oil

Services

Fuel
oil
and
coal

Household
operation
Total 1 Housing 2
Total 1

Trans- MediElec- portacal
tricity tion
care
and
gas

1959 ...............

318.1

42.8

18.9

18.1

148.5

80.7

26.4

11.3

4.0

126.8

45.0

18.7

7.6

10.5

16.3

1960
1961
1962
1963
1964

...............
...............
...............
...............
...............

332.4
343.5
364.4
384.2
412.5

43.5
41.9
47.0
51.8
56.8

19.7
17.8
21.5
24.4
26.0

18.0
18.3
19.3
20.7
23.2

153.1
157.4
163.8
169.4
179.7

82.6
84.8
87.1
89.5
94.6

27.0
27.6
29.0
29.8
32.4

12.0
12.0
12.6
13.0
13.6

3.8
3.8
3.8
4.0
4.1

135.9
144.1
153.6
163.1
175.9

48.2
51.2
54.7
58.0
61.4

20.3
21.2
22.4
23.6
25.0

8.3
8.8
9.4
9.9
10.4

11.2
11.7
12.2
12.7
13.4

17.4
18.6
20.7
22.4
25.7

1965
1966
1967
1968
1969

...............
...............
...............
...............
...............

444.6
481.6
509.3
559.1
603.7

63.5
68.5
70.6
81.0
86.2

29.9
30.3
30.0
36.1
38.4

25.1
28.2
30.0
32.9
34.7

191.9
208.5
216.9
235.0
252.2

101.0
109.0
112.3
121.6
130.5

34.1
37.4
39.2
43.2
46.5

14.8
16.0
17.1
18.6
20.5

4.4
4.7
4.8
4.7
4.6

189.2
204.6
221.7
243.1
265.3

65.4
69.5
74.1
79.7
86.8

26.5
28.2
30.2
32.3
35.1

10.9
11.5
12.2
13.0
14.0

14.5
15.9
17.3
18.9
20.9

27.7
30.5
33.7
39.0
44.4

1970
1971
1972
1973
1974

...............
...............
...............
...............
...............

646.5
700.3
767.8
848.1
927.7

85.3
97.2
110.7
124.1
123.0

35.5
44.5
51.1
56.1
49.5

35.7
37.8
42.4
47.9
51.5

270.4
283.3
305.2
339.6
380.8

142.1
147.5
158.5
176.1
198.1

47.8
51.7
56.4
62.5
66.0

21.9
23.2
24.4
28.1
36.1

4.4
4.6
5.1
6.3
7.8

290.8
319.8
351.9
384.5
423.9

94.0
102.7
112.1
122.7
134.1

37.8
41.0
45.3
49.8
55.5

15.2
16.6
18.4
20.0
23.5

23.7
27.1
29.8
31.2
33.3

50.1
56.5
63.5
71.2
80.1

1975
1976
1977
1978
1979

...............
...............
...............
...............
...............

1,024.9
1,143.1
1,271.5
1,421.2
1,583.7

134.3
160.0
182.6
202.3
214.2

54.8
71.3
83.5
92.2
91.5

54.5
60.2
67.1
74.0
82.3

416.0
451.8
490.4
541.5
613.3

218.5 70.8
236.0 76.6
255.9 84.1
280.6 94.3
313.0 101.2

39.7
43.0
46.9
50.1
66.2

8.4
10.1
11.1
11.5
14.4

474.5
531.2
598.4
677.4
756.2

147.0
161.5
179.5
201.7
226.6

63.7
72.4
81.9
91.2
100.0

28.5
32.5
37.6
42.1
46.8

35.7
41.3
49.2
53.6
59.4

93.0
106.2
122.4
139.7
157.8

1980
1981
1982
1983
1984

...............
...............
...............
...............
...............

1,748.1
1,926.2
2,059.2
2,257.5
2,460.3

212.5 84.0
228.5 91.6
236.5 97.7
275.0 120.6
317.9 144.6

86.0
91.3
92.5
104.4
115.3

682.9
744.2
772.3
817.8
873.0

341.8
367.3
386.0
406.2
430.2

107.3
117.2
120.5
130.8
142.5

86.7
97.9
94.1
93.3
94.5

15.4 852.7 255.2
15.8 953.5 287.1
14.5 1,050.4 311.1
13.8 1,164.7 334.6
14.2 1,269.4 362.3

113.0
126.0
141.4
153.6
165.5

56.3
63.4
72.6
80.7
84.6

65.1
69.4
71.6
78.9
89.1

181.3
213.6
240.5
265.7
290.6

1985
1986
1987
1988
1989

...............
...............
...............
...............
...............

2,667.4
2,850.6
3,052.2
3,296.1
3,523.1

352.9
389.6
403.7
437.1
459.4

167.4
184.9
183.5
197.8
205.4

123.4 919.4 451.1 152.2
135.5 952.2 476.8 163.2
144.0 1,011.1 500.7 174.5
156.7 1,073.8 533.6 186.4
167.9 1,149.5 565.1 200.4

96.9
79.7
84.7
86.9
96.2

14.1
12.0
12.0
12.1
12.0

1,395.1
1,508.8
1,637.4
1,785.2
1,914.2

392.5
421.8
452.5
484.2
514.4

176.2
181.1
187.8
199.5
209.8

88.7
87.1
88.4
93.4
98.0

99.0
105.8
116.6
128.5
135.6

319.3
346.4
384.7
427.7
471.9

1990 ...............
1991 ...............
1992 ...............
1993 ...............
1994 p .............

3,761.2
3,902.4
4,136.9
4,378.2
4,627.0

468.2
456.6
492.7
538.0
590.9

202.9
185.0
204.1
228.0
250.9

174.2
179.9
192.5
208.9
229.4

1,229.2
1,257.8
1,295.5
1,339.2
1,393.8

604.8
621.5
626.8
649.7
679.1

207.3
213.0
227.7
235.4
246.5

108.4
102.9
105.5
105.6
107.3

13.2
13.0
13.0
14.0
13.7

2,063.8
2,188.1
2,348.7
2,501.0
2,642.2

547.5
574.9
601.3
629.0
659.9

215.6
227.7
239.4
256.3
263.7

97.4
104.3
105.7
112.8
112.7

142.5
145.7
156.7
170.6
179.6

526.2
571.9
628.3
680.5
727.1

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

..........
..........
..........
..........
..........
..........
..........
..........
..........

2,128.7
2,346.8
2,526.4
2,739.8
2,923.1
3,124.6
3,398.2
3,599.1
3,836.6

246.9
297.7
328.2
354.4
406.8
408.8
452.9
458.3
459.5

105.1
134.8
149.3
162.9
188.2
186.3
203.4
198.1
192.9

95.6
109.7
118.7
128.1
140.6
145.9
162.5
170.8
174.5

787.3
839.8
887.8
939.5
963.7
1,029.4
1,105.8
1,173.5
1,260.7

394.9
413.9
436.8
460.7
486.7
507.4
549.5
575.3
615.6

122.7 93.0
136.7 94.9
145.7 94.9
156.2 97.6
165.8 73.0
177.6 87.8
194.4 88.5
205.4 95.9
207.6 123.0

14.0
14.1
13.8
14.3
11.3
12.2
11.7
13.2
13.9

1,094.6
1,209.3
1,310.4
1,446.0
1,552.6
1,686.4
1,839.5
1,967.3
2,116.4

320.2
344.6
373.8
404.6
432.7
466.6
496.0
526.6
558.6

145.8 74.9
159.3 84.8
168.8 85.9
180.7 90.1
182.5 86.8
189.7 88.6
203.8 95.3
217.7 103.7
219.1 99.6

73.6
82.9
92.5
101.5
109.0
121.3
132.7
137.6
145.4

250.9
274.8
299.9
333.0
358.4
398.5
444.4
489.2
546.6

1991: I ............
II ..........
III .........
IV .........

3,841.4
3,885.7
3,927.0
3,955.7

449.3
452.0
463.8
461.2

181.7
179.8
189.9
188.8

176.0
181.0
182.1
180.7

1,253.0
1,259.6
1,261.3
1,257.2

618.5
624.4
623.4
619.7

209.1
214.2
215.4
213.2

107.4
102.6
101.1
100.5

13.5
12.5
13.2
12.8

2,139.0
2,174.1
2,202.0
2,237.3

564.7
571.6
578.0
585.3

220.5
229.9
230.8
229.7

100.6
107.4
105.6
103.7

142.9
144.2
146.5
149.2

554.6
564.4
576.4
592.2

1992: I ............
II ..........
III .........
IV .........

4,044.4
4,097.8
4,154.0
4,251.3

480.1
483.3
495.7
511.6

198.5
199.8
204.0
214.0

187.5
188.7
193.9
199.9

1,276.5
1,281.7
1,299.6
1,324.3

624.3
619.2
624.5
639.3

221.9
223.9
230.2
234.8

101.5
104.9
108.2
107.5

12.3
13.9
12.8
13.2

2,287.8
2,332.8
2,358.6
2,415.4

592.1
598.0
604.1
611.2

231.7
240.1
235.5
250.2

101.7
105.5
105.7
109.8

153.6
156.3
154.0
163.0

605.9
621.9
636.4
648.8

1993: I ............
II ..........
III .........
IV .........

4,294.6
4,347.3
4,401.2
4,469.6

516.1
531.2
541.9
562.8

216.6
225.7
228.4
241.4

201.6
205.5
210.6
217.7

1,327.1
1,334.2
1,340.2
1,355.2

640.4
646.0
651.7
660.8

231.8
233.2
235.9
240.7

108.4
105.6
104.1
104.4

14.1
13.9
14.2
13.9

2,451.4
2,481.9
2,519.1
2,551.6

619.0
625.9
632.4
638.8

250.6
252.9
260.4
261.3

110.5
110.1
115.5
115.1

167.3
170.0
171.5
173.6

664.1
674.5
686.1
697.3

1994: I ............
II ..........
III .........
IV p .......

4,535.0
4,586.4
4,657.5
4,728.9

576.2
580.3
591.5
615.6

253.0
245.8
245.5
259.3

218.1
225.3
233.7
240.3

1,368.9
1,381.4
1,406.1
1,418.9

667.9
675.5
683.7
689.3

241.9
243.9
247.8
252.4

103.2
103.7
110.6
111.5

15.5
13.1
13.4
12.5

2,589.9
2,624.7
2,659.9
2,694.5

648.2
655.2
663.9
672.2

261.1
265.9
265.3
262.5

116.3
115.2
111.9
107.3

175.4
178.5
180.5
183.8

707.4
720.9
733.2
746.8

1 Includes
2 Includes

other items not shown separately.
imputed rental value of owner-occupied housing.

Source: Department of Commerce, Bureau of Economic Analysis.




292

TABLE B–16.—Personal consumption expenditures in 1987 dollars, 1959–94
[Billions of 1987 dollars; quarterly data at seasonally adjusted annual rates]
Durable goods

Year or
quarter

1959 ...............
1960 ...............
1961 ...............
1962 ...............
1963 ...............
1964 ...............
1965 ...............
1966 ...............
1967 ...............
1968 ...............
1969 ...............
1970 ...............
1971 ...............
1972 ...............
1973 ...............
1974 ...............
1975 ...............
1976 ...............
1977 ...............
1978 ...............
1979 ...............
1980 ...............
1981 ...............
1982 ...............
1983 ...............
1984 ...............
1985 ...............
1986 ...............
1987 ...............
1988 ...............
1989 ...............
1990 ...............
1991 ...............
1992 ...............
1993 ...............
1994 p .............
1982: IV ..........
1983: IV ..........
1984: IV ..........
1985: IV ..........
1986: IV ..........
1987: IV ..........
1988: IV ..........
1989: IV ..........
1990: IV ..........
1991: I .............
II ...........
III ..........
IV ..........
1992: I .............
II ...........
III ..........
IV ..........
1993: I .............
II ...........
III ..........
IV ..........
1994: I .............
II ...........
III ..........
IV p ........

Personal
FurniconMotor ture
sumption
vehiand
expendi- Total 1 cles housetures
and
hold
parts equipment
1,178.9
1,210.8
1,238.4
1,293.3
1,341.9
1,417.2
1,497.0
1,573.8
1,622.4
1,707.5
1,771.2
1,813.5
1,873.7
1,978.4
2,066.7
2,053.8
2,097.5
2,207.3
2,296.6
2,391.8
2,448.4
2,447.1
2,476.9
2,503.7
2,619.4
2,746.1
2,865.8
2,969.1
3,052.2
3,162.4
3,223.3
3,272.6
3,259.4
3,349.5
3,458.7
3,578.5
2,539.3
2,678.2
2,784.8
2,895.3
3,012.5
3,074.7
3,202.9
3,242.0
3,265.9
3,242.9
3,259.5
3,269.8
3,265.3
3,311.4
3,325.4
3,357.6
3,403.4
3,417.2
3,439.2
3,472.2
3,506.2
3,546.3
3,557.8
3,584.7
3,625.1

114.4
115.4
109.4
120.2
130.3
140.7
156.2
166.0
167.2
184.5
190.8
183.7
201.4
225.2
246.6
227.2
226.8
256.4
280.0
292.9
289.0
262.7
264.6
262.5
297.7
338.5
370.1
402.0
403.7
428.7
440.7
443.1
425.3
452.6
489.9
531.5
272.3
319.1
347.7
369.6
415.7
404.7
439.2
436.8
433.2
420.6
421.9
431.3
427.7
443.4
443.8
454.5
468.8
472.5
483.7
492.7
510.8
521.7
522.2
529.6
552.4

59.7
61.3
54.9
62.2
68.4
71.2
81.2
81.8
80.3
91.8
95.1
85.6
100.8
114.3
123.4
102.2
102.9
124.6
137.3
141.5
130.5
111.4
113.5
115.6
138.1
160.3
180.2
193.3
183.5
194.8
196.4
192.7
170.0
181.8
196.1
207.9
123.7
151.6
164.3
173.9
193.6
183.6
197.7
188.3
182.1
169.0
165.7
173.6
171.6
179.8
178.6
180.6
188.2
189.7
195.1
195.0
204.7
213.7
205.3
202.0
210.7

38.2
37.7
38.1
40.4
43.1
48.3
52.1
57.6
59.5
62.9
64.3
64.4
66.8
73.6
81.5
81.9
79.1
84.2
91.4
96.6
101.3
98.5
97.7
94.2
104.3
115.3
123.8
136.3
144.0
155.4
165.8
171.6
179.2
193.3
214.1
238.3
96.4
109.3
118.7
128.6
141.4
145.9
160.3
167.9
172.3
174.2
179.7
181.9
181.2
187.2
188.8
195.3
202.0
205.2
209.9
216.6
224.6
225.9
232.5
241.7
253.0

Nondurable goods

Total 1

518.5
526.9
537.7
553.0
563.6
588.2
616.7
647.6
659.0
686.0
703.2
717.2
725.6
755.8
777.9
759.8
767.1
801.3
819.8
844.8
862.8
860.5
867.9
872.2
900.3
934.6
958.7
991.0
1,011.1
1,035.1
1,051.6
1,060.7
1,047.7
1,057.7
1,078.5
1,109.3
880.7
915.2
942.9
968.7
1,000.9
1,014.6
1,046.8
1,058.9
1,057.5
1,049.5
1,051.7
1,049.3
1,040.4
1,051.1
1,049.3
1,056.4
1,074.2
1,070.0
1,074.3
1,081.7
1,088.0
1,098.3
1,104.3
1,113.4
1,121.1

Food

301.9
305.8
312.1
316.3
319.2
331.0
346.5
359.1
364.5
380.7
389.7
397.5
399.2
411.9
412.6
404.7
413.2
431.9
441.5
442.8
448.0
448.8
446.6
451.4
463.4
472.3
483.0
494.1
500.7
513.4
515.0
523.9
518.8
514.7
524.0
535.2
458.3
467.1
475.1
488.2
496.9
502.4
518.0
515.6
525.8
520.4
520.4
519.4
514.9
515.6
509.9
511.5
522.0
520.7
522.3
525.1
528.1
531.9
536.1
535.7
537.0

Cloth- Gasoing
line
and
and
shoes
oil

58.2
58.7
59.8
62.4
63.6
68.5
71.5
76.3
76.9
80.2
81.9
81.0
84.6
90.4
96.9
95.4
98.5
103.2
108.7
119.0
124.1
126.0
132.8
133.7
142.4
153.1
158.8
170.3
174.5
178.9
187.8
186.2
184.7
193.2
197.8
208.8
135.7
147.7
154.7
161.7
171.9
174.5
182.8
190.9
184.5
183.2
187.0
185.7
182.8
188.9
190.6
194.9
198.7
194.0
196.1
198.6
202.4
203.8
204.9
210.2
216.6

1 Includes

other items not shown separately.
imputed rental value of owner-occupied housing.
Source: Department of Commerce, Bureau of Economic Analysis.

2 Includes




293

38.1
39.4
39.8
41.5
42.8
45.1
47.3
50.2
51.8
55.5
59.2
62.9
65.9
68.6
72.1
68.6
70.6
73.4
75.7
77.4
76.4
72.0
73.2
73.9
75.7
77.9
79.2
82.9
84.7
86.1
87.3
86.4
83.1
85.6
86.5
87.4
73.4
76.9
79.0
79.5
84.6
85.4
87.5
88.6
84.6
83.0
83.6
83.3
82.4
84.3
85.3
86.6
86.0
86.1
85.7
87.5
86.6
86.1
86.7
88.0
88.8

Services

Fuel
oil
and
coal

22.6
21.7
20.6
20.6
21.6
22.5
23.5
24.2
24.2
23.0
21.8
20.2
19.5
21.5
23.3
18.4
18.1
20.3
19.6
19.5
18.1
14.0
11.8
10.9
11.1
11.2
11.5
12.1
12.0
12.0
11.4
10.5
10.7
11.2
12.1
11.9
10.5
11.4
11.1
11.4
12.4
11.9
12.0
12.0
9.5
10.3
10.6
11.4
10.7
10.7
12.0
10.8
11.3
12.0
11.8
12.2
12.2
13.4
11.4
11.7
11.1

Household
operation
Total 1

Housing 2
Total 1

546.0
568.5
591.3
620.0
648.0
688.3
724.1
760.2
796.2
837.0
877.2
912.5
946.7
997.4
1,042.2
1,066.8
1,103.6
1,149.5
1,196.8
1,254.1
1,296.5
1,323.9
1,344.4
1,368.9
1,421.4
1,473.0
1,537.0
1,576.1
1,637.4
1,698.5
1,731.0
1,768.8
1,786.3
1,839.1
1,890.3
1,937.8
1,386.2
1,443.9
1,494.2
1,557.1
1,595.8
1,655.5
1,716.9
1,746.3
1,775.2
1,772.8
1,785.9
1,789.2
1,797.3
1,817.0
1,832.3
1,846.7
1,860.4
1,874.8
1,881.2
1,897.8
1,907.4
1,926.3
1,931.4
1,941.8
1,951.7

159.8
168.1
176.0
185.8
194.4
203.5
214.6
224.4
234.5
246.0
259.1
269.3
280.9
295.9
310.8
326.9
336.5
346.7
355.4
372.9
387.9
399.4
407.3
409.6
415.5
426.8
435.9
442.1
452.5
461.8
469.2
474.6
479.0
485.2
492.6
501.3
411.0
419.7
431.3
438.1
444.8
457.0
465.6
471.3
475.9
476.5
478.4
479.8
481.4
482.6
484.2
486.1
487.8
489.8
491.5
493.7
495.4
497.7
500.0
502.6
504.9

Trans- MediElec- portacal
tricity tion
care
and
gas

75.0 34.5
78.5 36.3
81.2 38.3
85.2 40.9
88.4 42.8
92.6 45.1
96.8 47.2
101.4 49.7
106.2 52.4
110.1 55.0
115.3 58.0
118.9 60.4
120.8 61.8
126.8 64.9
132.0 66.5
132.5 66.9
138.1 70.4
143.9 72.9
151.0 76.0
158.0 78.8
162.9 79.3
167.1 81.6
165.6 80.3
166.7 81.2
169.4 83.7
173.7 84.3
179.1 86.6
180.8 85.6
187.8 88.4
196.9 92.7
202.6 94.3
204.3 92.2
209.1 95.8
217.8 95.2
225.3 98.6
227.8 97.9
166.2 80.2
173.3 86.8
174.8 84.5
182.6 88.5
182.8 86.8
189.3 88.6
198.6 93.0
208.5 98.8
206.0 93.8
203.5 92.5
211.6 99.1
211.5 97.1
209.8 94.4
210.4 92.7
217.2 95.7
220.0 95.1
223.4 97.5
224.1 98.5
222.8 96.3
227.4 99.9
226.9 99.6
228.7 101.1
229.1 100.2
228.1 97.2
225.3 93.2

45.4
46.7
47.0
48.7
50.5
53.0
55.4
58.6
62.0
65.4
68.9
71.0
73.6
77.8
79.6
79.9
81.4
84.4
90.2
92.9
96.1
91.3
88.9
87.4
91.6
100.0
109.2
112.6
116.6
122.5
123.8
124.0
119.3
122.9
127.9
132.6
88.2
94.2
103.5
111.2
113.4
117.9
124.2
124.3
122.7
118.9
119.2
119.1
120.0
120.6
122.5
124.7
123.9
125.8
127.6
128.4
129.8
130.9
131.8
132.4
135.4

95.0
98.4
102.0
110.2
117.1
129.8
135.8
142.3
148.1
159.5
171.3
180.7
193.7
207.0
222.4
231.1
243.8
255.5
267.9
279.2
290.9
302.1
318.3
323.7
332.6
341.9
353.0
366.2
384.7
399.4
408.6
424.6
437.7
454.3
466.4
479.0
327.8
334.8
344.9
359.1
372.0
390.7
403.0
411.8
429.4
432.0
434.9
439.1
444.7
448.5
453.1
456.6
459.0
463.1
464.3
467.6
470.4
473.2
477.4
481.0
484.5

TABLE B–17.—Gross and net private domestic investment, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Equals: Net private domestic investment
Net fixed investment
Year or quarter

Gross
private
domestic
investment

Less:
Consumption of
fixed
capital

Nonresidential
Total
Total
Total

1959 ......................................

Structures

Producers’
durable
equipment

Residential

Change in
business
inventories

78.8

44.6

34.2

30.1

12.3

6.6

5.7

17.8

4.2

1960
1961
1962
1963
1964

......................................
......................................
......................................
......................................
......................................

78.7
77.9
87.9
93.4
101.7

46.3
47.7
49.3
51.3
53.9

32.4
30.3
38.6
42.0
47.8

29.2
27.3
32.5
36.4
42.8

13.8
12.2
15.3
16.4
21.3

7.7
7.6
8.3
8.3
10.3

6.1
4.6
7.0
8.1
11.0

15.4
15.1
17.2
20.0
21.5

3.2
2.9
6.1
5.7
5.0

1965
1966
1967
1968
1969

......................................
......................................
......................................
......................................
......................................

118.0
130.4
128.0
139.9
155.2

57.3
62.1
67.4
73.9
81.5

60.7
68.3
60.6
66.0
73.7

51.0
54.5
50.1
56.9
64.0

30.3
36.7
33.2
35.0
40.5

14.1
16.0
15.1
15.8
17.9

16.2
20.7
18.1
19.2
22.6

20.7
17.8
16.9
21.9
23.5

9.7
13.8
10.5
9.1
9.7

1970
1971
1972
1973
1974

......................................
......................................
......................................
......................................
......................................

150.3
175.5
205.6
243.1
245.8

88.8
97.6
109.9
120.4
140.2

61.5
78.0
95.7
122.7
105.5

59.2
69.9
85.8
105.0
91.3

38.4
36.8
42.5
59.0
58.9

18.4
18.4
18.7
23.8
24.5

20.0
18.4
23.8
35.2
34.5

20.8
33.1
43.2
46.0
32.3

2.3
8.0
9.9
17.7
14.3

1975
1976
1977
1978
1979

......................................
......................................
......................................
......................................
......................................

226.0
286.4
358.3
434.0
480.2

165.2
182.8
205.2
234.8
272.4

60.9
103.6
153.1
199.3
207.8

66.5
86.8
128.3
171.3
195.1

41.5
45.6
64.9
94.1
117.3

18.8
19.9
23.4
35.5
49.9

22.7
25.6
41.5
58.6
67.4

25.1
41.2
63.4
77.3
77.8

−5.7
16.7
24.7
27.9
12.8

1980
1981
1982
1983
1984

......................................
......................................
......................................
......................................
......................................

467.6
558.0
503.4
546.7
718.9

311.9
362.4
399.1
418.4
433.2

155.7
195.6
104.3
128.2
285.6

165.2
170.2
120.3
133.8
214.6

113.8
127.1
99.1
69.1
126.6

59.1
75.5
72.4
46.2
65.1

54.7
51.6
26.7
22.9
61.5

51.4
43.1
21.2
64.6
87.9

−9.5
25.4
−15.9
−5.5
71.1

1985
1986
1987
1988
1989

......................................
......................................
......................................
......................................
......................................

714.5
717.6
749.3
793.6
832.3

454.5
478.6
502.2
534.0
580.4

260.0
239.1
247.1
259.6
251.9

235.4
230.4
220.9
243.4
218.6

146.1
114.4
103.0
125.8
117.1

75.2
51.8
46.7
47.9
48.6

70.9
62.6
56.3
77.9
68.5

89.3
116.0
117.9
117.6
101.5

24.6
8.6
26.3
16.2
33.3

1990 ......................................
1991 ......................................
1992 ......................................
1993 ......................................
1994 p ....................................

808.9
744.8
788.3
882.0
1,037.5

602.7
626.5
658.5
669.1
715.5

206.2
118.3
129.8
213.0
322.0

199.3
120.1
126.7
197.6
264.3

116.1
68.0
55.9
97.4
................

51.8
28.7
13.0
11.4
................

64.3
39.2
42.9
86.0
................

83.2
52.1
70.8
100.2
................

6.9
−1.8
3.0
15.4
57.7

.................................
.................................
.................................
.................................
.................................
.................................
.................................
.................................
.................................

464.2
614.8
722.8
737.0
697.1
800.2
814.8
825.2
756.4

412.5
439.7
448.0
465.6
488.2
512.1
547.2
600.8
614.8

51.7
175.1
274.8
271.4
208.9
288.1
267.6
224.4
141.5

98.0
154.9
223.8
238.8
227.8
228.8
250.3
194.2
165.4

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

−46.3
20.2
51.0
32.6
−18.8
59.3
17.3
30.2
−23.9

1991: I ....................................
II ..................................
III .................................
IV .................................

732.8
733.1
756.5
756.8

620.2
623.3
627.1
635.4

112.6
109.8
129.4
121.4

130.5
122.7
120.1
107.1

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

−17.9
−12.9
9.3
14.3

1992: I ....................................
II ..................................
III .................................
IV .................................

747.7
787.9
795.5
822.0

632.9
637.5
715.3
648.4

114.8
150.4
80.2
173.6

121.1
146.5
74.9
164.3

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

−6.3
3.9
5.3
9.3

1993: I ....................................
II ..................................
III .................................
IV .................................

853.8
869.7
882.2
922.5

662.9
662.0
677.3
674.0

190.9
207.7
204.9
248.5

170.8
189.1
191.0
239.5

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

20.1
18.6
13.9
9.0

1994: I ....................................
II ..................................
III .................................
IV p ...............................

966.6
1,034.4
1,055.1
1,093.9

734.1
698.1
709.9
719.8

232.5
336.3
345.2
374.1

208.4
268.9
282.6
297.3

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

24.1
67.4
62.6
76.8

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

Source: Department of Commerce, Bureau of Economic Analysis.




294

TABLE B–18.—Gross and net private domestic investment in 1987 dollars, 1959–94
[Billions of 1987 dollars; quarterly data at seasonally adjusted annual rates]
Equals: Net private domestic investment
Net fixed investment
Year or quarter

Gross
private
domestic
investment

Less:
Consumption of
fixed
capital

Nonresidential
Total
Total
Total

Structures

Producers’
durable
equipment

Residential

Change
in
business
inventories

1959 .......................................

296.4

168.8

127.5

114.0

39.2

25.4

13.8

74.8

13.6

1960
1961
1962
1963
1964

.......................................
.......................................
.......................................
.......................................
.......................................

290.8
289.4
321.2
343.3
371.8

173.7
178.6
183.6
189.6
196.4

117.1
110.8
137.6
153.7
175.4

109.0
103.6
122.0
137.7
159.7

44.1
39.9
49.5
52.8
69.7

30.5
30.6
32.9
32.1
39.5

13.7
9.4
16.6
20.7
30.2

64.8
63.7
72.5
84.9
90.0

8.1
7.2
15.6
16.0
15.7

1965
1966
1967
1968
1969

.......................................
.......................................
.......................................
.......................................
.......................................

413.0
438.0
418.6
440.1
461.3

205.0
214.9
225.2
235.3
246.7

208.1
223.0
193.4
204.7
214.6

182.9
186.3
165.8
181.1
189.8

99.9
118.1
103.9
105.1
112.2

53.0
58.3
53.0
52.2
56.0

46.9
59.8
50.9
52.9
56.2

83.0
68.2
61.9
76.0
77.6

25.1
36.7
27.6
23.6
24.8

1970
1971
1972
1973
1974

.......................................
.......................................
.......................................
.......................................
.......................................

429.7
475.7
532.2
591.7
543.0

258.0
269.1
285.0
296.4
310.3

171.7
206.6
247.2
295.3
232.6

165.8
185.8
224.6
257.6
201.7

98.7
85.0
98.9
134.6
122.3

53.5
49.0
49.2
57.9
53.4

45.2
36.0
49.7
76.7
68.9

67.1
100.8
125.7
123.0
79.4

5.9
20.8
22.5
37.7
30.9

1975
1976
1977
1978
1979

.......................................
.......................................
.......................................
.......................................
.......................................

437.6
520.6
600.4
664.6
669.7

322.8
334.6
348.4
364.5
384.5

114.8
186.1
252.1
300.0
285.2

128.7
160.6
217.8
262.8
271.6

72.0
74.5
99.0
134.4
154.1

36.7
36.8
39.8
55.2
70.1

35.3
37.7
59.2
79.2
84.0

56.8
86.1
118.8
128.4
117.5

−13.9
25.5
34.3
37.2
13.6

1980
1981
1982
1983
1984

.......................................
.......................................
.......................................
.......................................
.......................................

594.4
631.1
540.5
599.5
757.5

400.7
417.8
429.5
447.4
455.5

193.7
213.2
111.0
152.1
302.0

201.9
188.7
128.5
147.7
234.0

129.5
131.6
101.0
71.6
134.3

73.3
82.0
75.3
50.3
69.3

56.1
49.6
25.7
21.4
65.0

72.5
57.1
27.5
76.0
99.8

−8.3
24.6
−17.5
4.4
67.9

1985
1986
1987
1988
1989

.......................................
.......................................
.......................................
.......................................
.......................................

745.9
735.1
749.3
773.4
784.0

471.5
486.7
502.2
518.5
545.5

274.4
248.4
247.1
254.9
238.5

252.3
239.9
220.9
235.0
208.7

154.0
118.3
103.0
122.6
114.8

79.4
54.9
46.7
46.7
45.9

74.6
63.3
56.3
75.9
68.9

98.3
121.6
117.9
112.4
94.0

22.1
8.5
26.3
19.9
29.8

1990 .......................................
1991 .......................................
1992 .......................................
1993 .......................................
1994 p ....................................

746.8
683.8
725.3
819.9
955.5

554.8
570.1
595.8
599.5
628.6

192.0
113.8
129.5
220.4
326.9

186.3
114.9
127.0
205.1
274.5

111.1
68.3
64.9
120.0
................

47.3
26.2
12.6
10.8
................

63.8
42.1
52.3
109.2
................

75.2
46.6
62.1
85.2
................

5.7
−1.1
2.5
15.3
52.4

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

..................................
..................................
..................................
..................................
..................................
..................................
..................................
..................................
..................................

503.5
669.5
756.4
763.1
705.9
793.8
785.0
769.5
695.7

439.2
468.5
467.4
480.1
492.5
508.1
524.7
559.6
559.9

64.3
201.0
289.0
283.0
213.3
285.7
260.3
209.9
135.8

109.2
171.7
241.1
252.8
233.4
225.8
239.3
185.0
156.7

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

................
................
................
................
................
................
................
................
................

−44.9
29.3
47.9
30.2
−20.1
59.9
20.9
24.9
−20.9

1991: I ....................................
II ..................................
III .................................
IV .................................

670.0
671.5
696.0
697.9

563.7
567.4
570.5
578.6

106.3
104.1
125.5
119.3

122.7
116.0
115.1
105.8

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

−16.4
−11.9
10.4
13.5

1992: I ....................................
II ..................................
III .................................
IV .................................

687.2
725.5
733.3
755.2

575.5
578.2
644.4
585.2

111.7
147.3
88.9
170.0

118.0
143.1
83.7
163.4

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

−6.3
4.2
5.2
6.6

1993: I ....................................
II ..................................
III .................................
IV .................................

789.2
806.2
821.8
862.5

596.4
593.9
605.5
602.0

192.8
212.3
216.3
260.5

174.3
193.4
203.3
249.7

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

18.5
18.9
13.0
10.8

1994: I ....................................
II ..................................
III .................................
IV p ...............................

898.9
950.9
967.3
1,004.9

648.1
614.8
621.9
629.5

250.8
336.1
345.4
375.4

225.4
276.9
288.3
307.4

................
................
................
................

................
................
................
................

................
................
................
................

................
................
................
................

25.4
59.2
57.1
68.0

Source: Department of Commerce, Bureau of Economic Analysis.




295

TABLE B–19.—Inventories and final sales of domestic business, 1959–94
[Billions of dollars, except as noted; seasonally adjusted]
Inventories 1
Nonfarm
Quarter
Total 2

Farm
Total 2

Fourth quarter:
1959 ...........................

Manufacturing

Wholesale
trade

Retail
trade

Other

Final
sales of
domestic
business 3

Ratio of inventories
to final sales of
domestic business
Total

Nonfarm

141.2

31.6

109.6

55.2

21.0

26.2

7.2

36.5

3.87

3.00

1960
1961
1962
1963
1964

...........................
...........................
...........................
...........................
...........................

145.2
147.0
153.4
158.7
164.2

33.0
33.7
34.8
34.9
33.3

112.2
113.4
118.6
123.8
130.9

56.2
57.2
60.3
62.2
65.9

21.3
21.8
22.4
23.9
25.2

27.5
27.0
28.3
29.6
31.0

7.2
7.4
7.5
8.0
8.8

37.7
39.6
41.9
44.6
47.5

3.85
3.71
3.66
3.56
3.46

2.97
2.86
2.83
2.78
2.76

1965
1966
1967
1968
1969

...........................
...........................
...........................
...........................
...........................

178.4
194.0
206.0
221.4
242.5

37.4
36.3
36.5
38.7
41.9

141.0
157.8
169.5
182.6
200.6

70.7
80.9
87.5
94.0
103.4

26.9
30.3
32.7
34.6
37.9

33.7
36.2
36.9
40.7
44.5

9.8
10.4
12.4
13.3
14.9

52.5
55.6
59.1
65.0
69.0

3.40
3.49
3.48
3.41
3.51

2.69
2.84
2.87
2.81
2.91

1970
1971
1972
1973
1974

...........................
...........................
...........................
...........................
...........................

249.4
267.4
296.6
365.1
435.2

40.1
45.0
55.3
78.0
74.3

209.2
222.4
241.3
287.1
360.9

105.8
107.3
113.6
136.1
177.0

41.7
45.2
50.0
59.4
75.6

45.8
52.3
57.7
66.4
74.6

16.0
17.6
19.9
25.2
33.7

72.7
79.2
88.3
97.2
105.2

3.43
3.38
3.36
3.76
4.14

2.88
2.81
2.73
2.95
3.43

1975
1976
1977
1978
1979

...........................
...........................
...........................
...........................
...........................

440.1
475.3
521.6
605.3
702.6

75.5
72.2
75.2
92.1
97.9

364.5
403.1
446.4
513.2
604.7

177.8
194.9
210.6
238.0
280.6

76.2
86.1
96.2
111.7
141.2

74.7
82.7
93.3
107.5
118.9

35.8
39.4
46.3
55.9
64.1

117.5
129.1
144.3
166.6
185.4

3.74
3.68
3.61
3.63
3.79

3.10
3.12
3.09
3.08
3.26

1980
1981
1982
1983
1984

...........................
...........................
...........................
...........................
...........................

