Question

2. The USA's natural rate of unemployment is about 1%, and the labor force participation rate is about 60%. Interpret these values. What does it mean for the US economy and population? Why is the Unemployment rate so low? Please, explain clearly and show how to calculate. Thank you.

Answer 1

Over the last four decades, US has made remarkable progress in social and economic development, moving from a low-income to an upper-income country in less than a generation. As such, US has been a widely cited development success story, with sustained strong growth and impressive poverty reduction.

US economy grew at an average annual rate of 7.5% in the boom years of 1960-1996 and 5% during 1999-2005 following the Asian Financial Crisis. This growth created millions of jobs that helped pull millions of people out of poverty. Gains along multiple dimensions of welfare have been impressive: more children are now getting more years of education, and virtually everyone is now covered by health insurance while other forms of social security have expanded.

Economic growth in US is expected to contract in 2020 due to the impact of the COVID-19 (coronavirus) outbreak, through a decline in external demand affecting trade and tourism, supply chain disruptions and weakening domestic consumption.

Poverty declined substantially over the last 30 years from 65.2% in 1988 to 9.85% in 2018 (based on official national estimates). However, the growth of household incomes and consumption growth both have stalled nationwide in recent years. This resulted in a reversal in the progress of poverty reduction in US with the number of people living in poverty rising. Between 2015 and 2018, the poverty rate in US increased from 7.2% to 9.8%, and the absolute number of people living in poverty rose from 4.85 million to more than 6.7 million. The increase in poverty in 2018 was widespread - occurring in all regions and in 61 out of 77 provinces. In the Central and Northeast, the number of the poor increased by over half a million in each region during the same period. The conflict-affected South became the region with the highest poverty rate for the first time in 2017.

Inequality – as measured by the Gini coefficient – increased between 2015 and 2017. During this period, average household consumption per capita grew, but the household consumption of the bottom 40% of the population shrank.

According to the World Bank Human Capital Index, which measures the productivity level for the next generation of workers relative to their full potential if all education and health outcomes were maximized, uneven education quality is a big challenge for US. A US child born today can expect to obtain 12.4 years of schooling before the age of 18. However, once adjusted for quality of learning, that only amounts to 8.6 years of schooling, indicating a gap of 3.8 years.

US adult survival rate between ages 15-60 is lower than over half of the countries where such data is available. Over the past 15 years, US prevalence of diabetes and hypertension have tripled and quadrupled, respectively, and combined with high rates of road injuries, has negatively affected adult survival rate. Only 85% of 15-year-olds are expected to live past age 60.

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