THE LONG-RANGE ECONOMIC ASSUMPTIONS

FOR THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY

SOCIAL SECURITY ADMINISTRATION

July 28, 2014
Page 2

PRINCIPAL ECONOMIC ASSUMPTIONS

Overview

Sections

1 Productivity

2 Price Inflation

3 Average Real Wage Differential

4 Unemployment Rate

5 Annual Trust Fund Real Interest Rate
Overview, Page 1

OVERVIEW

Each year, the Board of Trustees of the Federal Old-Age and Survivors Insurance (OASI) and 

Disability Insurance (DI) Trust Funds provides an annual report to the Congress on the financial 

and actuarial status of the program. For this report, the Office of the Chief Actuary (OCACT), on 

behalf of the Board of Trustees, projects future cost and income based on three separate sets of 

long-range (75-year) assumptions for key economic variables. The intermediate (alternative II) set 

of assumptions represents the Trustees’ best estimate for future experience, while the low cost 

(alternative I) and high cost (alternative III) sets of assumptions represent more and less favorable

scenarios, respectively, from the perspective of program cost. The intermediate assumptions are 

also used as the central tendency for the stochastic projections presented in the OASDI Trustees 

Report. This memorandum presents the ultimate economic assumptions to be used in the 2014

Annual Report of the Board of Trustees. For alternative II, these are unchanged from the ones 

assumed for the 2013 Trustees Report.

The key economic variables include the average annual growth rates in total-economy 

productivity, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W),

and the gross domestic product (GDP) deflator, as well as the average OASDI real wage 

differential, the unemployment rate, and the annual trust fund real interest rate. Total-economy 

productivity is the ratio of real GDP to total hours worked. The real wage differential is the rate of

change in the average OASDI covered wage less the rate of change in the CPI-W. Table A.1, 

below, lists the assumed ultimate (i.e., long-range future) values for these key economic variables 

in the 2014 Trustees Report alternatives I, II, and III. 

Table A.1: Ultimate Values for Key Economic Assumptions for the Long-Range (75-year) Projection Period

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

2013 Trustees Report

Ultimate Assumptions I II III I II III I II III

Average Percentage Change In:

Productivity 

(Total-Economy) 2.0 1.7 1.4 2.0 1.7 1.4 0.0 0.0 0.0

Prices (CPI-W) 3.4 2.7 2.0 1.8 2.8 3.8 1.6 -0.1 -1.8

Prices (GDP Deflator) 3.1 2.3 1.5 1.5 2.4 3.3 1.6 -0.1 -1.8

Real Wage Differential 

(Percent)1 1.8 1.1 0.5 1.7 1.1 0.5 0.0 0.0 0.0

Unemployment Rate (Percent) 4.5 5.5 6.5 4.5 5.5 6.5 0.0 0.0 0.0

Annual Trust Fund Real 

Interest Rate (Percent) 3.4 2.9 2.4 3.4 2.9 2.4 0.0 0.0 0.0

 

1 The assumed annual real growth rate in the average wage is unchanged from last year. The real wage differential, 

however, is calculated as the difference of growth rates in the average wage and in the CPI-W, and is slightly different 

as a mathematical consequence of the changes in the assumed growth rates for the CPI-W and GDP deflator.
Overview, Page 2

The remainder of this section provides brief descriptions and summary information for the key 

economic variables, as well as assumed values for alternative II.

Productivity − The growth rate in total-economy productivity is the most important component 

contributing to the real growth rate of the average wage. The historical growth rate in 

total-economy productivity has varied over economic cycles and longer periods. The annual 

growth rate in total-economy productivity averaged 1.8 percent over the 50-year period from 1962

to 2012, and 1.7 percent over the last five complete economic cycles, a 41-year period from 1966 

to 2007. The Trustees have retained an ultimate growth rate assumption of 1.7 percent.

The growth rate in total-economy productivity can be viewed as a weighted average of the growth 

rates in economic sectors, where the weights are the shares of each sector in total GDP. Because 

the levels of productivity vary by sectors, relative changes in the sector weights can affect the 

growth rate in total-economy productivity. For example, the historical growth rate in 

total-economy productivity was boosted by a shift in weight from the relatively low-productivity

farm sector to the relatively high-productivity nonfarm sector. Because the sector weights are 

assumed to be constant in the long-range future, it is reasonable to evaluate historical growth rates 

in productivity by sector.

The annual growth rate in nonfarm business productivity averaged about 2.1 percent over the 

50-year period from 1962 to 2012, and about 2.0 percent over the last five complete economic 

cycles. The Trustees assume an ultimate long-range average annual growth rate in nonfarm 

business productivity of 2.1 percent. 

The annual growth rate in farm productivity averaged about 4.6 percent over the 50-year period 

from 1962 to 2012, and 4.6 percent over the last five complete economic cycles. OCACT believes 

that the growth rate in farm productivity was greatly influenced by a shift in workers and output

from relatively small and inefficient sole proprietor farms to relatively large, more efficient 

corporate farms. OCACT assumes no such shift in the future and the Trustees assume an ultimate 

long-range growth rate in farm productivity of 2.1 percent, equal to the assumed ultimate 

long-range growth rate in nonfarm productivity. 

The growth rates in productivity in the remaining sectors of the economy (i.e., households, 

nonprofit institutions, and general government) have been close to zero over the historical period, 

and are expected to be zero in the future. The weighted average of the assumed sector growth rates 

is equal to the Trustees’ assumed ultimate long-range average annual growth rate in total-economy 

productivity of 1.7 percent.

Price Inflation − The growth rate in the CPI-W is used to set the OASDI cost of living adjustment 

(COLA). The average annual growth rate in the CPI-W was about 3.8 percent over the 50-year 

period from 1962 to 2012, about 4.2 percent over the last five complete economic cycles from 

1966 to 2007, and about 2.6 percent over the last two complete economic cycles from 1989 to 

2007. The lower growth rate over the more recent period reflects, among other things, the stronger 

implementation of anti-inflationary monetary policy and the effects of additional competition from 

emerging markets. However, the more recent period does not reflect the kind of inflationary 
Overview, Page 3

shocks that may occur in the future. OCACT expects that monetary policy will, in general,

continue to target relatively low inflation, but may not be able to fully prevent occasional bursts of 

inflation caused by demand and supply shocks. Thus, OCACT expects the future average growth 

rate in the CPI-W to be slightly higher than the more recent historical period. Accordingly, the 

Trustees have set the ultimate long-range average annual growth rate in the CPI-W to 2.7 percent.

The GDP deflator is another measure of price inflation. It is used in projecting the level of 

aggregate GDP and wages and, therefore, OASDI tax revenues. OCACT believes that the CPI-W

and the GDP deflator will grow at different rates in the future due to inherent differences in their 

computational methods and coverage. The principal difference in computational methods is the 

way that groups of goods and services are weighted in computing the overall price increases. For 

the CPI-W, broad groups of goods and services use constant weights over 2-year periods,

reflecting the distribution of purchases at the beginning of the period. For the GDP deflator, 

changes in the distribution of purchases from one quarter to the next are reflected in the 

computation of quarterly increases in price levels. When the price for one group of goods rises 

relative to the price of a second group, consumers tend to reduce purchases from the first group 

relative to the second. The GDP deflator formula accounts for such shifts as they happen, and thus 

reflects to a greater degree the changes in behavior of consumers in response to relative price 

changes. Because of this computational difference, the GDP deflator tends to result in a lower 

measured increase compared to the CPI-W. The Bureau of Labor Statistics (BLS) estimates the 

effect that applying this behavioral response would have had on the CPI-U for the 1990s, and 

publishes actual values for the 2000 to 2011 period. These data indicate that reflecting the 

behavioral response of consumers to relative price changes would have lowered the average 

annual growth rate in the CPI-U (and therefore CPI-W) between 1990 and 2011 by about 0.3 

percentage point. OCACT expects the future average annual growth rate in the GDP deflator to be 

0.3 percentage point below the average annual growth rate in the CPI-W due to this difference in 

computational methods.

The second important difference between the CPI-W and the GDP deflator is coverage. The 

CPI-W measures the annual growth rate in prices covered by consumer expenditures, while the 

GDP deflator reflects the annual growth rate in prices covered by all consumption, investment, and 

government expenditures. Investment expenditures include growing amounts for computers and 

software, two goods whose prices have fallen over the last twenty-five years and are likely to 

continue falling. OCACT expects that the overall price of investment goods will grow more 

slowly than the overall price of consumer goods. On the other hand, government expenditures 

include employee compensation as a significant component. As the average real wage for 

government employees increases, OCACT expects that the overall price of government goods will 

grow faster than the overall price of consumer goods. OCACT believes the net effect of difference 

in coverage is that the average annual growth rate in the GDP deflator will be about 0.1 percentage 

point lower than the average annual growth rate in the CPI-W. 

Thus, the Trustees set the ultimate long-range average annual growth rate in the GDP deflator to 

2.3 percent, or 0.4 percentage point below the 2.7 percent ultimate long-range average annual 

growth rate in the CPI-W. The price differential of 0.4 percentage point is the sum of 0.3 

percentage point for computational difference and 0.1 percentage point for coverage difference.
Overview, Page 4

Average Real Wage Differential – The Trustees set a pattern of assumed annual real wage 

differentials over the last 65 years of the 75-year projection horizon (i.e., 2023 to 2088) averaging

1.1 percent. OCACT expects the future real growth rate in the average OASDI covered wage to 

equal approximately the future real growth rate in (1) average U.S. wages and (2) average U.S.

earnings (which include the self-employed). Hence, the Trustees set the average annual real

growth rate in average U.S. earnings to 1.1 percent over the 65-year period.

