Chapter 2 Economic trends in the U.S. and Europe Section 1 ......45 Chapter 2 Economic trends in the U.S. and Europe Section 1 United States 1. Macroeconomic trends The U.S. economy

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Chapter 2 Economic trends in the U.S. and Europe Section 1 United States 1. Macroeconomic trends

The U.S. economy has continued to recover for more than seven years after going through the recession triggered by the global economic crisis. Below, we will look at the overview of U.S. economic trends in 2016 and 2017 based on major economic indicators. (1) GDP

In 2016, the real GDP growth rate slowed down somewhat to 1.6% compared with the growth of 2.6% in 2015. The breakdown of contributions to GDP by demand item shows that personal consumption, which accounts for around 70% of GDP, continued to increase steadily but that capital investment made a negative contribution for the first time in seven years and inventory investment declined markedly (Figure 1-2-1-1-1).

Figure I-2-1-1-1 Real GDP annual growth rates in the United States

(from the previous quarter)

Notes: Figures are seasonally adjusted. Those for the real GDP in 2017 are IMF estimates. Source: United States Department of Commerce and IMF"World Economic Outlook, April 2017: Gaining Momentum?"

As for quarterly changes, the annualized GDP growth rate in the first quarter slowed down to 0.8%

compared with the previous quarter, but in the second quarter and later, it regained growth momentum, led mainly by robust personal consumption. Although the annualized growth rate rose to 3.5% in the third quarter due to a steep increase in soybean exports, it decelerated to 2.1% in the fourth quarter

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because of a fallback in exports. Capital investment, the weakness of which had been pointed out, recorded negative growth in the first quarter compared with the previous quarter, but in the second quarter and later, it registered positive growth of 0.9% to 1.4%. Behind the weakness of capital investment is the sluggishness of equipment and facility investment, which accounts for slightly less than half of overall capital investment, whereas intellectual property investment, which accounts for slightly more than 30%, is growing relatively strongly. As the U.S. economy is on the path of a moderate expansion, the IMF forecasts that the annual GDP growth rate in 2017 will recover to 2.3% compared with the previous year. (2) Personal consumption

In 2016, personal consumption stayed firm due to a steady employment situation, and the growth rate of real personal consumption expenditure rose moderately through the second half of the year (Figure I-2-1-1-2). Consumption related to services account for more than 60% of personal consumption at households. In particular, housing/utility service expenditure (a share of 18% in 2016) and healthcare expenditure (share of 17%) account for large portions of personal consumption. In terms of the growth rate, expenditure related to leisure products (growth rate of 10% compared with the previous year), furniture/housing facilities (growth rate of 7%) and healthcare (growth rate of 5%) recorded high growth in 2016.

The Personal Consumption Expenditure (PCE) price index, which attracts attention as an inflation rate indicator, remained sluggish in 2015 due to the effects of drops in energy prices and import prices. However, the PCE price index rose to positive growth of 1.1% in January 2016 compared with the previous year, and in the second half of the year, it rose steeply again. In February 2017, the index recovered to a positive growth of 2.1%, above the inflation target23 of the Federal Reserve Board (hereinafter referred to as the FRB) (Figure I-2-1-1-3). Due to high expectations for the new administration of President Trump, among other factors, consumer sentiment has been improving as a trend since the autumn of 2016, but a careful watch should be kept on future developments, including how personal consumption will be affected by a rise in consumer prices.

23 The FRB aims for 2% growth in the personal consumption expenditure index (PCE deflator) compared

with the previous year as its long-term inflation target.

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Figure I-2-1-1-2 Real personal consumption, real disposable income and savings rates in the United States

Notes: Figures for the real personal consumption expenditures and real disposable income are year-on-year rates, while those for savings rates are monthly rates. Source:United States Department of Commerce and CEIC Database.

Figure I-2-1-1-3 PCE price indices and core PCE price indices in the United States

Notes: The core PCE price indices are calculation results excluding figures for foods and energy that are highly volatile. Source: United States Department of Commerce and CEIC Database.

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(3) Employment environment

The monthly number of nonfarm payroll employment fell sharply, by 43,000 people, in May 2016 compared with the previous month, but it later regained momentum, increasing at a pace of 187,000 people per month on average in 2016 (Figure I-2-1-1-4). This figure is slightly lower than the average for 2015 (an increase of 226,000 people per month). However, the pace of employment growth in 2016 was well above the growth pace of 75,000 to 125,000 people per month24 that was cited by FRB Chairman Yellen as a level necessary for keeping the unemployment rate stable over the long term.

The unemployment rate has consistently been improving since the beginning of the current economic recovery phase, averaging 4.9% in 2016 and standing at 4.4% in April 2017. These figures are comparable to the low level seen during the previous economic expansion phase. The unemployment rate in April is lower than the long-term estimate by the FRB (4.7%).25 Meanwhile the average of the unemployment rate as broadly defined (U-6), which includes people doing part-time jobs for economic reasons despite being willing to do full-time jobs, came to 9.6% in 2016, slightly higher than the level seen during the previous economic expansion phase. In relation to this, the possibility has been pointed out that the normal rate may have risen compared with the level in the period before the global economic crisis because of industrial structural factors and demographic factors.26

24 “The Economic Outlook and the Conduct of Monetary Policy” (Janet L. Yellen) and January 19, 2017,

the website of the FRB. 25 According to the median projection in the economic projections (March 2017) of the Federal Open

Market Committee. 26 According to Golden (2016), factors behind the increase in non-voluntary part-time workers are a

structural factor in the form of the growth of the services industry, which employs more part-time workers, a demographic factor in the form of a decline in young people who voluntarily do part-time work and an institutional factor in the form of employers’ stronger needs for part-time workers than full-time workers due to a lower labor cost for the former. FRB Chairwoman Yellen has stated that the employment rate as broadly defined (U-6) has almost fully recovered from the rapid rise that followed the global economic crisis. (Janet L. Yellen, “The Economic Outlook and the Conduct of Monetary Policy, January 19, 2017, the website of the FRB).

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Figure I-2-1-1-4 Number of nonfarm payroll employment and unemployment rates in the United States

Notes: Figures are seasonally adjusted. Source: United States Department of Commerce and CEIC Database. (4) Monetary Policy

After the global economic crisis, the FRB lowered the target for the federal fund interest rate (hereinafter referred to as the “FF rate”) effectively to zero (a range of 0% to 0.25%), but in December 2015, it removed the zero interest rate policy that had continued for seven years and raised the FF rate target to a range of 0.25% to 0.50%. According to the projections by the participants in the meeting of the Federal Open Market Committee (hereinafter referred to as the “FOMC”) that were announced at that time, four interest rate hikes were projected by the end of 2016,27 but the Fed refrained from interest rate hikes at subsequent FOMC meetings. There is the view that the Fed did not take action in consideration of such factors as low readings for employment-related indicators and the GDP growth rate in the first half of the year, a lack of inflation due to the effects of drops in energy prices and import prices and the risk of financial market turmoil arising from the consequences of the U.K referendum on whether or not to leave the EU.

In 2016, the FRB decided to raise the FF rate target to a range of 0.50% to 0.75% at the FOMC meeting in December, representing the first interest rate hike in one year. The view was expressed that the labor market was gaining strength and economic activity was growing at a moderate pace. In

27 This is a median projection. According to the projection, if the rate is to be raised by 0.25 percentage

point each time, four interest rate hikes will be implemented by the end of the year.

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addition, although the inflation rate was still below the target of 2%, it was concluded that the inflation would rise to 2% in the medium term if the temporary effects of drops in energy and import prices disappeared and the labor market gained strength.