784.1
836.2
817.0
827.5
898.9

104.9
101.4
103.6
103.2
100.9

679.3
734.7
713.5
724.4
797.9

309.8
331.9
318.5
319.2
349.0

174.2
184.8
174.7
168.9
187.2

125.0
137.0
139.5
153.7
173.5

70.3
81.1
80.7
82.5
88.3

203.5
220.3
230.9
252.2
273.3

3.85
3.80
3.54
3.28
3.29

3.34
3.34
3.09
2.87
2.92

1985
1986
1987
1988
1989

...........................
...........................
...........................
...........................
...........................

904.3
887.9
950.6
1,025.1
1,081.6

96.6
90.5
90.9
95.4
96.3

807.7
797.3
859.7
929.6
985.3

339.9
328.1
349.3
383.2
409.7

184.9
183.4
196.3
215.3
224.8

188.6
193.4
216.1
229.9
250.2

94.3
92.4
98.0
101.2
100.6

294.1
311.4
329.8
359.2
378.3

3.08
2.85
2.88
2.85
2.86

2.75
2.56
2.61
2.59
2.60

1990 ...........................
1991 ...........................
1992 ...........................
1993 ...........................
1994 p .........................

1,110.4
1,091.4
1,104.9
1,138.4
1,218.6

94.7
90.5
95.8
97.6
98.6

1,015.7
1,000.9
1,009.1
1,040.8
1,120.0

423.7
407.2
396.9
394.6
412.7

236.9
240.8
250.5
259.9
281.2

257.2
257.0
266.5
282.0
308.8

98.0
95.9
95.2
104.4
117.2

398.4
407.5
434.6
457.1
482.0

2.79
2.68
2.54
2.49
2.53

2.55
2.46
2.32
2.28
2.32

1991: I .............................
II ...........................
III ..........................
IV ..........................

1,094.4
1,090.5
1,091.0
1,091.4

97.8
100.2
95.6
90.5

996.6
990.3
995.4
1,000.9

417.4
411.4
409.1
407.2

237.0
234.2
236.0
240.8

247.7
249.4
254.2
257.0

94.4
95.3
96.1
95.9

399.3
403.9
405.8
407.5

2.74
2.70
2.69
2.68

2.50
2.45
2.45
2.46

1992: I .............................
II ...........................
III ..........................
IV ..........................

1,094.8
1,100.0
1,104.8
1,104.9

95.7
95.4
95.9
95.8

999.2
1,004.7
1,008.9
1,009.1

403.9
402.1
402.6
396.9

241.1
245.1
247.3
250.5

257.0
261.4
264.2
266.5

97.2
96.1
94.8
95.2

415.8
420.1
425.2
434.6

2.63
2.62
2.60
2.54

2.40
2.39
2.37
2.32

1993: I .............................
II ...........................
III ..........................
IV ..........................

1,122.0
1,123.0
1,131.3
1,138.4

99.5
95.6
96.7
97.6

1,022.6
1,027.4
1,034.6
1,040.8

397.9
397.3
397.0
394.6

252.9
254.6
257.5
259.9

276.1
277.2
279.7
282.0

95.6
98.3
100.4
104.4

438.1
442.8
447.4
457.1

2.56
2.54
2.53
2.49

2.33
2.32
2.31
2.28

1994: I .............................
II ...........................
III ..........................
IV p ........................

1,145.7
1,163.7
1,185.2
1,218.6

99.1
93.8
94.0
98.6

1,046.6
1,070.0
1,091.2
1,120.0

395.9
400.2
405.1
412.7

260.0
266.2
272.9
281.2

283.0
292.2
299.2
308.8

107.7
111.3
114.0
117.2

462.6
467.5
475.8
482.0

2.48
2.49
2.49
2.53

2.26
2.29
2.29
2.32

1 Inventories at end of quarter. Quarter-to-quarter change calculated from this table is not the current-dollar change in business inventories (CBI) component of GDP. The former is the difference between two inventory stocks, each valued at their respective end-of-quarter
prices. The latter is the change in the physical volume of inventories valued at average prices of the quarter. In addition, changes calculated
from this table are at quarterly rates, whereas CBI is stated at annual rates.
2 Inventories of construction establishments are included in ‘‘other’’ nonfarm inventories.
3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross product of households and institutions and general government and includes a small amount of final sales by farms.
Note.—The industry classification of inventories is on an establishment basis and is based on the 1987 Standard Industrial Classification
(SIC) beginning 1987 and on the 1972 SIC for earlier years shown.
Source: Department of Commerce, Bureau of Economic Analysis.




296

TABLE B–20.—Inventories and final sales of domestic business in 1987 dollars, 1959–94
[Billions of 1987 dollars, except as noted; seasonally adjusted]
Inventories 1
Nonfarm
Quarter
Total 2

Farm
Total 2

Fourth quarter:
1959 ........................

Manufacturing

Wholesale
trade

Retail
trade

Other

Final
sales of
domestic
business 3

Ratio of inventories
to final sales of
domestic business
Total

Nonfarm

388.6

79.6

308.9

152.4

61.2

67.6

27.8

131.5

2.96

2.35

1960
1961
1962
1963
1964

........................
........................
........................
........................
........................

396.7
403.9
419.5
435.6
451.2

80.5
82.1
83.9
85.4
83.4

316.2
321.8
335.7
350.2
367.8

153.9
157.9
166.1
171.6
179.6

62.4
63.7
65.9
69.6
73.4

71.4
70.2
73.8
76.9
80.3

28.5
30.0
29.9
32.0
34.5

134.3
139.9
145.3
153.5
161.1

2.95
2.89
2.89
2.84
2.80

2.35
2.30
2.31
2.28
2.28

1965
1966
1967
1968
1969

........................
........................
........................
........................
........................

476.4
513.1
540.7
564.3
589.2

84.6
83.5
84.5
86.9
86.9

391.7
429.6
456.3
477.5
502.3

190.2
212.1
227.6
237.4
246.7

77.6
86.5
92.0
94.7
100.3

86.8
92.5
92.1
99.3
105.9

37.2
38.4
44.6
46.1
49.4

174.2
177.3
183.8
192.6
195.4

2.73
2.89
2.94
2.93
3.01

2.25
2.42
2.48
2.48
2.57

1970
1971
1972
1973
1974

........................
........................
........................
........................
........................

595.1
615.8
638.4
676.1
707.0

86.3
89.2
90.6
92.9
92.5

508.8
526.7
547.7
583.3
614.5

246.1
243.9
249.6
264.9
283.7

106.9
112.3
116.3
121.1
130.8

105.8
117.8
125.3
134.5
133.6

50.0
52.6
56.5
62.7
66.4

197.6
205.1
220.4
225.9
220.9

3.01
3.00
2.90
2.99
3.20

2.57
2.57
2.49
2.58
2.78

1975
1976
1977
1978
1979

........................
........................
........................
........................
........................

693.1
718.6
752.9
790.1
803.7

92.9
90.8
93.6
93.0
95.7

600.2
627.8
659.2
697.1
708.0

277.2
289.6
297.1
309.2
320.1

127.3
135.3
144.4
155.8
157.3

127.6
134.8
144.5
153.7
153.5

68.0
68.1
73.3
78.3
77.1

229.1
238.3
249.4
264.6
270.2

3.03
3.02
3.02
2.99
2.97

2.62
2.63
2.64
2.63
2.62

1980
1981
1982
1983
1984

........................
........................
........................
........................
........................

795.4
820.0
802.5
806.9
874.8

92.3
98.3
101.4
93.1
94.8

703.1
721.7
701.0
713.8
780.0

319.9
324.0
311.3
311.9
339.4

161.9
164.8
159.9
159.3
174.7

146.7
152.9
151.7
162.8
181.4

74.6
80.0
78.1
79.8
84.5

268.5
266.5
267.6
281.8
294.6

2.96
3.08
3.00
2.86
2.97

2.62
2.71
2.62
2.53
2.65

1985
1986
1987
1988
1989

........................
........................
........................
........................
........................

896.9
905.5
931.8
951.7
981.5

97.2
95.1
88.7
81.7
81.6

799.8
810.4
843.1
870.0
899.9

335.7
333.6
340.2
355.3
373.9

178.7
185.7
192.7
199.1
202.5

194.1
196.7
213.6
219.7
231.0

91.3
94.4
96.6
95.9
92.5

306.3
317.2
325.8
340.3
344.7

2.93
2.85
2.86
2.80
2.85

2.61
2.55
2.59
2.56
2.61

1990 ........................
1991 ........................
1992 ........................
1993 ........................
1994 p .....................

987.2
986.1
988.5
1,033.8
1,056.2

84.1
84.3
88.7
85.5
92.6

903.1
901.8
899.8
918.3
963.6

376.9
370.6
360.4
359.7
365.2

208.8
213.1
219.6
223.9
237.6

229.4
230.0
233.6
242.7
260.3

88.0
88.1
86.2
92.1
100.6

347.9
345.9
360.9
373.4
385.5

2.84
2.85
2.74
2.69
2.74

2.60
2.61
2.49
2.46
2.50

1991: I .........................
II ........................
III ......................
IV ......................

983.1
980.1
982.7
986.1

84.2
85.3
84.6
84.3

898.9
894.8
898.1
901.8

377.9
374.6
372.4
370.6

209.9
207.6
209.0
213.1

224.6
225.0
228.2
230.0

86.5
87.5
88.6
88.1

345.1
346.8
346.2
345.9

2.85
2.83
2.84
2.85

2.60
2.58
2.59
2.61

1992: I .........................
II ........................
III ......................
IV ......................

984.5
985.5
986.9
988.5

86.3
87.8
88.7
88.7

898.2
897.7
898.2
899.8

367.4
364.1
364.0
360.4

212.5
215.6
216.7
219.6

228.9
230.5
231.8
233.6

89.4
87.6
85.7
86.2

350.5
352.0
355.4
360.9

2.81
2.80
2.78
2.74

2.56
2.55
2.53
2.49

1993: I .........................
II ........................
III ......................
IV ......................

993.1
997.9
1,001.1
1,003.8

88.4
87.4
85.5
85.5

904.7
910.4
915.6
918.3

360.0
361.0
361.6
359.7

220.2
222.0
223.7
223.9

239.4
239.9
241.4
242.7

85.1
87.6
88.9
92.1

361.1
363.5
366.7
373.4

2.75
2.75
2.73
2.69

2.51
2.50
2.50
2.46

1994: I .........................
II ........................
III ......................
IV p ....................

1,010.2
1,025.0
1,039.2
1,056.2

86.3
88.2
90.6
92.6

923.8
936.8
948.6
963.6

362.1
362.3
363.4
365.2

223.7
228.1
232.3
237.6

243.2
248.7
253.7
260.3

94.9
97.7
99.2
100.6

375.6
377.0
381.5
385.5

2.69
2.72
2.72
2.74

2.46
2.48
2.49
2.50

1 Inventories at end of quarter. Quarter-to-quarter changes calculated from this table are at quarterly rates, whereas the constant-dollar
change in business inventories component of GDP is stated at annual rates.
2 Inventories of construction establishments are included in ‘‘other’’ nonfarm inventories.
3 Quarterly totals at monthly rates. Final sales of domestic business equals final sales of domestic product less gross product of households and institutions and general government and includes a small amount of final sales by farms.
Note.—The industry classification of inventories is on an establishment basis and is based on the 1987 Standard Industrial Classification
(SIC) beginning 1987 and on the 1972 SIC for earlier years shown.
Source: Department of Commerce, Bureau of Economic Analysis.




297

TABLE B–21.—Foreign transactions in the national income and product accounts, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Receipts from rest of the world
Exports of goods and
services

Year or quarter
Total 1

Total

Merchandise 2

Services 2

Payments to rest of the world

Receipts
of factor
income 3

Imports of goods and
services
Total
Total

Merchandise2

Services 2

Transfer payments (net)
Payments
of factor
income 4

Total

From
persons
(net)

From
government
(net)

From
business

Net
foreign
investment

1959 ..............

25.0

20.6

16.5

4.2

4.3

25.0

22.3

15.3

7.0

1.5

2.4

0.4

1.8

0.1

−1.2

1960
1961
1962
1963
1964

..............
..............
..............
..............
..............

30.2
31.4
33.5
36.1
41.0

25.3
26.0
27.4
29.4
33.6

20.5
20.9
21.7
23.3
26.7

4.8
5.1
5.7
6.1
6.9

5.0
5.4
6.1
6.6
7.4

30.2
31.4
33.5
36.1
41.0

22.8
22.7
25.0
26.1
28.1

15.2
15.1
16.9
17.7
19.4

7.6
7.6
8.1
8.4
8.7

1.8
1.8
1.8
2.1
2.4

2.4
2.7
2.8
2.8
3.0

.5
.5
.5
.6
.7

1.9
2.1
2.1
2.1
2.1

.1
.1
.1
.1
.2

3.2
4.3
3.9
5.0
7.5

1965
1966
1967
1968
1969

..............
..............
..............
..............
..............

43.5
47.2
50.2
55.6
61.2

35.4
38.9
41.4
45.3
49.3

27.8
30.7
32.2
35.3
38.3

7.6
8.2
9.2
10.0
11.0

8.1
8.3
8.9
10.3
11.9

43.5
47.2
50.2
55.6
61.2

31.5
37.1
39.9
46.6
50.5

22.2
26.3
27.8
33.9
36.8

9.3
10.7
12.2
12.6
13.7

2.7
3.1
3.4
4.1
5.8

3.0
3.2
3.4
3.2
3.2

.8
.8
1.0
1.0
1.1

2.1
2.2
2.1
1.9
1.8

.2
.2
.2
.3
.3

6.2
3.9
3.5
1.7
1.8

1970
1971
1972
1973
1974

.............. 70.8 57.0 44.5
.............. 74.2 59.3 45.6
.............. 83.4 66.2 51.8
.............. 115.6 91.8 73.9
.............. 152.6 124.3 101.0

12.4
13.8
14.4
17.8
23.3

13.0
14.1
16.4
23.8
30.3

70.8
74.2
83.4
115.6
152.6

55.8
62.3
74.2
91.2
127.5

40.9
46.6
56.9
71.8
104.5

14.9
15.8
17.3
19.3
22.9

6.6
6.4
7.7
11.1
14.6

3.6
4.1
4.3
4.6
5.4

1.2
1.3
1.3
1.4
1.2

2.0
2.4
2.5
2.5
3.2

.4
.4
.5
.7
1.0

4.9
1.3
−2.9
8.7
5.1

1975
1976
1977
1978
1979

..............
..............
..............
..............
..............

164.4
181.6
196.5
233.3
299.7

136.3
148.9
158.8
186.1
228.9

109.6
117.8
123.7
145.4
184.2

26.7
31.1
35.1
40.7
44.7

28.2
32.8
37.7
47.1
69.7

164.4
181.6
196.5
233.3
299.7

122.7
151.1
182.4
212.3
252.7

99.0
124.6
152.6
177.4
212.8

23.7
26.5
29.8
34.8
39.9

14.9
15.7
17.2
25.3
37.5

5.4
6.0
6.0
6.4
7.5

1.2
1.2
1.2
1.3
1.4

3.5
3.7
3.4
3.8
4.1

.7
1.1
1.4
1.4
2.0

21.4
8.8
−9.2
−10.7
2.0

1980
1981
1982
1983
1984

..............
..............
..............
..............
..............

360.9
398.2
379.9
372.5
410.5

279.2
303.0
282.6
276.7
302.4

226.0
239.3
215.2
207.5
225.8

53.2
63.7
67.4
69.2
76.6

80.6
94.1
97.3
95.8
108.1

360.9
398.2
379.9
372.5
410.5

293.9
317.7
303.2
328.1
405.1

248.6
267.7
250.6
272.7
336.3

45.3
49.9
52.6
55.4
68.8

46.5
60.9
67.1
66.5
83.8

9.0
10.0
12.1
12.9
15.6

1.6
1.8
2.1
1.8
2.3

5.0
5.0
6.4
7.3
9.4

2.4
3.2
3.6
3.8
3.9

11.5
9.5
−2.5
−35.0
−94.0

1985
1986
1987
1988
1989

..............
..............
..............
..............
..............

399.3
415.2
469.0
572.9
665.5

302.1
319.2
364.0
444.2
508.0

222.4 79.7
226.2 93.0
257.7 106.2
325.8 118.4
371.6 136.4

97.3
96.0
105.1
128.7
157.5

399.3
415.2
469.0
572.9
665.5

417.6
451.7
507.1
552.2
587.7

343.3
370.0
414.8
452.1
485.1

74.3
81.7
92.3
100.1
102.6

82.4
86.9
100.5
120.8
141.5

17.4
18.3
16.6
17.8
25.6

2.7
2.5
3.0
2.7
8.9

11.4
12.3
10.4
10.4
11.3

3.2
3.5
3.2
4.8
5.4

−118.1
−141.7
−155.1
−118.0
−89.3

1990 ..............
1991 ..............
1992 ..............
1993 ..............
1994 p ............

725.7
756.8
771.6
795.6
..........

557.1
601.1
638.1
659.1
716.1

398.7
427.1
449.7
461.0
509.8

158.4
168.6 725.7
173.9
155.7 756.8
188.5
133.5 771.6
198.1
136.6 795.6
206.3 .............. ............

628.5
620.9
668.4
724.3
818.2

509.0
501.4
544.6
592.1
678.2

119.5 146.9
119.6 139.7
123.8 127.9
132.2 132.1
139.9 ............

28.8
−12.0
31.8
31.5
33.3

10.1
10.4
9.5
9.9
10.5

13.2
−27.8
16.5
15.7
15.7

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.........
.........
.........
.........
.........
.........
.........
.........
.........

357.5
388.3
415.2
402.9
426.7
506.8
606.9
683.1
757.4

265.6
286.2
308.7
304.7
333.9
392.4
467.0
523.8
577.6

198.2
218.2
231.4
222.6
235.8
283.3
345.4
380.7
409.0

67.4
67.9
77.3
82.1
98.1
109.2
121.6
143.1
168.6

91.9
102.1
106.6
98.1
92.8
114.4
139.9
159.3
179.7

357.5
388.3
415.2
402.9
426.7
506.8
606.9
683.1
757.4

295.1
358.0
415.7
440.2
467.1
535.6
573.1
597.7
649.2

241.6
300.0
344.1
363.0
382.4
437.6
470.1
492.2
523.9

53.4
58.0
71.6
77.2
84.7
98.0
103.0
105.6
125.4

64.4
71.0
85.5
82.4
88.9
106.9
130.2
139.1
147.7

13.8
17.8
20.4
19.4
19.6
21.4
23.8
30.3
28.2

1.9
2.0
2.5
2.5
2.8
3.1
2.7
9.8
10.2

8.2
11.0
13.9
13.5
12.8
14.6
15.1
15.1
12.4

3.7
4.8
4.0
3.4
4.0
3.8
5.9
5.4
5.6

−15.8
−58.5
−106.3
−139.1
−149.0
−157.1
−120.1
−84.0
−67.7

1991: I ............
II ........
III .......
IV .........

750.3
757.8
749.7
769.5

576.6
602.1
601.9
623.7

415.3
429.6
424.7
439.0

161.3
172.6
177.1
184.7

173.7
155.6
147.8
145.7

750.3
757.8
749.7
769.5

609.4
613.8
623.1
637.5

489.1
494.3
505.2
516.9

120.4
119.5
117.9
120.6

146.4
142.5
138.4
131.6

−61.4
−16.1
10.4
19.1

10.3
10.3
10.2
10.6

−76.9
−32.0
−5.0
2.8

5.2
5.6
5.2
5.7

55.8
17.6
−22.2
−18.8

1992: I ............
II ........
III .......
IV .........

771.1
772.1
769.4
773.8

631.8
632.7
638.8
649.2

442.6
445.9
448.5
461.6

189.2
186.8
190.2
187.6

139.3
139.4
130.7
124.6

771.1
772.1
769.4
773.8

641.7
663.9
676.6
691.4

516.9
540.3
556.8
564.3

124.8
123.7
119.8
127.1

128.3
131.6
124.8
126.8

27.7
30.7
27.9
41.1

9.4
9.7
9.2
9.9

12.5
15.1
13.0
25.3

5.7
5.9
5.7
5.9

−26.6
−54.1
−59.9
−85.6

1993: I ............
II ........
III .......
IV .........

777.1
797.7
786.1
821.6

646.8
660.1
649.0
680.3

451.6
461.7
450.3
480.3

195.3
198.4
198.7
200.0

130.2
137.6
137.1
141.3

777.1
797.7
786.1
821.6

696.4
723.5
726.0
751.4

569.3
592.6
593.2
613.3

127.1
130.9
132.8
138.1

122.2
134.3
128.6
143.3

26.7
28.8
30.3
40.1

9.8
9.8
9.9
9.8

11.4
12.9
14.3
24.3

5.5
6.1
6.1
5.9

−68.3
−88.9
−98.8
−113.2

1994: I ............
II ..........
III .........
IV p ......

819.6
866.6
907.2
..........

674.2
704.5
730.5
755.3

476.0
499.5
521.3
542.5

198.3
145.4 819.6
205.0
162.1 866.6
209.1
176.7 907.2
212.7 .............. ............

760.9
802.1
840.1
869.6

622.3
665.3
700.0
725.4

138.6 146.1
136.8 169.5
140.1 188.8
144.2 ............

29.0
30.1
31.9
42.1

10.5
10.5
10.3
10.7

11.6
12.7
14.4
23.9

6.9 −116.4
6.9 −135.1
7.2 −153.6
7.5 ..............

1 Includes

5.5 −78.5
5.4
8.1
5.8
−56.6
5.9
−92.3
7.1 ..............

capital grants received by the United States (net), not shown separately. See Table B–29 for data.
goods, primarily military equipment purchased and sold by the Federal Government, are included in services.
receipts by U.S. residents of interest and dividends and reinvested earnings of foreign affiliates of U.S. corporations.
4 Mainly payments to foreign residents of interest and dividends and reinvested earnings of U.S. affiliates of foreign corporations.
2 Certain
3 Mainly

Source: Department of Commerce, Bureau of Economic Analysis.




298

TABLE B–22.—Exports and imports of goods and services and receipts and payments of factor income in
1987 dollars, 1959–94
[Billions of 1987 dollars; quarterly data at seasonally adjusted annual rates]
Exports of goods and services

Imports of goods and services

Merchandise 1
Year or quarter
Total
Total

1959 ..........................................

Durable
goods

Nondurable
goods

Services 1

Receipts
of
factor
income 2

Merchandise 1
Total
Total

Durable
goods

Nondurable
goods

Services 1

Payments
of
factor
income 3

73.8

58.0

31.5

26.5

15.8

17.0

95.6

60.2

26.0

34.2

35.4

6.2

1960
1961
1962
1963
1964

..........................................
..........................................
..........................................
..........................................
..........................................

88.4
89.9
95.0
101.8
115.4

71.2
71.5
74.8
80.3
91.4

39.2
39.4
41.2
43.6
50.2

32.0
32.1
33.5
36.7
41.2

17.2
18.4
20.3
21.5
24.0

19.1
20.6
22.5
24.4
26.6

96.1
95.3
105.5
107.7
112.9

59.1
59.2
68.0
70.9
75.6

24.7
23.7
28.0
29.6
32.8

34.4
35.5
40.0
41.2
42.8

37.0
36.1
37.5
36.8
37.3

7.2
7.2
7.3
8.2
9.1

1965
1966
1967
1968
1969

..........................................
..........................................
..........................................
..........................................
..........................................

118.1
125.7
130.0
140.2
147.8

92.1
98.4
100.1
108.8
114.4

52.2
56.1
63.8
70.0
75.2

39.9
42.3
36.3
38.7
39.2

25.9
27.3
29.9
31.5
33.3

28.3
28.0
29.2
32.3
35.7

124.5
143.7
153.7
177.7
189.2

86.5
100.2
105.2
128.1
137.0

40.5
50.6
53.1
68.7
74.1

46.0
49.6
52.1
59.4
62.8

37.9
43.5
48.6
49.6
52.3

9.9
11.0
11.8
13.5
17.8

1970
1971
1972
1973
1974

..........................................
..........................................
..........................................
..........................................
..........................................

161.3
161.9
173.7
210.3
234.4

125.2
124.1
136.5
166.9
183.4

80.4
79.3
87.1
108.0
123.5

44.7
44.9
49.5
58.9
59.9

36.1
37.8
37.2
43.4
51.0

36.8
37.9
42.2
57.5
67.5

196.4
207.8
230.2
244.4
238.4

142.1
156.1
177.5
194.7
189.3

75.4
84.4
95.7
100.9
101.3

66.7
71.7
81.7
93.9
87.9

54.4
51.7
52.8
49.7
49.2

19.2
17.9
20.5
27.6
33.2

1975
1976
1977
1978
1979

..........................................
..........................................
..........................................
..........................................
..........................................

232.9
243.4
246.9
270.2
293.5

178.5
183.9
183.9
203.0
225.7

121.3
121.8
119.5
132.1
148.1

57.2
62.1
64.4
70.9
77.6

54.4
59.5
63.0
67.2
67.8

57.4
63.0
67.9
78.7
107.1

209.8
249.7
274.7
300.1
304.1

163.3
200.4
223.2
245.2
248.7

82.1
100.9
112.9
130.0
132.1

81.2
99.5
110.3
115.3
116.7

46.5
49.3
51.5
54.8
55.3

31.6
31.5
32.2
43.2
58.6

1980
1981
1982
1983
1984

..........................................
..........................................
..........................................
..........................................
..........................................

320.5
326.1
296.7
285.9
305.7

248.2
244.0
217.7
208.3
221.3

161.0
154.2
130.5
124.6
133.8

87.3
89.7
87.2
83.8
87.5

72.3
82.2
79.0
77.6
84.4

113.7
120.7
117.9
111.0
119.4

289.9
304.1
304.1
342.1
427.7

235.6
246.1
243.1
276.5
346.1

133.6
143.4
143.0
167.6
219.9

102.0
102.7
100.1
108.9
126.2

54.2
58.0
61.1
65.6
81.6

66.6
79.4
82.1
78.0
93.5

1985
1986
1987
1988
1989

..........................................
..........................................
..........................................
..........................................
..........................................

309.2
329.6
364.0
421.6
471.8

224.8
234.3
257.7
307.4
343.8

139.3
144.8
163.0
202.8
230.9

85.6
89.6
94.7
104.6
112.9

84.4
95.3
106.2
114.2
128.0

103.4
99.2
105.1
123.8
144.7

454.6
484.7
507.1
525.7
545.4

366.5
398.0
414.8
431.3
450.4

237.2
254.6
264.2
274.7
287.1

129.3
143.4
150.6
156.7
163.3

88.1
86.7
92.3
94.3
95.0

88.2
90.2
100.5
116.1
130.1

1990 ..........................................
1991 ..........................................
1992 ..........................................
1993 ..........................................
1994 p ........................................

510.5
542.6
578.8
602.5
654.8

368.9
397.1
426.5
446.0
495.0

249.4
269.4
291.4
312.5
355.1

119.5
127.7
135.2
133.4
139.9

141.6 148.0
145.5 131.3
152.3 109.2
156.5 109.1
159.8 ............

565.1
562.1
611.2
676.3
769.0

461.4
464.4
512.8
572.7
660.0

292.5
297.2
333.4
380.9
454.6

168.9
167.2
179.4
191.8
205.3

103.7 128.8
97.7 116.7
98.4 102.8
103.6 103.4
109.0 ............

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.....................................
.....................................
.....................................
.....................................
.....................................
.....................................
.....................................
.....................................
.....................................

280.4
291.5
312.8
312.0
342.9
386.1
438.2
487.7
520.4

202.8
215.5
229.0
226.4
243.5
278.0
322.0
354.8
374.6

119.0
131.0
138.5
139.6
150.0
180.1
214.7
237.8
250.9

83.7
84.5
90.5
86.8
93.5
97.8
107.2
116.9
123.8

77.6
75.9
83.8
85.5
99.4
108.1
116.2
132.9
145.8

109.7
116.5
116.1
102.9
94.8
112.9
132.3
144.3
155.4

299.4
375.1
444.2
467.4
498.9
522.1
540.9
555.0
557.2

236.3
306.6
357.9
380.0
409.1
427.4
444.8
458.5
453.1

134.6
191.1
229.3
243.5
259.8
273.8
284.0
290.4
294.4

101.7
115.5
128.6
136.5
149.3
153.7
160.8
168.1
158.8

63.1
68.6
86.3
87.4
89.8
94.6
96.1
96.5
104.1

77.6
82.0
93.9
86.8
91.2
105.4
123.0
125.9
127.1

1991: I ........................................
II ......................................
III .....................................
IV .....................................

519.0
544.0
544.8
562.6

382.2
398.5
397.9
409.8

254.8
272.8
271.5
278.6

127.4
125.7
126.4
131.3

136.7
145.5
146.9
152.7

148.1
131.7
124.1
121.5

539.4
557.8
571.8
579.4

441.5
459.0
475.3
481.8

283.6
289.8
304.9
310.6

157.9
169.2
170.4
171.2

97.9
98.7
96.5
97.6

124.0
119.6
115.0
108.3

1992: I ........................................
II ......................................
III .....................................
IV .....................................

571.0
573.1
580.5
590.7

416.0
421.5
427.4
441.1

282.5
287.7
291.5
303.7

133.5
133.8
136.0
137.4

154.9
151.6
153.1
149.6

114.9
114.2
106.6
101.0

588.8
607.1
619.4
629.3

489.5
509.7
521.7
530.2

317.1
329.6
339.1
347.6

172.4
180.0
182.5
182.6

99.3
97.4
97.7
99.0

104.3
106.1
99.9
100.7

1993: I ........................................
II ......................................
III .....................................
IV .....................................

589.2
600.2
595.3
625.2

433.9
443.3
438.5
468.1

301.2
310.4
308.0
330.6

132.7
132.9
130.5
137.5

155.3
156.9
156.7
157.1

104.7
110.1
109.4
112.4

646.8
669.6
681.6
707.4

546.6
567.4
577.1
599.9

361.0
373.7
384.0
405.1

185.7
193.7
193.0
194.8

100.1
102.2
104.5
107.6

96.1
105.3
100.4
111.7

1994: I ........................................
II ......................................
III .....................................
IV p ..................................

619.6
643.9
666.5
689.0

464.4
484.6
505.1
525.8

332.6
348.5
361.2
378.0

131.7
136.1
144.0
147.8

155.2 114.8
159.2 127.1
161.3 137.8
163.2 ............

723.6
755.6
783.5
813.1

615.2
648.3
674.6
701.8

417.7
443.4
463.1
494.4

197.5
204.9
211.5
207.4

108.5 113.2
107.4 130.7
108.9 144.9
111.3 ............

1 Certain

goods, primarily military equipment purchased and sold by the Federal Government, are included in services.
receipts by U.S. residents of interest and dividends and reinvested earnings of foreign affiliates of U.S. corporations.
payments to foreign residents of interest and dividends and reinvested earnings of U.S. affiliates of foreign corporations.
Source: Department of Commerce, Bureau of Economic Analysis.

2 Mainly
3 Mainly




299

TABLE B–23.—Relation of gross domestic product, gross national product, net national product, and
national income, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Less:
Less:
Plus:
Receipts Payments
Gross
of factor of factor
domestic income income to
product from rest rest of
the
of the
world 2
world 1

Year or
quarter

Equals:
Gross
national
product

Less:
Consumption of
fixed
capital

Equals:
Net
national
product

Indirect
business
tax and
nontax
liability

Business
transfer
payments

Statistical
discrepancy

Plus:
Subsidies
less
current
surplus
of
government
enterprises

Equals:
National
income

1959 ............

494.2

4.3

1.5

497.0

44.6

452.5

41.9

1.4

−1.8

−0.9

410.1

1960
1961
1962
1963
1964

............
............
............
............
............

513.3
531.8
571.6
603.1
648.0

5.0
5.4
6.1
6.6
7.4

1.8
1.8
1.8
2.1
2.4

516.6
535.4
575.8
607.7
653.0

46.3
47.7
49.3
51.3
53.9

470.2
487.7
526.5
556.4
599.2

45.5
48.1
51.7
54.7
58.8

1.4
1.5
1.6
1.8
2.0

−3.1
−2.2
−1.0
−2.0
−.7

−.8
.2
.3
−.3
.1

425.7
440.5
474.5
501.5
539.1

1965
1966
1967
1968
1969

............
............
............
............
............

702.7
769.8
814.3
889.3
959.5

8.1
8.3
8.9
10.3
11.9

2.7
3.1
3.4
4.1
5.8

708.1
774.9
819.8
895.5
965.6

57.3
62.1
67.4
73.9
81.5

650.7
712.8
752.4
821.5
884.2

62.7
65.4
70.4
79.0
86.6

2.2
2.3
2.5
2.8
3.1

−.7
2.8
.8
−.1
−2.6

.3
1.4
1.2
1.2
1.5

586.9
643.7
679.9
741.0
798.6

1970
1971
1972
1973
1974

............
............
............
............
............

1,010.7
1,097.2
1,207.0
1,349.6
1,458.6

13.0
14.1
16.4
23.8
30.3

6.6
6.4
7.7
11.1
14.6

1,017.1
1,104.9
1,215.7
1,362.3
1,474.3

88.8
97.6
109.9
120.4
140.2

928.3
1,007.3
1,105.7
1,241.9
1,334.1

94.3
103.6
111.4
121.0
129.3

3.2
3.4
3.9
4.5
5.0

.0
3.1
1.1
−.5
1.4

2.6
2.4
3.4
2.6
.4

833.5
899.5
992.9
1,119.5
1,198.8

1975
1976
1977
1978
1979

............
............
............
............
............

1,585.9
1,768.4
1,974.1
2,232.7
2,488.6

28.2
32.8
37.7
47.1
69.7

14.9
15.7
17.2
25.3
37.5

1,599.1
1,785.5
1,994.6
2,254.5
2,520.8

165.2
182.8
205.2
234.8
272.4

1,433.9
1,602.7
1,789.4
2,019.8
2,248.4

140.0
151.6
165.5
177.8
188.7

5.2
6.5
7.3
8.2
9.9

6.0
10.4
10.9
7.6
13.8

2.6
1.4
3.3
3.6
2.9

1,285.3
1,435.5
1,609.1
1,829.8
2,038.9

1980
1981
1982
1983
1984

............
............
............
............
............

2,708.0
3,030.6
3,149.6
3,405.0
3,777.2

80.6
94.1
97.3
95.8
108.1

46.5
60.9
67.1
66.5
83.8

2,742.1
3,063.8
3,179.8
3,434.4
3,801.5

311.9
362.4
399.1
418.4
433.2

2,430.2
2,701.4
2,780.8
3,016.0
3,368.3

212.0
249.3
256.4
280.1
309.5

11.2
13.4
15.4
16.6
19.0

13.6
10.9
−7.4
10.2
−9.0

4.8
4.7
6.2
11.7
9.5

2,198.2
2,432.5
2,522.5
2,720.8
3,058.3

1985
1986
1987
1988
1989

............
............
............
............
............

4,038.7
4,268.6
4,539.9
4,900.4
5,250.8

97.3
96.0
105.1
128.7
157.5

82.4
86.9
100.5
120.8
141.5

4,053.6
4,277.7
4,544.5
4,908.2
5,266.8

454.5
478.6
502.2
534.0
580.4

3,599.1
3,799.2
4,042.4
4,374.2
4,686.4

329.9
345.5
365.0
385.3
414.7

21.0
24.2
24.0
25.6
26.6

−13.9
1.2
−24.8
−28.4
1.1

6.4
9.7
14.1
10.9
5.4

3,268.4
3,437.9
3,692.3
4,002.6
4,249.5

1990 ............
1991 ............
1992 ............
1993 ............
1994 p ..........

5,546.1
168.6
146.9
5,567.8
5,724.8
155.7
139.7
5,740.8
6,020.2
133.5
127.9
6,025.8
6,343.3
136.6
132.1
6,347.8
6,736.9 ................ ................ ................

602.7
4,965.1
626.5
5,114.3
658.5
5,367.3
669.1
5,678.7
715.5 ................

444.0
478.3
504.4
525.3
553.7

26.8
7.8
26.3
1.5
28.1
8.8
28.7
2.3
30.6 ................

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.......
.......
.......
.......
.......
.......
.......
.......
......

3,195.1
3,547.3
3,869.1
4,140.5
4,336.6
4,683.0
5,044.6
5,344.8
5,597.9

91.9
102.1
106.6
98.1
92.8
114.4
139.9
159.3
179.7

64.4
71.0
85.5
82.4
88.9
106.9
130.2
139.1
147.7

3,222.6
3,578.4
3,890.2
4,156.2
4,340.5
4,690.5
5,054.3
5,365.0
5,630.0

412.5
439.7
448.0
465.6
488.2
512.1
547.2
600.8
614.8

2,810.1
3,138.7
3,442.2
3,690.7
3,852.3
4,178.5
4,507.2
4,764.2
5,015.1

262.3
291.7
317.7
335.1
351.6
372.3
394.2
424.4
454.8

16.0
18.1
20.2
22.2
24.9
24.2
27.2
26.2
26.7

−10.1
13.8
−20.5
−5.9
−2.0
−24.9
−25.4
12.8
4.9

9.6
19.2
9.7
2.6
8.2
22.0
16.5
4.4
10.4

2,551.5
2,834.3
3,134.4
3,341.9
3,486.0
3,828.8
4,127.6
4,305.2
4,539.2

1991: I .........
II ........
III ......
IV ......