The real growth rate in the average U.S. earnings can be described as the product of “factor 

changes” in total-economy productivity, average hours worked per week, compensation ratio,

earnings ratio, and the ratio of the GDP deflator to the CPI. Equation 1 expresses this relationship

in terms of those factor changes: 

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where {x} = the factor change in x (e. g., if x changes from 10 to 12, the factor change in x is 

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The average annual change in average hours worked per week was about -0.22 percent over the 

50-year period from 1962 to 2012, but only about -0.05 percent over the last two complete 

economic cycles, from 1989 to 2007. Some of this slowdown in the rate of decline is due to 

changes in the age-sex and educational distributions of the workforce. However, even after 

adjusting for distributional effects, the trend rate of decline in average hours worked per week over 

the last two economic cycles has been less than 0.1 percent per year. For the future, the Trustees

set the ultimate long-range average annual rate of change in average hours worked per week 

to -0.05 percent.

The compensation ratio is defined as the ratio of total labor compensation (i.e., total labor earnings 

plus employee benefits and wage-related employer taxes) to GDP and can be viewed as the “labor 

share”. The Trustees expect that the labor and capital shares will be constant in the future and 

therefore, set the ultimate long-range average annual rate of change in the compensation ratio to 

zero. 

The earnings ratio is the ratio of total labor earnings (i.e., the sum of wages and self-employment

income) to total labor compensation. The average annual rate of change in the earnings ratio was 

about -0.20 percent over the 50-year period from 1962 to 2012 and over the last five complete 

economic cycles from 1966 to 2007. 
Overview, Page 5

OCACT expects contributions to employer-sponsored group health insurance (ESI) in the future to 

be significantly affected by the health care legislation enacted in 2010. This expectation led to a 

significant change in the assumed future path of the ratio of earnings to compensation between the 

2009 and 2010 Trustees Reports. For the 2009 Trustees Report, the ratio of wage and salary

disbursements (WSD) to employee compensation (WSS) was assumed to decline at a fixed 

“ultimate” annual rate in each of the last 65 years of the 75-year projection horizon. The assumed

ultimate annual rate of change in the ratio of WSD to WSS was set to -0.2 percent. For the 2010 

Trustees Report, the actuaries at the Centers for Medicare and Medicaid Services (CMS) projected 

components of national health care expenditures, including ESI, using “new law” assumptions 

(i.e., including the effect of the new health care reform legislation enacted in 2010). The more 

detailed CMS data enabled the projection of annual rates of change in the ratio of WSD to WSS. 

The resulting average annual rate of change in the ratio of wages to employee compensation (and 

for the earnings ratio) over the last 65 years of the projection horizon (2020 to 2085) was -0.1 

percent for the 2010 Trustees Report.

For the 2014 Trustees Report, the Trustees set a path for the annual rates of change in the ratio of 

WSD to WSS over the last 65 years of the projection horizon (2023 to 2088) consistent with the 

annual rates of change over the same period from the 2013 Trustees Report. This results in an 

average annual rate of change in the ratio of WSD to WSS of about -0.1 percent over the last 65 

years of the 75-year projection period.

Thus, the Trustees set an average annual real rate of increase in average US earnings of about 1.1

percent over the last 65 years of the 75-year projection period. This assumption reflects growth 

rates of about 1.7 percent for total-economy productivity, -0.4 percent for the price 

differential, -0.1 percent for the average earnings ratio, 0.0 percent for the compensation ratio,

and -0.05 percent for the average hours worked per week. 

Unemployment Rate – The aggregate civilian unemployment rate, adjusted for changes in the 

age-sex distribution of the labor force, averaged about 5.2 percent over the last five complete 

economic cycles from 1966 to 2007, and about 5.8 percent over the last 40 years (from 1972 to 

2012). In the future, OCACT believes that the projected decline in the overall growth rate in the 

labor force will put some downward pressure on the aggregate unemployment rate. The Trustees

set the ultimate long-range civilian age-sex adjusted unemployment rate to 5.5 percent.

Annual Trust Fund Real Interest Rate – The real interest rate (real effective annual yield) on the 

special public debt obligations issuable to the trust funds for a given year is defined as the nominal 

effective annual yield adjusted for the increase in the CPI-W for the first year after issue. Future

real interest rates on long-term Treasury securities will depend in part on the market view of the 

stability and solidity of the domestic financial markets and the domestic economy. Real ex-post 

(actual) interest rates on long-term Treasury securities averaged 3.17 percent over the last five 

economic cycles (from 1966 to 2007).

The Trustees set the assumed ultimate long-range real interest rate to 2.9 percent, the same 

ultimate real interest rate in the 2013 Report. The Trustees believe that this assumption is 

appropriate, in spite of the Federal government’s expected increase in debt over the short-range 
Overview, Page 6

period. OCACT believes that this ultimate assumption is consistent with a fiscally sustainable path 

over the remainder of the long-range period.
Productivity, Page 1

1. PRODUCTIVITY

THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION

TABLE OF CONTENTS PAGE

1 PRODUCTIVITY................................................................................................................................................2

1.1 SUMMARY ......................................................................................................................................................2

1.2 BEA AND BLS REVISIONS TO PRODUCTIVITY SINCE THE 2013 REPORT.........................................................2

1.3 PRODUCTIVITY GROWTH RATES BY MAJOR SECTORS AND OVER LONG TIME PERIODS AND ECONOMIC 

CYCLES ......................................................................................................................................................................3

1.3.1 Sector Productivity Growth Rates .........................................................................................................5

1.3.1.1 Nonfarm Business (NFB)................................................................................................................................... 5

1.3.1.2 Farm................................................................................................................................................................... 6

1.3.1.3 Nonprofit Institutions (NI)................................................................................................................................. 6

1.3.1.4 General Government (GOV).............................................................................................................................. 7

1.3.1.5 Households......................................................................................................................................................... 8

1.3.2 Total-Economy Productivity Growth Rate.............................................................................................9

1.4 PROJECTIONS FROM OTHER SOURCES...........................................................................................................10

1.5 APPENDIX.....................................................................................................................................................16

TABLE OF TABLES PAGE

TABLE 1.1: ASSUMED ULTIMATE ANNUAL RATES OF INCREASE IN TOTAL-ECONOMY PRODUCTIVITY .........................2

TABLE 1.2: HISTORICAL AVERAGE ANNUAL RATES OF INCREASE IN TOTAL-ECONOMY PRODUCTIVITY AND ITS 

COMPONENTS (%) ..................................................................................................................................................3

TABLE 1.3: ULTIMATE AVERAGE ANNUAL RATES OF INCREASE IN TOTAL-ECONOMY PRODUCTIVITY AND ITS 

COMPONENTS FOR THE 2014 TRUSTEES REPORT....................................................................................................3

TABLE 1.4: TOTAL-ECONOMY PRODUCTIVITY: COMPOUND ANNUAL RATES OF GROWTH (%) BASE YEAR = 2009 ....12

TABLE 1.5: NONFARM BUSINESS PRODUCTIVITY: COMPOUND ANNUAL RATES OF GROWTH (%) BASE YEAR = 2009 14
Productivity, Page 2

1 Productivity

1.1 Summary

For the 2014 Trustees Report, the Trustees set the assumed ultimate annual rates of increase in 

total-economy productivity2to 1.98 percent, 1.68 percent, and 1.38 percent for alternatives I, II, 

and III, respectively,3as shown in Table 1.1. These rates of increase are the same as those used 

in the 2013 Trustees Report. It is important to note that the assumed rates of increase for 

total-economy productivity for the 2014 Trustees Report are consistent with assumed ultimate 

annual rates of increase in nonfarm business productivity of 2.42 percent, 2.06 percent, and 1.69

percent for alternatives I, II, and III, respectively.

Table 1.1: Assumed Ultimate Annual Rates of Increase in Total-Economy Productivity

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

2013 Trustees Report

I II III I II III I II III

Total-Economy Productivity 1.98 1.68 1.38 1.98 1.68 1.38 0.0 0.0 0.0

Total-economy productivity is defined as the ratio of real gross domestic product (GDP) to total 

hours worked by all workers in the U.S. economy. The Bureau of Economic Analysis (BEA) 

estimates historical values for real GDP in its National Income and Product Accounts (NIPA). 

The Bureau of Labor Statistics (BLS) provides total hours worked in an unpublished series based 

mostly on data from its Current Employment Statistics (CES) Survey.

This section is divided into three subsections. The first reviews BEA and BLS revisions to real 

GDP and total hours worked since the 2013 Report. The second decomposes total-economy 

productivity by major sector and analyzes differences in sector productivity growth over several 

periods. A final subsection provides alternative long-run assumptions from private forecasters.

1.2 BEA and BLS Revisions to Productivity since the 2013 Report

On July 31, 2013, BEA revised real GDP back to 1929 as part of its comprehensive revision to 

the NIPA.4 BEA subsequently corrected some estimates by sector on November 1, 2013.

Compared to the pre-revision data, BEA raised the average annual real growth rate in GDP by 

 

2 Total-economy productivity is defined as the ratio of total real gross domestic product (GDP) to total 

hours worked by all workers.

3 The precise values of the productivity assumptions are rounded to more than one decimal place to allow 

them to be fully consistent with rounded growth rate assumptions for the real-wage differential and certain links 

between these variables.