At the FOMC meeting held in March 2017, the FF rate target was raised again, to a range of 0.75% to 1.0%. The economic projections announced at the same time estimated the real GDP growth rate at 2.1%, the unemployment rate at 4.5% and the inflation rate and core inflation rate28 at 1.9% in 2017 and estimated that the labor market would gain strength while economic activity continued to grow moderately and that the inflation rate would be stabilized at around 2% in the medium term. As employment is growing steadily and the inflation rate is recovering toward the target of 2%, two more additional interest rate hikes are now expected by the end of 2017 (Figure I-2-1-1-5 and Table I-2-1-1-6).

Figure I-2-1-1-5 Changes in federal fund interest rates

Source: Federal Reserve System.

Table I-2-1-1-6 US economic forecast by FOMC members (as of March 2017)

(Unit: %)

2017 2018 2019 Long term GDP growth rates 2.1 2.1 1.9 1.8

Unemployment rates 4.5 4.5 4.5 4.7

Inflation rates 1.9 2.0 2.0 2.0

Core inflation rates 1.9 2.0 2.0 -

Source:FRB documents. Notes: Figures shows the median value of the forecast.

28 The personal consumption expenditure (PCE) price index, excluding foods and energy.

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Meanwhile, the Federal Reserve System holds a vast amount of government bonds and mortgage-backed securities (MBS) purchased through large-scale quantitative easing,29 which was implemented in order to deal with the global economic crisis (Figure I-2-1-1-7). Currently, the FRB keeps the balance sheet size stable by making reinvestment with respect to securities that have come due. However, as the economy continues to recover, discussions have started concerning a possible change in the reinvestment policy in preparation for shrinking the balance sheet. At the FOMC meeting held in March 2017, a majority of participants judged that changing the reinvestment policy was highly likely to become appropriate in the second half of the year. Discussions are expected to be held in earnest concerning the specifics and timing of the change in the balance sheet policy in consideration of the economic conditions and other factors.

Figure I-2-1-1-7 Structure of FRB’s assets

Source: Federal Reserve Bank of Cleveland.

(5) International balance of payments

The U.S. current account balance has remained in deficit for many years due to the trade deficit. Immediately before the global economic crisis, the current account deficit increased to slightly under 6% as a proportion of GDP. The deficit shrank significantly after the global economic crisis and has remained almost flat since 2009. The current account deficit in 2016 was 481.2 billion dollars,

29 Under this policy, the FRB supplies an abundant amount of funds to the market through the purchase of

treasury bonds and other securities as a way to induce economic recovery. After the outbreak of the global economic crisis, quantitative easing was implemented in three rounds, from December 2008 to March 2010 (first round: QE1), from November 2010 to June 2011 (second round: QE2), and from September 2012 to October 2014 (third round: QE3).

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representing an increase of 3.9% from the previous year. As a proportion of nominal GDP, the deficit was 2.6%, unchanged from the previous year (Figure I-2-1-1-8).

Figure I-2-1-1-8 U.S. current account balance

Source:United States Department of Commerce.

Source: United States Department of Commerce and CEIC Database.

(A) Trade and services account balances Looking at the trade balance and services account balance by major sector, we see that the trade

balance has stayed in a deficit in most sectors. However, against the backdrop of an increase in crude

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oil production due to shale oil development, the deficit related to the industrial materials and raw materials sector, which includes oil, has declined in recent years. In 2016, exports totaled 1,459.7 billion dollars and imports amounted to 2,209.6 billion dollars, resulting in a trade deficit of 749.9 billion dollars. The trade deficit decreased 1.7% as the value of exports and the value of imports fell by 50.6 billion dollars and by 63.3 billion dollars, respectively, from the previous year (Figure I-2-1-1-9).

Figure I-2-1-1-9 U.S. trade balance

Source: United States Department of Commerce. The services account balance has remained in surplus except in the insurance, transportation, and

communications/computers/information sectors. The overall services account balance has also stayed in surplus because of growth in receipts related to royalties for intellectual property, financial services and travel, among other items. Over the 10-year period from 2006 to 2016, the services account surplus more than tripled. In 2016, exports totaled 752.4 billion dollars and imports amounted to 503.0 billion dollars, resulting in a surplus of 249.4 billion dollars. The surplus declined 4.9% as the value of exports and the value of exports increased by 1.6 billion dollars and by 14.4 billion dollars, respectively, from the previous year (Figure I-2-1-1-10).

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Figure I-2-1-1-10 U.S. service balance

Source: United States Department of Commerce.

(B) Primary income balance The primary income surplus has increased compared with in the first half of the 2000s due to an

increase in the surplus in direct investment return and a decrease in the deficit in securities investment return. In particular, the increase in the surplus in direct investment return has made significant contributions to the growth in the primary income surplus, and this is presumed to be due to such factors as an increase in outward foreign direct investments and overseas subsidiaries’ high profitability. The primary income surplus in 2016 remained almost unchanged from the previous year at 180.6 billion dollars (a decline of 1% compared with the previous year) (Figure I-2-1-1-11). Between 2000 and 2015, the outstanding balance of outward foreign direct investments nearly quadrupled, mainly led by an increase in investments in Europe. Although the value of investments in Africa was small, it recorded the highest growth rate (Figure I-2-1-1-12).

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Figure I-2-1-1-11 U.S. primary income balance


Figure I-2-1-1-12 Balance of outward foreign direct investments in the United States


(C) Financial account balance The U.S. financial account balance has been in a state of excess debt for many years, with large

amounts of funds flowing into the U.S. securities market from abroad. In 2016, the balance recorded

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an excess debt of 428.4 billion dollars, much higher than the previous year’s excess debt (Figure I-2-1-1-13). Of securities investment, investments in bonds have recorded an annual excess debt except in 2009, and in particular, long-term bonds, including U.S. government bonds, have accounted for most of the fund inflow in securities investments. The government bond yield has been on an uptrend since the autumn of 2016 after hitting bottom in the middle of the year, so investments in U.S. government bonds, which have maintained a relatively high yield, are expected to continue in the future.

Figure I-2-1-1-13 U.S. financial account balance


(6) Regional economies Although the U.S. economy as a whole is growing moderately, the economic situation varies

across regions and states. On a state-by-state basis, the real GDP growth rate30 in 2016 was negative in five (Alaska, New

Mexico, North Dakota, Oklahoma and Wyoming) of the 50 states. Looking at the country as divided into four regions (Northeast, Midwest, South and West), steady growth was recorded in the Northeast in general. In the Midwest, high growth was recorded in most states, while in the West, high growth was registered in some states but negative growth was recorded in others (Table I-2-1-1-14).

