GDP and Beyond
to produce more relevant statistics.
For example, formany households, the performance of GDP over thelast economic expansion (2000–2007) does not seemto square with their personal experience. The growthin their takehome pay and bills seems to be very different from the growth of officially reported “real” disposable income. Yet data are available from BEA’snational accounts and other data sources on the breakdown of incomes, taxes, consumer outlays, and theprices households confront. That data can be used toconstruct cash and other alternate estimates of incomethat come closer to what most households are experiencing. Further information from Internal RevenueService (IRS) and other existing data could providefurther insights into the distribution of household income.Using statistics from BEA’s accounts and other existing data, it is possible to construct new measures—andto highlight existing subcomponents of GDP—thatwould provide better indicators of, among otherthings, the differential impact of GDP growth acrossstates, the sustainability of U.S. GDP growth, the adequacy of saving and investment, and emerging risks tothe economy.The next section of this paper discusses potentialnew measures of the distribution of growth acrosshouseholds, across regions of the country, and acrossdifferent types of businesses. The last section of the paper discusses potential new measures of sustainability of trends in investment, saving, asset values, and finance.
Income Growth Distribution AcrossHouseholds, Regions, and Businesses
The explanations for many of the differences betweenthe individual experiences of households and the picture of the economy captured in GDP, personal income, and other aggregate statistics can be found by drilling down below those aggregates in the nationalaccounts and looking at the components and supporting detail.
Growth in real GDP, real income,and real compensation must be first put on a per capita
4. For more information on BEA’s satellite account work, see the following: “Integrated Economic and Environmental Satellite Accounts” (Landefeld and Carson 1994b), “Accounting for Household Production”(Landefeld, Fraumeni, and Vojtech 2009), “Accounting for NonmarketHousehold Production” (Landefeld and McCulla 2000), “U.S. Transportation Satellite Accounts” (Fang, Han, Okubo, and Lawson 2000), “An OwnershipBased Framework of the U.S. Current Account” (Lowe 2009), “BEA’s2006 Research and Development Satellite Account” (Okubo, and others2006), and “Toward a Health Care Satellite Account” (Aizcorbe, Retus, andSmith 2008).
or per worker basis to reflect something closer to theaverage worker’s experience. Part of the growth in production and income simply reflects the growth in thelabor force and the larger wage bill that must be distributed across a larger labor force.Workers and households also confront differentprices than producers, and at times, these priceschange at quite different rates. For example, betweenthe first quarter of 2007 and the third quarter 2008,rapid increases in energy costs resulted in consumerinflation, as measured by BEA’s personal consumptionexpenditures price index, which rose at an average annual rate of 3.8 percent. In contrast, overall GDP inflation, which is a measure of domestic production andexcludes the prices of imported petroleum and otherimported products, rose at an average annual rate of 2.4 percent. Due in large part to these different pricesmeasures, growth in real GDP was 1.0 percentagepoint higher than the growth rate in real disposable income.Taxes and noncash benefits also drive a wedge between the aggregates and the typical worker’s experience. BEA’s measure of disposable income addressesthe tax issue by deducting taxes paid by households ontheir income. However, an alternate cash measure of disposable income would also deduct employer contributions to pension funds and contributions for healthinsurance and other benefits.
These payments by employers are a real cost of production (which must be recorded in the doubleentry NIPAs as income) and areal value to the employee. But when constructing ameasure of cash income, noncash payments by employers that are not available for current consumptionshould probably be deducted along with taxes. Becauseof the strong growth in employer “supplements,” payments by employers for pensions, health insuranceplans, and government social insurance, the differencebetween total compensation and takehome pay is often large. Between 1967 and 2007, supplements, afteradjustment for inflation, grew at an average annualrate of 3 percent, while real wages and salaries grew atan average annual rate of 1 percent.Chart 1 illustrates the different perspectives on theeconomy that emerge by looking “below” the headlinenumbers. Between 2000 and 2007, the headline number for real GDP grew at a 2.4 percent annual rate, andreal compensation grew at a 2.1 percent annual rate.
In comparison, over the same period, the belowtheheadline numbers grew more slowly, with real
5. It would also exclude the interest and dividends earned by pensionfunds, which are included in personal income as part of personal interestand dividend income.6. The period of 2000–2007 represents the peaktopeak annual growthfor the last business cycle.