4

“2013 Comprehensive Revision of the National Income and Product Accounts.”

http://bea.gov/national/an1.htm#2013comprehensive. 
Productivity, Page 3

0.05 percent over the last five economic cycles, 1966 to 2007. The average annual growth rate in 

the nonfarm business sector over the same period was revised upward by 0.07 percent. The 

revisions are somewhat more significant over the more recent cycles: the growth rate over the 

last three complete cycles, 1979 to 2007, was revised upward 0.07 percent for the total economy 

and 0.09 percent for the nonfarm business sector. Partly due to the BEA revisions, the BLS 

lowered its estimate of the number of hours worked for nonprofit institutions starting in 2001, 

and raised its estimate for hours worked for nonfarm business. By 2011, the level of hours 

worked was lowered by 2.6 percent for nonprofit institutions and raised by 0.6 percent for 

nonfarm businesses. However, the overall change in the level of total hours worked for the total 

economy was relatively small, averaging only 0.04 percent higher over the 2001 to 2011 period.

1.3 Productivity Growth Rates by Major Sectors and Over Long Time Periods and 

Economic Cycles5

Table 1.2: Historical Average Annual Rates of Increase in Total-Economy Productivity and Its Components (%)

Total

Economy

Nonfarm

Business

Farm Households Nonprofit

Institutions

General

Government

1962-2012 (50 years) 1.82 2.08 4.61 4.34

0.00

0.54 0.22

 1962-1987 (25 years) 1.87 1.99 5.30 4.68

0.00

0.96 0.35

 1987-2012 (25 years) 1.77 2.16 3.93 3.99

0.00

0.12 0.09

Economic Cycles

 Last One - 2000-2007 (7 years) 2.15 2.63 2.77 0.97 -0.35 0.33

 Last Two - 1989-2007 (18 years) 1.93 2.35 4.32 4.17 -0.08 -0.03

 Last Three - 1979-2007 (28 years) 1.74 2.04 4.61 3.88 0.09 0.21

 Last Four - 1973-2007 (34 years) 1.62 1.89 4.50 3.82 0.14 0.12

 Last Five - 1966-2007 (41 years) 1.73 1.99 4.59 4.22 0.37 0.16

Table 1.3: Ultimate Average Annual Rates of Increase in Total-Economy Productivity and Its Components for the 

2014 Trustees Report

I 1.98 2.42 2.42 1.98 0.00 0.00

II 1.68 2.06 2.06 1.68 0.00 0.00

III 1.38 1.69 1.69 1.38 0.00 0.00

 

5

Peaks in economic cycles roughly follow the NBER cycle dating, except for short recoveries such as 

1980-81, which are not counted as separate cycles.
Productivity, Page 4

Table 1.2 lists the average annual rates of increase in productivity for the total economy and its 

major sectors over the last one, two, three, four, and five complete economic cycles, and over the 

last 50 years from 1962 to 2012. The major sectors include nonfarm business, farm, households, 

nonprofit institutions, and general government. Listed in Table 1.3 are the assumed ultimate 

average annual rates of increase in productivity for the total economy and its major sectors. For 

the ultimate assumptions, OCACT assumes that the relative size of employment by sector will 

stabilize.

The annual growth rate in productivity can vary from its trend growth rate over an economic 

cycle, assuming employers are slow to adjust labor to changes in output. Going into a recession, 

the growth rate in productivity may drop below trend, as employers reduce output faster than 

labor. During an economic recovery, the growth rate in productivity may rise above trend, as 

employers increase output using their existing stock of labor. Productivity growth rates also vary 

over longer periods that may span multiple cycles. For example, the growth rate in 

total-economy productivity was 2.8 percent over the 25-year period from 1948 to 1973, 1.3

percent over the 22-year period from 1973 to 1995, and 2.0 percent over the 17-year period from 

1995 to 2012. Hence, it seems reasonable to analyze productivity growth rates over several 

economic cycles and long timespans, such as the latest 50-year period from 1962 to 2012, or 

even longer periods.6

However, setting the ultimate long-range assumption for the annual rate of increase in 

productivity to its average value over some long-range historical period has its limitations. First, 

the NIPA data are less reliable in earlier periods.7 BEA began measuring income in the 

mid-1930s, and output in the early to mid-1940s.8It then “backcasted” both measures to 1929. 

Based on conversations with BEA analysts, the agency did not introduce the more modern 

methods of sampling, collecting, and processing of data until 1948, and did not simultaneously 

collect and balance income and output data until the early 1950s. Consequently, it seems 

reasonable to limit the use of historical data to the last forty to fifty years. Compound annual 

rates of growth for total-economy labor productivity for approximately the past five decades are 

shown in Table 1.4.

A second important limitation derives from the fact that a significant portion of the total 

historical average annual rate of increase in total-economy productivity is due to shifts in 

workers from relatively low- to high-productivity jobs. For example, over the 50-year period 

from 1962 to 2012, the ratio of agricultural to total-economy hours worked declined from about 

 

6

Ferguson, Roger W. and William L. Wascher. “Distinguished Lecture on Economics in Government: 

Lessons from Past Productivity Booms,” Journal of Economic Perspectives. Volume 18, Number 2 (Spring 2004), 

pp. 3-28.

7 The reliability of NIPA data for the most recent years is also questionable, since they are subject to the 

greatest number of revisions.

8 BEA, “GDP: One of the Great Inventions of the 20th Century,” Survey of Current Business, January 

2000, p. 7.
Productivity, Page 5

0.069 to 0.016, and the ratio of agricultural to total nominal GDP declined from about 0.030 to 

0.010. Furthermore, although farm productivity grew faster than that of any other sector over the 

last 50 years, the average level of productivity for agricultural workers in 2012 was about 41

percent of the average level of productivity for all workers. 

This shift complicates the consideration of historical experience. The assumed ultimate 

long-range value for the annual rate of increase in total-economy productivity should be 

consistent with the average value over a long-range historical period with adjustment for 

differences between conditions of the past and conditions expected for the future. The average 

long-range historical value is inflated due to sectoral shifts in employment that are not expected 

to continue into the future.9This problem can be resolved by removing the effects of sectoral 

shifts in employment from the historical record or, more simply, by setting the ultimate 

long-range value for the annual rate of increase in total-economy productivity to a weighted 

average of the expected ultimate long-range values for the annual rate of increase in productivity 

for each sector.

1.3.1 Sector Productivity Growth Rates

1.3.1.1 Nonfarm Business (NFB)

The average annual growth rate in NFB productivity was 2.63 percent over the last economic 

cycle (i.e., a 7-year period from 2000 to 2007), and 2.35 percent over the last two economic 

cycles (18-year period from 1989 to 2007). These relatively high growth rates reflect the heavy 

influence of the post-1995 “new economy” characterized by rapid improvements in computers 

and their assimilation into the economy.

Looking at longer periods, the average annual growth rate in NFB productivity was 2.04 percent 

over the last three economic cycles (28-year period from 1979 to 2007), 1.89 percent over the 

last four economic cycles (34-year period from 1973 to 2007), and 1.99 percent over the last five 

economic cycles (41-year period from 1966 to 2007). These productivity growth rates include 

the effects of a relatively low growth rate period from 1973 to 1995. This slowdown has been 

attributed to a shift in employment from relatively high-productivity manufacturing jobs to

low-productivity service jobs, and to the influx of new unskilled baby-boomers into the 

workforce. Historical compound annual rates of growth in labor productivity for the nonfarm 

business sector are shown in Table 1.5.10

On balance, OCACT believes that the 1.99 percent average annual growth rate for NFB 

productivity over the last five economic cycles (1966 to 2007) is somewhat below the most 

reasonable assumption for the ultimate growth rate. Although the evidence for faster productivity 

 

9

For example, the 0.053 decline (i.e., from 0.069 to 0.016) in the ratio of agriculture to total-economy 

hours worked over the last fifty years can’t be repeated in the future since the level of the ratio in 2012 is 0.016.

10 Because the NFB productivity data in Table 1.5 are from BLS, which has not yet implemented BEA’s 

November 1, 2013 corrections, they do not exactly match the other NFB productivity data presented in this section.
Productivity, Page 6

growth from the last two economic cycles is still unclear (for example, the average annual 

growth rate in NFB productivity was only 1.94 percent over the 4-year period from 2003 to 

2007), OCACT believes that somewhat greater weight should be placed on more recent 

experience to the degree that it better reflects the conditions expected generally for the future. 

Thus, OCACT believes it is reasonable to assume an ultimate rate of increase in NFB 

productivity of 2.06 percent. This rate of increase is 0.03 percentage point higher than that used 

in the 2013 Trustees Report and reflects the recent BEA revision (see Section 1.2).

1.3.1.2 Farm 

The average annual growth rate in farm productivity was about 4.61 percent from 1962 to 2012. 

OCACT believes that a significant portion of the relatively high growth rate in farm productivity 

was due to a shift in farm operation and ownership from smaller farms run by the self-employed 

to larger, more efficient and capital intensive farms run by corporations. For example, based on 

BLS’ Current Population Survey (CPS) data, the ratio of self-employed to all workers in the 

agricultural sector fell from about 0.53 in 1962 to 0.36 in 2012. For the long-range future, this 

shift is expected to slow and the difference in the productivity growth rates between the farm and 

nonfarm sectors is expected to decline to zero. Thus, OCACT believes it is reasonable to set the 

assumed ultimate average annual growth rate in farm productivity to 2.06 percent, or equal to the 

assumed ultimate average annual growth rate in NFB productivity.

1.3.1.3 Nonprofit Institutions (NI) 

The average annual rate of increase in NI productivity was 0.96 percent over the 25-year period 

from 1962 to 1987, 0.12 percent over the 25-year period from 1987 to 2012, and 0.54 percent 

over the combined 50-year period from 1962 to 2012. OCACT believes that the pattern of

growth rates in NI productivity, with periods of positive and negative values, is largely due to 

shifts in employment within the NI sector.