30 These figures are annualized growth rates in the first to third quarters of 2016.

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Table I-2-1-1-14 Real GDP growth rates by state in the United States (2015-2016) Name of state 2015 2016

Name of state 2015 2016

Northeastern region

Connecticut 0.7 2.6

Midw

estern region

Illinois 1.8 1.9 Maine 1.1 2.7 Indiana 1.4 2.6 Massachusetts 3.8 2.7 Michigan 1.6 3.2 New Hampshire 1.4 2.6 Ohio 1.8 2.8 Rhode Island 1.4 1.9 Wisconsin 1.1 2.7 Vermont 0.4 2.5 Iowa 1.3 3 New Jersey 2 2.8 Kansas 0.8 3.1 New York 0.9 1.8 Minnesota 1.9 2 Pennsylvania 2.8 1.9 Missouri 1.7 3

Southern region

Delaware 2.7 2.9 Nebraska 0.9 4.1 Washington, D.C. 2.2 2.5 North Dakota -2.6 -0.6 Florida 4 2.9 South Dakota 2.6 3 Georgia 2.6 1.9

Western region

Arizona 1.4 2.7 Maryland 2 2 Colorado 3.2 3.1 North Carolina 2 3 Idaho 2.7 3.7 South Carolina 2.5 2.5 Montana 2 1.4 Virginia 2 1.4 Nevada 1.6 3.7 West Virginia 1.4 0 New Mexico 1.7 -0.1 Alabama 0.9 2.2 Utah 3.4 4.5 Kentucky 1.4 1.7 Wyoming -0.1 -2.5 Mississippi 0.5 2.2 Alaska -0.6 -1 Tennessee 2.7 2.5 California 3.8 2.8 Arkansas 0.5 1.9 Hawaii 2.3 1.1 Louisiana 1 0.8 Oregon 4.9 3.2 Oklahoma 2.2 -1 Washington 3 2.9 Texas 4.8 1.7

Notes: The figures for growth rates in 2016 are calculation results by converting the growth rates between the first quarter to the third quarter in 2016 into annual rates.

Source: United States Department of Commerce. Regarding personal income31 by state, all the top five states in 2016 in terms of per-capita income

were located in the Northeast, where the income level has been traditionally high. Meanwhile, many states in the West and the Atlantic side of the South were ranked high in terms of the growth rate of personal income compared with the previous year. At the top was Nevada in the West, where the growth rate was 5.9% compared with the previous year, followed by Utah with growth of 5.6% and Florida with growth of 4.9%. Although income grew in most states in 2016, income declined in three (Alaska, North Dakota and Wyoming) of the 50 states (Figure I-2-1-1-15).

31 The total sum of receipts such as net income, property income, and social security and pension benefits.

The figures for 2016 are preliminary.

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Figure I-2-1-1-15 Personal income by state in the United States



The unemployment rate has been generally improving nationwide. While the unemployment rate declined or remained flat in 2016 in 41 states, it rose in nine states. By region, the unemployment rate was the lowest in the Midwest (4.7%) and the highest (5.1%) in the West. However, the margin of decline from the previous year was the largest in the West (a decline of 0.6 percentage points) and the

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smallest in the Midwest (a decline of 0.1 percentage point). By state, the unemployment rate was the lowest, 2.8%, in New Hampshire in the Northeast and

South Dakota in the Midwest and was the highest, 6.7%, in New Mexico in the West. Compared with the previous year, the unemployment rate declined as much as 1.2 percentage points in Massachusetts in the Northeast and South Carolina in the South but rose 1.1 percentage points in Wyoming in the West (Figure I-2-1-1-16).

Figure I-2-1-1-16 Unemployment rates by state in the United States



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In Wyoming, where the real GDP growth rate was the lowest in the United States, per-capita income fell most, and the unemployment rate rose most in 2016, there are abundant reserves of coal and other natural resources and the mining industry accounts for 30% of GDP by industry (2015, private sector). The mining industry in Wyoming has been recording negative growth since the first quarter of 2015 because of resource price fluctuations in recent years and other factors, and this may have had an impact on income and employment. In Alaska and North Dakota as well, the GDP growth rate has been negative, income has declined and the unemployment rate has risen. A mining is also the main industry of these states, resource price movements may be a factor affecting the states’ economies.32 2. Overview of the presidential election and the background

In the presidential election held in November 2016, Republican Party candidate Donald Trump beat Democratic Party candidate Hillary Clinton and became the 45th president of the United States. Although many pre-election polls estimating support rates for the candidates pointed to a victory for Mrs. Clinton, Mr. Trump won the presidency by winning over many swing states. In the Congressional elections held on the same day, the Republican Party won sufficient seats to secure the majority in both the Senate and the House.

Under the slogan “Make America Great Again,” Mr. Trump fought the election campaign with pledges to tighten the treatment of illegal immigrants, reform the tax system, revise trade policy and carry out healthcare system reform. The revision of trade policy included withdrawal from the Trans-Pacific Partnership (hereinafter referred to as the “TPP”) and revision of the North American Free Trade Agreement (hereinafter referred to as “NAFTA”), and immediately after taking office, President Trump instructed the Office of the Trade Representative to prepare to put these pledges into practice.33

According to exit polls 34 conducted at the presidential election, a majority (52%) of all respondents cited the economy as the most important issue facing the United States, and the proportion of people who cited it was far larger than the proportions of people who cited terrorism (18%), which was viewed as the second most important issue, and immigration and foreign policy (13% each), which ranked third. Among supporters of Mr. Trump alone, the largest proportion cited the economy, indicating that the American people generally viewed the economy as the most important issue regardless of who they were supporting (Figure I-2-1-2-1).

32 In 2015, the mining industry accounted for 31% of real GDP by industry in Alaska and 17% in North

Dakota, and it is the largest industry in the private sector in each of the two states. 33 On January 23, 2017, the president signed a presidential memorandum instructing the U.S. Trade

Representative to withdraw from the TPP and seek bilateral negotiations. 34 According to polling data from National Election Pool (comprised of ABC News, AP, CBS News, CNN,

Fox News, and NBC News). The polls covered 24,558 voters. (CNN “Exit polls 2016,” November 23, 2016, the website of CNN).

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Figure I-2-1-2-1 Results of the exit polls (most important issue facing the United States)

Source: Based on the results of the exit polls by the National Election Pool (targeting 24,558 voters). On the other hand, concerning the impact of international trade, the largest proportion (42%) of

respondent voters took the view that trade “takes away U.S. jobs,” larger than the proportion of people who took the view that it “creates U.S. jobs” (39%). Concerning this question, the reply tendency varied depending on which candidate the respondents were supporting. While many Clinton supporters had a positive image of global trade, many Trump supporters had a negative image of it. Around 10% of the respondent voters took the view that trade “does not affect jobs” (Figure I-2-1-2-2).35

35 According to a survey conducted in February 2017 by Gallup with 1,035 adults, 72% replied that they

viewed trade as an economic opportunity, while 23% replied that they viewed it as a threat. Of the Democrats, 80% viewed trade as an economic opportunity, while 66% of the Republicans did so (Gallup, “In US, record-high 72% see foreign trade as opportunity,” February 16, 2017, the website of Gallup).

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Figure I-2-1-2-2 Results of the exit polls (impact of international trade)

Source: Based on the results of the exit polls by the National Election Pool (targeting 24,558 voters).

3. Widening inequality in the United States and changes in the industrial structure

(1) Widening income inequality In 2015, real household income (median value) in the United States increased 5.2% compared with

the previous year to the highest level since the previous recession but it is still lower than the record high that was registered in 1999 and the level in 2007, immediately before the recession (Figure I-2-1-3-1).

Figure I-2-1-3-1 Changes in real household income (median value) in the United States

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Source: United States Department of Commerce. Notes: There were two types of responses in 2013 due to two questions in one survey. The figure in 2013 shows the response with the larger number.

Looking at the growth in real household income in each of the five income brackets, we see that

the growth rate for overall households is high in the current economic recovery phase (2010 to 2015) compared with that in the previous economic recovery phase (2002 to 2007) because of a steep rise in the income level in 2014-2015. However, the growth rate varies widely across income brackets. The income growth rate was 4.2% for the bottom 20% bracket (first quintile), 6.3% for the middle bracket (third quintile) and 9.9% for the top 20% (fifth quintile). In other words, the higher the income bracket is, the higher the growth rate is. (Figure I-2-1-3-2).

