Remarks by Angel Gurría
Washington, D.C., USA - 6 June 2018
(As prepared for delivery)
Chairman Hassett, Distinguished Guests, Ladies and Gentlemen:
It is a pleasure to be back at the Press Club to present the OECD’s 2018 Economic Survey of the United States.
I am delighted that the Chairman of the Council of Economic Advisors (CEA), Mr. Kevin Hassett, is participating in today’s launch. Kevin, I would like to thank you and the CEA team, along with your colleagues from the US Administration and the Federal Reserve System, for your very productive collaboration on the Survey.
Our 2018 Economic Outlook – which I launched at last week’s OECD Ministerial Council Meeting in Paris – contains good news for the US. Growth is projected to reach 2.9% in 2018 and 2.8% in 2019. Unemployment is low at 3.8%, and is forecast to decline further. Jobs are being created at a healthy pace and, together with buoyant asset prices and strong consumer confidence, are sustaining income and consumption growth.
Material well-being is also high. The US performs favourably in comparison to the rest of the OECD, particularly for measures of disposable income and household wealth, long term unemployment and housing conditions.
While this is welcome news, we cannot afford to be complacent. Growth has been sluggish in comparison with the past, partly due to weak investment and productivity growth. Long-term fiscal sustainability is a key concern – debt levels are projected to rise by around 2 percentage points of GDP as fiscal policy loosens substantially over the next two years through tax reform and higher spending. In this respect, the US should take advantage of the strong economy to align outlays and revenues. Rising trade tensions and high leverage in the non-financial corporate sector represent additional threats to the US outlook.
And the trade threat has become ever-more real over the past few days. As highlighted in the Survey, when everybody moves together, reducing barriers to trade can boost the global economy. But of course the opposite also holds true: if wide-ranging new restrictions and retaliatory measures are deployed, there will be a major adverse impact on trade. Time and time again, our work has shown that countries imposing barriers are the most severely affected.
Let me say clearly that we regret the proliferation of tariffs announced in the last few days. They are a threat to the global economy, workers, families and firms. Only international co-operation can solve cross-border concerns, and we hope that parties will step back as quickly as possible from trade conflict, and instead pursue concrete, co operative actions to resolve their differences.
Now, let me turn back to highlight some of the key recommendations from the Survey.
In the current expansion, labour productivity growth has averaged only 1.2%, well below the previous expansion (2.6%) and over the past half century (around 2%). Sluggish productivity growth has been a consequence of various factors: federal, state and local government regulatory burdens; impediments to free and fair competition; and infrastructure shortfalls and bottlenecks. In this respect, the Trump Administration’s initiative to reduce the regulatory burden could help reanimate firm creation and support their subsequent growth.
Weaker competition tends to undermine innovative activity and action may be needed to broaden anti-trust enforcement. There is also scope to reduce barriers to competition. Occupational licensing and non-compete contracts have become more important over time, but their costs can be reduced to help re-energise the US economy. On infrastructure, the Survey encourages initiatives to support new investments, making use of greater private sector financing, user fees and flexible risk-sharing arrangements.
In the US, around 80 percent of the population aged between 25 and 54 are in employment, whereas in Germany, Japan and the United Kingdom around 85% of this age group are working.
The Survey makes a number of recommendations to get people into work. For example, it encourages the expansion of Earned Income Tax Credits (EITCs). These are a longstanding tool targeted at specific groups, like mothers with children, which has proven to be an effective anti-poverty instrument. Extending EITCs to other groups, and targeting the roll out to places with the weakest labour force participation, would limit the cost and deliver a larger effect at the margin.
The US could also stand to gain from more active labour market policies to bring people back to the labour force. Spending on these policies is relatively modest – 0.1% of GDP in 2015 – compared to the unweighted average for the OECD of 0.55%. From training to job placement services to employment subsidies, these policies could help workers back into employment. Integrating the administration of the unemployment insurance with local one-stop-shop employment services, as is the case in many European countries, could make job searches more fruitful for many people.
Alongside these core recommendations, the Survey also highlights the importance of complementary policies, including: making disability insurance more work-friendly; facilitating the development of cognitive and non-cognitive skills among Americans with limited educational attainment; and supporting caregivers through affordable and high quality childcare and aged care.
The past few decades have been difficult for many American workers as old jobs have declined and opportunities for finding new employment have sometimes not materialised.
International trade and technological change bring a cascade of benefits to our economies and societies, but they also have important costs and not everyone is equally prepared to reap their benefits. We need to support those who are left behind and help them get back on their feet. But our Survey finds that the US provides relatively little support to displaced workers. Working actively with job search assistance and providing training for those who have lost their jobs could be expanded to prevent pockets of persistent unemployment and non-participation emerging. Supporting affordable housing in more dynamic areas will facilitate geographical mobility, thus ensuring workers can relocate more easily to seize employment opportunities.
And, of course, the Survey calls for continued investments in skills, skills, skills – skilling, upskilling, reskilling! Recent US initiatives to modernise vocational training and apprenticeships are important steps in this direction.
The US prescribes four times more opioid painkillers than the OECD average, fuelling a crisis of opioid addiction. CEA’s own estimates suggest that the economic cost of the crisis in 2015 exceeded USD 500 billion, taking into account the loss of life. This is a human tragedy with profound economic and social consequences. Studies have shown that prescription rates appear to be higher where labour force participation is lower and that as many as one-fifth of prime age males not participating in the labour force were regularly taking opioid painkillers.
Urgent action is needed across a number of fronts. First, prevention. This means tightening access to opioids, increasing prescriptions for non-addictive painkillers and working to reduce the availability of drugs for misuse and abuse. Second, it is vital to help those who are already suffering from addiction, not only by providing medically assisted treatments, but supporting those who have successfully completed treatment to prevent relapse and to re-integrate them into employment.
Ladies and Gentlemen:
The OECD stands ready to support the United States in confronting these challenges. Efforts have been undertaken by the Government. The Tax Cuts and Jobs Act aims to address many of them – indeed, the OECD has been recommending tax cuts for many years! However, much remains to be done to ensure longer-term fiscal sustainability and continued improvements in well-being for American workers. Count on the OECD’s support to continue designing, developing and delivering better policies for better lives in the United States of America. Thank you.
Press release: Amid strong outlook for U.S. economy, risks abound