In the NIPA, NI labor compensation accounts for about 83 percent of NI nominal GDP. NI 

compensation is summed from five subsectors including education, health, social, religious, and 

business services. For each subsector, the level of real output is defined as the product of the 

level of average compensation per hour in a base year (presently 2009) and the level of hours 

worked. This means that the level of productivity in each subsector is a constant (i.e., the average 

compensation per hour in a base year), and that the growth rate in productivity in each sector is 

zero. However, this also means that the level of productivity for the total NI sector is a weighted 

average of the levels of productivity in the subsectors, and that the growth rate in total NI 

productivity may be positive (or negative), due to shifts in employment from sectors with 

relatively low (high) average compensation to sectors with relatively high (low) compensation.

In fact, BEA data indicate that the average annual compensation in health services in 2012 is 

higher than the average annual compensation in other service sectors, and that the growth in 

employment in health services over the 25-year period from 1962 to 1987 is higher than the 

growth in employment in other service sectors. The NIPA include data on compensation and 
Productivity, Page 7

full-time equivalent employment in health care, educational services, and social assistance.11

These three sectors are mostly composed of NI workers.12 The data show that the level of 

average annual compensation for full-time equivalent employment in 2012 was $66,800, 

$53,000, and $33,700 in health care, educational services, and social assistance, respectively. 

The data also show that the ratio of full-time equivalent employment in the health sector to the 

total for all three sectors rose from about 0.44 in 1962 to 0.61 in 1987, declined to 0.57 in 2000, 

and remained relatively constant thereafter.13

Thus, the data indicate that the relative increase in employment in health services significantly 

contributed to the average annual rate of increase in NI productivity of 0.96 percent over the 

25-year period from 1962 to 1987. The data also indicate that the subsequent relative stability in 

the growth rates in employment across NI subsectors significantly contributed to the decline in 

the NI productivity growth rate to 0.12 percent over the 25-year period from 1987 to 2012. In the 

future, it seems reasonable to assume that the more recent historical trend in employment will 

continue, and that the ultimate long-range growth rates in employment in the NI subsectors will 

be roughly equal.14 Thus, OCACT believes it reasonable to set the assumed ultimate long-range 

growth rate in NI productivity to zero.

1.3.1.4 General Government (GOV) 

The average annual rate of increase in GOV productivity was 0.35 percent over the 25-year 

period from 1962 to 1987 and 0.09 percent over the 25-year period from 1987 to 2012. OCACT 

believes that these relatively small growth rates in GOV productivity are due to shifts in 

employment within the GOV sector.

GOV labor compensation accounts for about 80 percent of GOV nominal GDP. GOV 

compensation is summed from three primary subsectors: federal civilian, federal military, and 

state and local government. As with the NI subsector, the level of productivity in each subsector 

is a constant (i.e., the average compensation per hour in a base year), and the growth rate in 

productivity in each sector is zero. However, this also means that the level of productivity for the 

total GOV sector is a weighted average of the levels of productivity in the subsectors, and that 

the growth rate in total GOV productivity may be positive (negative), due to shifts in 

 

11 BEA, NIPA, Tables 6.2B through 6.2D and Tables 6.5B through 6.5D.

http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

12 BEA, “Income and Outlays of Households and of Nonprofit Institutions Serving Households,” Survey of 

Current Business, April 2003, p. 14.

http://www.bea.gov/scb/pdf/2003/04april/0403household.pdf

13 NIPA categories of services changed in 1998, so present ratios are not directly comparable with the old 

ones. The ratio declined from 0.61 in 1987 to 0.57 in 2000 (the data for 1998-2000 are available both under the old 

and the new categorization), and has been roughly constant at 0.71 under the new categorization since 2000.

14Given that the overall assumptions reflect a continued growth in the health sector as a percent of GDP, 

this faster growth is assumed to occur in the for-profit sector of the economy.
Productivity, Page 8

employment from sectors with relatively low (high) average compensation to sectors with 

relatively high (low) compensation.15

OCACT believes that the relatively small, positive growth rate in GOV productivity is due to 

shifts in employment between subsectors. If so, in the future, the growth rate in GOV 

productivity could be negative, reflecting a reversal of historical trends. For the future, however, 

it seems reasonable to assume that the ultimate long-range growth rates in employment in the 

GOV subsectors will be about equal and that the ultimate long-range growth rate in GOV 

productivity will be zero.

1.3.1.5 Households 

In the NIPA, nominal GDP in the household sector is the sum of the nominal compensation of 

private household workers and the nominal imputed output of owner-occupied housing (IOH). In 

2012, the nominal compensation of private household workers made up only about 1.5 percent of 

the total nominal GDP in the household sector. Though this component is relatively small, it is 

useful to analyze each component of GDP in the household sector.

Compensation of Household Workers - As with NI and GOV compensation sectors, BEA sets 

the real growth rate in GDP equal to the growth rate in hours worked. Hence, the growth rate in 

productivity is, by definition, zero.

Imputed Output of Owner-Occupied Housing (IOH) - Renters of apartments and homes pay rent 

and receive streams of housing services. BEA includes these business transactions in the NIPA. 

Though the owners of homes pay no rent and have no business transactions, they receive similar 

streams of housing services. Hence, for consistency, BEA estimates the real and nominal values 

of housing services received by those who own their own homes (i.e., real and nominal IOH) and 

includes these amounts in the NIPA.

BEA’s inclusion of IOH in GDP creates a problem. Since IOH has no associated measure of 

labor hours worked, how should it be included when estimating historical and projecting future 

growth rates in sector and total-economy productivity? There are two approaches in handling 

IOH in projections of total-economy productivity for the long-range.

First, total real GDP could be projected as the sum of projections for real IOH and real GDP less 

IOH. Real GDP less IOH would be the product of the total-economy-less-IOH productivity and 

total hours worked. The ultimate average annual growth rate in total-economy-less-IOH 

productivity could be set to the weighted average of the assumed ultimate average annual growth 

rates in sector productivity.16 Real IOH could be projected as a fixed ratio to total real GDP less 

IOH. 17 Total real GDP could then be constructed as the sum of real IOH and real GDP less IOH. 

 

15 BEA, “Government Transactions, Methodology Papers: U.S. National Income and Product Accounts,” 

September 2005, http://www.bea.gov/national/pdf/mp5.pdf

16 Sector weights would be defined as the ratio of sector to total nominal GDP less IOH.
Productivity, Page 9

As a second and equivalent approach, household productivity could be defined as the sum of real 

IOH and real output of private household workers to the total hours worked of private household 

workers (as in Table 1.2). Using this definition, the average annual rate of increase in 

productivity for private household workers over the 50-year period from 1962 to 2012 was about 

4.34 percent. In the future, however, the average annual growth rate in productivity for private 

household workers is expected to be much lower. In fact, it is expected to equal the average 

annual growth rate of total-economy-less-IOH productivity, as described in the first approach.18

The ultimate average annual growth rate in total-economy productivity could be set to the 

weighted average of the assumed ultimate average annual growth rates in sector productivity.19

Finally, total real GDP would be the product of total-economy productivity and hours worked.

1.3.2 Total-Economy Productivity Growth Rate

The assumed ultimate growth rate in total-economy productivity is equal to a weighted average 

of the growth rates in sector productivity and employment (see Section 1.5 Appendix). This 

relationship is simplified by assuming that the ultimate long-range growth rate in employment in 

all sectors of the economy will be about equal, and that the ultimate long-range growth rates in 

productivity for the nonprofit institution, and general government sectors will be zero. Given 

 

17 Over the 30-year period from 1983 to 2012, the ratio of real IOH to real GDP less IOH has been fairly 

constant and averaged 0.079.

18 If,

Pph = Real IOH / Hph

Pxph = Real GDP less IOH / Hxph

Then,

 . . .

Pph = Real IOH – Hph

 . . .

Pxph = Real GDP less IOH – Hxph

Assuming,

 . .

Real IOH = Real GDP less IOH

 . .

Hph = Hxph

Then,

 . .

Pph = Pxph

Where,

 Pph = Productivity, private household

 Pxph = Productivity, total economy less private household

 Hph = Hours worked, private household

 Hxph = Hours worked, total economy less private household

 .

 Y = Rate of change in Y

19 In this second approach, sector weights would be defined as the ratio of sector to total nominal GDP.
Productivity, Page 10

these assumptions, the ultimate long-range growth rate in total-economy productivity is equal to 

the weighted average of the ultimate long-range growth rates in productivity in the farm, 

nonfarm business, and household sectors of the economy.

Sector weights are defined as the ratio of sector to total nominal GDP. This “nominal output” 

weight for the farm sector declined from about 0.030 in 1962 to 0.010 in 2012, and has averaged 

about 0.008 over the last business cycle from 2000 to 2007. The nominal output weight for the 

nonfarm business sector was much more stable. It averaged 0.750 over the 25-year period from 

1963 to 1987, 0.747 over the 25-year period from 1988 to 2012, and 0.751 over the last business 

cycle. For the future, OCACT believes the ultimate long-range values for the nominal output 

weights will remain at 0.75 for the nonfarm business sector and 0.01 for the farm sector.

The nominal weight for the household sector rose from about 0.054 in 1977-79 to the historically 

high value of 0.077 in 2009. As mentioned, the increase in the weight occurred because the GDP 

deflator for IOH grew faster than the GDP deflator for all other goods over the period. More 

recently, the weight has fallen to 0.071 in 2012. In the future, OCACT expects the GDP deflator 

for IOH will grow at about the same rate as the GDP deflator for all other goods and that 

therefore the nominal weight for the household sector should stabilize at 0.07, close to its recent 

historical average.