Figure I-2-1-3-2 Growth rates of real household income by income bracket in the United States

Source: United States Department of Commerce. Notes: This figure shows changes in the median value by quintile.

In addition, it has been pointed out that the proportion of people in the middle class36 is declining.

According to a survey by the Pew Research Center, the number of adults in middle-income households was 120.80 million in 2015, while the combined number of adults in lower-income and upper-income households was 121.30 million.37 As a result, the middle class’s share in the adult population, which was 61% in 1971, fell to around 50% in 2015. Whereas the middle class’s share has been gradually 36 The Pew Research Center defines the middle class (middle-income households) as households with an

income that is two-thirds to double the U.S. median household income. In 2014, middle-income households had incomes ranging from about 42,000 dollars to 126,000 dollars in the case of three-person households and incomes ranging from around 48,000 dollars to 145,000 dollars in the case of four-person households.

37 Pew Research Center (2015).

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declining over the past more than 40 years, the lower-income class’s share rose from 25% to 29% and the upper-income class’s share increased from 14% to 21% (Figure I-2-1-3-3).

Consequently, the polarization between the lower- and upper-income classes that has been pointed out in recent years, has been progressing. Therefore, although the income level is rising for the country as a whole, some people are being left behind and are failing to feel the benefits of the economic recovery.

Figure I-2-1-3-3 Proportions of people in the middle class in the United States

Source: Pew Research Center (2015) "American middle class is losing graound"

(2) Background to income inequality Regarding the background to the income inequality, the White Paper on International Economy

and Trade 2016 pointed out a change in the employment structure in the United States. While there is a wide wage inequality across occupations and the number of workers engaging in occupations with middle-level wages is decreasing, the numbers of workers engaging in occupations with low and high income are increasing, as pointed out by the white paper.38 According to the most recent data on the number of workers and wage level by occupation, there has been no structural change except for the fact that the wage level for workers engaging in manufacturing processing jobs surpassed the wage level for workers engaging in clerical jobs. The numbers of workers engaging in professional occupations with the highest level of wages and workers engaging in services jobs with the lowest level of wages are increasing, indicating that the employment structure has been polarized (Figure I-2-1-3-4).

38 Ministry of Economy, Trade and Industry (2016).

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Figure I-2-1-3-4 Changes in the number of workers by occupation and wage levels in the United States

Source: United States Department of Labor. Notes: Figures for wage levels are median values.

In addition, looking at changes in the numbers of workers and wage levels in major industries, we

see that in the United States, there is a wide wage gap across industries. The wage level for the utility industry, which is the highest (1,620 dollars per week), is more than four times as high as the wage level for the leisure and hospitality service industry, which is the lowest (388 dollars per week). The increase in the number of workers is concentrated in low-wage industries, and aside from the professional and business service industry, there is no high-wage industry in which the number of workers is increasing. In industries with the highest level of wages such as utilities, mining and information, the number of workers increased little over the period exceeding the past 20 years (Figure I-2-1-3-5).

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Figure I-2-1-3-5 Changes in the number of workers by type of industry and wage levels in the United States

Source: United States Department of Labor and CEIC Database. Notes: Figures are seasonally adjusted. Wages are average values in 2016.

Professional and business services, for which the wage level is high and the number of workers is

increasing as an exceptional case, are divided into three categories: (A) professional, scientific and technical services, (B) management of companies and enterprises and (C) administrative and support and waste management services. Most of these services are targeted at corporate users.39 Of these services, the wage level for professional, scientific and technical services and management of companies and enterprises is rising and is around double the average wage for administrative and support and waste management services.40

Regarding the growth rate of wages, the wage level rose around 35% for high-wage industries such as utilities, information, and finance/real estate over the 10-year period from 2006 to 2016, but the growth rate was low, 26%, for leisure and hospitality services, including restaurant and lodging services, and 16% for retail trade. It may be said that while the wage growth is fast in high-wage industries, it is slow in low-wage industries (Figure I-2-1-3-6).

39 Professional, scientific and technical services accounted for 44% of the overall number of workers

engaging in professional and business services, and the share was 11% for corporate management and 45% for administrative, support and waste management (2016).

40 The average wage (hourly wage, March 2017) was around 20 dollars for administrative, support and waste management, 39 dollars for management of companies and enterprises, and 40 dollars for professional, scientific and technical services.

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Figure I-2-1-3-6 Wage levels of workers by type of industry, changes in such wage levels, and the number of workers

Notes: 1. The size of a bubble represents the number of workers by type of industry (average in 2016) 2. Average wages are those in 2016. Source: United States Department of Labor and CEIC Database.

On the other hand, the number of workers is large in industries with a relatively low level of wages and relatively slow wage growth (leisure and hospitality services, retail trade, education/healthcare services, etc.) but is very small in industries with a high level of wages and high wage growth (utilities, mining, information, etc.). Although the manufacturing industry, whose wage level has been considered to be a medium level, is still maintaining a certain size in terms of the number of workers, its size is smaller than the size of such industries as education/healthcare services, and professional and business services, indicating that the types of industries supporting the middle class in the United States are changing. From the above, we can see that polarization is proceeding in terms of income and employment: in high-wage industries, the wage growth rate is high but the increase in the number of workers is small, while low-wage industries, the wage growth rate is relatively low but the job-absorbing capacity is large.

(3) A change in the employment structure The phenomena of the priority in economic activities shifting from agriculture, forestry and fishery

(primary industry) to the manufacturing industry (secondary industry, and then to the non-manufacturing industry (service industry, or tertiary industry) in line with economic development

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is known as “Petty-Clark’s law.” In the United States as well, there has been a change in the industrial structure: while the goods production and manufacturing industries' share in nominal GDP and employment has continued to decline for many years, the service industry’s share has continued to grow. Currently, around 70% of people in non-farm jobs work in the private-sector service industry (Figure I-2-1-3-7). As was shown in the past white papers, this is presumably because of the shift of industries to services that is progressing in line with economic development.41

Figure I-2-1-3-7 Share of the manufacturing and service industries in the United States


Notes: Annual averages.

41 Ministry of Economy, Trade and Industry (2016).

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Source: United States Department of Labor and CEIC Database.

Regarding changes in the number of workers by industry in the United States since 1990, the growth in the number of workers in the education and healthcare services industry, professional and business services industry and leisure and hospitality services industry has been remarkably high. In particular, the number of workers in the education and healthcare services industry did not record a significant decline but maintained an uptrend even in the recession phase. On the other hand, the number of workers in the manufacturing and utilities industries has been declining moderately over the long term and is now at 70-80% of the level in 1990. Although the number of workers in the resources and mining industry has increased since the second half of the 2000s due to the start of full-scale production of shale oil and gas, the current level is lower than the level in 1990 (Figure I-2-1-3-8).

Looking at changes in the number of workers in the period since 2008, we see a decline in all industries except for education and healthcare services in the recession phase that followed the global economic crisis, but the job losses have been regained in all industries except for construction and manufacturing in the subsequent economic recovery phase. Conversely, the number of workers has grown significantly in the education and healthcare services industry, professional and business services industry, and leisure and hospitality services industry. Many jobs in these industries require the handling of many abstract factors for the performance of job duties, and the provision of labor must occur at the same time and in the same place as consumption with respect to the jobs. Therefore, these jobs are classified as non-routine tasks42 which are difficult to mechanize or outsource (Figure I-2-1-3-9).