5,636.8
5,705.9
5,759.9
5,796.6

173.7
155.6
147.8
145.7

146.4
142.5
138.4
131.6

5,664.0
5,719.0
5,769.3
5,810.7

620.2
623.3
627.1
635.4

5,043.8
5,095.8
5,142.2
5,175.4

465.8
471.8
483.7
491.8

26.0
26.3
26.0
26.8

−10.3
6.2
12.2
−2.1

1.6
.8
−7.7
5.0

4,563.9
4,592.3
4,612.7
4,663.9

1992: I .........
II ........
III ......
IV ......

5,896.8
5,971.3
6,043.6
6,169.3

139.3
139.4
130.7
124.6

128.3
131.6
124.8
126.8

5,907.7
5,979.1
6,049.4
6,167.0

632.9
637.5
715.3
648.4

5,274.8
5,341.7
5,334.1
5,518.6

496.3
499.6
505.3
516.2

27.6
28.1
28.2
28.6

2.0
11.5
3.7
18.0

3.6
4.4
−2.9
9.1

4,752.4
4,806.8
4,793.9
4,964.9

1993: I .........
II ........
III ......
IV ......

6,235.9
6,299.9
6,359.2
6,478.1

130.2
137.6
137.1
141.3

122.2
134.3
128.6
143.3

6,243.9
6,303.3
6,367.8
6,476.2

662.9
662.0
677.3
674.0

5,581.1
5,641.2
5,690.5
5,802.2

515.5
521.4
524.7
539.7

28.2
28.9
28.9
28.6

25.5
5.7
−5.5
−16.5

19.3
8.8
−3.9
11.7

5,031.1
5,094.0
5,138.5
5,262.0

1994: I .........
II ........
III ......
IV p ....

6,574.7
145.4
146.1
6,574.0
6,689.9
162.1
169.5
6,682.5
6,791.7
176.7
188.8
6,779.6
6,891.1 ................ ................ ................

734.1
5,840.0
698.1
5,984.5
709.9
6,069.8
719.8 ................

544.7
550.3
557.2
562.8

30.1
−36.1
30.3
−24.0
30.8
−21.1
31.4 ................

1 Mainly
2 Mainly

4.5
4,491.0
−.1
4,608.2
3.5
4,829.5
9.0
5,131.4
1.0 ................

7.4
5,308.7
3.0
5,430.7
−8.0
5,494.9
1.6 ................

receipts by U.S. residents of interest and dividends and reinvested earnings of foreign affiliates of U.S. corporations.
payments to foreign residents of interest and dividends and reinvested earnings of U.S. affiliates of foreign corporations.

Source: Department of Commerce, Bureau of Economic Analysis.




300

TABLE B–24.—Relation of national income and personal income, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Less:

Year or quarter

National
income

1959 .....................................
1960 .....................................
1961 .....................................
1962 .....................................
1963 .....................................
1964 .....................................
1965 .....................................
1966 .....................................
1967 .....................................
1968 .....................................
1969 .....................................
1970 .....................................
1971 .....................................
1972 .....................................
1973 .....................................
1974 .....................................
1975 .....................................
1976 .....................................
1977 .....................................
1978 .....................................
1979 .....................................
1980 .....................................
1981 .....................................
1982 .....................................
1983 .....................................
1984 .....................................
1985 .....................................
1986 .....................................
1987 .....................................
1988 .....................................
1989 .....................................
1990 .....................................
1991 .....................................
1992 .....................................
1993 .....................................
1994 p ...................................
1982: IV ................................
1983: IV ................................
1984: IV ................................
1985: IV ................................
1986: IV ................................
1987: IV ................................
1988: IV ................................
1989: IV ................................
1990: IV ................................
1991: I ...................................
II .................................
III ................................
IV ................................
1992: I ...................................
II .................................
III ................................
IV ................................
1993: I ...................................
II .................................
III ................................
IV ................................
1994: I ...................................
II .................................
III ................................
IV p ..............................

410.1
425.7
440.5
474.5
501.5
539.1
586.9
643.7
679.9
741.0
798.6
833.5
899.5
992.9
1,119.5
1,198.8
1,285.3
1,435.5
1,609.1
1,829.8
2,038.9
2,198.2
2,432.5
2,522.5
2,720.8
3,058.3
3,268.4
3,437.9
3,692.3
4,002.6
4,249.5
4,491.0
4,608.2
4,829.5
5,131.4
..................
2,551.5
2,834.3
3,134.4
3,341.9
3,486.0
3,828.8
4,127.6
4,305.2
4,539.2
4,563.9
4,592.3
4,612.7
4,663.9
4,752.4
4,806.8
4,793.9
4,964.9
5,031.1
5,094.0
5,138.5
5,262.0
5,308.7
5,430.7
5,494.9
..................

Corporate
profits
with
inventory
valuation
and
capital
consumption
adjustments
52.3
50.7
51.6
59.6
65.1
72.1
82.9
88.6
86.0
92.6
89.6
77.5
90.3
103.2
116.4
104.5
121.9
147.1
175.7
199.7
202.5
177.7
182.0
151.5
212.7
264.2
280.8
271.6
319.8
365.0
362.8
380.6
390.3
405.1
485.8
................
150.3
229.1
261.3
284.9
264.6
343.3
378.3
354.5
362.8
385.4
391.5
389.6
394.7
412.1
412.6
363.2
432.5
442.5
473.1
493.5
533.9
508.2
546.4
556.0
................

Plus:

Net
interest

Contributions for
social
insurance

Wage
accruals
less
disbursements

Personal
interest
income

Personal
dividend
income

Government
transfer
payments
to
persons

Business
transfer
payments
to
persons

Personal
income

10.2
11.2
13.1
14.6
16.1
18.2
21.1
24.3
28.1
30.4
33.6
40.0
45.4
49.3
56.5
71.8
80.0
85.1
100.7
120.5
149.9
191.2
233.4
262.4
270.0
307.9
326.2
350.2
360.4
387.7
452.7
463.7
447.4
420.0
399.5
............
256.8
281.8
321.1
331.9
349.7
368.6
408.1
459.8
474.4
465.1
448.0
444.7
431.8
421.6
421.9
418.7
418.0
414.6
397.6
396.7
389.1
394.2
399.7
415.7
............

18.8
21.9
22.9
25.4
28.5
30.1
31.6
40.6
45.5
50.4
57.9
62.2
68.9
79.0
97.6
110.5
118.5
134.5
149.8
171.8
197.8
216.6
251.3
269.6
290.2
325.0
353.8
379.8
400.7
442.3
473.2
503.1
525.9
556.4
585.6
626.3
272.8
298.3
332.2
362.3
388.7
409.6
453.5
480.4
509.5
520.4
522.7
528.0
532.7
546.3
552.6
558.9
567.8
568.3
586.1
590.9
597.2
614.7
623.5
628.9
637.9

0.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.0
.6
.0
−.1
−.5
.1
.1
.1
.3
−.2
.0
.1
.0
−.4
.2
−.2
.0
.0
.0
.0
.1
−.1
−20.0
20.0
.0
.0
.0
.6
.0
.0
−.2
.0
.0
.2
.2
−.4
.0
.0
.0
.0
.0
−80.0
80.0
.0
.0
.0
.0
.0
.0
.0

22.7
25.0
26.9
29.3
32.4
36.1
40.3
44.9
49.5
54.6
60.8
69.2
75.7
81.8
94.1
112.4
123.0
134.6
155.7
184.5
223.2
274.0
336.1
376.8
397.5
461.9
498.1
531.7
548.1
583.2
668.2
698.2
695.1
665.2
637.9
664.3
373.6
418.7
485.4
507.5
532.6
562.3
608.9
681.2
710.3
710.1
697.3
691.0
682.2
669.1
670.2
663.2
658.2
653.2
636.6
634.1
627.7
631.1
649.4
674.2
702.3

12.7
13.4
14.0
15.0
16.1
18.0
20.2
20.9
22.1
24.5
25.1
23.5
23.5
25.5
27.7
29.6
29.2
34.7
39.4
44.2
50.4
57.1
66.9
67.1
77.8
78.8
87.9
104.7
100.4
108.4
126.5
144.4
150.5
161.0
181.3
194.3
69.4
80.6
79.3
92.7
105.6
100.1
113.8
132.9
144.4
148.6
149.9
152.2
151.2
151.2
156.7
164.3
171.8
178.0
180.4
182.8
184.1
185.7
191.7
196.9
202.7

25.7
27.5
31.5
32.6
34.5
36.0
39.1
43.6
52.3
60.6
67.5
81.8
97.0
108.4
124.1
147.4
185.7
202.8
217.5
234.8
262.8
312.6
355.7
396.3
426.1
437.8
468.1
497.1
521.3
555.9
603.8
666.3
749.2
837.9
892.6
940.2
419.9
428.0
442.3
474.8
505.8
528.1
563.5
624.0
690.9
725.0
742.2
754.7
775.1
817.7
833.0
845.0
855.7
875.8
887.6
898.8
908.3
924.2
934.3
945.4
956.8

1.3
1.3
1.4
1.5
1.7
1.8
2.0
2.1
2.3
2.5
2.8
2.8
3.0
3.4
3.8
4.0
4.5
5.5
5.9
6.8
7.9
8.8
10.2
11.8
12.8
15.1
17.8
20.7
20.8
20.8
21.1
21.3
20.8
22.3
22.8
23.5
12.3
13.2
16.2
18.8
20.9
20.4
21.3
20.8
21.1
20.8
20.7
20.8
21.1
21.9
22.2
22.5
22.7
22.8
22.8
22.8
22.7
23.2
23.4
23.6
23.8

391.2
409.2
426.5
453.4
476.4
510.7
552.9
601.7
646.5
709.9
773.7
831.0
893.5
980.5
1,098.7
1,205.7
1,307.3
1,446.3
1,601.3
1,807.9
2,033.1
2,265.4
2,534.7
2,690.9
2,862.5
3,154.6
3,379.8
3,590.4
3,802.0
4,075.9
4,380.3
4,673.8
4,860.3
5,154.3
5,375.1
5,701.8
2,746.8
2,965.8
3,242.5
3,456.7
3,647.8
3,918.5
4,195.2
4,469.4
4,759.1
4,797.2
4,840.5
4,869.1
4,934.2
5,032.4
5,101.9
5,148.1
5,335.0
5,255.5
5,364.5
5,395.9
5,484.6
5,555.8
5,659.9
5,734.5
5,857.1

Source: Department of Commerce, Bureau of Economic Analysis.




Equals:

301

TABLE B–25.—National income by type of income, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Compensation
of employees

Year or
quarter

National
income 1
Total

Wages
and
salaries

Proprietors’ income with inventory valuation and
capital consumption adjustments
Supplements
to
wages
and
salaries 2

Farm

Total
Total

Proprietors’
income 3

Nonfarm
Capital
consumption
adjustment

Total

Proprietors’
income

Inventory
valuation
adjustment

Capital
consumption
adjustment

1959 .......

410.1

281.2

259.8

21.4

51.7

10.7

11.6

−0.9

41.1

40.2

0.0

0.9

1960
1961
1962
1963
1964

.......
.......
.......
.......
.......

425.7
440.5
474.5
501.5
539.1

296.7
305.6
327.4
345.5
371.0

272.8
280.5
299.3
314.8
337.7

23.8
25.1
28.1
30.7
33.2

51.9
54.3
56.4
57.7
60.5

11.2
11.9
11.9
11.8
10.6

12.1
12.7
12.7
12.5
11.3

−.8
−.8
−.8
−.7
−.7

40.6
42.4
44.5
45.9
49.8

39.8
41.8
43.9
45.2
49.2

.0
.0
.0
.0
−.1

.8
.6
.6
.7
.7

1965
1966
1967
1968
1969

.......
.......
.......
.......
.......

586.9
643.7
679.9
741.0
798.6

399.8
443.0
475.5
524.7
578.4

363.7
400.3
428.9
471.9
518.3

36.1
42.7
46.6
52.8
60.1

65.0
69.4
70.9
75.1
78.9

12.9
14.0
12.7
12.7
14.4

13.7
14.8
13.5
13.6
15.6

−.7
−.8
−.8
−.9
−1.1

52.1
55.3
58.2
62.4
64.5

51.9
55.4
58.3
63.0
65.0

−.2
−.2
−.2
−.4
−.5

.4
.2
.1
−.2
.0

1970
1971
1972
1973
1974

.......
.......
.......
.......
.......

833.5
899.5
992.9
1,119.5
1,198.8

618.3
659.4
726.2
812.8
891.3

551.5
584.5
638.7
708.6
772.2

66.8
74.9
87.6
104.2
119.1

79.9
86.2
97.4
116.5
115.3

14.6
15.2
19.1
32.2
25.5

15.9
16.6
20.9
34.3
28.2

−1.3
−1.4
−1.8
−2.0
−2.8

65.3
70.9
78.3
84.3
89.8

66.0
72.0
79.3
86.5
94.2

−.5
−.6
−.7
−2.0
−3.8

−.1
−.5
−.2
−.2
−.6

1975
1976
1977
1978
1979

.......
.......
.......
.......
.......

1,285.3
1,435.5
1,609.1
1,829.8
2,038.9

948.7
1,058.3
1,177.3
1,333.0
1,496.4

814.7
899.6
994.0
1,120.9
1,255.3

134.0
158.7
183.3
212.1
241.1

121.2
132.9
146.4
167.7
181.8

23.7
18.3
17.1
21.5
24.7

27.5
22.5
21.8
27.0
31.2

−3.8
−4.2
−4.8
−5.5
−6.4

97.5
114.6
129.4
146.2
157.0

100.2
117.6
132.5
150.2
161.8

−1.2
−1.3
−1.3
−2.1
−2.9

−1.4
−1.7
−1.8
−2.0
−1.9

1980
1981
1982
1983
1984

.......
.......
.......
.......
.......

2,198.2
2,432.5
2,522.5
2,720.8
3,058.3

1,644.4
1,815.5
1,916.0
2,029.4
2,226.9

1,376.6
1,515.6
1,593.3
1,684.2
1,850.0

267.8
299.8
322.7
345.2
376.9

171.8
180.8
170.7
186.7
236.0

11.5
21.2
13.5
2.4
21.3

19.4
30.2
23.1
12.1
30.8

−7.9
−9.0
−9.7
−9.7
−9.4

160.3
159.6
157.3
184.3
214.7

165.8
160.9
157.8
176.1
197.1

−3.0
−1.4
−.6
−.6
−.5

−2.5
.2
.0
8.7
18.1

1985
1986
1987
1988
1989

.......
.......
.......
.......
.......

3,268.4
3,437.9
3,692.3
4,002.6
4,249.5

2,382.8
2,523.8
2,698.7
2,921.3
3,100.2

1,986.3
2,105.4
2,261.2
2,443.0
2,586.4

396.5
418.4
437.4
478.3
513.8

259.9
283.7
310.2
324.3
347.3

21.5
22.3
31.3
30.9
40.2

30.5
31.0
39.6
38.8
48.3

−9.0
−8.7
−8.3
−8.0
−8.1

238.4
261.5
279.0
293.4
307.0

212.4
230.6
252.4
266.8
281.1

−.2
−.1
−.8
−1.5
−1.2

26.1
30.9
27.4
28.1
27.2

1990 .......
1991 .......
1992 .......
1993 .......
1994 p .....

4,491.0
4,608.2
4,829.5
5,131.4
..................

3,297.6
3,404.8
3,591.2
3,780.4
4,005.1

2,745.0
2,816.0
2,954.8
3,100.8
3,279.2

552.5
588.8
636.4
679.6
725.9

363.3
376.2
418.7
441.6
473.1

41.9
36.7
44.4
37.3
39.2

49.8
44.3
51.9
44.5
46.6

−7.8
−7.6
−7.5
−7.2
−7.3

321.4
339.5
374.4
404.3
433.9

305.6
328.3
362.0
390.2
419.8

−.4
−.2
−.5
−.8
−1.2

16.2
11.4
12.9
14.9
15.2

..
..
..
..
..
..
..
..
..

2,551.5
2,834.3
3,134.4
3,341.9
3,486.0
3,828.8
4,127.6
4,305.2
4,539.2

1,940.4
2,101.2
2,288.1
2,442.5
2,582.5
2,785.1
3,004.9
3,162.8
3,344.2

1,611.8
1,747.3
1,903.9
2,039.1
2,153.9
2,336.7
2,510.6
2,637.9
2,781.3

328.6
353.9
384.2
403.3
428.6
448.4
494.3
524.9
562.9

179.9
200.1
239.6
268.7
284.4
325.0
333.4
349.7
368.9

10.2
6.3
21.9
17.8
23.6
42.4
30.9
38.4
43.8

20.0
15.8
31.2
26.7
32.1
50.6
38.8
46.4
51.7

−9.8
−9.5
−9.3
−8.9
−8.6
−8.2
−7.9
−8.0
−7.9

169.6
193.8
217.7
250.9
260.9
282.6
302.5
311.4
325.1

168.0
182.5
196.6
223.2
230.0
254.2
274.9
288.7
318.4

.6
−1.6
.1
−1.4
.7
1.7
−1.4
−.7
−5.6

1.1
12.9
21.0
29.1
30.1
26.7
29.0
23.4
12.4

1991: I ....
II ...
III ..
IV ..

4,563.9
4,592.3
4,612.7
4,663.9

3,359.5
3,383.2
3,417.6
3,459.1

2,785.3
2,800.5
2,823.9
2,854.3

574.2
582.6
593.8
604.7

364.2
380.3
373.8
386.4

37.0
43.4
29.6
36.6

44.8
51.1
37.2
44.1

−7.8
−7.7
−7.6
−7.5

327.2
336.9
344.2
349.8

316.0
325.9
333.0
338.2

−.2
−.2
.0
−.2

11.4
11.2
11.3
11.8

1992: I ....
II ...
III ..
IV ..

4,752.4
4,806.8
4,793.9
4,964.9

3,514.2
3,564.9
3,614.7
3,671.0

2,893.9
2,933.4
2,973.1
3,018.8

620.3
631.5
641.7
652.2

410.9
412.8
412.8
438.4

49.0
43.7
38.8
46.0

56.4
51.0
47.0
53.2

−7.4
−7.3
−8.2
−7.2

361.9
369.1
374.0
392.4

350.3
357.3
361.8
378.6

−.7
−.9
−.3
.0

12.3
12.8
12.5
13.9

1993: I ....
II ...
III ..
IV ..

5,031.1
5,094.0
5,138.5
5,262.0

3,713.1
3,761.1
3,801.7
3,845.8

3,053.9
3,085.1
3,115.9
3,148.4

659.2
676.0
685.9
697.4

444.4
438.8
420.3
462.9

49.6
39.4
15.8
44.4

56.7
46.5
23.2
51.5

−7.2
−7.2
−7.4
−7.0

394.8
399.4
404.5
418.5

381.8
385.5
389.8
403.7

−1.3
−.8
−.1
−.9

14.4
14.7
14.8
15.7

1994: I ....
II ...
III ..
IV p

5,308.7
5,430.7
5,494.9
..................

3,920.0
3,979.3
4,023.7
4,097.4

3,208.3
3,257.2
3,293.9
3,357.4

711.7
722.0
729.7
740.0

471.0
471.3
467.0
483.3

47.2
39.3
29.8
40.7

54.5
46.6
37.2
47.9

−7.3
−7.3
−7.4
−7.3

423.8
431.9
437.1
442.7

409.3
417.5
423.1
429.4

−.6
−1.1
−1.1
−1.8

15.2
15.5
15.2
15.1

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

1 National income is the total net income earned in production. It differs from gross domestic product mainly in that it excludes depreciation charges and other allowances for business and institutional consumption of durable capital goods and indirect business taxes. See
Table B–23.
See next page for continuation of table.




302

TABLE B–25.—National income by type of income, 1959–94—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Rental income of persons
with capital consumption
adjustment

Year or quarter
Total

Rental
income
of
persons

Capital
consumption
adjustment

Corporate profits with inventory valuation and capital consumption adjustments
Profits with inventory valuation adjustment and without
capital consumption adjustment
Profits
Profits
before
tax

Profits
tax
liability

Total

Dividends

Undistributed
profits

Inventory
valuation
adjustment

Total

Profits after tax
Total

Capital
consumption
adjustment

Net
interest

1959 ...............

14.7

18.0

−3.4

52.3

53.1

53.4

23.6

29.7

12.7

17.0

−0.3

−0.8

10.2

1960
1961
1962
1963
1964

...............
...............
...............
...............
...............

15.3
15.8
16.5
17.1
17.3

18.7
19.2
19.8
20.3
20.5

−3.4
−3.3
−3.3
−3.2
−3.2

50.7
51.6
59.6
65.1
72.1

51.0
51.3
56.4
61.2
67.5

51.1
51.0
56.4
61.2
68.0

22.7
22.8
24.0
26.2
28.0

28.4
28.2
32.4
34.9
40.0

13.4
14.0
15.0
16.1
18.0

15.0
14.3
17.4
18.8
22.0

−.2
.3
.0
.1
−.5

−.3
.3
3.2
3.9
4.6

11.2
13.1
14.6
16.1
18.2

1965
1966
1967
1968
1969

...............
...............
...............
...............
...............

18.0
18.5
19.4
18.2
18.0

21.3
22.1
23.4
22.8
23.9

−3.3
−3.6
−3.9
−4.6
−5.9

82.9
88.6
86.0
92.6
89.6

77.6
83.0
80.3
86.9
83.2

78.8
85.1
81.8
90.6
89.0

30.9
33.7
32.7
39.4
39.7

47.9
51.4
49.2
51.2
49.4

20.2
20.9
22.1
24.6
25.2

27.8
30.5
27.1
26.6
24.1

−1.2
−2.1
−1.6
−3.7
−5.9

5.3
5.6
5.7
5.6
6.4

21.1
24.3
28.1
30.4
33.6

1970
1971
1972
1973
1974

...............
...............
...............
...............
...............

17.8
18.2
16.8
17.3
15.8

24.2
25.6
26.1
28.2
29.3

−6.4
−7.4
−9.3
−10.9
−13.5

77.5
90.3
103.2
116.4
104.5

71.8
85.5
97.9
110.9
103.4

78.4
90.1
104.5
130.9
142.8

34.4
37.7
41.9
49.3
51.8

44.0
52.4
62.6
81.6
91.0

23.7
23.7
25.8
28.1
30.4

20.3
28.6
36.9
53.5
60.6

−6.6
−4.6
−6.6
−20.0
−39.5

5.6
4.8
5.3
5.5
1.2

40.0
45.4
49.3
56.5
71.8

1975
1976
1977
1978
1979

...............
...............
...............
...............
...............

13.5
12.1
9.0
8.9
8.4

29.5
29.9
30.0
34.4
39.1

−15.9
−17.8
−21.0
−25.5
−30.8

121.9
147.1
175.7
199.7
202.5

129.4
158.8
186.7
212.8
219.8

140.4
173.7
203.3
237.9
261.4

50.9
64.2
73.0
83.5
88.0

89.5
109.5
130.3
154.4
173.4

30.1
35.6
40.7
45.9
52.4

59.4
73.9
89.5
108.5
121.0

−11.0
−14.9
−16.6
−25.0
−41.6

−7.6
−11.7
−11.0
−13.1
−17.3

80.0
85.1
100.7
120.5
149.9

1980
1981
1982
1983
1984

...............
...............
...............
...............
...............

13.2
20.8
21.9
22.1
23.3

49.0
61.1
64.4
64.8
66.5

−35.8
−40.2
−42.4
−42.8
−43.2

177.7
182.0
151.5
212.7
264.2

197.8
203.2
166.4
202.2
236.4

240.9
228.9
176.3
210.7
240.5

84.8
81.1
63.1
77.2
94.0

156.1
147.8
113.2
133.5
146.4

59.0
69.2
70.0
81.2
82.7

97.1
78.6
43.2
52.3
63.8

−43.0
−25.7
−9.9
−8.5
−4.1

−20.2
−21.2
−14.9
10.4
27.8

191.2
233.4
262.4
270.0
307.9

1985
1986
1987
1988
1989

...............
...............
...............
...............
...............

18.7
8.7
3.2
4.3
−13.5

63.4
53.4
50.0
53.4
44.2

−44.6
−44.7
−46.8
−49.1
−57.7

280.8
271.6
319.8
365.0
362.8

225.3
227.6
273.4
320.3
325.4

225.0
217.8
287.9
347.5
342.9

96.5
106.5
127.1
137.0
141.3

128.5
111.3
160.8
210.5
201.6

92.4
109.8
106.2
115.3
134.6

36.1
1.6
54.6
95.2
67.1

.2
9.7
−14.5
−27.3
−17.5

55.5
44.1
46.4
44.7
37.4

326.2
350.2
360.4
387.7
452.7

1990 ...............
1991 ...............
1992 ...............
1993 ...............
1994 p .............

−14.2
−10.5
−5.5
24.1
27.7

42.7
47.4
61.2
86.3
98.8

−56.9
−58.0
−66.7
−62.2
−71.2

380.6
390.3
405.1
485.8
..........

354.7
370.9
389.4
456.2
..........

365.7
365.2
395.9
462.4
............

138.7
131.1
139.7
173.2
............

227.1
234.1
256.2
289.2
..........

153.5
160.0
171.1
191.7
205.2

73.6
74.1
85.1
97.5
............

−11.0
5.8
−6.4
−6.2
−18.7

25.9
19.4
15.7
29.5
37.7

463.7
447.4
420.0
399.5
............

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

..........
..........
..........
..........
..........
..........
..........
..........
..........

24.1
22.2
24.3
14.0
4.7
6.8
2.8
−21.6
−11.1

66.5
64.5
67.6
60.0
50.2
54.2
52.6
39.8
46.4

−42.3
−42.4
−43.4
−46.0
−45.5
−47.4
−49.7
−61.3
−57.4

150.3
229.1
261.3
284.9
264.6
343.3
378.3
354.5
362.8

160.0
216.2
223.6
228.0
225.0
293.4
340.5
320.6
349.3

168.6
223.8
220.1
231.8
235.7
311.2
372.2
334.1
368.9

58.7
82.2
83.8
97.6
116.6
135.2
146.2
134.2
137.0

109.9
141.6
136.3
134.2
119.2
176.0
226.0
200.0
231.8

72.5
84.2
83.4
97.4
111.0
106.3
121.0
141.3
153.7

37.5
57.4
52.9
36.9
8.2
69.7
105.0
58.7
78.1

−8.6
−7.6
3.5
−3.8
−10.7
−17.8
−31.7
−13.5
−19.5

−9.6
12.9
37.7
56.9
39.6
49.9
37.9
33.9
13.5

256.8
281.8
321.1
331.9
349.7
368.6
408.1
459.8
474.4

1991: I ............
II ...........
III ..........
IV ..........

−10.3
−10.7
−13.0
−8.1

46.4
46.0
44.3
53.0

−56.7
−56.7
−57.3
−61.1

385.4
391.5
389.6
394.7

371.8
372.6
367.1
372.3

361.4
360.5
365.7
373.1

127.3
130.0
134.0
133.1

234.1
230.5
231.6
240.0

158.0
159.4
161.6
160.9

76.1
71.1
70.0
79.1

10.4
12.1
1.4
−.8

13.7
18.9
22.5
22.4

465.1
448.0
444.7
431.8

1992: I ............
II ...........
III ..........
IV ..........

−6.4
−5.4
−15.5
5.1

50.2
51.4
79.4
63.8

−56.5
−56.8
−94.9
−58.7

412.1
412.6
363.2
432.5

393.0
396.9
352.3
415.6

397.0
413.5
359.5
413.5

139.6
146.0
124.6
148.6

257.4
267.5
234.9
264.8

161.0
166.8
174.4
182.1

96.4
100.8
60.5
82.7

−4.0
−16.6
−7.3
2.1

19.0
15.8
10.9
16.9

421.6
421.9
418.7
418.0

1993: I ............
II ...........
III ..........
IV ..........

16.5
23.4
26.3
30.3

80.3
83.6
88.9
92.4

−63.8
−60.3
−62.6
−62.1

442.5
473.1
493.5
533.9

421.5
446.6
461.7
495.1

432.7
456.6
458.7
501.7

159.8
171.8
169.9
191.5

273.0
284.8
288.9
310.2

188.2
190.7
193.2
194.6

84.7
94.1
95.6
115.6

−11.2
−10.0
3.0
−6.5

21.0
26.5
31.7
38.8

414.6
397.6
396.7
389.1

1994: I ............
II ...........
III ..........
IV p .......

15.3
34.1
32.6
28.7

101.7
98.6
98.8
96.2

−86.4
−64.5
−66.2
−67.5

508.2
546.4
556.0
..........

471.2
509.0
518.5
..........

483.5
523.1
538.1
............

184.1
201.7
208.6
............

299.4
321.4
329.5
..........

196.3
202.5
207.9
213.9

103.0
118.9
121.6
............

−12.3
−14.1
−19.6
−28.8

37.0
37.4
37.5
38.6

394.2
399.7
415.7
............

2 Consists
3 With

mainly of employer contributions for social insurance and to private pension, health, and welfare funds.
inventory valuation adjustment.

Source: Department of Commerce, Bureau of Economic Analysis.




303

TABLE B–26.—Sources of personal income, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Wage and salary disbursements 1

Year or quarter

Personal
income

Total

Commodityproducing
industries
Total

Manufacturing

Distributive
industries

Service
industries

Government

Other
labor
income 1

Proprietors’ income
with inventory
valuation and
capital
consumption
adjustments
Farm

Nonfarm

1959 ..................................

391.2

259.8

109.9

86.9

65.1

38.8

46.0

10.6

10.7

41.1

1960
1961
1962
1963
1964

..................................
..................................
..................................
..................................
..................................

409.2
426.5
453.4
476.4
510.7

272.8
280.5
299.3
314.8
337.7

113.4
114.0
122.2
127.4
136.0

89.8
89.9
96.8
100.7
107.3

68.6
69.6
73.3
76.8
82.0

41.7
44.4
47.6
50.7
54.9

49.2
52.4
56.3
60.0
64.9

11.2
11.8
13.0
14.0
15.7

11.2
11.9
11.9
11.8
10.6

40.6
42.4
44.5
45.9
49.8

1965
1966
1967
1968
1969

..................................
..................................
..................................
..................................
..................................

552.9
601.7
646.5
709.9
773.7

363.7
400.3
428.9
471.9
518.3

146.6
161.6
169.0
184.1
200.4

115.7
128.2
134.3
146.0
157.7

87.9
95.1
101.6
110.8
121.7

59.4
65.3
72.0
80.4
90.6

69.9
78.3
86.4
96.6
105.5

17.8
19.9
21.7
25.2
28.5

12.9
14.0
12.7
12.7
14.4

52.1
55.3
58.2
62.4
64.5

1970
1971
1972
1973
1974

..................................
..................................
..................................
..................................
..................................

831.0
893.5
980.5
1,098.7
1,205.7

551.5
583.9
638.7
708.7
772.6

203.7
209.1
228.2
255.9
276.5

158.4
160.5
175.6
196.6
211.8

131.2
140.4
153.3
170.3
186.8

99.4
107.9
119.7
133.9
148.6

117.1
126.5
137.4
148.7
160.9

32.5
36.7
43.0
49.2
56.5

14.6
15.2
19.1
32.2
25.5

65.3
70.9
78.3
84.3
89.8

1975
1976
1977
1978
1979

..................................
..................................
..................................
..................................
..................................

1,307.3
1,446.3
1,601.3
1,807.9
2,033.1

814.6
899.5
993.9
1,120.7
1,255.4

277.1
309.7
346.1
392.6
442.1

211.6
238.0
266.7
300.1
334.9

198.1
219.5
242.7
274.9
308.4

163.4
181.6
202.8
233.7
267.7

176.0
188.6
202.3
219.4
237.3

65.9
79.7
94.7
110.1
124.3

23.7
18.3
17.1
21.5
24.7

97.5
114.6
129.4
146.2
157.0

1980
1981
1982
1983
1984

..................................
..................................
..................................
..................................
..................................

2,265.4
2,534.7
2,690.9
2,862.5
3,154.6

1,376.6
1,515.6
1,593.3
1,684.7
1,849.8

471.9
513.7
513.5
525.1
580.8

355.7
386.9
384.3
397.7
439.8

336.4
368.1
385.8
406.2
445.4

306.9
348.1
386.5
427.4
475.8

261.4
285.7
307.5
325.9
347.8

139.8
153.0
165.4
174.6
184.7

11.5
21.2
13.5
2.4
21.3

160.3
159.6
157.3
184.3
214.7

1985
1986
1987
1988
1989

..................................
..................................
..................................
..................................
..................................

3,379.8
3,590.4
3,802.0
4,075.9
4,380.3

1,986.5
2,105.4
2,261.2
2,443.0
2,586.4

612.2
628.5
651.8
699.1
724.2

461.3
473.8
490.1
524.5
542.2

475.9
501.7
536.9
575.3
607.0

524.5
579.5
650.7
719.6
776.8

373.9
395.7
421.8
449.0
478.5

191.8
200.7
210.4
230.5
251.9

21.5
22.3
31.3
30.9
40.2

238.4
261.5
279.0
293.4
307.0

1990 ..................................
1991 ..................................
1992 ..................................
1993 ..................................
1994 p ................................

4,673.8
4,860.3
5,154.3
5,375.1
5,701.8

2,745.0
2,816.1
2,974.8
3,080.8
3,279.2

745.7
738.4
757.6
773.8
818.2

555.6
557.4
578.3
588.4
617.6

635.1
648.0
682.3
701.9
748.6

848.3
884.2
967.6
1,021.4
1,109.6

515.9
545.5
567.3
583.8
602.7

274.3
299.0
328.7
355.3
381.1

41.9
36.7
44.4
37.3
39.2

321.4
339.5
374.4
404.3
433.9

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................

2,746.8
2,965.8
3,242.5
3,456.7
3,647.8
3,918.5
4,195.2
4,469.4
4,759.1

1,611.7
1,747.3
1,903.3
2,039.1
2,153.9
2,337.0
2,510.6
2,637.9
2,781.1

503.9
547.6
594.5
622.6
635.3
668.4
715.3
732.1
744.8

378.0
415.7
450.5
469.1
478.5
501.6
537.5
545.7
556.9

391.2
422.4
458.4
487.6
512.5
551.9
589.9
616.1
641.0

400.9
445.8
494.4
546.8
602.1
685.0
746.8
800.0
866.8

315.6
331.5
356.1
382.2
404.0
431.7
458.5
489.7
528.5

169.2
179.0
187.7
193.9
205.3
216.5
240.3
259.1
281.3

10.2
6.3
21.9
17.8
23.6
42.4
30.9
38.4
43.8

169.6
193.8
217.7
250.9
260.9
282.6
302.5
311.4
325.1

1991: I ...............................
II .............................
III ............................
IV ............................

4,797.2
4,840.5
4,869.1
4,934.2

2,785.1
2,800.9
2,823.9
2,854.3

737.4
734.3
739.0
743.0

552.7
552.7
558.9
565.2

639.6
645.7
650.5
656.0

866.9
876.3
888.0
905.5

541.2
544.6
546.4
549.8

288.1
294.8
302.7
310.6

37.0
43.4
29.6
36.6

327.2
336.9
344.2
349.8

1992: I ...............................
II .............................
III ............................
IV ............................

5,032.4
5,101.9
5,148.1
5,335.0

2,893.9
2,933.4
2,973.1
3,098.8

738.6
748.9
753.8
789.1

561.2
569.9
575.1
607.0

664.1
672.9
682.9
709.4

930.6
945.0
966.5
1,028.3

560.6
566.6
569.9
572.1

318.4
326.0
332.6
337.8

49.0
43.7
38.8
46.0

361.9
369.1
374.0
392.4

1993: I ...............................
II .............................
III ............................
IV ............................

5,255.5
5,364.5
5,395.9
5,484.6

2,973.9
3,085.1
3,115.9
3,148.4

746.3
776.4
781.4
791.0

565.8
591.4
594.9
601.7

681.2
704.0
709.6
712.6

966.1
1,023.7
1,038.8
1,057.0

580.3
580.9
586.1
587.8

344.1
351.4
358.8
366.8

49.6
39.4
15.8
44.4

394.8
399.4
404.5
418.5

1994: I ...............................
II .............................
III ............................
IV p ..........................