Sector weights can also be defined as the ratio of sector to total nominal GDP excluding IOH. In 

this case, the ultimate long-range values for the nominal output weights will be 0.0108 (i.e., 0.01 

/ (1.0 − 0.07)) for the farm sector, and 0.8065 (i.e., 0.75 / (1.0 − 0.07)) for the nonfarm sector.

This analysis suggests that the long-range future growth rate in productivity for the total 

economy excluding IOH will be about 1.68 percent (i.e., 2.06 * (0.8065 + 0.0108)). It also 

suggests that the long-range future growth rate in productivity for the total economy including 

IOH will be about 1.68 percent (i.e., 2.06 * (0.75 + 0.01) + 1.68 * 0.07). Thus, for the 2014

Trustees Report, the Trustees set the ultimate annual rates of increase in total-economy 

productivity to 1.98 percent, 1.68 percent, and 1.38 percent for alternatives I, II, and III,

respectively. These rates of increase are the same as those used in the 2013 Trustees Report.

1.4 Projections from Other Sources

Global Insight, Inc. includes projections through 2043 in its latest long-run trend forecast (see

September 2013 30-year US Macro Baseline Forecast). Over the 20-year period from 2023 to 

2043, Global Insight, Inc. projects that the average annual rate of increase in productivity will be 

about 1.9 percent for the nonfarm business sector and 1.8 percent for the total economy. 

Macroeconomic Advisers’ latest published long-run forecast (Long-Term Economic Outlook, 

Third Quarter, 2013) extends through 2022. For 2022, it projects an annual growth rate in 

productivity of about 1.7 percent for the nonfarm business sector and about 1.6 percent for the 

total economy. Moody’s Analytics’ September 2013 forecast extends to 2043. For the 20-year 

period from 2023 to 2043, Moody’s Analytics projects the average annual growth rate in 

productivity will be about 1.7 percent for the nonfarm business sector and 1.2 percent for the 

total economy. 
Productivity, Page 11

The Office of Management and Budget (OMB) Mid-Session Review of the Fiscal Year 2014

Budget includes projections through 2091. The OMB annual growth rate for the total-economy 

productivity was 1.61 percent for 2024 through 2091. The Congressional Budget Office (CBO) 

September 2013 report, The 2013 Long-Term Budget Outlook, includes projections through 

2088. CBO’s annual growth rate for total-economy productivity was 1.7 percent for 2023 and 

later. The Social Security Advisory Board’s 2011 Technical Panel on Assumptions and Methods 

recommended assuming an ultimate (i.e., long-range average) annual rate of increase in 

total-economy productivity of 1.7 percent for alternative II.
Productivity, Page 12

Table 1.4: Total-Economy Productivity: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

1961 39.95

1962 41.39 3.61

1963 42.90 3.63 3.66

1964 44.27 3.48 3.42 3.19

1965 45.64 3.39 3.31 3.14 3.10

1966 47.05 3.33 3.25 3.12 3.09 3.08

1967 47.86 3.06 2.95 2.77 2.63 2.40 1.73

1968 49.38 3.07 2.98 2.85 2.77 2.66 2.45 3.17

1969 49.76 2.78 2.67 2.50 2.37 2.18 1.89 1.97 0.78

1970 50.79 2.70 2.59 2.44 2.32 2.16 1.93 2.00 1.42 2.07

1971 52.75 2.82 2.73 2.62 2.54 2.44 2.31 2.46 2.23 2.96 3.86

1972 54.08 2.79 2.71 2.61 2.53 2.45 2.35 2.48 2.30 2.82 3.19 2.53

1973 55.43 2.77 2.69 2.59 2.53 2.46 2.37 2.48 2.34 2.73 2.96 2.51 2.49

1974 55.02 2.49 2.40 2.29 2.20 2.10 1.98 2.01 1.82 2.03 2.02 1.41 0.86 -0.74

1975 56.55 2.51 2.43 2.33 2.25 2.17 2.07 2.11 1.96 2.16 2.17 1.76 1.50 1.01 2.79

1976 57.99 2.52 2.44 2.35 2.28 2.20 2.11 2.16 2.03 2.21 2.23 1.91 1.76 1.52 2.67 2.54

1977 58.67 2.43 2.35 2.26 2.19 2.11 2.03 2.06 1.94 2.08 2.08 1.79 1.64 1.43 2.17 1.86 1.17

1978 59.27 2.35 2.27 2.18 2.11 2.03 1.94 1.96 1.84 1.96 1.95 1.68 1.54 1.35 1.88 1.58 1.10 1.02

1979 59.54 2.24 2.16 2.07 2.00 1.92 1.83 1.84 1.72 1.81 1.78 1.53 1.38 1.20 1.59 1.30 0.88 0.74 0.46

1980 59.56 2.12 2.04 1.95 1.87 1.79 1.70 1.70 1.58 1.65 1.61 1.36 1.21 1.03 1.33 1.04 0.67 0.50 0.25

1981 60.98 2.14 2.06 1.97 1.90 1.83 1.74 1.75 1.64 1.71 1.68 1.46 1.34 1.20 1.48 1.26 1.01 0.97 0.95

1982 60.72 2.01 1.93 1.85 1.77 1.69 1.61 1.60 1.49 1.54 1.50 1.29 1.16 1.02 1.24 1.02 0.77 0.69 0.61

1983 62.41 2.05 1.98 1.89 1.82 1.75 1.68 1.67 1.57 1.63 1.60 1.41 1.31 1.19 1.41 1.24 1.06 1.04 1.04

1984 63.73 2.05 1.98 1.90 1.84 1.77 1.70 1.70 1.61 1.66 1.63 1.47 1.38 1.28 1.48 1.34 1.19 1.19 1.22

1985 64.95 2.05 1.98 1.90 1.84 1.78 1.71 1.71 1.63 1.68 1.65 1.50 1.42 1.33 1.52 1.39 1.27 1.28 1.31

1986 66.45 2.06 1.99 1.92 1.86 1.80 1.74 1.74 1.66 1.72 1.69 1.55 1.48 1.40 1.59 1.48 1.37 1.39 1.44

1987 66.93 2.01 1.94 1.87 1.81 1.76 1.69 1.69 1.61 1.66 1.64 1.50 1.43 1.36 1.52 1.41 1.31 1.33 1.36

1988 67.73 1.97 1.91 1.84 1.79 1.73 1.67 1.67 1.59 1.64 1.61 1.48 1.42 1.35 1.50 1.40 1.30 1.31 1.34

1989 68.33 1.94 1.87 1.81 1.75 1.70 1.64 1.63 1.56 1.60 1.57 1.45 1.39 1.32 1.46 1.36 1.27 1.28 1.30

1990 69.52 1.93 1.87 1.80 1.75 1.70 1.64 1.64 1.57 1.61 1.58 1.46 1.41 1.34 1.47 1.39 1.30 1.31 1.34

1991 70.47 1.91 1.85 1.79 1.74 1.68 1.63 1.63 1.56 1.59 1.57 1.46 1.40 1.34 1.47 1.38 1.31 1.32 1.34

1992 72.91 1.96 1.91 1.85 1.80 1.75 1.70 1.70 1.64 1.68 1.66 1.55 1.51 1.45 1.58 1.51 1.44 1.46 1.49

1993 73.19 1.91 1.86 1.80 1.75 1.70 1.65 1.65 1.59 1.62 1.60 1.50 1.45 1.40 1.51 1.44 1.38 1.39 1.42

1994 73.81 1.88 1.82 1.77 1.72 1.67 1.62 1.62 1.56 1.59 1.57 1.47 1.42 1.37 1.48 1.41 1.35 1.36 1.38

1995 74.00 1.83 1.78 1.72 1.67 1.62 1.57 1.57 1.51 1.54 1.52 1.42 1.37 1.32 1.42 1.35 1.29 1.30 1.31

1996 75.86 1.85 1.80 1.74 1.70 1.65 1.61 1.60 1.55 1.57 1.56 1.46 1.42 1.37 1.47 1.41 1.35 1.36 1.38

1997 77.00 1.84 1.79 1.74 1.69 1.65 1.60 1.60 1.54 1.57 1.55 1.47 1.42 1.38 1.47 1.41 1.36 1.37 1.39

1998 78.72 1.85 1.80 1.75 1.71 1.67 1.62 1.62 1.57 1.59 1.58 1.49 1.45 1.41 1.50 1.45 1.40 1.41 1.43

1999 80.95 1.88 1.83 1.78 1.74 1.70 1.66 1.66 1.61 1.64 1.62 1.54 1.50 1.47 1.56 1.51 1.46 1.47 1.50

2000 83.14 1.90 1.85 1.80 1.77 1.73 1.69 1.69 1.64 1.67 1.66 1.58 1.55 1.51 1.60 1.55 1.51 1.53 1.55

2001 84.99 1.91 1.86 1.82 1.78 1.74 1.70 1.70 1.66 1.69 1.67 1.60 1.57 1.54 1.62 1.58 1.54 1.56 1.58

2002 87.62 1.93 1.89 1.85 1.81 1.78 1.74 1.74 1.70 1.73 1.72 1.65 1.62 1.59 1.68 1.63 1.60 1.62 1.64

2003 90.53 1.97 1.93 1.88 1.85 1.82 1.78 1.79 1.75 1.78 1.77 1.70 1.68 1.65 1.73 1.69 1.66 1.68 1.71