42 Non-routine tasks are classified into non-routine cognitive tasks, which are advanced tasks that require

problem-solving, persuasion, intuition and imagination, and non-routine manual tasks, which require situational adaptability, a high level of visual and auditory sensitivities, language skills, and deftness of hand, for example. Non-routine cognitive tasks are performed by people engaging in professional and technical occupations, such as doctors and lawyers, people engaging in management occupations, such as business managers, and people engaging in creative occupations, such as writers and artists. Non-routine manual tasks are performed mainly by people working in the service and transport industries, such as security guards and truck drivers (Ministry of Economy, Trade and Industry (2016)).

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Figure I-2-1-3-8 Changes in the number of workers by type of industry in the United States (after 1990)

Source: United States Department of Labor and CEIC Database. Notes: Figures are seasonally adjusted.

Figure I-2-1-3-9 Changes in the number of workers by type of industry in the United States

(after 2008)


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As a result, the shares of the education and healthcare services industry, professional and business

services industry, and leisure and /hospitality services industry in the overall number of workers are growing. In 2016, the share was 16% for the education and healthcare services industry, 14% for the professional and business services industry and 11% for the leisure and hospitality services industry. In January 1990, the manufacturing industry had a share of 16%, the largest in the private sector. However, the number of workers in the manufacturing industry, which declined during subsequent recessions, did not recover during economic expansion phases but continued to decrease. Consequently, the manufacturing industry’s share in the overall number of workers has now fallen to 8%. The combined share of the utilities, mining and information industries, for which the wage level is high, is very small, at slightly less than 3% (Figure I-2-1-3-10).

Figure I-2-1-3-10 Share of the number of workers by type of industry in the United States

(December 2016)


(4) Developments in the manufacturing industry Presumably, the manufacturing industry has been supporting the middle class largely because the

wage level is a medium level compared with other industries and the number of workers is fairly large. In order to examine changes related to the middle class, we will look at major indicators concerning the manufacturing industry.

First, the number of workers in the manufacturing industry declined by around 5.5 million between 1990 and 2016, while the share in the overall number of non-farm workers was halved, from 16% to 8%, as was mentioned earlier. However, the number of workers ceased to decrease in 2010 and has

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recovered slightly during the current economic recovery phase (Figure I-2-1-3-11). A breakdown of the change in the number of workers by sector shows that the contribution of transportation equipment, including automobiles, is large, with the number of workers in the automobile/auto parts sector increasing by 260,000 in this period (Table I-2-1-3-12). As a result, although the number of workers in this sector is lower than the level in the first half of the 2000s, the job losses caused by the global economic crisis have mostly been regained.

Figure I-2-1-3-11 Number and share of workers in the manufacturing industry in the United

States

Notes: Figures are seasonally adjusted. Source: United States Department of Labor.

Table I-2-1-3-12 Changes in employment in the manufacturing industry in the United States (2010-2016)

Changes in the number ofworkers

(Unit: thousand)

2016（2010=100）

Changes in the numberof workers

(Unit: thousand)

2016（2010=100）

Manufacturing 820 107 Non-durable goods 165 104Durable goods 655 109 Foods 104 107

Lumber 50 115 -5 96Non-metallic mineral 36 110 Fiber products -4 97Primary metal 16 104 Clothes -25 84Metal products 143 111 Paper products -24 94General machinery 84 108 Printing, etc. -41 92Computer and electronic -47 96 Petroleum products -2 98Electrical machinery 24 107 Chemicals 25 103Transport equipment 292 122 Resin and rubber 74 112

Automobiles and parts 262 13932 109

Other durable goods 24 104Furniture etc.

Textiles

Source: United States Department of Labor. Notes: The table shows average indices in 2016 setting the average value in 2010 as 100. Columns in

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red show industries in which the number of workers increased.

Looking at the share in the overall number of workers by employment arrangement (full-time or part-time workers), full-time workers’ share was lower than 90% in 2016 in all service industries except for financial services, while their share in the manufacturing industry is the second largest (94%), after the share in the mining and resources industry (96%). This is considered to be one of the factors behind the relatively high average wage in the manufacturing industry (Figure I-2-1-3-13).

Figure I-2-1-3-13 Share of full-time and part-time workers by type of industry in the United

States (2016)


Value added created by the manufacturing industry has remained on an uptrend over the past 20

years or so although it temporarily decreased in recession phases, and in 2016, value added created by the manufacturing industry was worth 1,909.2 billion dollars, or 12% of GDP. This share is the second largest after the share of 13% for the real estate and leasing industry and the professional and business services industry and is larger than the share of 6% for financial and insurance services industry. However, the manufacturing industry’s share in real GDP has been declining albeit slightly. Between 1997 and 2016, it declined 1% (Figure I-2-1-3-14). The fact that value added created by the U.S. manufacturing industry is increasing even while employment is shrinking indicates that this industry is continuing to raise its productivity. However, as the manufacturing industry’s share is on a downtrend, it may be said that the pace of economic growth for the U.S. economy outside the manufacturing industry is faster.

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Figure I-2-1-3-14 Real GDP and share of the manufacturing industry in the United States

Source: United States Department of Commerce. Next, we will look at regional developments related to the manufacturing industry.43 In the Great

Lakes region, where the manufacturing industry has traditionally been concentrated, the number of workers in the manufacturing industry was large. However, in the recession phase in the 2000s, the number of workers in the manufacturing industry declined steeply, and the job losses have not been regained in the subsequent economic recovery phase (Figure I-2-1-3-15). As a result, although the number of workers in the manufacturing industry accounted for 16% of all non-farm workers in 2000, the share fell to 11% in 2015 while each of the education and healthcare services industry and the professional and business services industry held the largest share, 14%, in 2015.44

43 Here, the regional classification by the Department of Commerce’s Bureau of Economic Analysis (the

50 states and Washington D.C. are classified as eight regions—New England, Mideast, Great Lakes, Plains, Southeast, Southwest, Rocky Mountain and Far West) is used. The Great Lakes region includes the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin.

44 Among the eight regions, the Great Lakes region has the largest share of workers in the manufacturing industry (11% in 2015), but the margin of decline in the share between 2000 and 2015 (a decline of 4.8 percentage points) was also the largest in this region.

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Figure I-2-1-3-15 Changes in the number of workers by type of industry in the Great Lakes region

Source: United States Department of Commerce. Concerning changes in value added created by the manufacturing industry in the Great Lakes

region since 2000, the value has been growing moderately as a trend despite falls in recession phases. However, the manufacturing industry’s share in real GDP has been declining (Figure I-2-1-3-16). As shown above, even in the Great Lakes region, which has the largest share in real GDP in terms of value added created by the manufacturing industry among the eight regions in the United States, the trends in employment and value added are similar to the nationwide trends.

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Figure I-2-1-3-16 Real GDP and share of the manufacturing industry in the Great Lakes region


(5) Projections for employment by industry Next, we will look at the projections for employment in the United States. First, looking at the number of job offers by industry in January 2017, we see that the education

and healthcare services industry and the professional and business services business industry, which employ a large number of workers, have many unfilled job vacancies. As for the ratio of the number of job offers to unemployed people by industry as a substitute for the ratio of job offers to job seekers,45 the ratio is high in the financial industry as well as in the above two industries. Generally speaking, switching jobs from one industry to another is more difficult to do than switching jobs within the same industry. In the financial industry, a relatively high level of education and skills are required, limiting the entry of workers seeking to switch jobs into this industry, and this is considered to be a factor behind the relatively high ratio of job offers to unemployed people (Figure I-2-1-3-17).

45 As unemployed people are defined as jobless people who have conducted job-seeking activity in the past

four months, it is assumed here that they are seeking jobs in the same industry as the one in which they were working before losing their job.