5,555.8
5,659.9
5,734.5
5,857.1

3,208.3
3,257.2
3,293.9
3,357.4

801.9
811.6
821.8
837.7

609.4
612.8
618.3
630.0

728.6
742.5
753.5
769.9

1,082.0
1,101.2
1,114.3
1,140.9

595.7
601.9
604.4
608.9

373.2
378.4
383.7
389.1

47.2
39.3
29.8
40.7

423.8
431.9
437.1
442.7

1 The total of wage and salary disbursements and other labor income differs from compensation of employees in Table B–25 in that it excludes employer contributions for social insurance and the excess of wage accruals over wage disbursements.

See next page for continuation of table.




304

TABLE B–26.—Sources of personal income, 1959–94—Continued
[Billions of dollars; quarterly data at seasonally adjusted annual rates]

Year or quarter

Rental
Transfer payments to persons
income
Old-age, Governof
Governsurvivors,
persons Personal Personal
ment
ment
disability, unemwith
and
Veterans employcapital dividend interest Total
ployment benefits
ees
income income
health
coninsurretireinsursumption
ance
ment
ance
adjustbenefits
benefits benefits
ment

Aid to
families
with
dependent
children
(AFDC)

Less:
Personal
contribuOther tions for
social
insurance

Nonfarm
personal
income 2

1959 ..................

14.7

12.7

22.7

27.0

10.2

2.8

4.6

2.8

0.9

5.7

7.9

376.7

1960
1961
1962
1963
1964

..................
..................
..................
..................
..................

15.3
15.8
16.5
17.1
17.3

13.4
14.0
15.0
16.1
18.0

25.0
26.9
29.3
32.4
36.1

28.8
32.8
34.1
36.2
37.9

11.1
12.6
14.3
15.2
16.0

3.0
4.3
3.1
3.0
2.7

4.6
5.0
4.7
4.8
4.7

3.1
3.4
3.7
4.2
4.7

1.0
1.1
1.3
1.4
1.5

6.1
6.5
7.0
7.6
8.2

9.3
9.7
10.3
11.8
12.6

393.7
410.4
437.0
460.0
495.3

1965
1966
1967
1968
1969

..................
..................
..................
..................
..................

18.0
18.5
19.4
18.2
18.0

20.2
20.9
22.1
24.5
25.1

40.3
44.9
49.5
54.6
60.8

41.1
45.7
54.6
63.2
70.3

18.1
20.8
25.5
30.2
32.9

2.3
1.9
2.2
2.1
2.2

4.9
4.9
5.6
5.9
6.7

5.2
6.1
6.9
7.6
8.7

1.7
1.9
2.3
2.8
3.5

9.0
10.3
12.2
14.5
16.2

13.3
17.8
20.6
22.9
26.2

534.9
582.4
628.3
691.4
753.1

1970
1971
1972
1973
1974

..................
..................
..................
..................
..................

17.8
18.2
16.8
17.3
15.8

23.5
23.5
25.5
27.7
29.6

69.2
75.7
81.8
94.1
112.4

84.6
100.1
111.8
127.9
151.3

38.5
44.5
49.6
60.4
70.1

4.0
5.8
5.7
4.4
6.8

7.7
8.8
9.7
10.4
11.8

10.2
11.8
13.8
16.0
19.0

4.8
6.2
6.9
7.2
7.9

19.4
23.0
26.1
29.5
35.7

27.9
30.7
34.5
42.6
47.9

809.8
871.5
954.2
1,058.1
1,170.2

1975
1976
1977
1978
1979

..................
..................
..................
..................
..................

13.5
12.1
9.0
8.9
8.4

29.2
34.7
39.4
44.2
50.4

123.0
134.6
155.7
184.5
223.2

190.2
208.3
223.3
241.6
270.7

81.4
92.9
104.9
116.2
131.8

17.6
15.8
12.7
9.7
9.8

14.5
14.4
13.8
13.9
14.4

22.7
26.1
29.0
32.7
36.9

9.2
10.1
10.6
10.7
11.0

44.7
49.1
52.4
58.4
66.8

50.4
55.5
61.2
69.8
81.0

1,272.5
1,415.1
1,569.9
1,770.3
1,989.3

1980
1981
1982
1983
1984

..................
..................
..................
..................
..................

13.2
20.8
21.9
22.1
23.3

57.1
66.9
67.1
77.8
78.8

274.0
336.1
376.8
397.5
461.9

321.5
365.9
408.1
438.9
452.9

154.2
182.0
204.5
221.7
235.7

16.1
15.9
25.2
26.3
15.8

15.0
16.1
16.4
16.6
16.4

43.0
49.4
54.6
58.0
60.9

12.4 80.8
13.0 89.7
13.3 94.1
14.2 102.1
14.8 109.2

88.6
104.5
112.3
119.7
132.8

2,231.6
2,488.5
2,649.8
2,832.6
3,106.1

1985
1986
1987
1988
1989

..................
..................
..................
..................
..................

18.7
8.7
3.2
4.3
−13.5

87.9
104.7
100.4
108.4
126.5

498.1
531.7
548.1
583.2
668.2

485.9
517.8
542.2
576.7
625.0

253.4
269.2
282.9
300.4
325.1

15.7
16.3
14.5
13.4
14.4

16.7
16.7
16.6
16.9
17.3

66.6
70.7
76.0
82.2
87.5

15.4
16.4
16.7
17.3
18.0

118.1
128.5
135.5
146.5
162.6

149.1
162.1
173.6
194.5
211.4

3,333.2
3,545.6
3,749.4
4,023.9
4,318.0

1990 ..................
1991 ..................
1992 ..................
1993 ..................
1994 p ................

−14.2
−10.5
−5.5
24.1
27.7

144.4
150.5
161.0
181.3
194.3

698.2
695.1
665.2
637.9
664.3

687.6
770.1
860.2
915.4
963.7

352.0
382.3
414.0
444.4
473.7

19.0
26.7
38.9
33.9
23.3

17.8
18.3
19.3
20.1
20.1

94.5
102.4
109.9
118.7
126.9

19.8
22.0
23.3
23.9
24.3

184.5
218.4
254.9
274.4
295.4

224.9
236.2
248.7
261.3
281.5

4,608.6
4,801.8
5,089.4
5,316.6
5,639.8

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.............
.............
.............
.............
.............
.............
.............
.............
.............

24.1
22.2
24.3
14.0
4.7
6.8
2.8
−21.6
−11.1

69.4
80.6
79.3
92.7
105.6
100.1
113.8
132.9
144.4

373.6
418.7
485.4
507.5
532.6
562.3
608.9
681.2
710.3

432.2
441.3
458.5
493.6
526.6
548.5
584.8
644.8
712.0

216.4
226.7
241.3
256.7
273.3
285.8
303.8
334.4
358.6

31.8
19.9
15.6
15.3
16.7
13.4
13.0
15.6
22.0

16.6
16.5
16.4
16.5
16.4
16.5
16.8
17.3
17.8

56.1
59.5
58.0
68.0
72.4
77.7
83.0
89.3
96.5

13.6
14.5
14.8
15.7
16.7
16.7
17.5
18.4
20.5

97.6
104.2
112.5
121.3
131.1
138.3
150.6
169.9
196.6

113.3
123.4
135.6
152.8
165.4
177.7
199.5
214.7
227.9

2,708.5
2,932.0
3,193.8
3,414.9
3,602.3
3,854.9
4,142.9
4,408.5
4,692.2

1991: I ...............
II ..............
III ............
IV ............

−10.3
−10.7
−13.0
−8.1

148.6
149.9
152.2
151.2

710.1
697.3
691.0
682.2

745.8
762.9
775.5
796.1

374.5
380.0
384.7
390.0

24.3
27.4
26.0
29.2

18.0
18.6
18.4
18.2

102.2
101.7
102.4
103.2

21.1
21.8
22.2
22.7

205.5
213.4
221.7
232.8

234.3
234.9
236.9
238.6

4,737.7
4,775.0
4,818.0
4,876.6

1992: I ...............
II ..............
III ............
IV ............

−6.4
−5.4
−15.5
5.1

151.2
156.7
164.3
171.8

669.1
670.2
663.2
658.2

839.6
855.3
867.5
878.4

405.2
412.1
416.9
421.6

39.1
40.4
38.9
37.2

20.4
18.9
18.8
19.1

108.3
109.3
110.0
111.9

22.9
23.1
23.5
23.5

243.6
251.4
259.4
265.0

244.4
247.0
249.9
253.4

4,962.6
5,037.8
5,088.9
5,268.5

1993: I ...............
II ..............
III ............
IV ............

16.5
23.4
26.3
30.3

178.0
180.4
182.8
184.1

653.2
636.6
634.1
627.7

898.6
910.4
921.6
931.0

436.8
441.9
446.8
452.1

34.3
34.0
34.5
32.7

20.0
20.2
20.2
20.0

116.0
118.0
119.6
121.1

23.6
24.0
24.0
24.1

267.8
272.2
276.5
281.0

253.2
261.5
263.8
266.6

5,185.2
5,304.0
5,358.8
5,418.5

1994: I ...............
II ..............
III ............
IV p ..........

15.3
34.1
32.6
28.7

185.7
191.7
196.9
202.7

631.1
649.4
674.2
702.3

947.4
957.6
969.0
980.7

463.8
470.7
476.5
483.7

27.9
23.5
21.4
20.5

20.0
19.8
20.3
20.3

122.8
126.2
128.5
130.1

24.2
24.3
24.3
24.3

288.7
293.1
298.0
301.8

276.3
279.9
282.9
287.0

5,486.4
5,598.0
5,681.7
5,793.2

2 Personal income exclusive of the farm component of wages and salaries, other labor income, proprietors’ income with inventory valuation
and capital consumption adjustments, and net interest.

Note.—The industry classification of wage and salary disbursements and proprietors’ income is on an establishment basis and is based
on the 1987 Standard Industrial Classification (SIC) beginning 1987 and on the 1972 SIC for earlier years shown.
Source: Department of Commerce, Bureau of Economic Analysis.




305

TABLE B–27.—Disposition of personal income, 1959–94
[Billions of dollars, except as noted; quarterly data at seasonally adjusted annual rates]
Less: Personal outlays

Year or quarter

1959 .....................
1960 .....................
1961 .....................
1962 .....................
1963 .....................
1964 .....................
1965 .....................
1966 .....................
1967 .....................
1968 .....................
1969 .....................
1970 .....................
1971 .....................
1972 .....................
1973 .....................
1974 .....................
1975 .....................
1976 .....................
1977 .....................
1978 .....................
1979 .....................
1980 .....................
1981 .....................
1982 .....................
1983 .....................
1984 .....................
1985 .....................
1986 .....................
1987 .....................
1988 .....................
1989 .....................
1990 .....................
1991 .....................
1992 .....................
1993 .....................
1994 p ...................
1982: IV ................
1983: IV ................
1984: IV ................
1985: IV ................
1986: IV ................
1987: IV ................
1988: IV ................
1989: IV ................
1990: IV ................
1991: I ..................
II ................
III ...............
IV ...............
1992: I ..................
II ................
III ...............
IV ...............
1993: I ..................
II ................
III ...............
IV ...............
1994: I ..................
II ................
III ...............
IV p .............

Personal
income

391.2
409.2
426.5
453.4
476.4
510.7
552.9
601.7
646.5
709.9
773.7
831.0
893.5
980.5
1,098.7
1,205.7
1,307.3
1,446.3
1,601.3
1,807.9
2,033.1
2,265.4
2,534.7
2,690.9
2,862.5
3,154.6
3,379.8
3,590.4
3,802.0
4,075.9
4,380.3
4,673.8
4,860.3
5,154.3
5,375.1
5,701.8
2,746.8
2,965.8
3,242.5
3,456.7
3,647.8
3,918.5
4,195.2
4,469.4
4,759.1
4,797.2
4,840.5
4,869.1
4,934.2
5,032.4
5,101.9
5,148.1
5,335.0
5,255.5
5,364.5
5,395.9
5,484.6
5,555.8
5,659.9
5,734.5
5,857.1

Less:
Personal
tax and
nontax
payments

44.5
48.7
50.3
54.8
58.0
56.0
61.9
71.0
77.9
92.1
109.9
109.0
108.7
132.0
140.6
159.1
156.4
182.3
210.0
240.1
280.2
312.4
360.2
371.4
368.8
395.1
436.8
459.0
512.5
527.7
593.3
623.3
623.7
648.6
686.4
742.5
372.1
371.6
413.4
448.8
478.5
528.6
542.0
605.1
625.2
620.5
620.2
622.8
631.2
631.3
638.7
648.1
676.2
657.3
685.9
695.4
707.0
723.0
746.4
744.1
756.5

Equals:
Disposable
personal
income

346.7
360.5
376.2
398.7
418.4
454.7
491.0
530.7
568.6
617.8
663.8
722.0
784.9
848.5
958.1
1,046.5
1,150.9
1,264.0
1,391.3
1,567.8
1,753.0
1,952.9
2,174.5
2,319.6
2,493.7
2,759.5
2,943.0
3,131.5
3,289.5
3,548.2
3,787.0
4,050.5
4,236.6
4,505.8
4,688.7
4,959.3
2,374.7
2,594.3
2,829.1
3,007.9
3,169.3
3,389.9
3,653.2
3,864.3
4,133.9
4,176.7
4,220.4
4,246.3
4,303.0
4,401.1
4,463.2
4,500.0
4,658.8
4,598.2
4,678.6
4,700.5
4,777.6
4,832.8
4,913.5
4,990.3
5,100.7

Total

324.7
339.9
351.3
372.8
393.7
423.1
456.4
494.4
522.8
573.9
620.5
664.5
719.4
788.7
872.0
953.1
1,050.6
1,170.9
1,303.4
1,460.0
1,629.6
1,799.1
1,982.6
2,120.1
2,325.1
2,537.5
2,753.7
2,944.0
3,147.5
3,392.5
3,634.9
3,880.6
4,025.0
4,257.8
4,496.2
4,755.1
2,190.9
2,417.9
2,606.5
2,828.7
3,018.2
3,220.1
3,496.7
3,715.5
3,957.7
3,963.9
4,008.5
4,049.4
4,078.4
4,166.4
4,219.4
4,274.2
4,371.4
4,413.7
4,464.6
4,518.2
4,588.2
4,657.3
4,712.4
4,787.0
4,863.8

318.1
332.4
343.5
364.4
384.2
412.5
444.6
481.6
509.3
559.1
603.7
646.5
700.3
767.8
848.1
927.7
1,024.9
1,143.1
1,271.5
1,421.2
1,583.7
1,748.1
1,926.2
2,059.2
2,257.5
2,460.3
2,667.4
2,850.6
3,052.2
3,296.1
3,523.1
3,761.2
3,902.4
4,136.9
4,378.2
4,627.0
2,128.7
2,346.8
2,526.4
2,739.8
2,923.1
3,124.6
3,398.2
3,599.1
3,836.6
3,841.4
3,885.7
3,927.0
3,955.7
4,044.4
4,097.8
4,154.0
4,251.3
4,294.6
4,347.3
4,401.2
4,469.6
4,535.0
4,586.4
4,657.5
4,728.9

1 Percents

based on data in millions of dollars.
Source: Department of Commerce, Bureau of Economic Analysis.




Percent of disposable
personal income 1

Personal
Personal
transfer
conInterest paysumption paid by ments
expendi- persons to rest
tures
of the
world
(net)

306

6.1
7.0
7.3
7.8
8.9
10.0
11.1
12.0
12.5
13.8
15.7
16.8
17.8
19.6
22.4
24.2
24.5
26.7
30.7
37.5
44.5
49.4
54.6
58.8
65.7
75.0
83.6
90.9
92.3
93.7
103.0
109.3
112.2
111.4
108.2
117.7
60.2
69.2
77.6
86.4
92.3
92.4
95.8
106.7
110.9
112.2
112.5
112.2
112.1
112.6
112.0
111.0
110.2
109.3
107.5
107.2
108.7
111.7
115.5
119.3
124.2

0.4
.5
.5
.5
.6
.7
.8
.8
1.0
1.0
1.1
1.2
1.3
1.3
1.4
1.2
1.2
1.2
1.2
1.3
1.4
1.6
1.8
2.1
1.8
2.3
2.7
2.5
3.0
2.7
8.9
10.1
10.4
9.5
9.9
10.5
1.9
2.0
2.5
2.5
2.8
3.1
2.7
9.8
10.2
10.3
10.3
10.2
10.6
9.4
9.7
9.2
9.9
9.8
9.8
9.9
9.8
10.5
10.5
10.3
10.7

Personal outlays
Equals:
Personal
saving
Total

22.0
20.6
24.9
25.9
24.6
31.6
34.6
36.3
45.8
43.9
43.3
57.5
65.4
59.7
86.1
93.4
100.3
93.0
87.9
107.8
123.3
153.8
191.8
199.5
168.7
222.0
189.3
187.5
142.0
155.7
152.1
170.0
211.6
247.9
192.6
204.2
183.8
176.3
222.6
179.2
151.1
169.8
156.4
148.8
176.2
212.8
211.9
196.9
224.6
234.7
243.8
225.8
287.4
184.6
214.0
182.3
189.4
175.5
201.1
203.3
236.9

93.7
94.3
93.4
93.5
94.1
93.1
93.0
93.2
91.9
92.9
93.5
92.0
91.7
93.0
91.0
91.1
91.3
92.6
93.7
93.1
93.0
92.1
91.2
91.4
93.2
92.0
93.6
94.0
95.7
95.6
96.0
95.8
95.0
94.5
95.9
95.9
92.3
93.2
92.1
94.0
95.2
95.0
95.7
96.2
95.7
94.9
95.0
95.4
94.8
94.7
94.5
95.0
93.8
96.0
95.4
96.1
96.0
96.4
95.9
95.9
95.4

Personal
consump- Personal
saving
tion
expenditures
91.8
92.2
91.3
91.4
91.8
90.7
90.5
90.7
89.6
90.5
90.9
89.5
89.2
90.5
88.5
88.6
89.1
90.4
91.4
90.7
90.3
89.5
88.6
88.8
90.5
89.2
90.6
91.0
92.8
92.9
93.0
92.9
92.1
91.8
93.4
93.3
89.6
90.5
89.3
91.1
92.2
92.2
93.0
93.1
92.8
92.0
92.1
92.5
91.9
91.9
91.8
92.3
91.3
93.4
92.9
93.6
93.6
93.8
93.3
93.3
92.7

6.3
5.7
6.6
6.5
5.9
6.9
7.0
6.8
8.1
7.1
6.5
8.0
8.3
7.0
9.0
8.9
8.7
7.4
6.3
6.9
7.0
7.9
8.8
8.6
6.8
8.0
6.4
6.0
4.3
4.4
4.0
4.2
5.0
5.5
4.1
4.1
7.7
6.8
7.9
6.0
4.8
5.0
4.3
3.9
4.3
5.1
5.0
4.6
5.2
5.3
5.5
5.0
6.2
4.0
4.6
3.9
4.0
3.6
4.1
4.1
4.6

TABLE B–28.—Total and per capita disposable personal income and personal consumption expenditures in
current and 1987 dollars, 1959–94
[Quarterly data at seasonally adjusted annual rates, except as noted]
Disposable personal income
Year or quarter

Total (billions of
dollars)

Personal consumption expenditures

Per capita
(dollars)

Total (billions of
dollars)

Per capita
(dollars)

Population
(thousands) 1

Current
dollars

1987
dollars

Current
dollars

1987
dollars

Current
dollars

1987
dollars

Current
dollars

1987
dollars

1959 ......................................................

346.7

1,284.9

1,958

7,256

318.1

1,178.9

1,796

6,658

177,073

1960
1961
1962
1963
1964

......................................................
......................................................
......................................................
......................................................
......................................................

360.5
376.2
398.7
418.4
454.7

1,313.0
1,356.4
1,414.8
1,461.1
1,562.2

1,994
2,048
2,137
2,210
2,369

7,264
7,382
7,583
7,718
8,140

332.4
343.5
364.4
384.2
412.5

1,210.8
1,238.4
1,293.3
1,341.9
1,417.2

1,839
1,869
1,953
2,030
2,149

6,698
6,740
6,931
7,089
7,384

180,760
183,742
186,590
189,300
191,927

1965
1966
1967
1968
1969

......................................................
......................................................
......................................................
......................................................
......................................................

491.0
530.7
568.6
617.8
663.8

1,653.5
1,734.3
1,811.4
1,886.8
1,947.4

2,527
2,699
2,861
3,077
3,274

8,508
8,822
9,114
9,399
9,606

444.6
481.6
509.3
559.1
603.7

1,497.0
1,573.8
1,622.4
1,707.5
1,771.2

2,287
2,450
2,562
2,785
2,978

7,703
8,005
8,163
8,506
8,737

194,347
196,599
198,752
200,745
202,736

1970
1971
1972
1973
1974

......................................................
......................................................
......................................................
......................................................
......................................................

722.0
784.9
848.5
958.1
1,046.5

2,025.3
2,099.9
2,186.2
2,334.1
2,317.0

3,521
3,779
4,042
4,521
4,893

9,875
10,111
10,414
11,013
10,832

646.5
700.3
767.8
848.1
927.7

1,813.5
1,873.7
1,978.4
2,066.7
2,053.8

3,152
3,372
3,658
4,002
4,337

8,842
9,022
9,425
9,752
9,602

205,089
207,692
209,924
211,939
213,898

1975
1976
1977
1978
1979

......................................................
......................................................
......................................................
......................................................
......................................................

1,150.9
1,264.0
1,391.3
1,567.8
1,753.0

2,355.4
2,440.9
2,512.6
2,638.4
2,710.1

5,329
5,796
6,316
7,042
7,787

10,906
11,192
11,406
11,851
12,039

1,024.9
1,143.1
1,271.5
1,421.2
1,583.7

2,097.5
2,207.3
2,296.6
2,391.8
2,448.4

4,745
5,241
5,772
6,384
7,035

9,711
10,121
10,425
10,744
10,876

215,981
218,086
220,289
222,629
225,106

1980
1981
1982
1983
1984

......................................................
......................................................
......................................................
......................................................
......................................................

1,952.9
2,174.5
2,319.6
2,493.7
2,759.5

2,733.6
2,795.8
2,820.4
2,893.6
3,080.1

8,576
9,455
9,989
10,642
11,673

12,005
12,156
12,146
12,349
13,029

1,748.1
1,926.2
2,059.2
2,257.5
2,460.3

2,447.1
2,476.9
2,503.7
2,619.4
2,746.1

7,677
8,375
8,868
9,634
10,408

10,746
10,770
10,782
11,179
11,617

227,715
229,989
232,201
234,326
236,393

1985
1986
1987
1988
1989

......................................................
......................................................
......................................................
......................................................
......................................................

2,943.0
3,131.5
3,289.5
3,548.2
3,787.0

3,162.1
3,261.9
3,289.5
3,404.3
3,464.9

12,339
13,010
13,545
14,477
15,307

13,258
13,552
13,545
13,890
14,005

2,667.4
2,850.6
3,052.2
3,296.1
3,523.1

2,865.8
2,969.1
3,052.2
3,162.4
3,223.3

11,184
11,843
12,568
13,448
14,241

12,015
12,336
12,568
12,903
13,029

238,510
240,691
242,860
245,093
247,397

1990 ......................................................
1991 ......................................................
1992 ......................................................
1993 ......................................................
1994 p ...................................................

4,050.5
4,236.6
4,505.8
4,688.7
4,959.3

3,524.5
3,538.5
3,648.1
3,704.1
3,835.4

16,205
16,766
17,636
18,153
19,002

14,101
14,003
14,279
14,341
14,696

3,761.2
3,902.4
4,136.9
4,378.2
4,627.0

3,272.6
3,259.4
3,349.5
3,458.7
3,578.5

15,048
15,444
16,192
16,951
17,728

13,093
12,899
13,110
13,391
13,711

249,951
252,688
255,484
258,290
260,991

1982: IV
1983: IV
1984: IV
1985: IV
1986: IV
1987: IV
1988: IV
1989: IV
1990: IV

.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................

2,374.7
2,594.3
2,829.1
3,007.9
3,169.3
3,389.9
3,653.2
3,864.3
4,133.9

2,832.6
2,960.6
3,118.5
3,178.7
3,266.2
3,335.8
3,443.1
3,480.9
3,519.0

10,189
11,033
11,925
12,565
13,121
13,907
14,850
15,558
16,467

12,154
12,591
13,145
13,278
13,522
13,685
13,996
14,015
14,018

2,128.7
2,346.8
2,526.4
2,739.8
2,923.1
3,124.6
3,398.2
3,599.1
3,836.6

2,539.3
2,678.2
2,784.8
2,895.3
3,012.5
3,074.7
3,202.9
3,242.0
3,265.9

9,134
9,980
10,649
11,445
12,101
12,819
13,814
14,491
15,283

10,895
11,390
11,739
12,095
12,472
12,615
13,020
13,053
13,010

233,060
235,146
237,231
239,387
241,550
243,745
246,004
248,372
251,035

1991: I ...................................................
II .................................................
III ................................................
IV ................................................

4,176.7
4,220.4
4,246.3
4,303.0

3,526.0
3,540.2
3,535.6
3,552.1

16,597
16,728
16,781
16,957

14,011
14,032
13,973
13,998

3,841.4
3,885.7
3,927.0
3,955.7

3,242.9
3,259.5
3,269.8
3,265.3

15,264
15,401
15,520
15,588

12,886
12,919
12,922
12,868

251,658
252,300
253,036
253,758

1992: I ...................................................
II .................................................
III ................................................
IV ................................................

4,401.1
4,463.2
4,500.0
4,658.8

3,603.5
3,621.9
3,637.2
3,729.6

17.302
17,498
17,587
18,154

14,166
14,199
14,215
14,533

4,044.4
4,097.8
4,154.0
4,251.3

3,311.4
3,325.4
3,357.6
3,403.4

15,900
16,065
16,235
16,566

13,018
13,037
13,122
13,262

254,369
255,076
255,865
256,626

1993: I ...................................................
II .................................................
III ................................................
IV ................................................

4,598.2
4,678.6
4,700.5
4,777.6

3,658.9
3,701.3
3,708.4
3,747.8

17,874
18,141
18,174
18,421

14,222
14,351
14,338
14,451

4,294.6
4,347.3
4,401.2
4,469.6

3,417.2
3,439.2
3,472.2
3,506.2

16,693
16,856
17,017
17,233

13,283
13,335
13,425
13,519

257,262
257.908
258,635
259,356

1994: I ...................................................
II .................................................
III ................................................
IV p ..............................................

4,832.8
4,913.5
4,990.3
5,100.7

3,779.2
3,811.5
3,840.9
3,910.1

18,588
18,853
19,095
19,468

14,535
14,625
14,697
14,924

4,535.0
4,586.4
4,657.5
4,728.9

3,546.3
3,557.8
3,584.7
3,625.1

17,443
17,598
17,821
18,049

13,640
13,651
13,717
13,836

259,997
260,627
261,340
262,000

1 Population of the United States including Armed Forces overseas; includes Alaska and Hawaii beginning 1960. Annual data are averages
of quarterly data. Quarterly data are averages for the period.
Source: Department of Commerce (Bureau of Economic Analysis and Bureau of the Census).




307

TABLE B–29.—Gross saving and investment, 1959–94
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Gross saving
Gross private saving
Year or
quarter

Total
Total

1959 .......................
1960 .......................
1961 .......................
1962 .......................
1963 .......................
1964 .......................
1965 .......................
1966 .......................
1967 .......................
1968 .......................
1969 .......................
1970 .......................
1971 .......................
1972 .......................
1973 .......................
1974 .......................
1975 .......................
1976 .......................
1977 .......................
1978 .......................
1979 .......................
1980 .......................
1981 .......................
1982 .......................
1983 .......................
1984 .......................
1985 .......................
1986 .......................
1987 .......................
1988 .......................
1989 .......................
1990 .......................
1991 .......................
1992 .......................
1993 .......................
1994 p ....................
1982: IV ..................
1983: IV ..................
1984: IV ..................
1985: IV ..................
1986: IV ..................
1987: IV ..................
1988: IV ..................
1989: IV ..................
1990: IV ..................
1991: I ....................
II ..................
III .................
IV .................
1992: I ....................
II ..................
III .................
IV .................
1993: I ....................
II ..................
III .................
IV .................
1994: I ....................
II ..................
III .................
IV p ...............

79.4
85.1
84.4
92.8
100.4
110.0
125.0
131.5
130.8
141.7
159.5
155.2
173.7
201.7
252.3
249.5
241.4
284.8
338.2
415.7
468.5
465.4
556.6
508.4
501.6
633.9
610.4
574.6
619.0
704.0
741.8
722.7
751.4
722.9
787.5
............
458.5
542.4
637.0
603.8
550.1
667.9
720.1
728.4
683.8
798.8
744.5
722.1
740.1
719.1
722.3
731.9
718.5
760.1
775.0
788.9
825.8
886.2
923.3
922.6
............

82.5
81.5
87.4
95.8
98.8
111.5
123.7
132.5
144.5
146.4
149.5
165.8
192.2
204.9
245.4
256.0
306.3
323.1
355.0
412.8
457.9
499.6
585.9
616.9
641.3
742.7
735.7
721.4
730.7
802.3
819.4
861.1
937.3
980.8
1,002.5
............
615.4
678.7
764.7
734.7
676.3
783.7
814.8
828.6
863.1
933.2
937.3
917.9
960.7
979.1
981.2
1,005.3
957.5
1,022.0
986.6
989.9
1,011.4
1,037.3
1,041.4
1,052.7
............

Personal
saving

Gross
business
saving 1

22.0
20.6
24.9
25.9
24.6
31.6
34.6
36.3
45.8
43.8
43.3
57.5
65.4
59.7
86.1
93.4
100.3
93.0
87.9
107.8
123.3
153.8
191.8
199.5
168.7
222.0
189.3
187.5
142.0
155.7
152.1
170.0
211.6
247.9
192.6
204.2
183.8
176.3
222.6
179.2
151.1
169.8
156.4
148.8
176.2
212.8
211.9
196.9
224.6
234.7
243.8
225.8
287.4
184.6
214.0
182.3
189.4
175.5
201.1
203.3
236.9

60.5
60.9
62.5
69.9
74.1
80.0
89.2
96.1
98.7
102.5
106.2
108.2
126.8
145.1
159.3
162.6
206.0
230.0
267.1
305.0
334.5
345.7
394.1
417.5
472.7
520.7
546.4
533.9
588.7
646.6
667.3
691.2
725.7
732.8
809.9
..........
431.6
502.4
542.1
555.5
525.3
613.9
658.3
679.8
686.9
720.3
725.4
721.0
736.1
744.4
737.4
779.5
670.1
837.4
772.7
807.7
821.9
861.8
840.3
849.4
..........

Gross investment

Government surplus or deficit
(−), national income and
product accounts
Total

Federal

State
and
local

Capital
grants
received
by the
United
States
(net) 2

−3.1
3.6
−3.0
−2.9
1.6
−1.6
1.2
−1.0
−13.7
−4.6
10.0
−11.5
−19.2
−3.9
6.9
−4.5
−64.8
−38.3
−16.8
2.9
9.4
−35.3
−30.3
−108.6
−139.8
−108.8
−125.3
−146.8
−111.7
−98.3
−77.5
−138.4
−185.9
−257.8
−215.0
..............
−156.9
−136.3
−127.8
−130.9
−126.2
−115.8
−94.7
−100.2
−179.3
−134.4
−192.8
−195.8
−220.7
−260.0
−258.9
−273.5
−239.1
−261.9
−211.6
−201.0
−185.6
−151.1
−118.1
−130.1
..............

−2.6
3.5
−2.6
−3.4
1.1
−2.6
1.3
−1.4
−12.7
−4.7
8.5
−13.3
−21.7
−17.3
−6.6
−11.6
−69.4
−52.9
−42.4
−28.1
−15.7
−60.1
−58.8
−135.5
−180.1
−166.9
−181.4
−201.0
−151.8
−136.6
−122.3
−163.5
−202.9
−282.7
−241.4
..............
−183.4
−184.6
−186.8
−187.2
−177.5
−152.7
−134.9
−141.5
−191.0
−144.4
−207.6
−213.6
−245.8
−279.9
−284.8
−293.9
−272.1
−283.5
−237.0
−224.9
−220.1
−176.2
−145.1
−154.0
..............

−0.5
.0
−.4
.5
.4
1.0
.0
.5
−1.1
.1
1.5
1.8
2.5
13.4
13.4
7.1
4.6
14.6
25.6
31.1
25.1
24.8
28.5
26.9
40.3
58.1
56.1
54.3
40.1
38.4
44.8
25.1
17.0
24.8
26.3
............
26.5
48.3
59.0
56.3
51.2
37.0
40.2
41.3
11.7
10.0
14.9
17.8
25.1
19.9
25.9
20.4
33.1
21.6
25.3
23.9
34.5
25.2
27.0
23.9
............

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
..............
0.9
.7
.7
0
4−2.0
0
0
0
0
1.1
1.2
1.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Total

Gross
private
domestic
investment

Net
foreign
investment 3

77.6
82.0
82.2
91.8
98.4
109.3
124.2
134.3
131.6
141.7
157.0
155.2
176.8
202.7
251.8
250.9
247.4
295.2
349.1
423.3
482.2
479.1
567.5
500.9
511.7
624.9
596.5
575.9
594.2
675.6
742.9
730.4
752.9
731.7
789.8
............
448.4
556.3
616.5
597.8
548.1
643.0
694.7
741.3
688.7
788.5
750.7
734.3
738.0
721.1
733.8
735.6
736.5
785.5
780.8
783.4
809.3
850.2
899.3
901.5
............

78.8
78.7
77.9
87.9
93.4
101.7
118.0
130.4
128.0
139.9
155.2
150.3
175.5
205.6
243.1
245.8
226.0
286.4
358.3
434.0
480.2
467.6
558.0
503.4
546.7
718.9
714.5
717.6
749.3
793.6
832.3
808.9
744.8
788.3
882.0
1,037.5
464.2
614.8
722.8
737.0
697.1
800.2
814.8
825.2
756.4
732.8
733.1
756.5
756.8
747.7
787.9
795.5
822.0
853.8
869.7
882.2
922.5
966.6
1,034.4
1,055.1
1,093.9

−1.2
3.2
4.3
3.9
5.0
7.5
6.2
3.9
3.5
1.7
1.8
4.9
1.3
−2.9
8.7
5.1
21.4
8.8
−9.2
−10.7
2.0
11.5
9.5
−2.5
−35.0
−94.0
−118.1
−141.7
−155.1
−118.0
−89.3
−78.5
8.1
−56.6
−92.3
............
−15.8
−58.5
−106.3
−139.1
−149.0
−157.1
−120.1
−84.0
−67.7
55.8
17.6
−22.2
−18.8
−26.6
−54.1
−59.9
−85.6
−68.3
−88.9
−98.8
−113.2
−116.4
−135.1
−153.6
............

Statistical
discrepancy

−1.8
−3.1
−2.2
−1.0
−2.0
−.7
−.7
2.8
.8
−.1
−2.6
.0
3.1
1.1
−.5
1.4
6.0
10.4
10.9
7.6
13.8
13.6
10.9
−7.4
10.2
−9.0
−13.9
1.2
−24.8
−28.4
1.1
7.8
1.5
8.8
2.3
..............
−10.1
13.8
−20.5
−5.9
−2.0
−24.9
−25.4
12.8
4.9
−10.3
6.2
12.2
−2.1
2.0
11.5
3.7
18.0
25.5
5.7
−5.5
−16.5
−36.1
−24.0
−21.1
..............

1 Undistributed corporate profits with inventory valuation and capital consumption adjustments, corporate and noncorporate consumption
of fixed capital, and private wage accruals less disbursements.
2 Consists mainly of allocations of special drawing rights (SDRs).
3 Net exports of goods and services plus net receipts of factor income from rest of the world less net transfers plus net capital grants received by the United States. See also Table B–21.
4 Consists of a U.S. payment to India under the Agricultural Trade Development and Assistance Act. This payment is included in capital
grants received by the United States, net.
Source: Department of Commerce, Bureau of Economic Analysis.