2004 92.94 1.98 1.94 1.90 1.87 1.84 1.81 1.81 1.77 1.80 1.79 1.73 1.71 1.68 1.76 1.73 1.70 1.72 1.74

2005 94.65 1.98 1.94 1.90 1.87 1.84 1.81 1.81 1.77 1.80 1.79 1.73 1.71 1.69 1.77 1.73 1.70 1.72 1.75

2006 95.45 1.95 1.92 1.88 1.85 1.82 1.78 1.79 1.75 1.78 1.77 1.71 1.68 1.66 1.74 1.70 1.67 1.69 1.72

2007 96.46 1.93 1.90 1.86 1.83 1.80 1.77 1.77 1.73 1.76 1.75 1.69 1.67 1.64 1.72 1.68 1.65 1.67 1.69

2008 97.20 1.91 1.87 1.83 1.80 1.77 1.74 1.74 1.71 1.73 1.72 1.67 1.64 1.62 1.69 1.65 1.63 1.64 1.66

2009 100.00 1.93 1.89 1.86 1.83 1.80 1.77 1.77 1.74 1.76 1.75 1.70 1.68 1.65 1.72 1.69 1.66 1.68 1.70

2010 102.52 1.94 1.91 1.87 1.84 1.81 1.79 1.79 1.75 1.78 1.77 1.72 1.70 1.68 1.74 1.71 1.69 1.71 1.73

2011 102.81 1.91 1.87 1.84 1.81 1.78 1.75 1.75 1.72 1.74 1.73 1.68 1.66 1.64 1.70 1.67 1.65 1.66 1.68

2012 103.88 1.89 1.86 1.82 1.79 1.77 1.74 1.74 1.70 1.73 1.72 1.67 1.65 1.62 1.69 1.66 1.63 1.65 1.66
Productivity, Page 13

Table 1.4 (continued). Total-Economy Productivity: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

1978 59.27

1979 59.54 0.46

1980 59.56 0.25 0.04

1981 60.98 0.95 1.20 2.38

1982 60.72 0.61 0.66 0.97 -0.43

1983 62.41 1.04 1.18 1.57 1.17 2.79

1984 63.73 1.22 1.37 1.70 1.48 2.45 2.11

1985 64.95 1.31 1.46 1.75 1.59 2.27 2.01 1.91

1986 66.45 1.44 1.58 1.84 1.73 2.28 2.11 2.11 2.31

1987 66.93 1.36 1.47 1.68 1.56 1.97 1.76 1.65 1.52 0.73

1988 67.73 1.34 1.44 1.62 1.51 1.84 1.65 1.53 1.41 0.96 1.18

1989 68.33 1.30 1.39 1.54 1.43 1.70 1.52 1.40 1.28 0.94 1.04 0.89

1990 69.52 1.34 1.42 1.56 1.47 1.71 1.55 1.46 1.37 1.14 1.27 1.32 1.75

1991 70.47 1.34 1.41 1.54 1.46 1.67 1.53 1.45 1.37 1.18 1.29 1.33 1.55 1.35

1992 72.91 1.49 1.57 1.70 1.64 1.85 1.74 1.70 1.67 1.56 1.73 1.86 2.19 2.41 3.48

1993 73.19 1.42 1.48 1.60 1.53 1.71 1.61 1.55 1.50 1.39 1.50 1.56 1.73 1.73 1.91 0.37

1994 73.81 1.38 1.44 1.54 1.48 1.64 1.54 1.48 1.43 1.32 1.41 1.44 1.56 1.51 1.56 0.61 0.86

1995 74.00 1.31 1.37 1.46 1.39 1.53 1.43 1.37 1.31 1.20 1.26 1.27 1.34 1.26 1.23 0.49 0.55 0.25

1996 75.86 1.38 1.44 1.52 1.47 1.60 1.51 1.46 1.42 1.33 1.40 1.43 1.51 1.46 1.49 1.00 1.20 1.38

1997 77.00 1.39 1.44 1.52 1.47 1.60 1.51 1.47 1.43 1.35 1.41 1.44 1.50 1.47 1.49 1.10 1.28 1.42

1998 78.72 1.43 1.48 1.56 1.51 1.64 1.56 1.52 1.49 1.42 1.49 1.52 1.58 1.56 1.59 1.28 1.47 1.62

1999 80.95 1.50 1.55 1.63 1.59 1.71 1.64 1.61 1.59 1.53 1.60 1.63 1.71 1.70 1.75 1.50 1.69 1.86

2000 83.14 1.55 1.60 1.68 1.64 1.76 1.70 1.68 1.66 1.61 1.68 1.72 1.80 1.80 1.85 1.65 1.84 2.00

2001 84.99 1.58 1.63 1.71 1.67 1.79 1.73 1.71 1.70 1.65 1.72 1.76 1.84 1.84 1.89 1.72 1.89 2.04

2002 87.62 1.64 1.69 1.77 1.74 1.85 1.80 1.78 1.78 1.74 1.81 1.86 1.93 1.95 2.00 1.85 2.02 2.17

2003 90.53 1.71 1.76 1.84 1.81 1.92 1.88 1.86 1.86 1.84 1.91 1.95 2.03 2.05 2.11 1.99 2.15 2.29

2004 92.94 1.74 1.80 1.87 1.85 1.95 1.91 1.90 1.90 1.88 1.95 2.00 2.07 2.09 2.15 2.04 2.20 2.33

2005 94.65 1.75 1.80 1.87 1.85 1.95 1.91 1.90 1.90 1.88 1.94 1.99 2.06 2.08 2.13 2.03 2.17 2.29

2006 95.45 1.72 1.76 1.83 1.81 1.90 1.86 1.85 1.85 1.83 1.89 1.92 1.99 2.00 2.04 1.94 2.06 2.17

2007 96.46 1.69 1.74 1.80 1.78 1.87 1.83 1.82 1.81 1.79 1.84 1.88 1.93 1.94 1.98 1.88 1.99 2.08

2008 97.20 1.66 1.70 1.76 1.74 1.83 1.79 1.77 1.77 1.74 1.79 1.82 1.87 1.88 1.91 1.81 1.91 1.99

2009 100.00 1.70 1.74 1.80 1.78 1.86 1.83 1.82 1.81 1.79 1.84 1.87 1.92 1.93 1.96 1.88 1.97 2.04

2010 102.52 1.73 1.77 1.83 1.81 1.89 1.86 1.85 1.84 1.82 1.87 1.90 1.95 1.96 1.99 1.91 2.00 2.07

2011 102.81 1.68 1.72 1.78 1.76 1.83 1.80 1.79 1.78 1.76 1.80 1.83 1.87 1.88 1.91 1.82 1.91 1.97

2012 103.88 1.66 1.70 1.75 1.73 1.81 1.77 1.76 1.75 1.73 1.77 1.80 1.84 1.84 1.87 1.79 1.86 1.92

From

To Variable 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1994 73.81

1995 74.00 0.25

1996 75.86 1.38 2.52

1997 77.00 1.42 2.01 1.50

1998 78.72 1.62 2.08 1.86 2.23

1999 80.95 1.86 2.27 2.19 2.53 2.83

2000 83.14 2.00 2.36 2.32 2.59 2.77 2.70

2001 84.99 2.04 2.34 2.30 2.50 2.59 2.47 2.23

2002 87.62 2.17 2.44 2.43 2.62 2.72 2.68 2.66 3.09

2003 90.53 2.29 2.55 2.56 2.73 2.83 2.84 2.88 3.20 3.31

2004 92.94 2.33 2.56 2.57 2.72 2.81 2.80 2.82 3.02 2.99 2.66

2005 94.65 2.29 2.49 2.49 2.61 2.67 2.64 2.63 2.73 2.60 2.25 1.84

2006 95.45 2.17 2.34 2.32 2.41 2.44 2.38 2.33 2.35 2.16 1.78 1.34 0.84

2007 96.46 2.08 2.23 2.21 2.28 2.28 2.22 2.15 2.13 1.94 1.60 1.25 0.95 1.06

2008 97.20 1.99 2.12 2.09 2.14 2.13 2.05 1.97 1.94 1.74 1.43 1.13 0.89 0.92 0.77

2009 100.00 2.04 2.17 2.15 2.20 2.20 2.14 2.07 2.05 1.91 1.67 1.48 1.38 1.57 1.82 2.88

2010 102.52 2.07 2.20 2.17 2.23 2.23 2.17 2.12 2.11 1.98 1.79 1.65 1.61 1.80 2.05 2.70 2.52

2011 102.81 1.97 2.08 2.05 2.09 2.08 2.01 1.95 1.92 1.79 1.60 1.45 1.39 1.50 1.61 1.89 1.40 0.28

2012 103.88 1.92 2.01 1.98 2.02 2.00 1.94 1.87 1.84 1.72 1.54 1.40 1.34 1.42 1.49 1.67 1.28 0.66 1.04
Productivity, Page 14

Table 1.5: Nonfarm Business Productivity: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