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Figure I-2-1-3-17 Number of job seekers and the ratio of the number of job offers to unemployed people by type of industry in the United States (January 2017)

Notes: The number of job offers are based on the preliminary values. Source: United States Department of Labor.

Next, we will look at the employment projections for the period until 202446 that were issued by the U.S. Department of Labor. According to the projections, over the 10 years from 2014 to 2024, the number of workers by industry is expected to increase most, by around 3.8 million, for healthcare and social assistance, which is part of education and healthcare services, raising this industry’s share in the overall number of workers to 13.6%, higher than the shares for state and local governments and professional and business services. The healthcare industry is relatively resilient against economic cycles because its services are essential to maintaining and enhancing health, so it is expected to continue growing in the United States, where the aging of the population is gradually progressing. The second largest increase in the number of workers, around 1.89 million, is projected for professional and business services and the third largest increase, around 940,000, is projected for leisure and hospitality services (Table I-2-1-3-18). As many jobs in these industries are equivalent to the non-routine tasks that were mentioned earlier, the uptrend is expected to continue.

46 “Employment Projections—2014-24” (U.S. Department of Labor), December 8, 2015, the website of

U.S. Department of Labor.

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Table I-2-1-3-18 Forecast of employment structure in 2024 in the United States

Distribution (%) Changes (10,000

workers) (2014-2024) 2004 2014 2024 Goods production sector (excluding the agriculture, forestry and fisheries industry) 15.1 12.7 12.0 5.7

Mining 0.4 0.6 0.6 8.0 Construction 4.8 4.1 4.3 79.0 Manufacturing 9.9 8.1 7.1 -81.4

Service sector 76.8 80.1 81.0 926.4

Public 0.4 0.4 0.3 -4.8 Wholesale 3.9 3.9 3.8 32.5 Retail 10.5 10.2 10.1 76.5 Transport and warehousing 2.9 3.1 3.0 13.7 Information 2.2 1.8 1.7 -2.7 Financial 5.6 5.3 5.3 50.7 Professional services 11.4 12.7 13.1 188.9 Education (private) 1.9 2.3 2.3 33.9 Health care and social assistance 10.0 12.0 13.6 379.5 Leisure and hospitality 8.7 9.8 9.8 94.1 Other services 4.3 4.2 4.2 26.8 Government 15.0 14.5 13.9 37.3

Agriculture, forestry and fisheries industry 1.5 1.4 1.3 -11.1 Self-employed workers in the non-farm sector 6.6 5.7 5.7 57.9

Source: United States Department of Labor. Notes: Columns in red show industries in which the distribution of workers is expected to increase

between 2004 and 2024.

Regarding the projections by occupation, the top three occupations in terms of the increase in the number of workers projected for the 10 years from 2014 to 2024 are all healthcare-related occupations, namely, personal care aides, nurses, and home health aides in that order. Among the top 10 occupations, six (an increase of 1.77 million projected in the number of workers) do not require academic achievement, while three (an increase of 850,000) require higher education, with two (an increase of 590,000) of the three requiring at least university degrees. Thus, there are more occupations that do not require academic achievement than ones that require higher education (Table I-2-1-3-19).

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Table I-2-1-3-19 Ten occupations for which the number of workers is expected to increase between 2014 and 2024 in the United States

Changes between 2014 and 2024 Annual wages

(2015; median value; dollars)

Required educational level Number of

workers (10,000)

Rate of change (%)

1 Personal care aides 45.8 25.9 20,980 No academic achievement

required 2 Nurses 43.9 16.0 67,490 University degree

3 Home health aides 34.8 38.1 21,920 No academic achievement

required

4 Food preparation and customer services (including the fast food industry)

34.4 10.9 18,910 No academic achievement

required

5 Retail salespersons 31.4 6.8 21,780 No academic achievement

required

6 Nurse assistants 26.2 17.6 25,710 Vocational school diploma, etc.

7 Customer service personnel 25.3 9.8 31,720 High school diploma or equivalent

8 Cooks 15.9 14.3 23,100 No academic achievement

required

9 General and operations managers 15.1 7.1 97,730 University degree

10 Construction workers 14.7 12.7 31,910 No academic achievement

required Source: United States Department of Labor.

On the other hand, occupations for which a high rate of growth in the number of workers is projected for the 10 years from 2014 to 2024 also include many healthcare-related ones. Among the top 10 occupations, one (an increase of 350,000 projected in the number of workers) does not require academic achievement, while seven (an increase of 180,000) require higher education, with three (an increase of 130,000) of the seven requiring at least university degrees. Thus, there are more occupations that require higher education than ones that do not (Table I-2-1-3-20).

Looking at the projections for employment by academic achievement, we see that the rate of growth in the number of workers from 2014 to 2024 is 12% for workers with doctoral degrees, 14% for workers with master’s degrees and 8% for workers with bachelor’s degrees. On the other hand, the rate of growth is 7% for workers without a high school diploma and 4% for workers with a high school diploma or equivalent. In short, the rate of growth is higher for workers who have received higher education (Table I-2-1-3-21). Currently, occupations that only require a high school diploma or

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lower academic achievement account for more than 60% of all occupations. However, as the rate of growth is high for occupations that require higher education, around 50% of the workers projected to increase in numbers over the coming 10 years are expected to be required to have higher education. In addition, the wage level varies depending on the level of academic achievement—for example, the wage level for workers with at least bachelor’s degrees is nearly twice as high as the level for workers with a high school diploma or equivalent. If this trend continues, the number of people who seek to receive higher education is expected to continue increasing in the future.

Table I-2-1-3-20 Ten occupations for which a high rate of growth in the number of workers is

expected between 2014 and 2024 in the United States

Changes between 2014 and 2024 Annual wages

(2015; median value; dollars)

Required educational level Number of

workers (10,000)

Rate of change

(%)

1 Wind turbine service engineers 0.5 108.0 48,800 Learned at college (no degree)

2 Occupational therapy assistants 1.4 42.7 56,950 Associate degree 3 Physical therapist assistants 3.2 40.6 54,410 Associate degree

4 Physical therapist aides 2.0 39.0 24,650 High school diploma or equivalent

5 Home health aides 34.8 38.1 21,380 No academic achievement

required

6 Divers 0.2 36.9 45,890 Vocational school diploma, etc.

7 Nurse Practithoners 4.5 35.2 95,350 Master’s degree

8 Physical therapists 7.2 34.0 82,390 Doctoral or professional

degree 9 Statisticians 1.0 33.8 79,990 Master’s degree

10 Ambulance team members (excluding qualified emergency life-saving technicians)

0.7 33.0 24,080 High school diploma or equivalent

Source: United States Department of Labor.

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Table I-2-1-3-21 Projections for education levels required to be hired and those for employment in the United States

2014 2014-2024 Annual wage

(Median value; 2016)

Number of workers (10,000)

Distribution (%)

Rate of change (%)

Increase of workers in

number (10,000)

Total 15,054 100.0 6.5 979 $37,040 Doctoral or professional degree 411 2.7 12.2 50 $103,280

Master’s degree 252 1.7 13.8 35 $67,970 University degree 3,185 21.2 8.2 261 $71,530 Associate degree 346 2.3 8.7 30 $51,050 Vocational school diploma, etc. 909 6.0 11.5 105 $36,650

Learned at college 379 2.5 0.5 2 $34,540 High school diploma 5,493 36.5 3.9 214 $37,110

No formal educational credential

4,080 27.1 6.9 282 $22,490

Source: United States Department of Labor. 4. The future of the U.S. economy and challenges

As was described in the previous paragraph, as the United States is in an economic recovery phase that has continued for more than seven years, the labor market has stayed robust and economic activity is growing moderately. Under these circumstances, attention is focusing on how the various policies announced by the new administration will be put into practice in the future and what effects the policies will have domestically and internationally. While fiscal policy measures such as infrastructure investment and tax reform that have been announced by the new administration may boost economic growth, they could become downside factors for the economy depending on their specifics, which have yet to become clear. With respect to monetary policy, FF rate hikes and the shrinkage of the balance sheet are expected, and these measures may affect exchange rates, stock prices and the domestic and foreign economic conditions. Attention is also focusing on the future course of capital investment by companies, which has been weak in recent years.