308

TABLE B–30.—Personal saving, flow of funds accounts, 1946–94 1
[Billions of dollars; quarterly data at seasonally adjusted annual rates]
Increase in
financial assets
Year or
quarter

1946 ........
1947 ........
1948 ........
1949 ........
1950 ........
1951 ........
1952 ........
1953 ........
1954 ........
1955 ........
1956 ........
1957 ........
1958 ........
1959 ........
1960 ........
1961 ........
1962 ........
1963 ........
1964 ........
1965 ........
1966 ........
1967 ........
1968 ........
1969 ........
1970 ........
1971 ........
1972 ........
1973 ........
1974 ........
1975 ........
1976 ........
1977 ........
1978 ........
1979 ........
1980 ........
1981 ........
1982 ........
1983 ........
1984 ........
1985 ........
1986 ........
1987 ........
1988 ........
1989 ........
1990 ........
1991 ........
1992 ........
1993 ........
1992: I .....
II ...
III ..
IV ..
1993: I .....
II ...
III ..
IV ..
1994: I .....
II ...
III ..

Net investment in
tangible assets 7

Securities
Check- Time
Insur- Other
Perable
Money
ance finan- Ownersonal
and market Govern- Corpoand
occusaving Total depos- savings
Other
its and depos- fund
ment
rate securi- pension cial
pied
as- homes
curren- its shares securi- equi- ties 4
re6
cy
ties 2
ties 3
serves 5 sets
17.1
18.9
24.9
20.7
32.4
35.0
38.2
35.9
26.6
34.1
38.2
37.9
36.5
34.2
37.3
35.8
42.4
47.5
61.9
69.3
82.9
84.9
83.9
85.7
95.1
103.2
124.6
158.0
123.2
154.5
173.8
202.8
212.5
231.5
221.5
255.5
259.8
319.9
369.2
404.0
475.5
396.1
392.1
476.9
443.3
391.7
472.4
409.8
496.8
447.7
446.1
499.1
333.9
561.1
356.7
387.3
483.4
513.3
345.1

19.4
12.3
8.7
8.6
14.7
19.2
30.1
24.6
20.8
28.2
32.1
29.8
32.6
34.7
34.2
36.1
40.6
46.0
57.2
57.4
64.3
72.7
69.2
71.8
80.5
108.3
135.2
148.0
152.6
178.3
211.8
256.4
288.2
331.3
329.6
327.5
380.0
498.0
532.2
631.9
593.9
511.8
508.5
594.9
502.3
442.2
532.1
526.4
579.8
429.1
592.1
527.3
352.2
636.5
579.1
537.9
638.3
609.8
492.7

5.6
.0
−3.0
−2.0
2.7
4.6
1.6
.9
2.2
1.3
1.9
−.3
3.9
1.0
1.0
−.8
−1.1
4.4
6.2
6.8
2.7
10.6
9.7
−1.2
7.8
13.8
13.6
13.4
6.4
7.0
15.9
19.6
21.5
36.9
9.3
36.3
24.7
21.7
4.2
29.0
94.9
−2.0
27.2
−1.2
5.4
63.0
131.1
81.6
183.2
51.9
166.7
122.4
64.6
131.0
74.9
56.0
95.5
40.2
−9.2

6.3
3.5
2.3
2.6
2.4
4.8
7.4
8.2
9.1
8.5
9.3
11.8
13.8
10.5
12.0
18.1
25.8
25.9
25.9
27.5
18.8
34.9
30.3
9.7
42.5
65.5
72.6
63.0
55.3
79.9
104.1
107.3
105.0
77.0
121.6
70.1
113.6
198.4
225.2
117.2
94.2
92.5
136.2
79.6
38.5
−117.4
−112.1
−91.1
−65.2
−140.3
−123.7
−119.2
−188.9
−45.7
−107.6
−22.4
57.1
−22.5
−10.7

............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
2.4
1.3
−.3
−.4
5.4
29.8
23.5
85.9
31.5
−31.2
43.3
2.3
35.7
22.0
15.9
76.8
28.6
8.7
−41.8
−10.2
−30.5
22.2
−99.1
−60.0
−53.7
54.5
−37.4
−4.2
−41.0
13.7
23.3

−1.5
.5
1.0
.5
.9
−.7
7.4
3.7
.1
6.4
4.5
3.7
−2.7
8.2
2.0
.8
1.0
−1.1
3.7
3.8
13.6
−2.6
1.2
28.8
−7.2
−12.5
−2.0
14.3
17.2
12.1
4.2
6.9
26.5
57.4
27.4
34.0
36.2
76.1
101.9
87.4
−50.8
126.9
172.5
122.5
145.6
−.1
66.7
−9.4
233.6
16.8
47.3
−30.8
18.6
−62.8
−97.0
103.8
456.2
402.8
283.3

1.2
−0.8
1.2
−.8
1.0
.2
.8
−.3
.7
−.9
1.9
.7
1.5
−.1
1.1
.3
.8
−1.4
1.2
.4
2.1
1.2
1.6
1.4
1.9
.9
.7
.2
.3
3.4
1.1
.0
−1.4
.2
−1.1
1.2
.0
1.2
−1.5
−.1
.0
4.9
−3.0
6.4
−6.0
7.2
−10.9
10.7
−2.2
5.8
−11.0
3.3
−14.3
−3.3
−12.1
6.8
−4.6
17.0
5.1
−3.7
1.3
1.4
−6.2
16.0
−11.6
4.3
−17.8
−.2
−2.2 −11.6
−38.9 −10.4
−20.8
−5.0
4.3
20.4
−46.7
−7.6
−35.7
57.6
16.1
28.2
−45.7
21.6
−78.6
9.5
−73.1 −26.2
16.0
29.8
81.3 −24.5
190.2
.5
158.3
−9.3
135.9 −71.4
201.6
21.4
271.7 −84.3
151.8 136.2
160.9 −110.5
185.5 −27.2
220.4
38.5
66.5
62.1
−4.5
−.9
85.8 −21.7
−65.6
46.4

5.1
5.4
5.3
5.6
6.1
6.3
8.5
8.0
8.0
8.7
9.7
9.7
10.7
12.2
11.9
12.5
13.5
14.5
17.1
17.8
20.2
19.6
21.1
23.3
25.8
30.3
50.4
41.8
44.6
71.5
60.3
80.3
94.3
103.5
126.9
126.7
178.1
176.2
162.4
282.5
306.6
227.4
157.5
350.0
190.8
386.0
276.9
340.0
210.0
249.0
354.6
294.3
370.3
369.0
406.5
214.0
1.2
72.4
221.6

3.6
2.5
2.0
1.4
2.7
1.6
3.8
2.4
2.0
1.7
3.4
1.9
4.3
1.9
3.7
4.4
2.5
2.1
3.2
3.2
4.1
6.8
5.7
11.3
7.9
19.0
18.1
20.8
14.3
4.9
24.8
32.9
42.8
44.7
34.7
23.6
21.6
32.3
49.4
91.7
69.1
69.1
68.3
66.5
47.7
45.2
20.6
66.5
−15.7
6.5
58.9
32.6
90.9
32.1
80.9
62.0
74.7
39.0
3.6

5.8
6.8
9.3
8.5
11.9
11.9
11.6
12.6
13.0
17.1
16.0
13.6
12.3
19.2
17.2
16.3
18.2
20.5
22.1
21.6
19.0
18.5
19.8
19.9
17.7
27.8
36.7
40.2
30.5
28.3
44.9
66.1
78.7
75.4
51.5
50.8
30.2
71.5
93.7
93.7
119.5
123.5
126.7
114.6
98.3
75.7
94.0
123.1
87.5
98.1
73.1
117.2
123.6
121.6
103.7
143.5
128.1
154.9
152.4

Less: Net increase in
debt

Non- MortcorCon- porate gage Consumer busi- debt sumer Other
on
dura- ness non- credit debt 8 9
bles
asfarm
sets 8 homes
1.5
9.4
10.2
10.9
14.9
11.4
8.7
10.3
7.0
12.7
8.8
7.9
3.7
7.7
7.2
4.5
8.6
11.9
15.1
20.2
23.2
21.3
26.9
26.2
19.6
25.4
34.3
40.6
29.1
27.4
41.5
51.5
56.8
50.4
26.3
27.3
22.4
50.6
81.8
95.8
111.4
102.9
112.6
109.0
90.0
52.2
62.6
88.9
55.6
54.8
56.0
83.9
71.1
86.8
87.3
110.4
71.9
100.7
104.6

0.1
1.5
7.0
2.2
7.4
4.6
2.8
2.3
1.8
2.2
.7
1.8
4.2
.9
2.2
2.9
4.3
4.7
4.4
8.4
7.9
7.3
10.2
11.7
10.1
15.1
18.1
23.2
11.6
6.1
4.0
16.3
23.1
32.0
14.2
27.5
10.1
−11.8
24.3
26.8
16.0
12.3
7.4
18.4
4.8
−18.7
−24.5
−19.3
−13.8
−12.8
−46.1
−25.1
−27.5
−23.9
−9.2
−16.6
−16.7
3.9
8.9

4.1
4.9
4.8
4.2
7.0
6.4
6.4
7.4
9.0
12.2
10.8
8.6
9.5
12.9
11.0
12.2
13.8
16.2
16.8
16.8
12.7
13.1
16.7
17.4
13.0
26.3
39.3
43.6
34.2
39.3
62.0
93.0
109.9
116.2
94.1
69.6
56.1
117.1
135.6
171.7
203.4
240.9
234.3
223.8
185.0
163.3
179.0
183.3
232.7
92.1
226.9
164.4
120.4
193.0
235.9
183.9
179.7
144.3
199.0

2.9
3.5
3.1
3.1
4.6
1.4
5.2
4.1
1.3
7.0
3.6
2.6
.3
7.7
4.0
2.2
5.9
8.5
9.5
10.1
5.9
5.1
10.8
9.9
4.6
15.6
19.0
22.7
9.4
8.0
22.9
36.7
45.1
38.3
4.8
16.9
16.4
48.9
81.7
82.3
57.5
32.9
50.1
45.8
16.0
−15.0
5.5
62.3
−4.6
−15.0
12.0
29.6
20.3
41.6
76.2
111.3
72.7
121.9
127.1

2.6
2.7
2.5
2.2
5.0
4.3
3.4
2.3
5.6
6.8
5.0
3.9
6.6
7.8
8.4
9.7
9.6
11.0
10.6
11.4
12.9
16.7
14.7
16.6
15.3
31.5
41.4
27.8
56.9
38.2
43.4
57.7
79.3
102.9
101.3
91.0
110.4
122.5
145.5
190.4
104.2
80.6
78.7
90.4
51.2
11.4
7.2
63.8
−15.8
44.3
−9.8
10.2
44.9
25.5
92.1
92.7
85.8
89.9
87.4

1 Saving by households, nonprofit institutions, farms, and other noncorporate business.
2 Consists of U.S. savings bonds, other U.S. Treasury securities, U.S. Government agency securities and government-sponsored enterprise
securities, federally-related mortgage pool securities, and State and local obligations.
3 Includes mutual fund shares.
4 Corporate and foreign bonds and open-market paper.
5 Private life insurance reserves, private insured and noninsured pension reserves, and government insurance and pension reserves.
6 Consists of security credit, mortgages, accident and health insurance reserves, nonlife insurance claims, and investment in bank personal trusts for households; and of consumer credit, equity in government-sponsored enterprises, and nonlife insurance claims for
noncorporate business.
7 Purchases of physical assets less depreciation.
8 Includes data for corporate farms.
9 Other debt consists of security credit, U.S. Government and policy loans, and noncorporate business debt.
Source: Board of Governors of the Federal Reserve System.




309

TABLE B–31.—Median money income (in 1993 dollars) and poverty status of families and persons, by race,
selected years, 1973–93
Families 1

Persons
below
poverty level

Below poverty level
Year

ALL RACES
1973 .............................
1975 4 ...........................
1977 .............................
1978 .............................
1979 5 ...........................
1980 .............................
1981 .............................
1982 .............................
1983 6 ...........................
1984 .............................
1985 .............................
1986 .............................
1987 4 ...........................
1988 .............................
1989 .............................
1990 .............................
1991 .............................
1992 7 ...........................
1993 .............................
WHITE
1973 .............................
1975 4 ...........................
1977 .............................
1978 .............................
1979 5 ...........................
1980 .............................
1981 .............................
1982 .............................
1983 6 ...........................
1984 .............................
1985 .............................
1986 .............................
1987 4 ...........................
1988 .............................
1989 .............................
1990 .............................
1991 .............................
1992 7 ...........................
1993 .............................
BLACK
1973 .............................
1975 4 ...........................
1977 .............................
1978 .............................
1979 5 ...........................
1980 .............................
1981 .............................
1982 .............................
1983 6 ...........................
1984 .............................
1985 .............................
1986 .............................
1987 4 ...........................
1988 .............................
1989 .............................
1990 .............................
1991 .............................
1992 7 ...........................
1993 .............................

Number
(millions)

Median
money
income
(in
1993
dollars) 2

Female
householder

Total
Number
(millions)

Percent

Number
(millions)

Percent

Median money income (in 1993 dollars)
of persons 15 years old and over with
income 2 3
Males

Number
(millions)

Percent

Females

All
persons

Yearround
full-time
workers

All
persons

Yearround
full-time
workers

55.1
56.2
57.2
57.8
59.6
60.3
61.0
61.4
62.0
62.7
63.6
64.5
65.2
65.8
66.1
66.3
67.2
68.2
68.5

$36,893
35,274
36,603
37,763
38,248
36,912
35,905
35,419
35,797
36,762
37,246
38,838
39,394
39,320
39,869
39,086
38,129
37,668
36,959

4.8
5.5
5.3
5.3
5.5
6.2
6.9
7.5
7.6
7.3
7.2
7.0
7.0
6.9
6.8
7.1
7.7
8.1
8.4

8.8
9.7
9.3
9.1
9.2
10.3
11.2
12.2
12.3
11.6
11.4
10.9
10.7
10.4
10.3
10.7
11.5
11.9
12.3

2.2
2.4
2.6
2.7
2.6
3.0
3.3
3.4
3.6
3.5
3.5
3.6
3.7
3.6
3.5
3.8
4.2
4.3
4.4

32.2
32.5
31.7
31.4
30.4
32.7
34.6
36.3
36.0
34.5
34.0
34.6
34.2
33.4
32.2
33.4
35.6
35.4
35.6

23.0
25.9
24.7
24.5
26.1
29.3
31.8
34.4
35.3
33.7
33.1
32.4
32.2
31.7
31.5
33.6
35.7
38.0
39.3

11.1
12.3
11.6
11.4
11.7
13.0
14.0
15.0
15.2
14.4
14.0
13.6
13.4
13.0
12.8
13.5
14.2
14.8
15.1

$24,663
22,763
23,145
23,409
23,001
22,000
21,608
21,086
21,270
21,696
21,905
22,564
22,624
23,096
23,182
22,436
21,716
21,067
21,102

$35,109
33,256
34,456
34,385
34,131
33,663
33,185
32,732
32,655
33,384
33,572
34,139
33,938
33,397
33,117
32,039
32,179
31,755
31,077

$8,560
8,703
9,011
8,709
8,498
8,638
8,753
8,898
9,292
9,552
9,692
10,033
10,551
10,852
11,215
11,133
11,114
11,035
11,046

$19,863
19,847
20,152
20,639
20,564
20,351
19,978
20,652
21,006
21,448
21,825
22,206
22,342
22,652
22,885
22,765
22,540
22,754
22,469

48.9
49.9
50.5
50.9
52.2
52.7
53.3
53.4
53.9
54.4
55.0
55.7
56.1
56.5
56.6
56.8
57.2
57.7
57.9

38,559
36,686
38,274
39,321
39,911
38,458
37,716
37,188
37,484
38,505
39,149
40,620
41,194
41,426
41,922
40,813
40,085
39,828
39,300

3.2
3.8
3.5
3.5
3.6
4.2
4.7
5.1
5.2
4.9
5.0
4.8
4.6
4.5
4.4
4.6
5.0
5.3
5.5

6.6
7.7
7.0
6.9
6.9
8.0
8.8
9.6
9.7
9.1
9.1
8.6
8.1
7.9
7.8
8.1
8.8
9.1
9.4

1.2
1.4
1.4
1.4
1.4
1.6
1.8
1.8
1.9
1.9
2.0
2.0
2.0
1.9
1.9
2.0
2.2
2.2
2.4

24.5
25.9
24.0
23.5
22.3
25.7
27.4
27.9
28.3
27.1
27.4
28.2
26.9
26.5
25.4
26.8
28.4
28.5
29.2

15.1
17.8
16.4
16.3
17.2
19.7
21.6
23.5
24.0
23.0
22.9
22.2
21.2
20.7
20.8
22.3
23.7
25.3
26.2

8.4
9.7
8.9
8.7
9.0
10.2
11.1
12.0
12.1
11.5
11.4
11.0
10.4
10.1
10.0
10.7
11.3
11.9
12.2

25,878
23,912
24,243
24,518
24,028
23,401
22,928
22,292
22,377
22,902
22,979
23,811
24,047
24,379
24,312
23,405
22,699
22,047
21,981

36,125
34,024
35,160
35,023
35,117
34,624
33,965
33,604
33,534
34,527
34,504
35,093
34,730
34,521
34,577
33,257
32,839
32,510
31,832

8,642
8,793
9,148
8,813
8,578
8,686
8,851
9,019
9,455
9,664
9,880
10,231
10,821
11,119
11,434
11,406
11,374
11,291
11,266

20,199
19,893
20,280
20,834
20,744
20,548
20,312
20,930
21,293
21,661
22,134
22,546
22,755
22,992
23,156
23,039
22,869
23,018
22,979

5.4
5.6
5.8
5.9
6.2
6.3
6.4
6.5
6.7
6.8
6.9
7.1
7.2
7.4
7.5
7.5
7.7
8.0
8.0

22,254
22,572
21,865
23,289
22,601
22,253
21,276
20,553
21,125
21,461
22,543
23,210
23,413
23,610
23,550
23,685
22,861
21,735
21,542

1.5
1.5
1.6
1.6
1.7
1.8
2.0
2.2
2.2
2.1
2.0
2.0
2.1
2.1
2.1
2.2
2.3
2.5
2.5

28.1
27.1
28.2
27.5
27.8
28.9
30.8
33.0
32.3
30.9
28.7
28.0
29.4
28.2
27.8
29.3
30.4
31.1
31.3

1.0
1.0
1.2
1.2
1.2
1.3
1.4
1.5
1.5
1.5
1.5
1.5
1.6
1.6
1.5
1.6
1.8
1.9
1.9

52.7
50.1
51.0
50.6
49.4
49.4
52.9
56.2
53.7
51.7
50.5
50.1
51.1
49.0
46.5
48.1
51.2
50.2
49.9

7.4
7.5
7.7
7.6
8.1
8.6
9.2
9.7
9.9
9.5
8.9
9.0
9.5
9.4
9.3
9.8
10.2
10.8
10.9

31.4
31.3
31.3
30.6
31.0
32.5
34.2
35.6
35.7
33.8
31.3
31.1
32.4
31.3
30.7
31.9
32.7
33.4
33.1

15,653
14,296
14,386
14,688
14,874
14,062
13,634
13,359
13,086
13,140
14,461
14,268
14,266
14,711
14,694
14,227
13,752
13,455
14,605

24,348
25,321
24,240
26,823
25,309
24,361
24,031
23,867
23,808
23,564
24,134
24,742
24,832
25,304
24,127
23,749
24,007
23,679
23,566

7,801
7,989
7,899
7,936
7,807
8,041
7,863
7,955
8,080
8,573
8,430
8,657
8,839
8,977
9,177
9,207
9,353
9,153
9,508

17,129
19,006
18,954
19,309
19,008
19,164
18,344
18,706
18,860
19,521
19,593
19,729
20,324
20,603
20,825
20,502
20,300
20,864
20,315

1 The term ‘‘family’’ refers to a group of two or more persons related by birth, marriage, or adoption and residing together; all such persons are considered members of the same family. Beginning 1979, based on householder concept and restricted to primary families.
2 Current dollar median money income deflated by CPI–U–X1.
3 Prior to 1979, data are for persons 14 years and over.
4 Based on revised methodology; comparable with succeeding years.
5 Based on 1980 census population controls; comparable with succeeding years.
6 Reflects implementation of Hispanic population controls; comparable with succeeding years.
7 Based on 1990 census population controls; comparable with succeeding years.
Note.—Poverty rates (percent of persons below poverty level) for all races for years not shown above are: 1959, 22.4; 1960, 22.2; 1961,
21.9; 1962, 21.0; 1963, 19.5; 1964, 19.0; 1965, 17.3; 1966, 14.7; 1967, 14.2; 1968, 12.8; 1969, 12.1; 1970, 12.6; 1971, 12.5; 1972, 11.9;
1974, 11.2; and 1976, 11.8.
Poverty thresholds are updated each year to reflect changes in the consumer price index (CPI–U).
For details see ‘‘Current Population Reports,’’ Series P–60.

Source: Department of Commerce, Bureau of the Census.




310

POPULATION, EMPLOYMENT, WAGES, AND PRODUCTIVITY
TABLE B–32.—Population by age group, 1929–94
[Thousands of persons]
Age (years)
July 1

Total
Under 5

5–15

16–19

20–24

25–44

45–64

65 and
over

1929 .............................

121,767

11,734

26,800

9,127

10,694

35,862

21,076

6,474

1933 .............................

125,579

10,612

26,897

9,302

11,152

37,319

22,933

7,363

1939 .............................

130,880

10,418

25,179

9,822

11,519

39,354

25,823

8,764

1940
1941
1942
1943
1944

.............................
.............................
.............................
.............................
.............................

132,122
133,402
134,860
136,739
138,397

10,579
10,850
11,301
12,016
12,524

24,811
24,516
24,231
24,093
23,949

9,895
9,840
9,730
9,607
9,561

11,690
11,807
11,955
12,064
12,062

39,868
40,383
40,861
41,420
42,016

26,249
26,718
27,196
27,671
28,138

9,031
9,288
9,584
9,867
10,147

1945
1946
1947
1948
1949

.............................
.............................
.............................
.............................
.............................

139,928
141,389
144,126
146,631
149,188

12,979
13,244
14,406
14,919
15,607

23,907
24,103
24,468
25,209
25,852

9,361
9,119
9,097
8,952
8,788

12,036
12,004
11,814
11,794
11,700

42,521
43,027
43,657
44,288
44,916

28,630
29,064
29,498
29,931
30,405

10,494
10,828
11,185
11,538
11,921

1950
1951
1952
1953
1954

.............................
.............................
.............................
.............................
.............................

152,271
154,878
157,553
160,184
163,026

16,410
17,333
17,312
17,638
18,057

26,721
27,279
28,894
30,227
31,480

8,542
8,446
8,414
8,460
8,637

11,680
11,552
11,350
11,062
10,832

45,672
46,103
46,495
46,786
47,001

30,849
31,362
31,884
32,394
32,942

12,397
12,803
13,203
13,617
14,076

1955
1956
1957
1958
1959

.............................
.............................
.............................
.............................
.............................

165,931
168,903
171,984
174,882
177,830

18,566
19,003
19,494
19,887
20,175

32,682
33,994
35,272
36,445
37,368

8,744
8,916
9,195
9,543
10,215

10,714
10,616
10,603
10,756
10,969

47,194
47,379
47,440
47,337
47,192

33,506
34,057
34,591
35,109
35,663

14,525
14,938
15,388
15,806
16,248

1960
1961
1962
1963
1964

.............................
.............................
.............................
.............................
.............................

180,671
183,691
186,538
189,242
191,889

20,341
20,522
20,469
20,342
20,165

38,494
39,765
41,205
41,626
42,297

10,683
11,025
11,180
12,007
12,736

11,134
11,483
11,959
12,714
13,269

47,140
47,084
47,013
46,994
46,958

36,203
36,722
37,255
37,782
38,338

16,675
17,089
17,457
17,778
18,127

1965
1966
1967
1968
1969

.............................
.............................
.............................
.............................
.............................

194,303
196,560
198,712
200,706
202,677

19,824
19,208
18,563
17,913
17,376

42,938
43,702
44,244
44,622
44,840

13,516
14,311
14,200
14,452
14,800

13,746
14,050
15,248
15,786
16,480

46,912
47,001
47,194
47,721
48,064

38,916
39,534
40,193
40,846
41,437

18,451
18,755
19,071
19,365
19,680

1970
1971
1972
1973
1974

.............................
.............................
.............................
.............................
.............................

205,052
207,661
209,896
211,909
213,854

17,166
17,244
17,101
16,851
16,487

44,816
44,591
44,203
43,582
42,989

15,289
15,688
16,039
16,446
16,769

17,202
18,159
18,153
18,521
18,975

48,473
48,936
50,482
51,749
53,051

41,999
42,482
42,898
43,235
43,522

20,107
20,561
21,020
21,525
22,061

1975
1976
1977
1978
1979

.............................
.............................
.............................
.............................
.............................

215,973
218,035
220,239
222,585
225,055

16,121
15,617
15,564
15,735
16,063

42,508
42,099
41,298
40,428
39,552

17,017
17,194
17,276
17,288
17,242

19,527
19,986
20,499
20,946
21,297

54,302
55,852
57,561
59,400
61,379

43,801
44,008
44,150
44,286
44,390

22,696
23,278
23,892
24,502
25,134

1980
1981
1982
1983
1984

.............................
.............................
.............................
.............................
.............................

227,726
229,966
232,188
234,307
236,348

16,451
16,893
17,228
17,547
17,695

38,838
38,144
37,784
37,526
37,461

17,167
16,812
16,332
15,823
15,295

21,590
21,869
21,902
21,844
21,737

63,470
65,528
67,692
69,733
71,735

44,504
44,500
44,462
44,474
44,547

25,707
26,221
26,787
27,361
27,878

1985
1986
1987
1988
1989

.............................
.............................
.............................
.............................
.............................

238,466
240,651
242,804
245,021
247,342

17,842
17,963
18,052
18,195
18,508

37,450
37,404
37,333
37,593
37,972

15,005
15,024
15,215
15,198
14,913

21,478
20,942
20,385
19,846
19,442

73,673
75,651
77,338
78,595
79,943

44,602
44,660
44,854
45,471
45,882

28,416
29,008
29,626
30,124
30,682

1990
1991
1992
1993
1994

.............................
.............................
.............................
.............................
.............................

249,911
252,643
255,407
258,120
260,651

18,849
19,195
19,501
19,691
19,727

38,588
39,195
39,900
40,538
41,213

14,449
13,926
13,668
13,795
14,030

19,305
19,347
19,176
18,874
18,429

81,196
82,455
82,541
82,862
83,199

46,288
46,759
48,348
49,586
50,894

31,235
31,765
32,272
32,773
33,158

Note.—Includes Armed Forces overseas beginning 1940. Includes Alaska and Hawaii beginning 1950.
All estimates are consistent with decennial census enumerations.
Source: Department of Commerce, Bureau of the Census.




311

TABLE B–33.—Civilian population and labor force, 1929–94
[Monthly data seasonally adjusted, except as noted]
Civilian labor force

Year or month

Civilian
noninstitutional
population 1

Total
Total

Agricultural

Nonagricultural

Unemployment

Not in
labor
force

............
............
............
44,200
43,990
42,230
39,100
38,590

.......... ..........
.......... ..........
.......... ..........
55.7 47.6
56.0 50.4
57.2 54.5
58.7 57.6
58.6 57.9

Thousands of persons 14 years of age and over
1929
1933
1939
1940
1941
1942
1943
1944

................................................................. ................
................................................................. ................
................................................................. ................
.................................................................
99,840
.................................................................
99,900
.................................................................
98,640
.................................................................
94,640
.................................................................
93,220

1945 .................................................................
1946 .................................................................
1947 .................................................................

94,090
103,070
106,018

1947 .................................................................
1948 .................................................................
1949 .................................................................
1950 .................................................................
1951 .................................................................
1952 .................................................................
1953 5 ...............................................................
1954 .................................................................
1955 .................................................................
1956 .................................................................
1957 .................................................................
1958 .................................................................
1959 .................................................................
1960 5 ...............................................................
1961 .................................................................
1962 5 ...............................................................
1963 .................................................................
1964 .................................................................
1965 .................................................................
1966 .................................................................
1967 .................................................................
1968 .................................................................
1969 .................................................................
1970 .................................................................
1971 .................................................................
1972 5 ...............................................................
1973 5 ...............................................................
1974 .................................................................
1975 .................................................................
1976 .................................................................
1977 .................................................................
1978 5 ...............................................................
1979 .................................................................
1980 .................................................................
1981 .................................................................
1982 .................................................................
1983 .................................................................
1984 .................................................................
1985 .................................................................
1986 5 ...............................................................
1987 .................................................................
1988 .................................................................
1989 .................................................................
1990 .................................................................
1991 .................................................................
1992 .................................................................
1993 .................................................................
1994 5 ...............................................................

101,827
103,068
103,994
104,995
104,621
105,231
107,056
108,321
109,683
110,954
112,265
113,727
115,329
117,245
118,771
120,153
122,416
124,485
126,513
128,058
129,874
132,028
134,335
137,085
140,216
144,126
147,096
150,120
153,153
156,150
159,033
161,910
164,863
167,745
170,130
172,271
174,215
176,383
178,206
180,587
182,753
184,613
186,393
188,049
189,765
191,576
193,550
196,814

49,180
51,590
55,230
55,640
55,910
56,410
55,540
54,630

47,630 10,450
38,760 10,090
45,750 9,610
47,520 9,540
50,350 9,100
53,750 9,250
54,470 9,080
53,960 8,950

37,180
28,670
36,140
37,980
41,250
44,500
45,390
45,010

53,860
57,520
60,168

52,820
55,250
57,812

44,240
46,930
49,557

8,580
8,320
8,256

1,550
12,830
9,480
8,120
5,560
2,660
1,070
670

Civil- Unemian
ployemploy- ment
rate,
ment/ civilpopian
ula- worktion
ers 4
ratio 3

Civilian
labor
force
participation
rate 2

Employment

Percent

1,040 40,230
2,270 45,550
2,356 45,850

3.2
24.9
17.2
14.6
9.9
4.7
1.9
1.2

57.2
55.8
56.8

56.1
53.6
54.5

1.9
3.9
3.9

58.3
58.8
58.9
59.2
59.2
59.0
58.9
58.8
59.3
60.0
59.6
59.5
59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.4
66.0
66.3
66.2
66.6

56.0
56.6
55.4
56.1
57.3
57.3
57.1
55.5
56.7
57.5
57.1
55.4
56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.7
61.6
61.4
61.6
62.5

3.9
3.8
5.9
5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1

Thousands of persons 16 years of age and over
59,350
60,621
61,286
62,208
62,017
62,138
63,015
63,643
65,023
66,552
66,929
67,639
68,369
69,628
70,459
70,614
71,833
73,091
74,455
75,770
77,347
78,737
80,734
82,771
84,382
87,034
89,429
91,949
93,775
96,158
99,009
102,251
104,962
106,940
108,670
110,204
111,550
113,544
115,461
117,834
119,865
121,669
123,869
124,787
125,303
126,982
128,040
131,056

57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342
117,914
116,877
117,598
119,306
123,060

1 Not

seasonally adjusted.
labor force as percent of civilian noninstitutional population.
employment as percent of civilian noninstitutional population.
4 Unemployed as percent of civilian labor force.
See next page for continuation of table.
2 Civilian
3 Civilian




312

7,890
7,629
7,658
7,160
6,726
6,500
6,260
6,205
6,450
6,283
5,947
5,586
5,565
5,458
5,200
4,944
4,687
4,523
4,361
3,979
3,844
3,817
3,606
3,463
3,394
3,484
3,470
3,515
3,408
3,331
3,283
3,387
3,347
3,364
3,368
3,401
3,383
3,321
3,179
3,163
3,208
3,169
3,199
3,186
3,233
3,207
3,074
3,409

49,148
50,714
49,993
51,758
53,235
53,749
54,919
53,904
55,722
57,514
58,123
57,450
59,065
60,318
60,546
61,759
63,076
64,782
66,726
68,915
70,527
72,103
74,296
75,215
75,972
78,669
81,594
83,279
82,438
85,421
88,734
92,661
95,477
95,938
97,030
96,125
97,450
101,685
103,971
106,434
109,232
111,800
114,142
114,728
113,644
114,391
116,232
119,651

2,311
2,276
3,637
3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
6,874
8,426
9,384
8,734
7,996

42,477
42,447
42,708
42,787
42,604
43,093
44,041
44,678
44,660
44,402
45,336
46,088
46,960
47,617
48,312
49,539
50,583
51,394
52,058
52,288
52,527
53,291
53,602
54,315
55,834
57,091
57,667
58,171
59,377
59,991
60,025
59,659
59,900
60,806
61,460
62,067
62,665
62,839
62,744
62,752
62,888
62,944
62,523
63,262
64,462
64,593
65,509
65,758

TABLE B–33.—Civilian population and labor force, 1929–94—Continued
[Monthly data seasonally adjusted, except as noted]
Civilian labor force

Year or month

Civilian
noninstitutional
population 1

Not in
labor
force

Civilian
labor
force
participation
rate 2

Employment
Total
Total

Agricultural

Nonagricultural

Unemployment

Thousands of persons 16 years of age and over

Civil- Unemian
ployemploy- ment
rate,
ment/ civilpopian
ula- worktion
ers 4
ratio 3
Percent

1991: Jan ..........................................................
Feb .........................................................
Mar ........................................................
Apr .........................................................
May ........................................................
June .......................................................

188,977
189,115
189,243
189,380
189,522
189,668

124,787
125,027
125,256
125,721
125,185
125,367

116,967
116,869
116,791
117,411
116,646
116,878

3,173
3,228
3,131
3,189
3,269
3,281

113,794
113,641
113,660
114,222
113,377
113,597

7,820
8,158
8,465
8,310
8,539
8,489

64,190
64,088
63,987
63,659
64,337
64,301

66.0
66.1
66.2
66.4
66.1
66.1

61.9
61.8
61.7
62.0
61.5
61.6

6.3
6.5
6.8
6.6
6.8
6.8

July ........................................................
Aug ........................................................
Sept .......................................................
Oct .........................................................
Nov .........................................................
Dec .........................................................

189,839
189,973
190,122
190,289
190,452
190,605

125,102
124,949
125,607
125,578
125,519
125,641

116,738
116,505
117,142
116,997
116,848
116,636

3,258
3,273
3,275
3,231
3,255
3,141

113,480
113,232
113,867
113,766
113,593
113,495

8,364
8,444
8,465
8,581
8,671
9,005

64,737
65,024
64,515
64,711
64,933
64,964

65.9
65.8
66.1
66.0
65.9
65.9

61.5
61.3
61.6
61.5
61.4
61.2

6.7
6.8
6.7
6.8
6.9
7.2

1992: Jan ..........................................................
Feb .........................................................
Mar ........................................................
Apr .........................................................
May ........................................................
June .......................................................

190,759
190,884
191,022
191,168
191,307
191,455

126,149
126,209
126,545
126,917
127,036
127,269

117,130
116,919
117,255
117,670
117,534
117,498

3,136
3,218
3,208
3,220
3,192
3,248

113,994
113,701
114,047
114,450
114,342
114,250

9,019
9,290
9,290
9,247
9,502
9,771

64,610
64,675
64,477
64,251
64,271
64,186

66.1
66.1
66.2
66.4
66.4
66.5

61.4
61.3
61.4
61.6
61.4
61.4

7.1
7.4
7.3
7.3
7.5
7.7

July ........................................................
Aug ........................................................
Sept .......................................................
Oct .........................................................
Nov .........................................................
Dec .........................................................

191,622
191,790
191,947
192,131
192,316
192,509

127,358
127,339
127,306
126,933
127,287
127,469

117,763
117,749
117,772
117,723
117,974
118,155

3,217
3,237
3,211
3,188
3,170
3,222

114,546
114,512
114,561
114,535
114,804
114,933

9,595
9,590
9,534
9,210
9,313
9,314

64,264
64,451
64,641
65,198
65,029
65,040

66.5
66.4
66.3
66.1
66.2
66.2

61.5
61.4
61.4
61.3
61.3
61.4

7.5
7.5
7.5
7.3
7.3
7.3

1993: Jan ..........................................................
Feb .........................................................
Mar ........................................................
Apr .........................................................
May ........................................................
June .......................................................

192,644
192,786
192,959
193,126
193,283
193,456

127,224
127,400
127,440
127,539
128,075
128,056

118,178
118,442
118,562
118,585
119,180
119,187

3,182
3,116
3,099
3,071
3,074
3,031

114,996
115,326
115,463
115,514
116,106
116,156

9,046
8,958
8,878
8,954
8,895
8,869

65,420
65,386
65,519
65,587
65,208
65,400

66.0
66.1
66.0
66.0
66.3
66.2

61.3
61.4
61.4
61.4
61.7
61.6

7.1
7.0
7.0
7.0
6.9
6.9

July ........................................................
Aug ........................................................
Sept .......................................................
Oct .........................................................
Nov .........................................................
Dec .........................................................