1961 35.82

1962 37.45 4.55

1963 38.74 4.00 3.45

1964 39.86 3.62 3.17 2.88

1965 41.13 3.52 3.18 3.04 3.20

1966 42.61 3.53 3.28 3.23 3.40 3.60

1967 43.42 3.26 3.00 2.89 2.90 2.75 1.90

1968 44.94 3.29 3.09 3.01 3.05 3.00 2.69 3.50

1969 45.02 2.90 2.66 2.53 2.46 2.28 1.85 1.82 0.17

1970 45.68 2.74 2.52 2.38 2.30 2.12 1.75 1.70 0.82 1.47

1971 47.47 2.86 2.67 2.57 2.53 2.42 2.18 2.26 1.85 2.69 3.93

1972 49.08 2.90 2.74 2.66 2.64 2.56 2.38 2.48 2.23 2.92 3.65 3.37

1973 50.57 2.92 2.77 2.70 2.68 2.62 2.48 2.57 2.39 2.95 3.45 3.21 3.05

1974 49.74 2.56 2.39 2.30 2.24 2.13 1.95 1.96 1.71 2.02 2.15 1.57 0.67 -1.65

1975 51.09 2.57 2.42 2.33 2.28 2.19 2.04 2.05 1.85 2.13 2.27 1.85 1.35 0.51 2.72

1976 52.85 2.63 2.49 2.42 2.38 2.31 2.18 2.21 2.05 2.32 2.46 2.17 1.87 1.48 3.08 3.44

1977 53.74 2.57 2.44 2.37 2.33 2.25 2.13 2.16 2.01 2.24 2.35 2.09 1.83 1.53 2.61 2.56 1.68

1978 54.46 2.50 2.37 2.30 2.26 2.18 2.07 2.08 1.94 2.14 2.22 1.98 1.75 1.49 2.29 2.15 1.51 1.34

1979 54.33 2.34 2.21 2.14 2.09 2.01 1.89 1.89 1.74 1.90 1.95 1.70 1.46 1.20 1.78 1.55 0.92 0.54 -0.24

1980 54.29 2.21 2.08 2.00 1.95 1.87 1.74 1.73 1.59 1.72 1.74 1.50 1.27 1.02 1.47 1.22 0.67 0.34 -0.16

1981 55.15 2.18 2.06 1.98 1.93 1.85 1.73 1.72 1.59 1.71 1.73 1.51 1.31 1.09 1.49 1.28 0.86 0.65 0.42

1982 54.58 2.03 1.90 1.82 1.76 1.68 1.56 1.54 1.40 1.49 1.50 1.28 1.07 0.85 1.17 0.95 0.54 0.31 0.06

1983 57.02 2.14 2.02 1.95 1.90 1.83 1.73 1.72 1.60 1.70 1.72 1.54 1.37 1.21 1.53 1.38 1.09 0.99 0.92

1984 58.25 2.14 2.03 1.96 1.92 1.85 1.75 1.74 1.63 1.73 1.75 1.59 1.44 1.29 1.59 1.47 1.22 1.16 1.13

1985 59.17 2.11 2.01 1.94 1.90 1.84 1.74 1.73 1.63 1.72 1.74 1.59 1.45 1.32 1.59 1.48 1.26 1.21 1.19

1986 60.96 2.15 2.05 1.99 1.95 1.89 1.81 1.80 1.71 1.80 1.82 1.68 1.56 1.45 1.71 1.62 1.44 1.41 1.42

1987 61.28 2.09 1.99 1.93 1.89 1.83 1.75 1.74 1.65 1.73 1.74 1.61 1.49 1.38 1.62 1.53 1.35 1.32 1.32

1988 62.28 2.07 1.98 1.92 1.88 1.82 1.74 1.73 1.65 1.72 1.74 1.61 1.50 1.40 1.62 1.54 1.38 1.35 1.35

1989 62.86 2.03 1.94 1.88 1.84 1.78 1.70 1.70 1.61 1.68 1.69 1.57 1.47 1.37 1.57 1.49 1.34 1.31 1.31

1990 64.07 2.03 1.94 1.88 1.84 1.79 1.71 1.71 1.63 1.70 1.71 1.59 1.49 1.40 1.60 1.52 1.38 1.36 1.36

1991 65.26 2.02 1.93 1.88 1.84 1.79 1.72 1.71 1.64 1.70 1.71 1.60 1.51 1.43 1.61 1.54 1.42 1.40 1.40

1992 68.07 2.09 2.01 1.96 1.93 1.88 1.82 1.81 1.75 1.81 1.83 1.73 1.65 1.58 1.76 1.70 1.59 1.59 1.61

1993 68.16 2.03 1.95 1.90 1.87 1.82 1.76 1.75 1.68 1.74 1.76 1.66 1.58 1.50 1.67 1.61 1.51 1.50 1.51

1994 68.80 2.00 1.92 1.87 1.84 1.79 1.73 1.72 1.65 1.71 1.72 1.63 1.55 1.48 1.64 1.58 1.48 1.46 1.47

1995 69.28 1.96 1.88 1.83 1.80 1.75 1.69 1.68 1.62 1.67 1.68 1.59 1.51 1.44 1.59 1.53 1.44 1.42 1.43

1996 71.15 1.98 1.91 1.86 1.83 1.78 1.72 1.72 1.65 1.71 1.72 1.63 1.56 1.50 1.64 1.59 1.50 1.49 1.50

1997 72.33 1.97 1.90 1.85 1.82 1.78 1.72 1.72 1.65 1.71 1.72 1.63 1.56 1.50 1.64 1.59 1.50 1.50 1.50

1998 74.53 2.00 1.93 1.89 1.86 1.82 1.76 1.76 1.70 1.75 1.76 1.68 1.62 1.56 1.70 1.65 1.57 1.57 1.58

1999 77.13 2.04 1.97 1.93 1.90 1.87 1.81 1.81 1.76 1.81 1.82 1.75 1.69 1.64 1.77 1.73 1.66 1.66 1.67

2000 79.66 2.07 2.01 1.97 1.94 1.91 1.86 1.86 1.81 1.86 1.87 1.80 1.75 1.70 1.83 1.79 1.72 1.73 1.74

2001 81.81 2.09 2.02 1.99 1.96 1.93 1.88 1.88 1.83 1.88 1.90 1.83 1.78 1.73 1.86 1.83 1.76 1.77 1.79

2002 85.36 2.14 2.08 2.05 2.02 1.99 1.95 1.95 1.90 1.96 1.97 1.91 1.86 1.82 1.95 1.92 1.86 1.87 1.89

2003 89.31 2.20 2.14 2.11 2.09 2.06 2.02 2.02 1.98 2.04 2.05 1.99 1.95 1.91 2.04 2.01 1.96 1.97 2.00

2004 92.10 2.22 2.17 2.13 2.12 2.09 2.05 2.05 2.01 2.07 2.08 2.03 1.99 1.95 2.07 2.05 2.00 2.01 2.04

2005 93.97 2.22 2.16 2.13 2.11 2.09 2.05 2.05 2.01 2.07 2.08 2.03 1.99 1.96 2.07 2.05 2.00 2.02 2.04

2006 94.64 2.18 2.13 2.10 2.08 2.05 2.01 2.02 1.98 2.03 2.04 1.99 1.95 1.92 2.03 2.01 1.96 1.97 1.99

2007 95.98 2.17 2.11 2.08 2.06 2.04 2.00 2.00 1.96 2.01 2.03 1.97 1.93 1.90 2.01 1.99 1.94 1.95 1.97

2008 96.93 2.14 2.09 2.06 2.04 2.01 1.98 1.98 1.94 1.99 2.00 1.95 1.91 1.88 1.98 1.96 1.91 1.92 1.94

2009 100.00 2.16 2.11 2.08 2.07 2.04 2.00 2.01 1.97 2.02 2.03 1.98 1.94 1.91 2.02 1.99 1.95 1.96 1.98

2010 103.27 2.18 2.14 2.11 2.09 2.07 2.03 2.04 2.00 2.05 2.06 2.01 1.98 1.95 2.05 2.03 1.99 2.00 2.02

2011 103.77 2.15 2.10 2.07 2.06 2.03 2.00 2.00 1.97 2.01 2.02 1.97 1.94 1.91 2.01 1.99 1.95 1.95 1.97

2012 105.29 2.14 2.09 2.06 2.04 2.02 1.99 1.99 1.95 2.00 2.01 1.96 1.93 1.90 1.99 1.97 1.93 1.94 1.96
Productivity, Page 15

Table 1.5 (continued). Nonfarm Business Productivity: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

1978 54.46

1979 54.33 -0.24

1980 54.29 -0.16 -0.08

1981 55.15 0.42 0.75 1.60

1982 54.58 0.06 0.16 0.27 -1.03

1983 57.02 0.92 1.22 1.65 1.68 4.47

1984 58.25 1.13 1.40 1.78 1.84 3.30 2.14

1985 59.17 1.19 1.43 1.74 1.77 2.73 1.87 1.59

1986 60.96 1.42 1.66 1.95 2.02 2.80 2.25 2.30 3.01

1987 61.28 1.32 1.52 1.75 1.77 2.34 1.82 1.71 1.76 0.53

1988 62.28 1.35 1.53 1.73 1.75 2.22 1.78 1.69 1.72 1.08 1.64

1989 62.86 1.31 1.47 1.64 1.65 2.04 1.64 1.54 1.52 1.03 1.28 0.92

1990 64.07 1.36 1.51 1.67 1.68 2.02 1.68 1.60 1.60 1.26 1.50 1.43 1.94

1991 65.26 1.40 1.54 1.69 1.70 2.01 1.70 1.64 1.65 1.38 1.59 1.57 1.90 1.86

1992 68.07 1.61 1.75 1.90 1.93 2.23 1.99 1.97 2.02 1.86 2.12 2.25 2.69 3.07 4.30

1993 68.16 1.51 1.63 1.77 1.78 2.04 1.80 1.76 1.78 1.61 1.79 1.82 2.05 2.08 2.20 0.14

1994 68.80 1.47 1.59 1.71 1.72 1.95 1.72 1.68 1.69 1.53 1.67 1.67 1.82 1.80 1.78 0.54 0.94

1995 69.28 1.43 1.53 1.64 1.64 1.85 1.64 1.59 1.59 1.43 1.55 1.53 1.64 1.58 1.51 0.59 0.82 0.70