Below, we will look at the overview of the policies that have so far been announced by the new administration of President Trump, which was inaugurated in January 2017. Next, we will examine long-term challenges for the U.S. economy and society, such as the decline in labor participation rate and expenditure for higher education.

(1) Developments related to President Trump’s economic and trade policies The new administration is strongly advocating the protection of the American people’s interests,

and with respect to trade policy, it aims to conduct negotiations on a bilateral basis, rather than on a

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multilateral basis. In relation to economic issues, attention is focusing on the administration’s plans for tax system reform and large-scale infrastructure investment, including investment for the modernization of aged infrastructure.

First, during the election campaign period, an action plan for the first 100 days in office was announced as the “Contract with the American Voter.” This unveiled various policies under the following four items: measures to clean up the corruption and special interest collusion in Washington, D.C.; actions to protect American workers; actions to restore security and the constitutional rule of law; and legislative measures to be passed in the first 100 days. In relation to economic and trade issues, those measures include the revisions of the trade policy, such as renegotiating NAFTA and withdrawing from the TPP, and tax system reforms, including corporate tax reduction (Table I-2-1-4-1).

Table I-2-1-4-1 Measures related to President Trump’s action plan for the first 100 days in office (excerpts)

Protection of American workers Renegotiate NAFTA and withdraw from the Trans-Pacific Partnership Label China a currency manipulator Identify all foreign trading abuses that unfairly impact American workers and end those abuses

immediately Lift the restrictions on the production of energy reserves Lift the Obama roadblocks and allow vital energy infrastructure projects

Introduction of legislative measures Reduce middle class tax, simplify tax classes, and reduce corporate tax (economic plan designed

to grow the economy 4% per year and create at least 25 million new jobs) Establish tariffs to avoid relocation of companies into other countries Spur $1 trillion in infrastructure investment over 10 years

Following the inauguration of the new administration, in March 2017, the draft Budget Message,47 which indicates the policy for compiling the fiscal 2018 budget, was submitted to Congress, and the Office of the U.S. Trade Representative announced the 2017 Trade Policy Agenda, which described the outline of the trade policy. The Budget Message, headlined “A Budget Blueprint to Make America Great Again,” presented budget proposals concerning discretionary spending, such as expenditure related to national defense and education. The proposals called for an increase of 54 billion dollars (10%) in the upper limit on national defense expenditure and a reduction of the same amount in the upper limits on other expenditures. By department and agency, the budget proposals called for significant increases for the Department of Defense (up 10% compared with the previous year) and the Department of Homeland Security (up 6.8%), making clear the new administration’s priority on security. On the other hand, the budget proposals called for budget reduction for many other departments and agencies, including the Department of State (down 28.7%) and the Environmental

47 This is a budget compilation policy proposed by the president to the federal Congress, which has the

authority to compile the budget. In response to this, the Congress prepares a budget resolution and relevant bills.

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Protection Agency (down 31.4%) (Figure I-2-1-4-2). Figure I-2-1-4-2 Budgets of major government agencies according to the FY2018 Budget

Message in the United States (from FY2017)

Source: Office of Management and Budget "Ameria First-A Budget Blueprint to Make America Great Again"

Meanwhile, the 2017 Trade Policy Agenda states that the overarching purpose of the trade policy is to “expand trade in a way that is freer and fairer for all Americans” and indicates the policy of taking actions to increase economic growth, promote job creation in the United States, promote reciprocity with trading partners, strengthen the manufacturing base and ability to the United States, and expand agricultural and services industry exports. To achieve these objectives, the following four priorities have been identified: (A) defend U.S. national sovereignty in the conduct of trade policy; (B) strictly enforce U.S. trade laws; (C) use all possible sources of leverage to encourage other countries to open their markets; and (D) negotiate new and better trade deals.

Moreover, the new administration places emphasis on supporting the manufacturing industry and job creation in the industry as part of the initiative to create jobs in the United States, as shown by President Trump’s proclamation of the “Buy American, Hire American” rule in his inaugural address. One week after the president’s inauguration, the Manufacturing Jobs Initiative, which is comprised of 28 industry leaders, including top managers of such companies as Dow Chemical, Ford Motor and General Electric, was established in order to increase jobs in the manufacturing industry. In addition to announcing policy measures favorable for companies, such as reduction of the corporate tax rate and deregulation, President Trump is calling for U.S. manufacturing companies to return to the United States, so attention will focus on future developments.

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(2) Impact of the demographics on the labor force In recent years, the labor participation rate48 has been declining in the United States, so securing

labor is emerging as a challenge as a result of the economic recovery.49 A comparison of the G-7 countries in terms of the change in the labor participation rate shows that while the rate has been on an uptrend since 2000 in all countries except for the United States, the rate in the United States has been declining moderately after peaking in 1990, coming to 73.7% in 201450 (Figure I-2-1-4-3). By gender, the female labor participation rate has been on an uptrend in all countries except for the United States since the mid-1990s, but in the United States, the rate has gradually been declining after peaking in 2000. The male labor participation rate has been declining in countries other than the United States as well. In the United States, the rate has been declining gradually after peaking in 1990, and since around 2008 in particular, it has fallen sharply (Figure I-2-1-4-4).

By gender and by age group51, the male labor participation rate has consistently been declining in the youth age group of people who are 16 to 24 years old, and in particular, the decline since around 2000 is steep. The female labor participation rate remained almost flat until around 2000, but since then, it has been on a downtrend, as the male labor participation rate has been. The male labor participation rate in the age group of people who are 25 to 54 years old, who are called the prime-age group, has been declining moderately. On the other hand, although the female labor participation rate had risen until around 2000, it has been declining moderately since then, as the male labor participation rate has been. Both the male and female labor participation rates among the age group of people who are 55 or older rose moderately from the mid-1990s onwards but has stayed almost flat since around 2010 (Figure I-2-1-4-5).

48 The proportion of the labor force (the total sum of the number of employed people and the unemployed

people who are willing to work) in the population of people aged 16 or older excluding prisoners, people cared for at nursing care facilities, and military servicemen.

49 For example, the Summary of Commentary on Current Economic Conditions by Federal Reserve District (April 2017) pointed out that due to a labor shortage, it is difficult to secure both high-skilled and low-skilled workers in most regions (District federal reserve banks (2017)

50 This figure is a labor participation rate among private-sector people (the proportion of the private sector labor force in the population of people aged between 15 and 64) calculated by the OECD. The labor participation rate calculated by the U.S. Department of Labor, which represents a participation rate among people aged 16 or older, was 62.9% in 2014.

51 U.S. Department of Labor.

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Figure I-2-1-4-3 Labor participation rates in the G7 countries (in general)

Notes: This figure shows labor participation rates of civilians, excluding people involved in military services (people aged 15 to 64). The data on France and Japan are those in and before 2013. Source: OECD Stat.

Figure I-2-1-4-4 Labor participation rates in the G7 countries


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Figure I-2-1-4-5 Labor participation rates by age group in the United States (1980-2016)

Notes: This figure show annual averages of the target years. Source: United States Department of Labor.