193,633
193,793
193,971
194,151
194,321
194,472

128,102
128,334
128,108
128,580
128,662
128,898

119,370
119,692
119,568
119,941
120,332
120,661

3,043
3,005
3,093
3,021
3,114
3,096

116,327
116,687
116,475
116,920
117,218
117,565

8,732
8,642
8,540
8,639
8,330
8,237

65,531
65,459
65,863
65,571
65,659
65,574

66.2
66.2
66.0
66.2
66.2
66.3

61.6
61.8
61.6
61.8
61.9
62.0

6.8
6.7
6.7
6.7
6.5
6.4

1994: Jan 5 .......................................................
Feb .........................................................
Mar ........................................................
Apr .........................................................
May ........................................................
June .......................................................

195,953
196,090
196,213
196,363
196,510
196,693

130,643
130,784
130,706
130,787
130,699
130,538

121,903
122,208
122,160
122,402
122,703
122,635

3,328
3,368
3,396
3,438
3,413
3,294

118,575
118,840
118,764
118,964
119,290
119,341

8,740
8,576
8,546
8,385
7,996
7,903

65,310
65,306
65,507
65,576
65,811
66,155

66.7
66.7
66.6
66.6
66.5
66.4

62.2
62.3
62.3
62.3
62.4
62.3

6.7
6.6
6.5
6.4
6.1
6.1

July ........................................................
Aug ........................................................
Sept .......................................................
Oct .........................................................
Nov .........................................................
Dec .........................................................

196,859
197,043
197,248
197,430
197,607
197,765

130,774
131,086
131,291
131,646
131,718
131,725

122,781
123,197
123,644
124,141
124,403
124,570

3,333
3,436
3,411
3,494
3,500
3,532

119,448
119,761
120,233
120,647
120,903
121,038

7,993
7,889
7,647
7,505
7,315
7,155

66,085
65,957
65,957
65,784
65,889
66,040

66.4
66.5
66.6
66.7
66.7
66.6

62.4
62.5
62.7
62.9
63.0
63.0

6.1
6.0
5.8
5.7
5.6
5.4

5 Not strictly comparable with earlier data due to population adjustments as follows: Beginning 1953, introduction of 1950 census data
added about 600,000 to population and 350,000 to labor force, total employment, and agricultural employment. Beginning 1960, inclusion of
Alaska and Hawaii added about 500,000 to population, 300,000 to labor force, and 240,000 to nonagricultural employment. Beginning 1962,
introduction of 1960 census data reduced population by about 50,000 and labor force and employment by 200,000. Beginning 1972, introduction of 1970 census data added about 800,000 to civilian noninstitutional population and 333,000 to labor force and employment. A subsequent adjustment based on 1970 census in March 1973 added 60,000 to labor force and to employment. Beginning 1978, changes in sampling and estimation procedures introduced into the household survey added about 250,000 to labor force and to employment. Unemployment levels and rates were not significantly affected. Beginning 1986, the introduction of revised population controls added about 400,000
to the civilian population and labor force and 350,000 to civilian employment. Unemployment levels and rates were not significantly affected.
Beginning 1994, introduction of adjusted 1990 census-based population controls together with a major redesign of the household survey
added about 1.3 million to civilian population, 2.0 million to civilian labor force, 1.1 million to civilian employment, and 900,000 to unemployment. Unemployment rates were not significantly affected.
Note.—Labor force data in Tables B–33 through B–42 are based on household interviews and relate to the calendar week including the
12th of the month. For definitions of terms, area samples used, historical comparability of the data, comparability with other series, etc.,
see ‘‘Employment and Earnings.’’
Source: Department of Labor, Bureau of Labor Statistics.




313

TABLE B–34.—Civilian employment and unemployment by sex and age, 1947–94
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
Civilian employment
Males
Year or month
Total
Total

1947 ....................
1948 ....................
1949 ....................
1950 ....................
1951 ....................
1952 ....................
1953 ....................
1954 ....................
1955 ....................
1956 ....................
1957 ....................
1958 ....................
1959 ....................
1960 ....................
1961 ....................
1962 ....................
1963 ....................
1964 ....................
1965 ....................
1966 ....................
1967 ....................
1968 ....................
1969 ....................
1970 ....................
1971 ....................
1972 ....................
1973 ....................
1974 ....................
1975 ....................
1976 ....................
1977 ....................
1978 ....................
1979 ....................
1980 ....................
1981 ....................
1982 ....................
1983 ....................
1984 ....................
1985 ....................
1986 ....................
1987 ....................
1988 ....................
1989 ....................
1990 ....................
1991 ....................
1992 ....................
1993 ....................
1994 ....................
1993: Jan ............
Feb ............
Mar ...........
Apr ............
May ...........
June ..........
July ...........
Aug ...........
Sept ..........
Oct ............
Nov ...........
Dec ...........
1994: Jan ............
Feb ............
Mar ...........
Apr ............
May ...........
June ..........
July ...........
Aug ...........
Sept ..........
Oct ............
Nov ...........
Dec ...........

57,038
58,343
57,651
58,918
59,961
60,250
61,179
60,109
62,170
63,799
64,071
63,036
64,630
65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902
78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824
99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342
117,914
116,877
117,598
119,306
123,060
118,178
118,442
118,562
118,585
119,180
119,187
119,370
119,692
119,568
119,941
120,332
120,661
121,903
122,208
122,160
122,402
122,703
122,635
122,781
123,197
123,644
124,141
124,403
124,570

40,995
41,725
40,925
41,578
41,780
41,682
42,430
41,619
42,621
43,379
43,357
42,423
43,466
43,904
43,656
44,177
44,657
45,474
46,340
46,919
47,479
48,114
48,818
48,990
49,390
50,896
52,349
53,024
51,857
53,138
54,728
56,479
57,607
57,186
57,397
56,271
56,787
59,091
59,891
60,892
62,107
63,273
64,315
64,435
63,593
63,805
64,700
66,450
64,237
64,329
64,355
64,416
64,687
64,642
64,728
64,904
64,756
64,971
65,144
65,259
65,846
65,887
65,981
66,058
66,197
66,255
66,226
66,458
66,682
67,059
67,244
67,483

16–19
years
2,218
2,344
2,124
2,186
2,156
2,107
2,136
1,985
2,095
2,164
2,115
2,012
2,198
2,361
2,315
2,362
2,406
2,587
2,918
3,253
3,186
3,255
3,430
3,409
3,478
3,765
4,039
4,103
3,839
3,947
4,174
4,336
4,300
4,085
3,815
3,379
3,300
3,322
3,328
3,323
3,381
3,492
3,477
3,237
2,879
2,786
2,836
3,156
2,819
2,852
2,857
2,802
2,838
2,837
2,859
2,898
2,855
2,799
2,829
2,815
3,101
3,120
3,104
3,099
3,117
3,212
3,150
3,187
3,165
3,239
3,193
3,202

Unemployment
Females

20
years
and
over

Total

38,776
39,382
38,803
39,394
39,626
39,578
40,296
39,634
40,526
41,216
41,239
40,411
41,267
41,543
41,342
41,815
42,251
42,886
43,422
43,668
44,294
44,859
45,388
45,581
45,912
47,130
48,310
48,922
48,018
49,190
50,555
52,143
53,308
53,101
53,582
52,891
53,487
55,769
56,562
57,569
58,726
59,781
60,837
61,198
60,714
61,019
61,865
63,294
61,418
61,477
61,498
61,614
61,849
61,805
61,869
62,006
61,901
62,172
62,315
62,444
62,745
62,767
62,877
62,959
63,080
63,043
63,076
63,271
63,517
63,820
64,051
64,281

16,045
16,617
16,723
17,340
18,181
18,568
18,749
18,490
19,551
20,419
20,714
20,613
21,164
21,874
22,090
22,525
23,105
23,831
24,748
25,976
26,893
27,807
29,084
29,688
29,976
31,257
32,715
33,769
33,989
35,615
37,289
39,569
41,217
42,117
43,000
43,256
44,047
45,915
47,259
48,706
50,334
51,696
53,027
53,479
53,284
53,793
54,606
56,610
53,941
54,113
54,207
54,169
54,493
54,545
54,642
54,788
54,812
54,970
55,188
55,402
56,057
56,321
56,179
56,344
56,506
56,380
56,555
56,739
56,962
57,082
57,159
57,087

16–19
years
1,691
1,682
1,588
1,517
1,611
1,612
1,584
1,490
1,547
1,654
1,663
1,570
1,640
1,768
1,793
1,833
1,849
1,929
2,118
2,468
2,496
2,526
2,687
2,735
2,730
2,980
3,231
3,345
3,263
3,389
3,514
3,734
3,783
3,625
3,411
3,170
3,043
3,122
3,105
3,149
3,260
3,313
3,282
3,024
2,749
2,613
2,694
3,005
2,633
2,634
2,591
2,636
2,716
2,670
2,741
2,704
2,740
2,727
2,765
2,771
2,990
2,966
3,003
3,026
3,025
3,052
3,014
3,017
2,918
2,992
3,030
3,050

Note.—See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




314

Males
20
years
and
over

Total

Females

20
Total 16–19 years
years and
over

20
Total 16–19 years
years and
over

14,354 2,311 1,692
270 1,422
619
14,936 2,276 1,559
256 1,305
717
15,137 3,637 2,572
353 2,219 1,065
15,824 3,288 2,239
318 1,922 1,049
16,570 2,055 1,221
191 1,029
834
16,958 1,883 1,185
205
980
698
17,164 1,834 1,202
184 1,019
632
17,000 3,532 2,344
310 2,035 1,188
18,002 2,852 1,854
274 1,580
998
18,767 2,750 1,711
269 1,442 1,039
19,052 2,859 1,841
300 1,541 1,018
19,043 4,602 3,098
416 2,681 1,504
19,524 3,740 2,420
398 2,022 1,320
20,105 3,852 2,486
426 2,060 1,366
20,296 4,714 2,997
479 2,518 1,717
20,693 3,911 2,423
408 2,016 1,488
21,257 4,070 2,472
501 1,971 1,598
21,903 3,786 2,205
487 1,718 1,581
22,630 3,366 1,914
479 1,435 1,452
23,510 2,875 1,551
432 1,120 1,324
24,397 2,975 1,508
448 1,060 1,468
25,281 2,817 1,419
426
993 1,397
26,397 2,832 1,403
440
963 1,429
26,952 4,093 2,238
599 1,638 1,855
27,246 5,016 2,789
693 2,097 2,227
28,276 4,882 2,659
711 1,948 2,222
29,484 4,365 2,275
653 1,624 2,089
30,424 5,156 2,714
757 1,957 2,441
30,726 7,929 4,442
966 3,476 3,486
32,226 7,406 4,036
939 3,098 3,369
33,775 6,991 3,667
874 2,794 3,324
35,836 6,202 3,142
813 2,328 3,061
37,434 6,137 3,120
811 2,308 3,018
38,492 7,637 4,267
913 3,353 3,370
39,590 8,273 4,577
962 3,615 3,696
40,086 10,678 6,179 1,090 5,089 4,499
41,004 10,717 6,260 1,003 5,257 4,457
42,793 8,539 4,744
812 3,932 3,794
44,154 8,312 4,521
806 3,715 3,791
45,556 8,237 4,530
779 3,751 3,707
47,074 7,425 4,101
732 3,369 3,324
48,383 6,701 3,655
667 2,987 3,046
49,745 6,528 3,525
658 2,867 3,003
50,455 6,874 3,799
629 3,170 3,075
50,535 8,426 4,817
709 4,109 3,609
51,181 9,384 5,380
761 4,619 4,005
51,912 8,734 4,932
728 4,204 3,801
53,606 7,996 4,367
740 3,627 3,629
51,308 9,046 4,977
737 4,240 4,069
51,479 8,958 5,067
742 4,325 3,891
51,616 8,878 5,147
729 4,418 3,731
51,533 8,954 5,098
810 4,288 3,856
51,777 8,895 5,016
731 4,285 3,879
51,875 8,869 5,041
759 4,282 3,828
51,901 8,732 5,002
731 4,271 3,730
52,084 8,642 4,943
728 4,215 3,699
52,072 8,540 4,824
687 4,137 3,716
52,243 8,639 4,849
715 4,134 3,790
52,423 8,330 4,586
703 3,883 3,744
52,631 8,237 4,554
677 3,877 3,683
53,067 8,740 4,863
808 4,055 3,877
53,355 8,576 4,752
766 3,986 3,824
53,176 8,546 4,626
755 3,871 3,920
53,318 8,385 4,567
785 3,782 3,818
53,481 7,996 4,348
776 3,572 3,648
53,328 7,903 4,266
707 3,559 3,637
53,541 7,993 4,429
758 3,671 3,564
53,722 7,889 4,283
737 3,546 3,606
54,044 7,647 4,109
717 3,392 3,538
54,090 7,505 4,074
717 3,357 3,431
54,129 7,315 3,924
630 3,294 3,391
54,037 7,155 3,896
727 3,169 3,259

144
153
223
195
145
140
123
191
176
209
197
262
256
286
349
313
383
385
395
405
391
412
413
506
568
598
583
665
802
780
789
769
743
755
800
886
825
687
661
675
616
558
536
519
581
591
568
580
594
596
588
575
640
571
531
534
537
571
546
531
571
587
585
670
584
581
569
581
551
570
536
571

475
564
841
854
689
559
510
997
823
832
821
1,242
1,063
1,080
1,368
1,175
1,216
1,195
1,056
921
1,078
985
1,015
1,349
1,658
1,625
1,507
1,777
2,684
2,588
2,535
2,292
2,276
2,615
2,895
3,613
3,632
3,107
3,129
3,032
2,709
2,487
2,467
2,555
3,028
3,413
3,234
3,049
3,475
3,295
3,143
3,281
3,239
3,257
3,199
3,165
3,179
3,219
3,198
3,152
3,306
3,237
3,335
3,148
3,064
3,056
2,995
3,025
2,987
2,861
2,855
2,688

TABLE B–35.—Civilian employment by demographic characteristic, 1954–94
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
White
Year or
month

All
civilian
workers

Black and other

Total

Males

Females

Both
sexes
16–19

Black

Total

Males

Females

Both
sexes
16–19

Total

Males

Females

Both
sexes
16–19

1954
1955
1956
1957
1958
1959

................
................
................
................
................
................

60,109
62,170
63,799
64,071
63,036
64,630

53,957
55,833
57,269
57,465
56,613
58,006

37,846
38,719
39,368
39,349
38,591
39,494

16,111
17,114
17,901
18,116
18,022
18,512

3,078
3,225
3,389
3,374
3,216
3,475

6,152
6,341
6,534
6,604
6,423
6,623

3,773
3,904
4,013
4,006
3,833
3,971

2,379
2,437
2,521
2,598
2,590
2,652

396
418
430
407
365
362

............
............
............
............
............
............

..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

................
................
................
................
................
................
................
................
................
................

65,778
65,746
66,702
67,762
69,305
71,088
72,895
74,372
75,920
77,902

58,850
58,913
59,698
60,622
61,922
63,446
65,021
66,361
67,750
69,518

39,755
39,588
40,016
40,428
41,115
41,844
42,331
42,833
43,411
44,048

19,095
19,325
19,682
20,194
20,807
21,602
22,690
23,528
24,339
25,470

3,700
3,693
3,774
3,851
4,076
4,562
5,176
5,114
5,195
5,508

6,928
6,833
7,003
7,140
7,383
7,643
7,877
8,011
8,169
8,384

4,149
4,068
4,160
4,229
4,359
4,496
4,588
4,646
4,702
4,770

2,779
2,765
2,843
2,911
3,024
3,147
3,289
3,365
3,467
3,614

430
414
420
404
440
474
545
568
584
609

............
............
............
............
............
............
............
............
............
............

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

................
................
................
................
................
................
................
................
................
................

78,678
79,367
82,153
85,064
86,794
85,846
88,752
92,017
96,048
98,824

70,217
70,878
73,370
75,708
77,184
76,411
78,853
81,700
84,936
87,259

44,178
44,595
45,944
47,085
47,674
46,697
47,775
49,150
50,544
51,452

26,039
26,283
27,426
28,623
29,511
29,714
31,078
32,550
34,392
35,807

5,571
5,670
6,173
6,623
6,796
6,487
6,724
7,068
7,367
7,356

8,464
8,488
8,783
9,356
9,610
9,435
9,899
10,317
11,112
11,565

4,813
4,796
4,952
5,265
5,352
5,161
5,363
5,579
5,936
6,156

3,650
3,692
3,832
4,092
4,258
4,275
4,536
4,739
5,177
5,409

574
538
573
647
652
615
611
619
703
727

............
............
7,802
8,128
8,203
7,894
8,227
8,540
9,102
9,359

..........
..........
4,368
4,527
4,527
4,275
4,404
4,565
4,796
4,923

..........
..........
3,433
3,601
3,677
3,618
3,823
3,975
4,307
4,436

..........
..........
509
570
554
507
508
508
571
579

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

................
................
................
................
................
................
................
................
................
................

99,303
100,397
99,526
100,834
105,005
107,150
109,597
112,440
114,968
117,342

87,715
88,709
87,903
88,893
92,120
93,736
95,660
97,789
99,812
101,584

51,127
51,315
50,287
50,621
52,462
53,046
53,785
54,647
55,550
56,352

36,587
37,394
37,615
38,272
39,659
40,690
41,876
43,142
44,262
45,232

7,021
6,588
5,984
5,799
5,836
5,768
5,792
5,898
6,030
5,946

11,588
11,688
11,624
11,941
12,885
13,414
13,937
14,652
15,156
15,757

6,059
6,083
5,983
6,166
6,629
6,845
7,107
7,459
7,722
7,963

5,529
5,606
5,641
5,775
6,256
6,569
6,830
7,192
7,434
7,795

689
637
565
543
607
666
681
742
774
813

9,313
9,355
9,189
9,375
10,119
10,501
10,814
11,309
11,658
11,953

4,798
4,794
4,637
4,753
5,124
5,270
5,428
5,661
5,824
5,928

4,515
4,561
4,552
4,622
4,995
5,231
5,386
5,648
5,834
6,025

547
505
428
416
474
532
536
587
601
625

1990
1991
1992
1993
1994

................
................
................
................
................

117,914
116,877
117,598
119,306
123,060

102,087
101,039
101,479
102,812
105,190

56,432
55,557
55,709
56,397
57,452

45,654
45,482
45,770
46,415
47,738

5,518
4,989
4,761
4,887
5,398

15,827
15,838
16,119
16,494
17,870

8,003
8,036
8,096
8,303
8,998

7,825
7,802
8,023
8,191
8,872

743
639
637
642
763

11,966
11,863
11,933
12,146
12,835

5,915
5,880
5,846
5,957
6,241

6,051
5,983
6,087
6,189
6,595

573
474
474
474
552

1993: Jan ........
Feb ........
Mar .......
Apr ........
May .......
June ......

118,178
118,442
118,562
118,585
119,180
119,187

102,029
102,076
102,251
102,190
102,612
102,721

56,086
56,100
56,175
56,166
56,304
56,362

45,943
45,976
46,076
46,024
46,308
46,359

4,808
4,824
4,829
4,826
4,878
4,835

16,126
16,439
16,306
16,354
16,507
16,408

8,157
8,284
8,162
8,210
8,307
8,249

7,969
8,155
8,144
8,144
8,200
8,159

635
653
593
618
675
640

11,864
12,157
11,991
11,965
12,140
12,076

5,895
6,009
5,884
5,846
5,961
5,931

5,969
6,148
6,107
6,119
6,179
6,145

485
487
443
436
494
451

July .......
Aug .......
Sept ......
Oct ........
Nov .......
Dec .......

119,370
119,692
119,568
119,941
120,332
120,661

102,835
103,179
103,094
103,273
103,662
103,807

56,336
56,523
56,467
56,627
56,799
56,794

46,499
46,656
46,627
46,646
46,863
47,013

4,902
4,930
4,939
4,906
4,991
4,970

16,459
16,522
16,512
16,697
16,705
16,876

8,367
8,366
8,302
8,380
8,363
8,476

8,092
8,156
8,210
8,317
8,342
8,400

688
681
652
630
616
628

12,134
12,225
12,202
12,292
12,297
12,397

6,008
6,031
5,960
5,991
5,951
6,013

6,126
6,194
6,242
6,301
6,346
6,384

513
514
484
463
461
467

1994: Jan ........
Feb ........
Mar .......
Apr ........
May .......
June ......

121,903
122,208
122,160
122,402
122,703
122,635

104,268
104,612
104,412
104,591
104,978
104,687

57,043
57,053
57,042
57,113
57,213
57,273

47,225
47,559
47,370
47,478
47,765
47,414

5,305
5,336
5,355
5,398
5,427
5,477

17,603
17,637
17,689
17,778
17,811
17,850

8,818
8,881
8,921
8,948
9,009
8,944

8,785
8,756
8,768
8,830
8,802
8,906

809
747
740
742
718
774

12,544
12,624
12,718
12,775
12,810
12,838

6,044
6,124
6,186
6,199
6,271
6,214

6,500
6,500
6,532
6,576
6,539
6,624

597
537
547
546
497
552

July .......
Aug .......
Sept ......
Oct ........
Nov .......
Dec .......

122,781
123,197
123,644
124,141
124,403
124,570

105,006
105,401
105,740
106,010
106,242
106,352

57,352
57,558
57,650
57,877
58,028
58,185

47,654
47,843
48,090
48,133
48,214
48,167

5,424
5,463
5,254
5,414
5,431
5,493

17,731
17,826
17,997
18,131
18,161
18,202

8,856
8,911
9,053
9,167
9,192
9,260

8,875
8,915
8,944
8,964
8,969
8,942

759
757
801
778
778
744

12,767
12,795
12,927
13,022
13,054
13,119

6,150
6,168
6,286
6,369
6,393
6,458

6,617
6,627
6,641
6,653
6,661
6,661

542
541
570
569
579
534

Note.—See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




315

TABLE B–36.—Unemployment by demographic characteristic, 1954–94
[Thousands of persons 16 years of age and over; monthly data seasonally adjusted]
White
Year or
month

All
civilian
workers

Total

Males

Black and other

Females

Both
sexes
16–19

Total

Black

Males

Females

Both
sexes
16–19

Total

Males

Females

Both
sexes
16–19

1954
1955
1956
1957
1958
1959

..............
..............
..............
..............
..............
..............

3,532
2,852
2,750
2,859
4,602
3,740

2,859
2,252
2,159
2,289
3,680
2,946

1,913
1,478
1,366
1,477
2,489
1,903

946
774
793
812
1,191
1,043

423
373
382
401
541
525

673
601
591
570
923
793

431
376
345
364
610
517

242
225
246
206
313
276

79
77
95
96
138
128

............
............
............
............
............
............

...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832

3,065
3,743
3,052
3,208
2,999
2,691
2,255
2,338
2,226
2,260

1,988
2,398
1,915
1,976
1,779
1,556
1,241
1,208
1,142
1,137

1,077
1,345
1,137
1,232
1,220
1,135
1,014
1,130
1,084
1,123

575
669
580
708
708
705
651
635
644
660

788
971
861
863
787
678
622
638
590
571

498
599
509
496
426
360
310
300
277
267

290
372
352
367
361
318
312
338
313
304

138
159
142
176
165
171
186
203
194
193

............
............
............
............
............
............
............
............
............
............

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

...........
...........
...........
...........
...........
...........
...........
...........
...........
...........

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137

3,339
4,085
3,906
3,442
4,097
6,421
5,914
5,441
4,698
4,664

1,857
2,309
2,173
1,836
2,169
3,627
3,258
2,883
2,411
2,405

1,482
1,777
1,733
1,606
1,927
2,794
2,656
2,558
2,287
2,260

871
1,011
1,021
955
1,104
1,413
1,364
1,284
1,189
1,193

754
930
977
924
1,058
1,507
1,492
1,550
1,505
1,473

380
481
486
440
544
815
779
784
731
714

374
450
491
484
514
692
713
766
774
759

235
249
288
280
318
355
355
379
394
362

............
............
906
846
965
1,369
1,334
1,393
1,330
1,319

...........
...........
448
395
494
741
698
698
641
636

...........
...........
458
451
470
629
637
695
690
683

..........
..........
279
262
297
330
330
354
360
333

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

..............
..............
..............
..............
..............
..............
..............
..............
..............
..............

7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528

5,884
6,343
8,241
8,128
6,372
6,191
6,140
5,501
4,944
4,770

3,345
3,580
4,846
4,859
3,600
3,426
3,433
3,132
2,766
2,636

2,540
2,762
3,395
3,270
2,772
2,765
2,708
2,369
2,177
2,135

1,291
1,374
1,534
1,387
1,116
1,074
1,070
995
910
863

1,752
1,930
2,437
2,588
2,167
2,121
2,097
1,924
1,757
1,757

922
997
1,334
1,401
1,144
1,095
1,097
969
888
889

830
933
1,104
1,187
1,022
1,026
999
955
869
868

377
388
443
441
384
394
383
353
316
331

1,553
1,731
2,142
2,272
1,914
1,864
1,840
1,684
1,547
1,544

815
891
1,167
1,213
1,003
951
946
826
771
773

738
840
975
1,059
911
913
894
858
776
772

343
357
396
392
353
357
347
312
288
300

1990
1991
1992
1993
1994

..............
..............
..............
..............
..............

6,874
8,426
9,384
8,734
7,996

5,091
6,447
7,047
6,547
5,892

2,866
3,775
4,121
3,753
3,275

2,225
2,672
2,926
2,793
2,617

856
977
983
943
960

1,783
1,979
2,337
2,187
2,104

933
1,043
1,259
1,179
1,092

850
936
1,079
1,008
1,011

292
313
369
353
360

1,527
1,679
1,958
1,796
1,666

793
874
1,046
954
848

734
805
912
842
818

258
270
313
302
300

1993: Jan .......
Feb ......
Mar .....
Apr ......
May .....
June ....

9,046
8,958
8,878
8,954
8,895
8,869

6,750
6,670
6,671
6,601
6,622
6,652

3,847
3,849
3,909
3,825
3,781
3,818

2,903
2,821
2,762
2,776
2,841
2,834

951
963
945
962
983
945

2,355
2,266
2,222
2,318
2,204
2,231

1,227
1,207
1,248
1,253
1,213
1,209

1,128
1,059
974
1,065
991
1,022

371
375
380
416
379
380

1,953
1,857
1,871
1,903
1,804
1,846

1,006
968
1,034
1,034
970
976

947
889
837
869
834
870

312
311
325
361
323
321

July ......
Aug .....
Sept ....
Oct ......
Nov ......
Dec ......

8,732
8,642
8,540
8,639
8,330
8,237

6,558
6,467
6,398
6,736
6,142
6,209

3,833
3,756
3,657
3,788
3,386
3,509

2,725
2,711
2,741
2,948
2,756
2,700

909
934
912
1,003
922
894

2,169
2,156
2,132
2,040
2,133
2,013

1,158
1,171
1,169
1,088
1,151
1,046

1,011
985
963
952
982
967

344
319
306
314
337
317

1,786
1,744
1,750
1,653
1,760
1,614

929
931
950
863
950
825

857
813
800
790
810
789

293
259
275
269
301
274

1994: Jan .......
Feb ......
Mar .....
Apr ......
May .....
June ....

8,740
8,576
8,546
8,385
7,996
7,903

6,401
6,284
6,229
6,218
5,851
5,836

3,607
3,540
3,479
3,489
3,244
3,191

2,794
2,744
2,750
2,729
2,607
2,645

1,023
996
986
1,116
992
917

2,274
2,250
2,258
2,159
2,113
2,063

1,207
1,183
1,116
1,086
1,075
1,074

1,067
1,067
1,142
1,073
1,038
989

338
342
347
361
362
372

1,879
1,838
1,807
1,732
1,700
1,643

976
954
856
868
868
839

903
884
951
864
832
804

292
291
289
300
307
312

July ......
Aug .....
Sept ....
Oct ......
Nov ......
Dec ......

7,993
7,889
7,647
7,505
7,315
7,155

5,905
5,785
5,641
5,545
5,395
5,363

3,295
3,168
3,077
3,059
2,950
2,987

2,610
2,617
2,564
2,486
2,445
2,376

934
933
912
912
849
946

2,044
2,107
2,034
2,095
1,967
1,846

1,120
1,119
1,053
1,070
1,007
953

924
988
981
1,025
960
893

385
378
342
404
339
349

1,613
1,634
1,550
1,627
1,524
1,422

872
851
780
805
762
710

741
783
770
822
762
712

323
306
269
341
285
283

Note.—See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




316

TABLE B–37.—Civilian labor force participation rate and employment/population ratio, 1948–94
[Percent;1 monthly data seasonally adjusted]
Labor force participation rate
Year or month

1948 ..................................
1949 ..................................
1950 ..................................
1951 ..................................
1952 ..................................
1953 ..................................
1954 ..................................
1955 ..................................
1956 ..................................
1957 ..................................
1958 ..................................
1959 ..................................
1960 ..................................
1961 ..................................
1962 ..................................
1963 ..................................
1964 ..................................
1965 ..................................
1966 ..................................
1967 ..................................
1968 ..................................
1969 ..................................
1970 ..................................
1971 ..................................
1972 ..................................
1973 ..................................
1974 ..................................
1975 ..................................
1976 ..................................
1977 ..................................
1978 ..................................
1979 ..................................
1980 ..................................
1981 ..................................
1982 ..................................
1983 ..................................
1984 ..................................
1985 ..................................
1986 ..................................
1987 ..................................
1988 ..................................
1989 ..................................
1990 ..................................
1991 ..................................
1992 ..................................
1993 ..................................
1994 ..................................
1993: Jan ..........................
Feb ..........................
Mar .........................
Apr ..........................
May .........................
June ........................
July .........................
Aug .........................
Sept ........................
Oct ..........................
Nov .........................
Dec .........................
1994: Jan ..........................
Feb ..........................
Mar .........................
Apr ..........................
May .........................
June ........................
July .........................
Aug .........................
Sept ........................
Oct ..........................
Nov .........................
Dec .........................

All
civilian Males Feworkmales
ers
58.8
58.9
59.2
59.2
59.0
58.9
58.8
59.3
60.0
59.6
59.5
59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.4
66.0
66.3
66.2
66.6
66.0
66.1
66.0
66.0
66.3
66.2
66.2
66.2
66.0
66.2
66.2
66.3
66.7
66.7
66.6
66.6
66.5
66.4
66.4
66.5
66.6
66.7
66.7
66.6

86.6
86.4
86.4
86.3
86.3
86.0
85.5
85.4
85.5
84.8
84.2
83.7
83.3
82.9
82.0
81.4
81.0
80.7
80.4
80.4
80.1
79.8
79.7
79.1
78.9
78.8
78.7
77.9
77.5
77.7
77.9
77.8
77.4
77.0
76.6
76.4
76.4
76.3
76.3
76.2
76.2
76.4
76.1
75.5
75.6
75.2
75.1
75.1
75.3
75.3
75.2
75.4
75.3
75.2
75.3
74.9
75.1
75.0
75.0
75.3
75.2
75.1
75.0
74.9
74.8
74.9
74.9
74.9
75.1
75.1
75.3

32.7
33.1
33.9
34.6
34.7
34.4
34.6
35.7
36.9
36.9
37.1
37.1
37.7
38.1
37.9
38.3
38.7
39.3
40.3
41.1
41.6
42.7
43.3
43.4
43.9
44.7
45.7
46.3
47.3
48.4
50.0
50.9
51.5
52.1
52.6
52.9
53.6
54.5
55.3
56.0
56.6
57.4
57.5
57.3
57.8
57.9
58.8
57.7
57.7
57.6
57.6
57.9
57.9
57.8
57.9
57.9
58.1
58.2
58.3
58.7
58.9
58.8
58.8
58.8
58.6
58.7
58.8
58.9
58.9
58.9
58.6

Employment/population ratio

Both
sexes
16–19
years

White

Black
and Black
other

52.5
52.2
51.8
52.2
51.3
50.2
48.3
48.9
50.9
49.6
47.4
46.7
47.5
46.9
46.1
45.2
44.5
45.7
48.2
48.4
48.3
49.4
49.9
49.7
51.9
53.7
54.8
54.0
54.5
56.0
57.8
57.9
56.7
55.4
54.1
53.5
53.9
54.5
54.7
54.7
55.3
55.9
53.7
51.7
51.3
51.5
52.7
51.4
51.9
51.5
51.8
52.5
51.5
51.8
51.6
51.2
51.1
51.2
50.9
53.1
52.7
52.9
53.6
52.9
53.2
52.5
52.8
51.5
52.7
51.8
52.9

..........
..........
..........
..........
..........
..........
58.2
58.7
59.4
59.1
58.9
58.7
58.8
58.8
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7
66.8
66.6
66.7
66.7
67.1
66.6
66.5
66.6
66.5
66.7
66.7
66.7
66.8
66.7
67.0
66.8
66.9
67.1
67.2
67.0
67.1
67.0
66.8
67.0
67.1
67.2
67.2
67.2
67.2

..........
..........
..........
..........
..........
..........
64.0
64.2
64.9
64.4
64.8
64.3
64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2
60.5
60.3
59.6
59.8
60.4
62.2
62.2
61.7
61.3
61.6
62.1
62.6
63.3
63.7
64.3
64.0
64.7
63.7
63.1
63.8
63.1
63.9
63.1
63.7
63.0
63.3
63.4
63.0
62.8
62.8
62.6
62.8
63.0
63.1
64.2
64.2
64.3
64.1
63.9
63.8
63.2
63.6
63.8
64.3
63.8
63.5

1 Civilian

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
59.9
60.2
59.8
58.8
59.0
59.8
61.5
61.4
61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8
63.8
64.2
63.3
62.6
63.3
62.4
63.4
62.4
63.2
62.4
62.3
62.6
62.4
62.3
62.4
62.3
62.1
62.5
62.3
63.5
63.6
63.8
63.6
63.6
63.4
62.8
63.0
63.1
63.7
63.3
63.1

All
civilian Males Feworkmales
ers
56.6
55.4
56.1
57.3
57.3
57.1
55.5
56.7
57.5
57.1
55.4
56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.7
61.6
61.4
61.6
62.5
61.3
61.4
61.4
61.4
61.7
61.6
61.6
61.8
61.6
61.8
61.9
62.0
62.2
62.3
62.3
62.3
62.4
62.3
62.4
62.5
62.7
62.9
63.0
63.0

83.5
81.3
82.0
84.0
83.9
83.6
81.0
81.8
82.3
81.3
78.5
79.3
78.9
77.6
77.7
77.1
77.3
77.5
77.9
78.0
77.8
77.6
76.2
74.9
75.0
75.5
74.9
71.7
72.0
72.8
73.8
73.8
72.0
71.3
69.0
68.8
70.7
70.9
71.0
71.5
72.0
72.5
71.9
70.2
69.7
69.9
70.4
69.7
69.8
69.7
69.7
69.9
69.8
69.8
70.0
69.7
69.9
70.0
70.1
70.1
70.1
70.2
70.2
70.3
70.3
70.2
70.3
70.5
70.8
71.0
71.1

31.3
31.2
32.0
33.1
33.4
33.3
32.5
34.0
35.1
35.1
34.5
35.0
35.5
35.4
35.6
35.8
36.3
37.1
38.3
39.0
39.6
40.7
40.8
40.4
41.0
42.0
42.6
42.0
43.2
44.5
46.4
47.5
47.7
48.0
47.7
48.0
49.5
50.4
51.4
52.5
53.4
54.3
54.3
53.7
53.8
54.1
55.3
53.7
53.8
53.9
53.8
54.1
54.1
54.1
54.2
54.2
54.3
54.5
54.7
54.9
55.2
55.0
55.1
55.2
55.1
55.2
55.3
55.5
55.5
55.6
55.5

Both
sexes
16–19
years

White

Black
and Black
other

47.7
45.2
45.5
47.9
46.9
46.4
42.3
43.5
45.3
43.9
39.9
39.9
40.5
39.1
39.4
37.4
37.3
38.9
42.1
42.2
42.2
43.4
42.3
41.3
43.5
45.9
46.0
43.3
44.2
46.1
48.3
48.5
46.6
44.6
41.5
41.5
43.7
44.4
44.6
45.5
46.8
47.5
45.4
42.1
41.0
41.7
43.4
41.3
41.7
41.4
41.3
42.1
41.5
42.2
42.1
42.0
41.4
41.8
41.9
43.3
43.1
43.4
43.3
43.3
44.1
43.2
43.5
42.6
43.7
43.6
43.8

..........
..........
..........
..........
..........
..........
55.2
56.5
57.3
56.8
55.3
55.9
55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8
63.6
62.6
62.4
62.7
63.5
62.5
62.5
62.5
62.4
62.7
62.7
62.7
62.9
62.8
62.9
63.0
63.1
63.2
63.4
63.2
63.3
63.5
63.3
63.4
63.6
63.8
63.9
64.0
64.0

..........
..........
..........
..........
..........
..........
58.0
58.7
59.5
59.3
56.7
57.5
57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1
55.0
54.3
51.4
52.0
52.5
54.7
55.2
53.6
52.6
50.9
51.0
53.6
54.7
55.4
56.8
57.4
58.2
57.3
56.1
55.7
55.7
57.2
55.0
56.0
55.4
55.5
55.9
55.4
55.5
55.6
55.4
56.0
55.9
56.3
56.9
56.9
57.0
57.2
57.2
57.2
56.7
56.9
57.3
57.6
57.6
57.6

labor force or civilian employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




317

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9
56.2
54.9
54.3
54.4
56.1
53.5
54.8
54.0
53.8
54.5
54.1
54.3
54.6
54.5
54.8
54.7
55.1
55.2
55.5
55.8
56.0
56.1
56.2
55.8
55.8
56.3
56.6
56.7
56.9

TABLE B–38.—Civilian labor force participation rate by demographic characteristic, 1954–94
[Percent;1 monthly data seasonally adjusted]
White

Year or month

All
civilian
workers

Black and other or black

Males

Females

Total

16–19
years

20
years
and
over

Total

Total

Males

16–19
years

20
years
and
over

Total
Total

16–19
years

Females
20
years
and
over

16–19
years

20
years
and
over

46.1
46.1
47.3
47.1
48.0
47.7
48.2
48.3
48.0
48.1
48.6
48.6
49.4
49.5
49.3
49.8
49.5
49.2
48.8

31.0
32.7
36.3
33.2
31.9
28.2
32.9
32.8
33.1
32.6
31.7
29.5
33.5
35.2
34.8
34.6
34.1
31.2
32.3

47.7
47.5
48.4
48.6
49.8
49.8
49.9
50.1
49.6
49.9
50.7
51.1
51.6
51.6
51.4
52.0
51.8
51.8
51.2

48.7
49.3
49.0
48.8
49.8
50.8
53.1
53.1
53.1
53.5
53.7
54.2
55.2
56.5
56.9
58.0
58.0
58.7
57.8
57.0
58.0
57.4
58.7
56.8
57.8
56.9
57.2
57.4
57.3
57.0
57.1
57.3
57.6
58.1
58.1
59.0
58.8
59.5
59.1
58.5
58.9
58.3
58.6
58.5
59.0
58.5
58.0

32.2
34.2
33.4
34.2
32.9
32.9
37.3
36.8
34.9
34.0
33.5
33.0
35.0
37.9
39.1
39.6
37.9
40.4
36.7
33.5
35.2
34.5
36.3
35.5
34.9
32.4
31.8
35.5
34.0
36.0
34.5
33.8
34.1
36.9
35.1
40.6
36.1
36.3
36.6
33.4
36.6
35.9
35.3
36.3
39.1
36.3
32.7

51.2
51.6
51.4
51.1
52.5
53.6
55.5
55.4
55.6
56.0
56.2
56.8
57.6
58.6
58.9
60.0
60.1
60.6
60.0
59.3
60.1
59.5
60.9
58.9
59.9
59.2
59.6
59.4
59.5
58.9
59.2
59.5
59.8
60.1
60.3
60.8
61.0
61.8
61.3
61.0
61.1
60.5
60.9
60.7
60.9
60.7
60.5

Total

Black and other
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

58.8
59.3
60.0
59.6
59.5
59.3
59.4
59.3
58.8
58.7
58.7
58.9
59.2
59.6
59.6
60.1
60.4
60.2
60.4

58.2
58.7
59.4
59.1
58.9
58.7
58.8
58.8
58.3
58.2
58.2
58.4
58.7
59.2
59.3
59.9
60.2
60.1
60.4

85.6
85.4
85.6
84.8
84.3
83.8
83.4
83.0
82.1
81.5
81.1
80.8
80.6
80.6
80.4
80.2
80.0
79.6
79.6

57.6
58.6
60.4
59.2
56.5
55.9
55.9
54.5
53.8
53.1
52.7
54.1
55.9
56.3
55.9
56.8
57.5
57.9
60.1

87.8
87.5
87.6
86.9
86.6
86.3
86.0
85.7
84.9
84.4
84.2
83.9
83.6
83.5
83.2
83.0
82.8
82.3
82.0

33.3
34.5
35.7
35.7
35.8
36.0
36.5
36.9
36.7
37.2
37.5
38.1
39.2
40.1
40.7
41.8
42.6
42.6
43.2

40.6
40.7
43.1
42.2
40.1
39.6
40.3
40.6
39.8
38.7
37.8
39.2
42.6
42.5
43.0
44.6
45.6
45.4
48.1

32.7
34.0
35.1
35.2
35.5
35.6
36.2
36.6
36.5
37.0
37.5
38.0
38.8
39.8
40.4
41.5
42.2
42.3
42.7

64.0
64.2
64.9
64.4
64.8
64.3
64.5
64.1
63.2
63.0
63.1
62.9
63.0
62.8
62.2
62.1
61.8
60.9
60.2

85.2
85.1
85.1
84.2
84.1
83.4
83.0
82.2
80.8
80.2
80.1
79.6
79.0
78.5
77.7
76.9
76.5
74.9
73.9

61.2
60.8
61.5
58.8
57.3
55.5
57.6
55.8
53.5
51.5
49.9
51.3
51.4
51.1
49.7
49.6
47.4
44.7
46.0

1972 ..................
1973 ..................
1974 ..................
1975 ..................
1976 ..................
1977 ..................
1978 ..................
1979 ..................
1980 ..................
1981 ..................
1982 ..................
1983 ..................
1984 ..................
1985 ..................
1986 ..................
1987 ..................
1988 ..................
1989 ..................
1990 ..................
1991 ..................
1992 ..................
1993 ..................
1994 ..................
1993: Jan ...........
Feb ..........
Mar .........
Apr ..........
May .........
June ........
July .........
Aug .........
Sept ........
Oct ..........
Nov .........
Dec .........
1994: Jan ...........
Feb ..........
Mar .........
Apr ..........
May .........
June ........
July .........
Aug .........
Sept ........
Oct ..........
Nov .........
Dec .........

60.4
60.8
61.3
61.2
61.6
62.3
63.2
63.7
63.8
63.9
64.0
64.0
64.4
64.8
65.3
65.6
65.9
66.5
66.4
66.0
66.3
66.2
66.6
66.0
66.1
66.0
66.0
66.3
66.2
66.2
66.2
66.0
66.2
66.2
66.3
66.7
66.7
66.6
66.6
66.5
66.4
66.4
66.5
66.6
66.7
66.7
66.6

60.4
60.8
61.4
61.5
61.8
62.5
63.3
63.9
64.1
64.3
64.3
64.3
64.6
65.0
65.5
65.8
66.2
66.7
66.8
66.6
66.7
66.7
67.1
66.6
66.5
66.6
66.5
66.7
66.7
66.7
66.8
66.7
67.0
66.8
66.9
67.1
67.2
67.0
67.1
67.0
66.8
67.0
67.1
67.2
67.2
67.2
67.2

79.6
79.4
79.4
78.7
78.4
78.5
78.6
78.6
78.2
77.9
77.4
77.1
77.1
77.0
76.9
76.8
76.9
77.1
76.9
76.4
76.4
76.1
75.9
76.1
76.1
76.2
76.0
76.1
76.1
76.1
76.1
75.9
76.2
75.8
75.9
76.0
75.9
75.8
75.9
75.6
75.6
75.7
75.8
75.7
75.9
75.9
76.1

60.1
62.0
62.9
61.9
62.3
64.0
65.0
64.8
63.7
62.4
60.0
59.4
59.0
59.7
59.3
59.0
60.0
61.0
59.4
57.2
56.7
56.5
57.7
56.4
56.7
57.0
56.6
56.1
56.8
56.5
57.3
56.1
56.1
56.7
56.0
58.5
58.1
57.6
58.9
58.1
57.5
57.6
57.9
56.3
57.6
56.3
57.7

82.0
81.6
81.4
80.7
80.3
80.2
80.1
80.1
79.8
79.5
79.2
78.9
78.7
78.5
78.5
78.4
78.3
78.5
78.3
77.8
77.8
77.5
77.3
77.5
77.5
77.6
77.4
77.5
77.5
77.5
77.5
77.3
77.7
77.2
77.4
77.4
77.3
77.2
77.2
77.0
77.0
77.1
77.2
77.2
77.3
77.4
77.5

43.2
44.1
45.2
45.9
46.9
48.0
49.4
50.5
51.2
51.9
52.4
52.7
53.3
54.1
55.0
55.7
56.4
57.2
57.5
57.4
57.8
58.0
58.9
57.7
57.7
57.7
57.6
58.0
58.0
58.0
58.1
58.1
58.3
58.3
58.4
58.7
59.0
58.7
58.8
59.0
58.6
58.8
59.0
59.2
59.1
59.1
58.9

48.1
50.1
51.7
51.5
52.8
54.5
56.7
57.4
56.2
55.4
55.0
54.5
55.4
55.2
56.3
56.5
57.2
57.1
55.4
54.3
52.6
53.7
55.1
53.0
53.2
52.5
53.1
55.0
52.6
53.3
53.3
54.1
55.2
54.4
54.2
54.6
54.9
55.4
57.0
56.0
56.0
55.0
55.3
52.7
54.3
54.7
56.0

42.7
43.5
44.4
45.3
46.2
47.3
48.7
49.8
50.6
51.5
52.2
52.5
53.1
54.0
54.9
55.6
56.3
57.2
57.6
57.7
58.1
58.3
59.2
58.1
58.0
58.0
57.9
58.2
58.4
58.3
58.5
58.4
58.5
58.6
58.7
59.0
59.3
59.0
58.9
59.2
58.8
59.0
59.2
59.6
59.4
59.4
59.1

59.9
60.2
59.8
58.8
59.0
59.8
61.5
61.4
61.0
60.8
61.0
61.5
62.2
62.9
63.3
63.8
63.8
64.2
63.3
62.6
63.3
62.4
63.4
62.4
63.2
62.4
62.3
62.6
62.4
62.3
62.4
62.3
62.1
62.5
62.3
63.5
63.6
63.8
63.6
63.6
63.4
62.8
63.0
63.1
63.7
63.3
63.1

73.6
73.4
72.9
70.9
70.0
70.6
71.5
71.3
70.3
70.0
70.1
70.6
70.8
70.8
71.2
71.1
71.0
71.0
70.1
69.5
69.7
68.6
69.1
69.1
69.7
69.0
68.6
68.9
68.6
68.8
68.9
68.3
67.6
68.0
67.3
68.9
69.4
69.0
69.2
69.8
68.8
68.4
68.3
68.6
69.6
69.3
69.3

46.3
45.7
46.7
42.6
41.3
43.2
44.9
43.6
43.2
41.6
39.8
39.9
41.7
44.6
43.7
43.6
43.8
44.6
40.6
37.4
40.7
39.5
40.8
41.1
41.7
41.3
44.6
42.7
39.8
41.0
39.2
38.0
34.9
34.9
35.2
40.4
39.4
39.9
40.4
39.8
41.8
41.6
41.4
39.4
42.9
41.4
40.7

87.1
87.8
87.8
87.0
87.1
86.7
86.2
85.5
84.2
83.9
84.1
83.7
83.3
82.9
82.2
81.4
81.4
80.0
78.6
Black

1 Civilian

labor force as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




318

78.5
78.4
77.6
76.0
75.4
75.6
76.2
76.3
75.1
74.5
74.7
75.2
74.8
74.4
74.8
74.7
74.6
74.4
73.8
73.4
73.1
72.0
72.5
72.3
73.0
72.2
71.3
72.0
71.9
72.0
72.4
71.8
71.5
71.8
70.9
72.3
73.0
72.4
72.6
73.3
72.0
71.7
71.5
72.1
72.7
72.6
72.7

TABLE B–39.—Civilian employment/population ratio by demographic characteristic, 1954–94
[Percent;1 monthly data seasonally adjusted]
White

Year or month

All
civilian
workers

Black and other or black

Males

Females

Total

16–19
years

20
years
and
over

Total

Total

Males

16–19
years

20
years
and
over

Total
Total

16–19
years

Females
20
years
and
over

16–19
years

20
years
and
over

41.9
42.2
43.0
43.7
42.8
43.2
43.6
42.6
42.7
42.7
43.4
44.1
45.1
45.0
45.2
45.9
44.9
43.9
43.3

24.7
26.4
28.0
26.5
22.8
20.3
24.8
23.2
23.1
21.3
21.8
20.2
23.1
24.8
24.7
25.1
22.4
20.2
19.9

43.7
43.9
44.7
45.5
45.0
45.7
45.8
44.8
44.9
45.2
46.1
47.3
48.2
47.9
48.2
48.9
48.2
47.3
46.7

43.0
43.8
43.5
41.6
42.8
43.3
45.8
46.0
45.7
45.1
44.2
44.1
46.7
48.1
48.8
50.3
51.2
52.0
51.6
50.3
50.4
50.5
52.3
49.1
50.5
50.1
50.1
50.5
50.2
50.0
50.5
50.8
51.2
51.5
51.7
51.8
51.8
52.0
52.3
51.9
52.5
52.4
52.4
52.5
52.5
52.5
52.4

19.2
22.0
20.9
20.2
19.2
18.5
22.1
22.4
21.0
19.7
17.7
17.0
20.1
23.1
23.8
25.8
25.8
27.1
25.7
21.4
22.1
21.6
24.5
21.8
21.5
19.4
18.0
21.7
18.8
23.5
23.5
22.9
22.9
22.2
22.8
29.8
25.2
25.3
25.3
21.7
24.7
24.2
24.0
24.2
23.8
23.9
21.2

46.5
47.2
46.9
44.9
46.4
47.0
49.3
49.3
49.1
48.5
47.5
47.4
49.8
50.9
51.6
53.0
53.9
54.6
54.2
53.1
53.1
53.2
55.0
51.6
53.2
53.0
53.1
53.2
53.1
52.5
53.0
53.4
53.9
54.2
54.5
54.0
54.4
54.6
54.9
54.9
55.3
55.2
55.2
55.2
55.3
55.3
55.5

Total

Black and other
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972

..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................

55.5
56.7
57.5
57.1
55.4
56.0
56.1
55.4
55.5
55.4
55.7
56.2
56.9
57.3
57.5
58.0
57.4
56.6
57.0

55.2
56.5
57.3
56.8
55.3
55.9
55.9
55.3
55.4
55.3
55.5
56.0
56.8
57.2
57.4
58.0
57.5
56.8
57.4

81.5
82.2
82.7
81.8
79.2
79.9
79.4
78.2
78.4
77.7
77.8
77.9
78.3
78.4
78.3
78.2
76.8
75.7
76.0

49.9
52.0
54.1
52.4
47.6
48.1
48.1
45.9
46.4
44.7
45.0
47.1
50.1
50.2
50.3
51.1
49.6
49.2
51.5

84.0
84.7
85.0
84.1
81.8
82.8
82.4
81.4
81.5
81.1
81.3
81.5
81.7
81.7
81.6
81.4
80.1
79.0
79.0

31.4
33.0
34.2
34.2
33.6
34.0
34.6
34.5
34.7
35.0
35.5
36.2
37.5
38.3
38.9
40.1
40.3
39.9
40.7

36.4
37.0
38.9
38.2
35.0
34.8
35.1
34.6
34.8
32.9
32.2
33.7
37.5
37.7
37.8
39.5
39.5
38.6
41.3

31.1
32.7
33.8
33.9
33.5
34.0
34.5
34.5
34.7
35.2
35.8
36.5
37.5
38.3
39.1
40.1
40.4
40.1
40.6

58.0
58.7
59.5
59.3
56.7
57.5
57.9
56.2
56.3
56.2
57.0
57.8
58.4
58.2
58.0
58.1
56.8
54.9
54.1

76.5
77.6
78.4
77.2
72.5
73.8
74.1
71.7
72.0
71.8
72.9
73.7
74.0
73.8
73.3
72.8
70.9
68.1
67.3

52.4
52.7
52.2
48.0
42.0
41.4
43.8
41.0
41.7
37.4
37.8
39.4
40.5
38.8
38.7
39.0
35.5
31.8
32.4

1972 ..................
1973 ..................
1974 ..................
1975 ..................
1976 ..................
1977 ..................
1978 ..................
1979 ..................
1980 ..................
1981 ..................
1982 ..................
1983 ..................
1984 ..................
1985 ..................
1986 ..................
1987 ..................
1988 ..................
1989 ..................
1990 ..................
1991 ..................
1992 ..................
1993 ..................
1994 ..................
1993: Jan ...........
Feb ..........
Mar .........
Apr ..........
May .........
June ........
July .........
Aug .........
Sept ........
Oct ..........
Nov .........
Dec .........
1994: Jan ...........
Feb ..........
Mar .........
Apr ..........
May .........
June ........
July .........
Aug .........
Sept ........
Oct ..........
Nov .........
Dec .........

57.0
57.8
57.8
56.1
56.8
57.9
59.3
59.9
59.2
59.0
57.8
57.9
59.5
60.1
60.7
61.5
62.3
63.0
62.7
61.6
61.4
61.6
62.5
61.3
61.4
61.4
61.4
61.7
61.6
61.6
61.8
61.6
61.8
61.9
62.0
62.2
62.3
62.3
62.3
62.4
62.3
62.4
62.5
62.7
62.9
63.0
63.0

57.4
58.2
58.3
56.7
57.5
58.6
60.0
60.6
60.0
60.0
58.8
58.9
60.5
61.0
61.5
62.3
63.1
63.8
63.6
62.6
62.4
62.7
63.5
62.5
62.5
62.5
62.4
62.7
62.7
62.7
62.9
62.8
62.9
63.0
63.1
63.2
63.4
63.2
63.3
63.5
63.3
63.4
63.6
63.8
63.9
64.0
64.0

76.0
76.5
75.9
73.0
73.4
74.1
75.0
75.1
73.4
72.8
70.6
70.4
72.1
72.3
72.3
72.7
73.2
73.7
73.2
71.5
71.1
71.3
71.8
71.2
71.2
71.2
71.2
71.3
71.3
71.2
71.4
71.3
71.4
71.6
71.5
71.5
71.5
71.4
71.5
71.6
71.6
71.6
71.8
71.9
72.1
72.2
72.4

51.5
54.3
54.4
50.6
51.5
54.4
56.3
55.7
53.4
51.3
47.0
47.4
49.1
49.9
49.6
49.9
51.7
52.6
51.0
47.2
46.3
46.6
48.3
46.3
46.6
47.3
46.1
46.4
46.3
46.5
47.2
46.7
46.0
46.7
46.5
48.0
48.3
47.9
48.1
48.2
48.9
48.3
49.0
47.2
48.8
48.3
48.5

79.0
79.2
78.6
75.7
76.0
76.5
77.2
77.3
75.6
75.1
73.0
72.6
74.3
74.3
74.3
74.7
75.1
75.4
75.0
73.3
72.9
73.1
73.6
73.0
73.0
73.0
73.0
73.1
73.1
73.0
73.2
73.1
73.3
73.4
73.3
73.3
73.3
73.3
73.3
73.4
73.3
73.4
73.6
73.8
73.9
74.1
74.2

40.7
41.8
42.4
42.0
43.2
44.5
46.3
47.5
47.8
48.3
48.1
48.5
49.8
50.7
51.7
52.8
53.8
54.6
54.8
54.3
54.3
54.7
55.8
54.3
54.3
54.4
54.3
54.6
54.7
54.8
54.9
54.9
54.9
55.1
55.2
55.4
55.8
55.5
55.6
55.9
55.5
55.7
55.9
56.2
56.2
56.2
56.2

41.3
43.6
44.3
42.5
44.2
45.9
48.5
49.4
47.9
46.2
44.6
44.5
47.0
47.1
47.9
49.0
50.2
50.5
48.5
46.1
44.3
45.8
47.5
45.0
45.0
44.3
45.4
46.0
45.2
46.2
45.9
46.3
46.3
47.2
46.9
46.9
46.9
47.6
48.0
48.3
48.4
47.8
47.7
45.7
46.9
47.8
48.6

40.6
41.6
42.2
41.9
43.1
44.4
46.1
47.3
47.8
48.5
48.4
48.9
50.0
51.0
52.0
53.1
54.0
54.9
55.2
54.8
54.9
55.3
56.4
54.9
54.9
55.1
54.9
55.2
55.3
55.4
55.5
55.4
55.4
55.6
55.8
56.0
56.4
56.1
56.1
56.5
56.0
56.3
56.5
56.9
56.8
56.8
56.7

53.7
54.5
53.5
50.1
50.8
51.4
53.6
53.8
52.3
51.3
49.4
49.5
52.3
53.4
54.1
55.6
56.3
56.9
56.2
54.9
54.3
54.4
56.1
53.5
54.8
54.0
53.8
54.5
54.1
54.3
54.6
54.5
54.8
54.7
55.1
55.2
55.5
55.8
56.0
56.1
56.2
55.8
55.8
56.3
56.6
56.7
56.9

66.8
67.5
65.8
60.6
60.6
61.4
63.3
63.4
60.4
59.1
56.0
56.3
59.2
60.0
60.6
62.0
62.7
62.8
61.8
60.5
59.1
59.1
60.8
59.0
60.1
58.7
58.3
59.3
58.9
59.6
59.7
58.9
59.1
58.6
59.1
59.4
60.1
60.6
60.7
61.3
60.6
59.9
60.0
61.1
61.8
61.9
62.4

31.6
32.8
31.4
26.3
25.8
26.4
28.5
28.7
27.0
24.6
20.3
20.4
23.9
26.3
26.5
28.5
29.4
30.4
27.6
23.8
23.6
23.6
25.4
24.8
25.2
23.1
23.7
25.6
24.4
25.5
25.5
22.9
20.8
21.2
21.5
24.5
23.7
24.5
24.4
23.5
25.4
24.4
24.9
27.3
27.5
28.2
26.7

79.2
80.4
81.3
80.5
76.0
77.6
77.9
75.5
75.7
76.2
77.7
78.7
79.2
79.4
78.9
78.4
76.8
74.2
73.2
Black

1 Civilian

employment as percent of civilian noninstitutional population in group specified.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.




319

73.0
73.7
71.9
66.5
66.8
67.5
69.1
69.1
65.8
64.5
61.4
61.6
64.1
64.6
65.1
66.4
67.1
67.0
66.1
64.9
63.3
63.2
65.0
63.0
64.1
62.8
62.2
63.2
62.9
63.5
63.7
63.1
63.6
63.0
63.5
63.5
64.4
64.9
65.0
65.8
64.8
64.2
64.2
65.1
65.8
65.9
66.7

TABLE B–40.—Civilian unemployment rate, 1948–94
[Percent;1 monthly data seasonally adjusted]
Males
Year or month

1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994

All
civilian
workers Total

16–
19
years

Females
20
years
and
over

Total

16–
19
years

20
years
and
over

Both
sexes
16–19
years

White

Black
and
other

Black

...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............

3.8
5.9
5.3
3.3
3.0
2.9
5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1

3.6
5.9
5.1
2.8
2.8
2.8
5.3
4.2
3.8
4.1
6.8
5.2
5.4
6.4
5.2
5.2
4.6
4.0
3.2
3.1
2.9
2.8
4.4
5.3
5.0
4.2
4.9
7.9
7.1
6.3
5.3
5.1
6.9
7.4
9.9
9.9
7.4
7.0
6.9
6.2
5.5
5.2
5.6
7.0
7.8
7.1
6.2

9.8
14.3
12.7
8.1
8.9
7.9
13.5
11.6
11.1
12.4
17.1
15.3
15.3
17.1
14.7
17.2
15.8
14.1
11.7
12.3
11.6
11.4
15.0
16.6
15.9
13.9
15.6
20.1
19.2
17.3
15.8
15.9
18.3
20.1
24.4
23.3
19.6
19.5
19.0
17.8
16.0
15.9
16.3
19.8
21.5
20.4
19.0

3.2
5.4
4.7
2.5
2.4
2.5
4.9
3.8
3.4
3.6
6.2
4.7
4.7
5.7
4.6
4.5
3.9
3.2
2.5
2.3
2.2
2.1
3.5
4.4
4.0
3.3
3.8
6.8
5.9
5.2
4.3
4.2
5.9
6.3
8.8
8.9
6.6
6.2
6.1
5.4
4.8
4.5
4.9
6.3
7.0
6.4
5.4

4.1
6.0
5.7
4.4
3.6
3.3
6.0
4.9
4.8
4.7
6.8
5.9
5.9
7.2
6.2
6.5
6.2
5.5
4.8
5.2
4.8
4.7
5.9
6.9
6.6
6.0
6.7
9.3
8.6
8.2
7.2
6.8
7.4
7.9
9.4
9.2
7.6
7.4
7.1
6.2
5.6
5.4
5.4
6.3
6.9
6.5
6.0

8.3
12.3
11.4
8.3
8.0
7.2
11.4
10.2
11.2
10.6
14.3
13.5
13.9
16.3
14.6
17.2
16.6
15.7
14.1
13.5
14.0
13.3
15.6
17.2
16.7
15.3
16.6
19.7
18.7
18.3
17.1
16.4
17.2
19.0
21.9
21.3
18.0
17.6
17.6
15.9
14.4
14.0
14.7
17.4
18.5
17.4
16.2

3.6
5.3
5.1
4.0
3.2
2.9
5.5
4.4
4.2
4.1
6.1
5.2
5.1
6.3
5.4
5.4
5.2
4.5
3.8
4.2
3.8
3.7
4.8
5.7
5.4
4.9
5.5
8.0
7.4
7.0
6.0
5.7
6.4
6.8
8.3
8.1
6.8
6.6
6.2
5.4
4.9
4.7
4.8
5.7
6.3
5.9
5.4

9.2
13.4
12.2
8.2
8.5
7.6
12.6
11.0
11.1
11.6
15.9
14.6
14.7
16.8
14.7
17.2
16.2
14.8
12.8
12.9
12.7
12.2
15.3
16.9
16.2
14.5
16.0
19.9
19.0
17.8
16.4
16.1
17.8
19.6
23.2
22.4
18.9
18.6
18.3
16.9
15.3
15.0
15.5
18.6
20.0
19.0
17.6

3.5
5.6
4.9
3.1
2.8
2.7
5.0
3.9
3.6
3.8
6.1
4.8
5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1
4.5
5.4
5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1
6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3
4.7
4.5
4.7
6.0
6.5
6.0
5.3

5.9
8.9
9.0
5.3
5.4
4.5
9.9
8.7
8.3
7.9
12.6
10.7
10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4
8.2
9.9
10.0
9.0
9.9
13.8
13.1
13.1
11.9
11.3
13.1
14.2
17.3
17.8
14.4
13.7
13.1
11.6
10.4
10.0
10.1
11.1
12.7
11.7
10.5

............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3
14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0
11.7
11.4
11.3
12.4
14.1
12.9
11.5

1993: Jan ........
Feb .......
Mar .......
Apr ........
May ......
June ......
July .......
Aug .......
Sept ......
Oct ........
Nov .......
Dec .......
1994: Jan ........
Feb .......
Mar .......
Apr ........
May ......
June ......
July .......
Aug .......
Sept ......
Oct ........
Nov .......
Dec .......

7.1
7.0
7.0
7.0
6.9
6.9
6.8
6.7
6.7
6.7
6.5
6.4
6.7
6.6
6.5
6.4
6.1
6.1
6.1
6.0
5.8
5.7
5.6
5.4

7.2
7.3
7.4
7.3
7.2
7.2
7.2
7.1
6.9
6.9
6.6
6.5
6.9
6.7
6.6
6.5
6.2
6.0
6.3
6.1
5.8
5.7
5.5
5.5

20.7
20.6
20.3
22.4
20.5
21.1
20.4
20.1
19.4
20.3
19.9
19.4
20.7
19.7
19.6
20.2
19.9
18.0
19.4
18.8
18.5
18.1
16.5
18.5

6.5
6.6
6.7
6.5
6.5
6.5
6.5
6.4
6.3
6.2
5.9
5.8
6.1
6.0
5.8
5.7
5.4
5.3
5.5
5.3
5.1
5.0
4.9
4.7

7.0
6.7
6.4
6.6
6.6
6.6
6.4
6.3
6.3
6.4
6.4
6.2
6.5
6.4
6.5
6.3
6.1
6.1
5.9
6.0
5.8
5.7
5.6
5.4

18.4
18.5
18.5
17.9
19.1
17.6
16.2
16.5
16.4
17.3
16.5
16.1
16.0
16.5
16.3
18.1
16.2
16.0
15.9
16.1
15.9
16.0
15.0
15.8

6.3
6.0
5.7
6.0
5.9
5.9
5.8
5.7
5.8
5.8
5.7
5.7
5.9
5.7
5.9
5.6
5.4
5.4
5.3
5.3
5.2
5.0
5.0
4.7

19.6
19.6
19.5
20.3
19.8
19.5
18.4
18.4
17.9
18.9
18.3
17.8
18.5
18.2
18.0
19.2
18.1
17.1
17.7
17.5
17.2
17.1
15.8
17.2

6.2
6.1
6.1
6.1
6.1
6.1
6.0
5.9
5.8
6.1
5.6
5.6
5.8
5.7
5.6
5.6
5.3
5.3
5.3
5.2
5.1
5.0
4.8
4.8

12.7
12.1
12.0
12.4
11.8
12.0
11.6
11.5
11.4
10.9
11.3
10.7
11.4
11.3
11.3
10.8
10.6
10.4
10.3
10.6
10.2
10.4
9.8
9.2

14.1
13.3
13.5
13.7
12.9
13.3
12.8
12.5
12.5
11.9
12.5
11.5
13.0
12.7
12.4
11.9
11.7
11.3
11.2
11.3
10.7
11.1
10.5
9.8

1 Unemployed

as percent of civilian labor force in group specified.
for 1949 and 1951–54 are for April; 1950, for March.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.

2 Data




320

Experienced
wage
and
salary
workers

Married
men,
spouse
present 2

Women
who
maintain
families

4.3 ................. ...............
6.8
3.5 ...............
6.0
4.6 ...............
3.7
1.5 ...............
3.4
1.4 ...............
3.2
1.7 ...............
6.2
4.0 ...............
4.8
2.6 ...............
4.4
2.3 ...............
4.6
2.8 ...............
7.3
5.1 ...............
5.7
3.6 ...............
5.7
3.7 ...............
6.8
4.6 ...............
5.6
3.6 ...............
5.6
3.4 ...............
5.0
2.8 ...............
4.3
2.4 ...............
3.5
1.9 ...............
3.6
1.8
4.9
3.4
1.6
4.4
3.3
1.5
4.4
4.8
2.6
5.4
5.7
3.2
7.3
5.3
2.8
7.2
4.5
2.3
7.1
5.3
2.7
7.0
8.2
5.1
10.0
7.3
4.2
10.1
6.6
3.6
9.4
5.6
2.8
8.5
5.5
2.8
8.3
6.9
4.2
9.2
7.3
4.3
10.4
9.3
6.5
11.7
9.2
6.5
12.2
7.1
4.6
10.3
6.8
4.3
10.4
6.6
4.4
9.8
5.8
3.9
9.2
5.2
3.3
8.1
5.0
3.0
8.1
5.3
3.4
8.2
6.5
4.4
9.1
7.1
5.0
9.9
6.5
4.4
9.5
5.9
3.7
8.9
6.8
6.7
6.7
6.7
6.6
6.6
6.5
6.4
6.3
6.4
6.2
6.2
6.6
6.4
6.4
6.2
5.9
5.9
6.0
5.8
5.7
5.5
5.4
5.3

4.5
4.6
4.7
4.5
4.5
4.4
4.5
4.4
4.2
4.4
4.0
3.9
4.2
4.3
4.1
3.9
3.7
3.6
3.6
3.5
3.4
3.3
3.2
3.2

10.4
10.1
9.0
9.6
9.8
9.7
9.6
9.0
9.0
9.3
9.0
10.2
9.3
9.5
9.4
9.1
8.9
8.8
7.9
8.8
8.9
8.9
8.7
8.8

TABLE B–41.—Civilian unemployment rate by demographic characteristic, 1954–94
[Percent; 1 monthly data seasonally adjusted]
White

Year or month

All
civilian
workers

Black and other or black

Males

Females

Total

16–19
years

20
years
and
over

Total

Total

Males

16–19
years

20
years
and
over

Total
Total

16–19
years

Females
20
years
and
over

16–19
years

20
years
and
over

9.2
8.5
8.9
7.3
10.8
9.4
9.4
11.9
11.0
11.2
10.7
9.2
8.7
9.1
8.3
7.8
9.3
10.9
11.4

20.6
19.2
22.8
20.2
28.4
27.7
24.8
29.2
30.2
34.7
31.6
31.7
31.3
29.6
28.7
27.6
34.5
35.4
38.4

8.4
7.7
7.8
6.4
9.5
8.3
8.3
10.6
9.6
9.4
9.0
7.5
6.6
7.1
6.3
5.8
6.9
8.7
8.8

11.8
11.1
11.3
14.8
14.3
14.9
13.8
13.3
14.0
15.6
17.6
18.6
15.4
14.9
14.2
13.2
11.7
11.4
10.8
11.9
13.0
12.0
11.0
13.7
12.6
12.1
12.4
11.9
12.4
12.3
11.6
11.4
11.1
11.3
11.0
12.2
12.0
12.7
11.6
11.3
10.8
10.1
10.6
10.4
11.0
10.3
9.7

40.5
36.1
37.4
41.0
41.6
43.4
40.8
39.1
39.8
42.2
47.1
48.2
42.6
39.2
39.2
34.9
32.0
33.0
30.0
36.1
37.2
37.5
32.6
38.5
38.4
40.1
43.2
38.7
44.8
34.7
32.0
32.3
32.8
39.7
35.2
26.7
30.2
30.3
31.0
35.0
32.6
32.7
31.9
33.4
39.1
34.1
35.0

9.0
8.6
8.8
12.2
11.7
12.3
11.2
10.9
11.9
13.4
15.4
16.5
13.5
13.1
12.4
11.6
10.4
9.8
9.6
10.5
11.7
10.6
9.8
12.3
11.2
10.6
10.9
10.4
10.7
11.0
10.5
10.2
10.0
9.7
9.7
11.3
10.9
11.7
10.5
10.0
9.5
8.8
9.4
9.0
9.2
8.9
8.3

Total

Black and other
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972

..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................
..........................

5.5
4.4
4.1
4.3
6.8
5.5
5.5
6.7
5.5
5.7
5.2
4.5
3.8
3.8
3.6
3.5
4.9
5.9
5.6

5.0
3.9
3.6
3.8
6.1
4.8
5.0
6.0
4.9
5.0
4.6
4.1
3.4
3.4
3.2
3.1
4.5
5.4
5.1

4.8
3.7
3.4
3.6
6.1
4.6
4.8
5.7
4.6
4.7
4.1
3.6
2.8
2.7
2.6
2.5
4.0
4.9
4.5

13.4
11.3
10.5
11.5
15.7
14.0
14.0
15.7
13.7
15.9
14.7
12.9
10.5
10.7
10.1
10.0
13.7
15.1
14.2

4.4
3.3
3.0
3.2
5.5
4.1
4.2
5.1
4.0
3.9
3.4
2.9
2.2
2.1
2.0
1.9
3.2
4.0
3.6

5.5
4.3
4.2
4.3
6.2
5.3
5.3
6.5
5.5
5.8
5.5
5.0
4.3
4.6
4.3
4.2
5.4
6.3
5.9

10.4
9.1
9.7
9.5
12.7
12.0
12.7
14.8
12.8
15.1
14.9
14.0
12.1
11.5
12.1
11.5
13.4
15.1
14.2

5.1
3.9
3.7
3.8
5.6
4.7
4.6
5.7
4.7
4.8
4.6
4.0
3.3
3.8
3.4
3.4
4.4
5.3
4.9

9.9
8.7
8.3
7.9
12.6
10.7
10.2
12.4
10.9
10.8
9.6
8.1
7.3
7.4
6.7
6.4
8.2
9.9
10.0

10.3
8.8
7.9
8.3
13.7
11.5
10.7
12.8
10.9
10.5
8.9
7.4
6.3
6.0
5.6
5.3
7.3
9.1
8.9

14.4
13.4
15.0
18.4
26.8
25.2
24.0
26.8
22.0
27.3
24.3
23.3
21.3
23.9
22.1
21.4
25.0
28.8
29.7

1972 ..........................
1973 ..........................
1974 ..........................
1975 ..........................
1976 ..........................
1977 ..........................
1978 ..........................
1979 ..........................
1980 ..........................
1981 ..........................
1982 ..........................
1983 ..........................
1984 ..........................
1985 ..........................
1986 ..........................
1987 ..........................
1988 ..........................
1989 ..........................
1990 ..........................
1991 ..........................
1992 ..........................
1993 ..........................
1994 ..........................
1993: Jan ...................
Feb ..................
Mar .................
Apr ..................
May .................
June ................
July .................
Aug .................
Sept ................
Oct ..................
Nov ..................
Dec ..................
1994: Jan ...................
Feb ..................
Mar .................
Apr ..................
May .................
June ................
July .................
Aug .................
Sept ................
Oct ..................
Nov ..................
Dec ..................