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Notes: This figure show annual averages of the target years. Source: United States Department of Labor.

The decline in the labor participation rate as shown above is considered to be due in large part to structural factors. On the whole, the aging of the population is said to be a significant factor. In the United States, the population has continued to increase not only because the country is accepting a large number of immigrants but also because the birthrate is relatively high. Therefore, there is little perception that the United States is facing the problem of aging, but the aging of the population is gradually progressing in the United States as well as in other advanced countries. It is estimated that by 2030, one in five Americans will be aged 65 or older (Figure I-2-1-4-6). As the labor participation rate among elderly people is relatively low, the increase in the proportion of elderly people in the labor force is expected to lead to a drop in the overall labor participation rate, thereby slowing down the future growth of the labor force.

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Figure I-2-1-4-6 Projections for population distribution in the United States


However, the aging of the population alone cannot explain all factors, and changes related to other

age groups are having some effects on the decline in the overall labor participation rate. For example, it has been pointed out that the decline in the labor participation rate in the youth age group of people who are 16 to 24 years old has been offset by a rise in the school enrollment rate since the 1990s, particularly among women.52 In addition, it is said that one factor behind the decline in the labor participation rate among men aged 25 to 54 is a fall in labor demand for low-skill workers due to technological advances, automation and globalization because the labor participation rate has dropped mainly among people with a high school diploma or lower academic achievement.53 It is presumed that few people chose to exit the labor market for such reasons as the spouse’s employment and receipt of social security benefits. This indicates that many people exit the labor market involuntarily. In addition, it is possible that the female labor participation rate in the prime age group has risen in advanced countries other than the United States because of the development of such working systems as child care leave and short working hours.54

According to the U.S. Department of Labor, the labor participation rate is projected to decline from the recent level of 62.9% (April 2017) to 60.9% in 2024. By generation, the labor participation rate among people aged between 16 and 24 is projected to fall from 55% (2014) to 49.7% (2024), while the rate among people aged 65 or older is projected to rise from 18.6% (2014) to 21.7% (2024). However, as the labor participation rate among elderly people is low, the overall labor participation rate is

52 Krueger (2016). 53 Council of Economic Advisers (2016). 54 Blau and Kahn (2013).

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projected to fall. A decline in the labor force due to the fall in the labor participation rate has a negative impact on

economic growth,55 so securing a labor force is considered to be a long-term challenge for the U.S. economy. Meanwhile, if people stay outside the working population for a long period of time, it may become difficult for them to re-enter the labor market. Measures to support people who are willing to work but who involuntarily exit the labor market will become necessary in the future.

(3) High education expenditure and expanding education loans As the unemployment rate and the wage level vary widely in the United States, depending on the

academic achievement, people with a higher academic achievement level are expected to continue to have a greater opportunity to obtain jobs in higher-wage occupations. In this situation, the university enrollment rate in the United States has been trending upward since around 1980, and currently around half of people aged 18 and 19 enroll in universities (Figure I-2-1-4-7).

Figure I-2-1-4-7 School enrollment rates of people aged 18 or 19 in the United States

(1967-2014)


However, tuition fees for higher education in the United States are high, In the 2016-2017 academic year, the average annual tuition fee at four-year public universities was 9,650 dollars for resident students and 24,930 dollars for out-of-state students and the average at four-year private

55 According to the U.S. Department of Labor, the annual U.S. GDP growth rate in real terms in the period

until 2024 is projected to be only 2.2% due to the effects of a moderate decline in the labor participation rate.

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universities was 33,480 dollars (Table I-2-1-4-8). Over the 30-year period from the 1986-1987 academic year to the 2016-2017 academic year, the tuition fee level rose 2.3-fold at private universities and 3.1-fold at public universities (for resident students) (Figure I-2-1-4-9). Therefore, many students use education loans, so a heavy debt burden borne after graduation has become a social problem. As scholarship programs are well developed in the United States, it is said that the actual amount of cost for students is much lower than the published fee amounts mentioned above.56 However, not all students can sufficiently cover their expenditures with scholarship funds, so many students use education loans. According to the FRB, around half of people who have obtained bachelor’s degrees have the experience of taking out some kind of loan. Among people aged 18 to 29, the proportion of people who are using or have used education loans is 66%, and among people aged 30 to 44, the proportion is 56%. In short, the lower the age group is, the larger the proportion of people with debt is.57

Table I-2-1-4-8 Annual university fees in the United States (average; FY2016-FY2017) (Unit: dollars)

Annual tuition fee, etc. Dormitory fee and meal cost Total

Senior in public university

(for resident students) 9,650 10,440 20,090

Senior in public university

(for out-of-state students) 24,930 10,440 35,370

Senior in private university 33,480 11,890 45,370

Source: The College Board.

56 Terakura (2015). 57 FRB (2016)

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Figure I-2-1-4-9 Changes in annual university tuition fees in the United States

Notes: This figure shows real values. Source: The College Board "Trends in College Pricing 2016".

Of the loan burden on households, only education loans continued to increase during the global economic crisis. Currently, the outstanding amount of education loans is higher than the outstanding amounts of auto loans and credit loans and is the second highest after the outstanding amount of housing loans. The outstanding amount of education loans is growing across all age groups. The national outstanding amount of education loans more than tripled over the 10 years from 2005 to 2015 and stood at 1,230.7 billion dollars in 2015 (Figure I-2-1-4-10). This was because of increases in both the number of education loan users and the outstanding loan amount per user. Since 2005, both the number of education loan users and the outstanding loan amount per user have been growing at an annual pace of around 6%. In 2015, the number of users stood at 44.20 million people and the outstanding loan amount per user came to 27,870 dollars (Figure I-2-1-4-11).

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Figure I-2-1-4-10 Amount of education loans in the United States (by age group)

Source: Federal Reserve Bank of New York.

Figure I-2-1-4-11 Number of education loan users and per-user amount of education loans in

the United States

Source: Federal Reserve Bank of New York.

Receiving higher education is highly likely to lead to higher income, so it is important to provide education opportunities widely from the viewpoint of avoiding the perpetuation of inequality as well. For people seeking to receive higher education, education loans have played a very important role, but

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in some cases, the high cost of loan repayment after graduation is imposing an excessive burden on young generations of people. It is said that the burden of repayment may have a negative impact on the U.S. economy as it squeezes individuals’ spending. For example, if people are saddled with large debts or if they are in payment arrears or in default58 they face difficulty getting housing loans, so the debt burden may have a negative impact on the housing market. Looking at the number of young people living with spouses or partners and those living with parents, we see that the proportion of the former group has been gradually declining since 1990 while the proportion of the latter group has been on an uptrend (FigureI-2-1-4-12). The burden of repaying education loans may be one factor behind this situation although there are various other possible factors, such as culture and the environment.

In the action plan for the first 100 days in office that was mentioned earlier, President Trump referred to an education-related legislative amendment59 with a view to making the cost of education at two-year colleges and four-year universities affordable. While resolving these problems is expected to take time, attention is being focused on what measures will be taken in the future.

Figure I-2-1-4-12 Proportions of the youth age group (aged 18 to 34) living with partners, etc.

in the United States


58 In the case of education loans, people in repayment arrears of 270 days or longer are regarded as being

in default. 59 The Trump administration aims to amend the School Choice and Education Opportunity Act.

Documents

Chapter 2 Economic trends in the U.S. and Europe Section 1 ......45 Chapter 2 Economic trends in the U.S. and Europe Section 1 United States 1. Macroeconomic trends The U.S. economy