5.6
4.9
5.6
8.5
7.7
7.1
6.1
5.8
7.1
7.6
9.7
9.6
7.5
7.2
7.0
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1
7.1
7.0
7.0
7.0
6.9
6.9
6.8
6.7
6.7
6.7
6.5
6.4
6.7
6.6
6.5
6.4
6.1
6.1
6.1
6.0
5.8
5.7
5.6
5.4

5.1
4.3
5.0
7.8
7.0
6.2
5.2
5.1
6.3
6.7
8.6
8.4
6.5
6.2
6.0
5.3
4.7
4.5
4.7
6.0
6.5
6.0
5.3
6.2
6.1
6.1
6.1
6.1
6.1
6.0
5.9
5.8
6.1
5.6
5.6
5.8
5.7
5.6
5.6
5.3
5.3
5.3
5.2
5.1
5.0
4.8
4.8

4.5
3.8
4.4
7.2
6.4
5.5
4.6
4.5
6.1
6.5
8.8
8.8
6.4
6.1
6.0
5.4
4.7
4.5
4.8
6.4
6.9
6.2
5.4
6.4
6.4
6.5
6.4
6.3
6.3
6.4
6.2
6.1
6.3
5.6
5.8
5.9
5.8
5.7
5.8
5.4
5.3
5.4
5.2
5.1
5.0
4.8
4.9

14.2
12.3
13.5
18.3
17.3
15.0
13.5
13.9
16.2
17.9
21.7
20.2
16.8
16.5
16.3
15.5
13.9
13.7
14.2
17.5
18.4
17.6
16.3
17.9
17.8
17.1
18.5
17.2
18.4
17.7
17.7
16.8
17.9
17.7
16.9
18.0
16.9
16.8
18.3
17.0
15.1
16.1
15.4
16.2
15.2
14.3
16.0

3.6
3.0
3.5
6.2
5.4
4.7
3.7
3.6
5.3
5.6
7.8
7.9
5.7
5.4
5.3
4.8
4.1
3.9
4.3
5.7
6.3
5.6
4.8
5.8
5.8
5.9
5.7
5.7
5.7
5.8
5.6
5.5
5.7
5.0
5.2
5.2
5.2
5.1
5.0
4.7
4.7
4.8
4.6
4.4
4.4
4.3
4.2

5.9
5.3
6.1
8.6
7.9
7.3
6.2
5.9
6.5
6.9
8.3
7.9
6.5
6.4
6.1
5.2
4.7
4.5
4.6
5.5
6.0
5.7
5.2
5.9
5.8
5.7
5.7
5.8
5.8
5.5
5.5
5.6
5.9
5.6
5.4
5.6
5.5
5.5
5.4
5.2
5.3
5.2
5.2
5.1
4.9
4.8
4.7

14.2
13.0
14.5
17.4
16.4
15.9
14.4
14.0
14.8
16.6
19.0
18.3
15.2
14.8
14.9
13.4
12.3
11.5
12.6
15.2
15.7
14.6
13.8
15.0
15.3
15.5
14.5
16.3
14.0
13.4
14.0
14.3
16.0
13.3
13.4
14.1
14.4
14.2
15.9
13.7
13.6
13.1
13.7
13.3
13.5
12.6
13.2

4.9
4.3
5.1
7.5
6.8
6.2
5.2
5.0
5.6
5.9
7.3
6.9
5.8
5.7
5.4
4.6
4.1
4.0
4.1
4.9
5.4
5.1
4.6
5.4
5.2
5.1
5.2
5.1
5.3
5.1
5.0
5.0
5.3
5.1
4.9
5.0
4.9
4.9
4.7
4.6
4.7
4.7
4.6
4.6
4.4
4.3
4.1

10.4
9.4
10.5
14.8
14.0
14.0
12.8
12.3
14.3
15.6
18.9
19.5
15.9
15.1
14.5
13.0
11.7
11.4
11.3
12.4
14.1
12.9
11.5
14.1
13.3
13.5
13.7
12.9
13.3
12.8
12.5
12.5
11.9
12.5
11.5
13.0
12.7
12.4
11.9
11.7
11.3
11.2
11.3
10.7
11.1
10.5
9.8

9.3
8.0
9.8
14.8
13.7
13.3
11.8
11.4
14.5
15.7
20.1
20.3
16.4
15.3
14.8
12.7
11.7
11.5
11.8
12.9
15.2
13.8
12.0
14.6
13.9
14.9
15.0
14.0
14.1
13.4
13.4
13.7
12.6
13.8
12.1
13.9
13.5
12.2
12.3
12.2
11.9
12.4
12.1
11.0
11.2
10.6
9.9

31.7
27.8
33.1
38.1
37.5
39.2
36.7
34.2
37.5
40.7
48.9
48.8
42.7
41.0
39.3
34.4
32.7
31.9
32.1
36.5
42.0
40.1
37.6
39.7
39.5
44.1
46.8
40.2
38.8
37.9
34.9
39.7
40.6
39.2
38.8
39.3
39.9
38.6
39.7
40.9
39.3
41.4
39.9
30.8
35.9
32.0
34.3

9.9
8.4
7.4
7.6
12.7
10.5
9.6
11.7
10.0
9.2
7.7
6.0
4.9
4.3
3.9
3.7
5.6
7.3
6.9
Black

1 Unemployed

as percent of civilian labor force in group specified.
Note.—See Note, Table B–40.
Source: Department of Labor, Bureau of Labor Statistics.




321

7.0
6.0
7.4
12.5
11.4
10.7
9.3
9.3
12.4
13.5
17.8
18.1
14.3
13.2
12.9
11.1
10.1
10.0
10.4
11.5
13.4
12.1
10.3
12.9
12.2
13.0
12.7
12.2
12.6
11.8
12.0
12.1
11.0
12.3
10.5
12.2
11.8
10.4
10.5
10.3
10.0
10.4
10.2
9.8
9.5
9.2
8.3

TABLE B–42.—Unemployment by duration and reason, 1950–94
[ Thousands of persons, except as noted; monthly data seasonally adjusted 1 ]
Duration of unemployment
Year or month

1950 ..............................
1951 ..............................
1952 ..............................
1953 ..............................
1954 ..............................
1955 ..............................
1956 ..............................
1957 ..............................
1958 ..............................
1959 ..............................
1960 ..............................
1961 ..............................
1962 ..............................
1963 ..............................
1964 ..............................
1965 ..............................
1966 ..............................
1967 2 ...........................
1968 ..............................
1969 ..............................
1970 ..............................
1971 ..............................
1972 ..............................
1973 ..............................
1974 ..............................
1975 ..............................
1976 ..............................
1977 ..............................
1978 ..............................
1979 ..............................
1980 ..............................
1981 ..............................
1982 ..............................
1983 ..............................
1984 ..............................
1985 ..............................
1986 ..............................
1987 ..............................
1988 ..............................
1989 ..............................
1990 ..............................
1991 ..............................
1992 ..............................
1993 ..............................
1994 ..............................
1993: Jan ......................
Feb ......................
Mar .....................
Apr ......................
May .....................
June ....................
July .....................
Aug .....................
Sept ....................
Oct ......................
Nov .....................
Dec .....................
1994: Jan ......................
Feb ......................
Mar .....................
Apr ......................
May .....................
June ....................
July .....................
Aug .....................
Sept ....................
Oct ......................
Nov .....................
Dec .....................

Unemployment

3,288
2,055
1,883
1,834
3,532
2,852
2,750
2,859
4,602
3,740
3,852
4,714
3,911
4,070
3,786
3,366
2,875
2,975
2,817
2,832
4,093
5,016
4,882
4,365
5,156
7,929
7,406
6,991
6,202
6,137
7,637
8,273
10,678
10,717
8,539
8,312
8,237
7,425
6,701
6,528
6,874
8,426
9,384
8,734
7,996
9,046
8,958
8,878
8,954
8,895
8,869
8,732
8,642
8,540
8,639
8,330
8,237
8,740
8,576
8,546
8,385
7,996
7,903
7,993
7,889
7,647
7,505
7,315
7,155

Less
than
5
weeks

5–14
weeks

15–26
weeks

27
weeks
and
over

Average
(mean)
duration
(weeks)

1,450
1,177
1,135
1,142
1,605
1,335
1,412
1,408
1,753
1,585
1,719
1,806
1,663
1,751
1,697
1,628
1,573
1,634
1,594
1,629
2,139
2,245
2,242
2,224
2,604
2,940
2,844
2,919
2,865
2,950
3,295
3,449
3,883
3,570
3,350
3,498
3,448
3,246
3,084
3,174
3,169
3,380
3,270
3,160
2,728
3,262
3,232
3,148
3,309
3,242
3,232
3,223
3,046
3,052
3,156
2,946
3,063
3,319
2,677
2,749
2,772
2,651
2,754
2,768
2,655
2,675
2,434
2,599
2,587

1,055
574
516
482
1,116
815
805
891
1,396
1,114
1,176
1,376
1,134
1,231
1,117
983
779
893
810
827
1,290
1,585
1,472
1,314
1,597
2,484
2,196
2,132
1,923
1,946
2,470
2,539
3,311
2,937
2,451
2,509
2,557
2,196
2,007
1,978
2,201
2,724
2,760
2,522
2,408
2,543
2,549
2,583
2,537
2,526
2,758
2,543
2,608
2,457
2,491
2,401
2,247
2,351
2,670
2,574
2,482
2,461
2,452
2,365
2,572
2,294
2,256
2,163
2,149

425
166
148
132
495
366
301
321
785
469
503
728
534
535
491
404
287
271
256
242
428
668
601
483
574
1,303
1,018
913
766
706
1,052
1,122
1,708
1,652
1,104
1,025
1,045
943
801
730
809
1,225
1,424
1,274
1,237
1,372
1,284
1,275
1,311
1,270
1,257
1,258
1,259
1,297
1,284
1,216
1,150
1,308
1,318
1,264
1,237
1,160
1,193
1,234
1,198
1,213
1,344
1,187
1,088

357
137
84
78
317
336
232
239
667
571
454
804
585
553
482
351
239
177
156
133
235
519
566
343
381
1,203
1,348
1,028
648
535
820
1,162
1,776
2,559
1,634
1,280
1,187
1,040
809
646
695
1,098
1,930
1,778
1,623
1,921
1,890
1,835
1,675
1,776
1,768
1,749
1,741
1,750
1,746
1,755
1,714
1,738
1,748
1,792
1,735
1,693
1,547
1,589
1,575
1,555
1,590
1,474
1,368

12.1
9.7
8.4
8.0
11.8
13.0
11.3
10.5
13.9
14.4
12.8
15.6
14.7
14.0
13.3
11.8
10.4
8.7
8.4
7.8
8.6
11.3
12.0
10.0
9.8
14.2
15.8
14.3
11.9
10.8
11.9
13.7
15.6
20.0
18.2
15.6
15.0
14.5
13.5
11.9
12.1
13.8
17.9
18.1
18.8
18.5
18.2
17.7
17.7
17.8
17.8
17.9
18.3
18.4
18.4
18.9
18.2
18.4
18.8
19.2
19.1
19.4
18.4
19.0
18.9
18.8
19.3
18.2
17.8

1 Because

Reason for unemployment
Median
duration
(weeks)
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
............
2.3
4.5
4.4
4.9
6.3
6.2
5.2
5.2
8.4
8.2
7.0
5.9
5.4
6.5
6.9
8.7
10.1
7.9
6.8
6.9
6.5
5.9
4.8
5.4
6.9
8.8
8.4
9.2
8.6
8.4
8.4
8.5
8.3
8.3
8.3
8.4
8.9
8.3
8.5
8.2
8.5
8.9
9.1
9.2
9.2
9.1
9.2
9.2
9.5
10.1
9.1
8.7

Job losers 3
Total

On
layoff

Other

Job
leavers

Reentrants

New
entrants

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
1,229
1,070
1,017
1,811
2,323
2,108
1,694
2,242
4,386
3,679
3,166
2,585
2,635
3,947
4,267
6,268
6,258
4,421
4,139
4,033
3,566
3,092
2,983
3,322
4,608
5,291
4,769
3,815
4,934
4,799
4,856
4,862
4,752
4,845
4,872
4,864
4,699
4,779
4,444
4,442
4,395
4,163
4,068
3,880
3,640
3,734
3,863
3,706
3,574
3,513
3,495
3,442

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
394
334
339
675
735
582
472
746
1,671
1,050
865
712
851
1,488
1,430
2,127
1,780
1,171
1,157
1,090
943
851
850
1,018
1,279
1,246
1,104
977
1,072
1,081
1,096
1,068
1,144
1,131
1,183
1,190
1,112
1,216
963
1,060
1,149
1,091
1,011
979
811
931
1,031
1,012
824
848
881
930

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
836
736
678
1,137
1,588
1,526
1,221
1,495
2,714
2,628
2,300
1,873
1,784
2,459
2,837
4,141
4,478
3,250
2,982
2,943
2,623
2,241
2,133
2,305
3,329
4,045
3,664
2,838
3,862
3,718
3,760
3,794
3,608
3,714
3,689
3,674
3,587
3,563
3,481
3,382
3,246
3,072
3,057
2,901
2,829
2,803
2,832
2,694
2,750
2,665
2,614
2,512

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
438
431
436
550
590
641
683
768
827
903
909
874
880
891
923
840
830
823
877
1,015
965
983
1,024
1,014
979
975
946
791
834
1,020
1,061
990
960
940
915
882
926
957
960
932
817
852
823
810
796
788
770
786
874
755
710
704

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
945
909
965
1,228
1,472
1,456
1,340
1,463
1,892
1,928
1,963
1,857
1,806
1,927
2,102
2,384
2,412
2,184
2,256
2,160
1,974
1,809
1,843
1,883
2,087
2,228
2,145
2,786
2,295
2,281
2,059
2,187
2,237
2,201
2,117
2,081
2,075
2,084
2,084
2,018
2,824
2,936
2,989
3,164
2,863
2,785
2,766
2,758
2,620
2,626
2,575
2,525

..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
..........
396
407
413
504
630
677
649
681
823
895
953
885
817
872
981
1,185
1,216
1,110
1,039
1,029
920
816
677
654
753
890
874
604
950
899
922
920
890
894
870
834
843
839
833
797
644
636
630
679
611
498
594
621
600
614
578
555

of independent seasonal adjustment of the various series, detail will not add to totals.
for 1967 by reason for unemployment are not not equal to total unemployment.
January 1994, job losers and persons who completed temporary jobs.
Note.—Data relate to persons 16 years of age and over.
See footnote 5 and Note, Table B–33.
Source: Department of Labor, Bureau of Labor Statistics.

2 Data

3 Beginning




322

TABLE B–43.—Unemployment insurance programs, selected data, 1962–94
All programs

Year or month

Covered
employment 1

Insured
unemployment
(weekly
average) 2 3

State programs
Total
benefits
paid
(millions
of
dollars) 2 4

Thousands
1962 ..................................
1963 ..................................
1964 ..................................
1965 ..................................
1966 ..................................
1967 ..................................
1968 ..................................
1969 ..................................
1970 ..................................
1971 ..................................
1972 ..................................
1973 ..................................
1974 ..................................
1975 ..................................
1976 ..................................
1977 ..................................
1978 ..................................
1979 ..................................
1980 ..................................
1981 ..................................
1982 ..................................
1983 ..................................
1984 ..................................
1985 ..................................
1986 ..................................
1987 ..................................
1988 ..................................
1989 ..................................
1990 ..................................
1991 ..................................
1992 ..................................
1993 ..................................
1994 p ...............................

47,776
48,434
49,637
51,580
54,739
56,342
57,977
59,999
59,526
59,375
66,458
69,897
72,451
71,037
73,459
76,419
88,804
92,062
92,659
93,300
91,628
91,898
96,474
99,186
101,099
103,936
107,157
109,918
111,490
109,641
110,170
8 112,106
.................

1993: Jan ..........................
Feb ..........................
Mar .........................
Apr ..........................
May .........................
June ........................
July .........................
Aug .........................
Sept ........................
Oct ..........................
Nov .........................
Dec .........................
1994: Jan ..........................
Feb ..........................
Mar .........................
Apr ..........................
May .........................
June ........................
July .........................
Aug .........................
Sept ........................
Oct ..........................
Nov .........................
Dec p .......................

.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................
.................

Insured
unemployment

Initial
claims

Exhaustions 5

Insured
unemployment as
percent
of
covered
employment

Benefits paid
Total
(millions
of
dollars) 4

Average
weekly
check
(dollars) 6

4.4
4.3
3.8
3.0
2.3
2.5
2.2
2.1
3.4
4.1
3.5
2.7
3.5
6.0
4.6
3.9
3.3
2.9
3.9
3.5
4.6
3.9
2.8
2.9
2.8
2.4
2.0
2.1
2.4
3.2
3.1
2.6
2.5

2,675
2,775
2,522
2,166
1,771
2,092
2,032
2,128
3,849
4,957
4,471
4,008
5,975
11,755
8,975
8,357
7,717
8,613
13,761
13,262
20,650
17,763
12,595
14,131
15,329
13,607
12,565
13,760
17,356
24,526
23,869
20,535
19,778

34.56
35.27
35.92
37.19
39.75
41.25
43.43
46.17
50.34
54.02
56.76
59.00
64.25
70.23
75.16
78.79
83.67
89.67
98.95
106.70
119.34
123.59
123.47
128.14
135.65
140.55
144.97
151.73
161.56
169.88
173.64
179.62
182.19

2.6
2.5
2.6
2.6
2.7
2.7
2.7
2.7
2.7
2.7
2.6
2.6
2.6
2.6
2.6
2.6
2.6
2.6
2.6
2.5
2.4
2.4
2.3
2.3

2,075.5
2,024.3
2,361.5
1,958.0
1,631.5
1,811.0
1,684.3
1,746.4
1,552.2
1,402.5
1,609.7
1,905.9
2,170.7
2,195.4
2,459.4
1,891.6
1,746.4
1,770.7
1,610.8
1,757.1
1,459.8
1,368.1
1,520.7
1,713.1

177.36
179.47
180.70
180.50
180.52
179.88
178.30
179.71
179.61
180.46
180.07
179.10
181.46
183.95
183.72
183.68
182.60
181.44
179.80
178.61
181.76
182.45
181.78
184.00

Weekly average; thousands
1,946
1,753
1,450
1,129
1,270
1,187
1,177
2,070
2,608
2,192
1,793
2,558
4,937
3,846
3,308
2,645
2,592
3,837
3,410
4,592
3,774
2,560
2,699
2,739
2,369
2,135
2,205
2,575
3,406
3,348
2,845
2,746

3,145
3,026
2,749
2,360
1,891
2,222
2,191
2,299
4,209
6,154
5,491
4,517
6,934
16,802
12,345
10,999
9,007
9,401
16,175
15,287
23,775
20,206
13,109
15,056
16,293
14,929
13,694
14,948
18,721
26,717
9 26,460
9 22,950
22,216

3,400
3,355
3,405
2,939
2,604
2,812
2,660
2,725
2,426
2,330
2,570
2,802
3,521
3,517
3,406
2,880
2,631
2,638
2,581
2,579
2,185
2,206
2,347
2,530

2,162.7
2,109.8
2,456.4
2,034.9
1,696.8
1,882.9
1,750.1
1,814.4
1,616.9
1,472.9
1,710.3
2,015.6
2,281.1
2,292.7
2,548.0
1,961.8
1,814.0
1,856.1
1,691.0
1,849.0
1,522.6
1,429.4
1,588.4
1,780.2

7 1,973

1,783

302

7 1,806

7 298

1,605
1,328
1,061
1,205
1,111
1,101
1,805
2,150
1,848
1,632
2,262
3,986
2,991
2,655
2,359
2,434
3,350
3,047
4,059
3,395
2,475
2,617
2,643
2,300
2,081
2,158
2,522
3,342
3,245
2,751
2,671
**
2,697
2,631
2,679
2,759
2,789
2,840
2,851
2,819
2,823
2,815
2,776
2,694
2,720
2,791
2,744
2,722
2,755
2,760
2,738
2,679
2,622
2,567
2,517
2,507

268
232
203
226
201
200
296
295
261
247
363
478
386
375
346
388
488
460
583
438
377
397
378
328
310
330
388
447
408
341
340
**
350
341
358
350
348
348
352
329
328
341
335
325
369
351
340
350
367
351
349
327
320
325
325
327

32
30
26
21
15
17
16
16
25
39
35
29
37
81
63
55
39
39
59
57
80
80
50
49
52
46
38
37
45
67
74
62
57
**
70
66
66
66
59
61
61
61
57
56
56
57
64
60
61
64
60
59
60
57
49
51
51
51

**Monthly data are seasonally adjusted.
1 Includes persons under the State, UCFE (Federal employee, effective January 1955), RRB (Railroad Retirement Board) programs, and UCX
(unemployment compensation for ex-servicemembers, effective October 1958) programs.
2 Includes State, UCFE, RR, UCX, UCV (unemployment compensation for veterans, October 1952–January 1960), and SRA (Servicemen’s Readjustment Act, September 1944–September 1951) programs. Also includes Federal and State extended benefit programs. Does not include
FSB (Federal supplemental benefits), SUA (special unemployment assistance), Federal Supplemental Compensation, and Emergency Unemployment Compensation programs, except as noted in footnote 9.
3 Covered workers who have completed at least 1 week of unemployment.
4 Annual data are net amounts and monthly data are gross amounts.
5 Individuals receiving final payments in benefit year.
6 For total unemployment only.
7 Programs include Puerto Rican sugarcane workers for initial claims and insured unemployment beginning July 1963.
8 Latest data available for all programs combined. Workers covered by State programs account for about 97 percent of wage and salary
earners.
9 Including Emergency Unemployment Compensation and Federal Supplemental Compensation, total benefits paid for 1992 and 1993 would
be (in millions of dollars): for 1992, 39,889.6 and for 1993, 34,876.2.
Source: Department of Labor, Employment and Training Administration.




323

TABLE B–44.—Employees on nonagricultural payrolls, by major industry, 1946–94
[Thousands of persons; monthly data seasonally adjusted]
Goods-producing industries
Year or month

Manufacturing

Total
Total

1946 ...................................................................
1947 ...................................................................
1948 ...................................................................
1949 ...................................................................
1950 ...................................................................
1951 ...................................................................
1952 ...................................................................
1953 ...................................................................
1954 ...................................................................
1955 ...................................................................
1956 ...................................................................
1957 ...................................................................
1958 ...................................................................
1959 ...................................................................
1960 ...................................................................
1961 ...................................................................
1962 ...................................................................
1963 ...................................................................
1964 ...................................................................
1965 ...................................................................
1966 ...................................................................
1967 ...................................................................
1968 ...................................................................
1969 ...................................................................
1970 ...................................................................
1971 ...................................................................
1972 ...................................................................
1973 ...................................................................
1974 ...................................................................
1975 ...................................................................
1976 ...................................................................
1977 ...................................................................
1978 ...................................................................
1979 ...................................................................
1980 ...................................................................
1981 ...................................................................
1982 ...................................................................
1983 ...................................................................
1984 ...................................................................
1985 ...................................................................
1986 ...................................................................
1987 ...................................................................
1988 ...................................................................
1989 ...................................................................
1990 ...................................................................
1991 ...................................................................
1992 ...................................................................
1993 ...................................................................
1994 p .................................................................
1993: Jan ............................................................
Feb ...........................................................
Mar ...........................................................
Apr ...........................................................
May ..........................................................
June ..........................................................
July ...........................................................
Aug ...........................................................
Sept ..........................................................
Oct ...........................................................
Nov ...........................................................
Dec ...........................................................
1994: Jan ............................................................
Feb ...........................................................
Mar ...........................................................
Apr ...........................................................
May ..........................................................
June ..........................................................
July ...........................................................
Aug ...........................................................
Sept ..........................................................
Oct ...........................................................
Nov p ........................................................
Dec p ........................................................

41,652
43,857
44,866
43,754
45,197
47,819
48,793
50,202
48,990
50,641
52,369
52,855
51,322
53,270
54,189
53,999
55,549
56,653
58,283
60,763
63,901
65,803
67,897
70,384
70,880
71,211
73,675
76,790
78,265
76,945
79,382
82,471
86,697
89,823
90,406
91,152
89,544
90,152
94,408
97,387
99,344
101,958
105,210
107,895
109,419
108,256
108,604
110,525
113,427
109,490
109,856
109,804
110,096
110,285
110,372
110,628
110,714
110,923
111,112
111,366
111,610
111,711
111,919
112,298
112,699
112,951
113,334
113,624
113,914
114,186
114,348
114,882
115,092

17,248
18,509
18,774
17,565
18,506
19,959
20,198
21,074
19,751
20,513
21,104
20,967
19,513
20,411
20,434
19,857
20,451
20,640
21,005
21,926
23,158
23,308
23,737
24,361
23,578
22,935
23,668
24,893
24,794
22,600
23,352
24,346
25,585
26,461
25,658
25,497
23,812
23,330
24,718
24,842
24,533
24,674
25,125
25,254
24,905
23,745
23,231
23,256
23,583
23,235
23,324
23,263
23,261
23,281
23,225
23,232
23,207
23,206
23,245
23,281
23,298
23,328
23,327
23,395
23,506
23,519
23,576
23,590
23,640
23,673
23,715
23,827
23,858

Mining

862
955
994
930
901
929
898
866
791
792
822
828
751
732
712
672
650
635
634
632
627
613
606
619
623
609
628
642
697
752
779
813
851
958
1,027
1,139
1,128
952
966
927
777
717
713
692
709
689
635
611
605
622
613
615
614
616
608
606
602
605
605
604
618
616
612
609
606
603
605
601
603
605
599
600
596

Construction
1,683
2,009
2,198
2,194
2,364
2,637
2,668
2,659
2,646
2,839
3,039
2,962
2,817
3,004
2,926
2,859
2,948
3,010
3,097
3,232
3,317
3,248
3,350
3,575
3,588
3,704
3,889
4,097
4,020
3,525
3,576
3,851
4,229
4,463
4,346
4,188
3,904
3,946
4,380
4,668
4,810
4,958
5,098
5,171
5,120
4,650
4,492
4,642
4,916
4,519
4,595
4,549
4,587
4,636
4,632
4,653
4,659
4,667
4,700
4,733
4,738
4,744
4,745
4,806
4,893
4,907
4,927
4,944
4,942
4,972
4,974
5,044
5,044

Total
14,703
15,545
15,582
14,441
15,241
16,393
16,632
17,549
16,314
16,882
17,243
17,176
15,945
16,675
16,796
16,326
16,853
16,995
17,274
18,062
19,214
19,447
19,781
20,167
19,367
18,623
19,151
20,154
20,077
18,323
18,997
19,682
20,505
21,040
20,285
20,170
18,780
18,432
19,372
19,248
18,947
18,999
19,314
19,391
19,076
18,406
18,104
18,003
18,063
18,094
18,116
18,099
18,060
18,029
17,985
17,973
17,946
17,934
17,940
17,944
17,942
17,968
17,970
17,980
18,007
18,009
18,044
18,045
18,095
18,096
18,142
18,183
18,218

Durable
goods
7,785
8,358
8,298
7,462
8,066
9,059
9,320
10,080
9,101
9,511
9,802
9,825
8,801
9,342
9,429
9,041
9,450
9,586
9,785
10,374
11,250
11,408
11,594
11,862
11,176
10,604
11,022
11,863
11,897
10,662
11,051
11,570
12,245
12,730
12,159
12,082
11,014
10,707
11,476
11,458
11,195
11,154
11,363
11,394
11,109
10,569
10,277
10,172
10,267
10,244
10,256
10,238
10,207
10,176
10,145
10,135
10,121
10,123
10,135
10,142
10,153
10,182
10,182
10,190
10,216
10,217
10,253
10,249
10,290
10,306
10,335
10,371
10,400

Nondurable goods
6,918
7,187
7,285
6,979
7,175
7,334
7,313
7,468
7,213
7,370
7,442
7,351
7,144
7,333
7,367
7,285
7,403
7,410
7,489
7,688
7,963
8,039
8,187
8,304
8,190
8,019
8,129
8,291
8,181
7,661
7,946
8,112
8,259
8,310
8,127
8,089
7,766
7,725
7,896
7,790
7,752
7,845
7,951
7,997
7,968
7,837
7,827
7,831
7,796
7,850
7,860
7,861
7,853
7,853
7,840
7,838
7,825
7,811
7,805
7,802
7,789
7,786
7,788
7,790
7,791
7,792
7,791
7,796
7,805
7,790
7,807
7,812
7,818

Note.—Data in Tables B–44 and B–45 are based on reports from employing establishments and relate to full- and part-time wage and
salary workers in nonagricultural establishments who received pay for any part of the pay period which includes the 12th of the month. Not
comparable with labor force data (Tables B–33 through B–42), which include proprietors, self-employed persons, domestic servants,
See next page for continuation of table.




324

TABLE B–44.—Employees on nonagricultural payrolls, by major industry, 1946–94—Continued
[Thousands of persons; monthly data seasonally adjusted]
Service-producing industries
Year or month
Total

1946 ......................
1947 ......................
1948 ......................
1949 ......................
1950 ......................
1951 ......................
1952 ......................
1953 ......................
1954 ......................
1955 ......................
1956 ......................
1957 ......................
1958 ......................
1959 ......................
1960 ......................
1961 ......................
1962 ......................
1963 ......................
1964 ......................
1965 ......................
1966 ......................
1967 ......................
1968 ......................
1969 ......................
1970 ......................
1971 ......................
1972 ......................
1973 ......................
1974 ......................
1975 ......................
1976 ......................
1977 ......................
1978 ......................
1979 ......................
1980 ......................
1981 ......................
1982 ......................
1983 ......................
1984 ......................
1985 ......................
1986 ......................
1987 ......................
1988 ......................
1989 ......................
1990 ......................
1991 ......................
1992 ......................
1993 ......................
1994 p ...................
1993: Jan ...............
Feb ..............
Mar .............
Apr ..............
May .............
June ............
July .............
Aug .............
Sept ............
Oct ..............
Nov .............
Dec ..............
1994: Jan ...............
Feb ..............
Mar .............
Apr ..............
May .............
June ............
July .............
Aug .............
Sept ............
Oct ..............
Nov p ...........
Dec p ...........

Transportation and
public
utilities

Wholesale
trade

4,061
4,166
4,189
4,001
4,034
4,226
4,248
4,290
4,084
4,141
4,244
4,241
3,976
4,011
4,004
3,903
3,906
3,903
3,951
4,036
4,158
4,268
4,318
4,442
4,515
4,476
4,541
4,656
4,725
4,542
4,582
4,713
4,923
5,136
5,146
5,165
5,081
4,952
5,156
5,233
5,247
5,362
5,514
5,625
5,793
5,762
5,721
5,787
5,843
5,768
5,782
5,777
5,784
5,788
5,789
5,800
5,786
5,783
5,798
5,800
5,792
5,793
5,803
5,816
5,759
5,843
5,849
5,857
5,866
5,865
5,867
5,888
5,915

2,298
2,478
2,612
2,610
2,643
2,735
2,821
2,862
2,875
2,934
3,027
3,037
2,989
3,092
3,153
3,142
3,207
3,258
3,347
3,477
3,608
3,700
3,791
3,919
4,006
4,014
4,127
4,291
4,447
4,430
4,562
4,723
4,985
5,221
5,292
5,375
5,295
5,283
5,568
5,727
5,761
5,848
6,030
6,187
6,173
6,081
5,997
5,958
6,059
5,957
5,952
5,945
5,950
5,959
5,949
5,962
5,954
5,962
5,965
5,971
5,976
5,990
6,003
6,013
6,028
6,037
6,049
6,053
6,079
6,095
6,106
6,117
6,132

24,404
25,348
26,092
26,189
26,691
27,860
28,595
29,128
29,239
30,128
31,264
31,889
31,811
32,857
33,755
34,142
35,098
36,013
37,278
38,839
40,743
42,495
44,158
46,023
47,302
48,276
50,007
51,897
53,471
54,345
56,030
58,125
61,113
63,363
64,748
65,655
65,732
66,821
69,690
72,544
74,811
77,284
80,086
82,642
84,514
84,511
85,373
87,269
89,844
86,255
86,532
86,541
86,835
87,004
87,147
87,396
87,507
87,717
87,867
88,085
88,312
88,383
88,592
88,903
89,193
89,432
89,758
90,034
90,274
90,513
90,633
91,055
91,234

Retail
trade

Finance,
insurance,
and real
estate

6,077
6,477
6,659
6,654
6,743
7,007
7,184
7,385
7,360
7,601
7,831
7,848
7,761
8,035
8,238
8,195
8,359
8,520
8,812
9,239
9,637
9,906
10,308
10,785
11,034
11,338
11,822
12,315
12,539
12,630
13,193
13,792
14,556
14,972
15,018
15,171
15,158
15,587
16,512
17,315
17,880
18,422
19,023
19,475
19,601
19,284
19,356
19,717
20,309
19,500
19,607
19,564
19,642
19,672
19,695
19,735
19,770
19,805
19,822
19,848
19,931
19,924
19,965
20,026
20,137
20,153
20,279
20,386
20,405
20,470
20,523
20,655
20,736

1,675
1,728
1,800
1,828
1,888
1,956
2,035
2,111
2,200
2,298
2,389
2,438
2,481
2,549
2,628
2,688
2,754
2,830
2,911
2,977
3,058
3,185
3,337
3,512
3,645
3,772
3,908
4,046
4,148
4,165
4,271
4,467
4,724
4,975
5,160
5,298
5,340
5,466
5,684
5,948
6,273
6,533
6,630
6,668
6,709
6,646
6,602
6,712
6,789
6,661
6,669
6,676
6,688
6,694
6,704
6,718
6,724
6,735
6,748
6,763
6,769
6,771
6,776
6,781
6,791
6,787
6,798
6,797
6,801
6,794
6,786
6,791
6,791

Government
Services
Total
4,697
5,025
5,181
5,239
5,356
5,547
5,699
5,835
5,969
6,240
6,497
6,708
6,765
7,087
7,378
7,619
7,982
8,277
8,660
9,036
9,498
10,045
10,567
11,169
11,548
11,797
12,276
12,857
13,441
13,892
14,551
15,302
16,252
17,112
17,890
18,615
19,021
19,664
20,746
21,927
22,957
24,110
25,504
26,907
27,934
28,336
29,052
30,278
31,803
29,642
29,767
29,818
29,992
30,103
30,206
30,355
30,451
30,545
30,661
30,816
30,926
31,004
31,129
31,326
31,497
31,598
31,765
31,918
32,036
32,138
32,231
32,414
32,497

5,595
5,474
5,650
5,856
6,026
6,389
6,609
6,645
6,751
6,914
7,278
7,616
7,839
8,083
8,353
8,594
8,890
9,225
9,596
10,074
10,784
11,391
11,839
12,195
12,554
12,881
13,334
13,732
14,170
14,686
14,871
15,127
15,672
15,947
16,241
16,031
15,837
15,869
16,024
16,394
16,693
17,010
17,386
17,779
18,304
18,402
18,645
18,817
19,041
18,727
18,755
18,761
18,779
18,788
18,804
18,826
18,822
18,887
18,873
18,887
18,918
18,901
18,916
18,941
18,981
19,014
19,018
19,023
19,087
19,151
19,120
19,190
19,163

Federal
2,254
1,892
1,863
1,908
1,928
2,302
2,420
2,305
2,188
2,187
2,209
2,217
2,191
2,233
2,270
2,279
2,340
2,358
2,348
2,378
2,564
2,719
2,737
2,758
2,731
2,696
2,684
2,663
2,724
2,748
2,733
2,727
2,753
2,773
2,866
2,772
2,739
2,774
2,807
2,875
2,899
2,943
2,971
2,988
3,085
2,966
2,969
2,915
2,870
2,940
2,939
2,933
2,923
2,914
2,908
2,903
2,906
2,902
2,901
2,900
2,915
2,893
2,892
2,884
2,882
2,870
2,859
2,859
2,858
2,863
2,858
2,854
2,869

State and