1996 71.15 1.50 1.60 1.71 1.71 1.91 1.72 1.68 1.69 1.56 1.67 1.68 1.79 1.76 1.74 1.11 1.44 1.69

1997 72.33 1.50 1.60 1.70 1.71 1.89 1.71 1.68 1.69 1.57 1.67 1.67 1.77 1.75 1.73 1.22 1.49 1.68

1998 74.53 1.58 1.68 1.78 1.79 1.97 1.80 1.78 1.79 1.69 1.80 1.81 1.91 1.91 1.91 1.52 1.80 2.02

1999 77.13 1.67 1.77 1.87 1.88 2.05 1.91 1.89 1.91 1.83 1.94 1.96 2.07 2.08 2.11 1.80 2.08 2.31

2000 79.66 1.74 1.84 1.94 1.95 2.12 1.99 1.98 2.00 1.93 2.04 2.07 2.18 2.20 2.24 1.99 2.25 2.47

2001 81.81 1.79 1.88 1.97 1.99 2.15 2.03 2.02 2.05 1.98 2.09 2.12 2.22 2.25 2.29 2.06 2.31 2.51

2002 85.36 1.89 1.98 2.08 2.10 2.26 2.15 2.15 2.18 2.13 2.23 2.28 2.38 2.42 2.47 2.29 2.53 2.73

2003 89.31 2.00 2.09 2.19 2.21 2.37 2.27 2.27 2.31 2.27 2.38 2.43 2.54 2.59 2.65 2.50 2.74 2.94

2004 92.10 2.04 2.13 2.23 2.25 2.41 2.31 2.32 2.36 2.32 2.43 2.47 2.58 2.63 2.68 2.55 2.77 2.96

2005 93.97 2.04 2.13 2.22 2.25 2.39 2.30 2.30 2.34 2.30 2.40 2.45 2.55 2.59 2.64 2.51 2.71 2.87

2006 94.64 1.99 2.08 2.16 2.18 2.32 2.23 2.23 2.26 2.22 2.31 2.35 2.44 2.47 2.51 2.38 2.56 2.69

2007 95.98 1.97 2.05 2.13 2.15 2.28 2.19 2.20 2.22 2.19 2.27 2.30 2.38 2.41 2.44 2.32 2.47 2.59

2008 96.93 1.94 2.02 2.09 2.11 2.23 2.14 2.15 2.17 2.13 2.21 2.24 2.31 2.33 2.35 2.23 2.38 2.48

2009 100.00 1.98 2.05 2.13 2.15 2.27 2.18 2.19 2.21 2.18 2.25 2.28 2.35 2.37 2.40 2.29 2.42 2.52

2010 103.27 2.02 2.09 2.17 2.19 2.30 2.22 2.23 2.25 2.22 2.30 2.33 2.39 2.42 2.44 2.34 2.47 2.57

2011 103.77 1.97 2.04 2.11 2.13 2.24 2.16 2.16 2.18 2.15 2.22 2.24 2.30 2.32 2.35 2.24 2.36 2.45

2012 105.29 1.96 2.03 2.09 2.11 2.21 2.14 2.14 2.16 2.12 2.19 2.21 2.27 2.28 2.30 2.20 2.31 2.39

From

To Variable 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1994 68.80

1995 69.28 0.70

1996 71.15 1.69 2.70

1997 72.33 1.68 2.17 1.65

1998 74.53 2.02 2.46 2.34 3.05

1999 77.13 2.31 2.72 2.72 3.27 3.49

2000 79.66 2.47 2.83 2.86 3.27 3.39 3.29

2001 81.81 2.51 2.81 2.83 3.13 3.16 2.99 2.70

2002 85.36 2.73 3.03 3.08 3.37 3.45 3.44 3.51 4.33

2003 89.31 2.94 3.22 3.30 3.58 3.68 3.73 3.88 4.48 4.63

2004 92.10 2.96 3.21 3.28 3.51 3.59 3.61 3.69 4.03 3.87 3.13

2005 93.97 2.87 3.09 3.14 3.33 3.37 3.35 3.36 3.52 3.26 2.58 2.03

2006 94.64 2.69 2.88 2.89 3.03 3.03 2.97 2.91 2.96 2.62 1.95 1.37 0.72

2007 95.98 2.59 2.75 2.76 2.87 2.85 2.77 2.70 2.70 2.37 1.82 1.38 1.06 1.41

2008 96.93 2.48 2.62 2.61 2.70 2.66 2.57 2.48 2.45 2.14 1.65 1.29 1.04 1.20 1.00

2009 100.00 2.52 2.66 2.65 2.74 2.71 2.63 2.56 2.54 2.29 1.90 1.66 1.57 1.85 2.08 3.16

2010 103.27 2.57 2.70 2.70 2.78 2.76 2.69 2.63 2.62 2.41 2.10 1.93 1.91 2.21 2.47 3.22 3.27

2011 103.77 2.45 2.56 2.55 2.61 2.58 2.50 2.43 2.41 2.19 1.89 1.72 1.67 1.86 1.97 2.30 1.87 0.48

2012 105.29 2.39 2.49 2.48 2.54 2.50 2.42 2.35 2.32 2.12 1.85 1.69 1.64 1.79 1.87 2.09 1.73 0.97 1.47
Productivity, Page 16

1.5 Appendix 

Nordhaus demonstrates how the growth rates in productivity in n sectors of the economy can be 

aggregated to the growth rate in total-economy productivity.20 Monaco adopts the formulation to 

aggregate the growth rates in productivity in the nonfarm business, farm, and “all other” 

sectors.21 Equation A1 is a similar adaptation to five sectors: nonfarm business (n), farm (f), 

households (h), nonprofit institutions (i), and general government (g).

H (wt wt ) H (wt wt )

H (wt wt ) H (wt wt ) H (wt wt )

(A1) P P wt P wt P wt P wt P wt

H

g

Q

g g

H

i

Q

i i

H

h

Q

h h

H

f

Q

f f

H

n

Q

n n

Q

g g

Q

i i

Q

h h

Q

f f

Q

t n n

  

     

     

 

  

     

Where,

 ▪

X = rate of change in x

P = productivity

H = hours worked

wtQ

f = nominal output weight for farm sector defined as the ratio of nominal GDP 

in the farm sector to nominal GDP for the total economy 

wtH

f = hours worked weight for farm sector defined as the ratio of hours worked 

in the farm sector to hours worked in the total economy 

t = total economy

In the long-range, it is reasonable to assume that the growth rate in hours worked in all sectors 

will be equal. Thus, Equation A1 can be simplified to A2.

Q

g g

Q

i i

Q

h h

Q

f f

Q

(A2) Pt Pn wt n P wt P wt P wt P wt

     

    

Furthermore, if the ultimate long-range growth rates in productivity in the household, nonprofits, 

and general government sectors are zero, Equation A2 can be further simplified to A3.

Q

f f

Q

(A3) PtPnwtnP wt

  

 

 

20 Nordhaus, William D., “Productivity Growth and the New Economy.” Brookings Papers on Economic 

Activity, (Volume 2, 2002). pp.211-265

21 Monaco, Ralph, “Issues in Projecting Productivity in the Very Long Term.” Sept. 28, 2005. Treasury Office 

of Economic Policy. Unpublished.
Price Inflation, Page 1

2. PRICE INFLATION

THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION

TABLE OF CONTENTS PAGE

2 PRICE INFLATION ...........................................................................................................................................2

2.1 SUMMARY ......................................................................................................................................................2

2.2 CONSUMER PRICE INDEX FOR URBAN WAGE EARNERS AND CLERICAL WORKERS (CPI-W) .........................2

2.2.1 Historical Growth in the Adjusted CPI-W .............................................................................................2

2.2.2 Future Growth in the CPI-W .................................................................................................................3

2.2.3 Recent and Expected BLS Changes to the CPI......................................................................................4

2.2.4 OCACT Adjustments to the Published CPI-W .......................................................................................5

2.3 PRICE DIFFERENTIAL......................................................................................................................................5

2.3.1 Computational Methods for Price Measures.........................................................................................6

2.3.2 Coverage Differences ............................................................................................................................7

2.3.3 Future Expectations for the Price Differential ......................................................................................9

2.4 GROSS DOMESTIC PRODUCT IMPLICIT PRICE DEFLATOR (PGDP)..................................................................9

2.4.1 Historical Behavior of the Adjusted PGDP ...........................................................................................9

2.4.1.1 Adjusted Deflator for Personal Consumption Expenditures (PGDP_C) .......................................................... 10

2.4.1.2 Deflator for Investment Expenditures (PGDP_I)............................................................................................. 11

2.4.1.3 Deflator for Government Expenditures (PGDP_G) ......................................................................................... 14

2.4.2 Recent BEA Changes to PGDP............................................................................................................16

2.4.3 OCACT Adjustments to the Published PGDP......................................................................................16

2.5 PROJECTIONS FROM OTHER SOURCES...........................................................................................................17

2.6 APPENDIX.....................................................................................................................................................22

TABLE OF TABLES PAGE

TABLE 2.1: ASSUMED ULTIMATE ANNUAL RATES OF INCREASE IN INFLATION MEASURES ...ERROR! BOOKMARK NOT 

DEFINED.

TABLE 2.2: ESTIMATED CONTRIBUTION TO THE PRICE DIFFERENTIAL ...................ERROR! BOOKMARK NOT DEFINED.

TABLE 2.3: ADJUSTED CPI-W: COMPOUND ANNUAL RATES OF GROWTH (%) BASE YEAR = 1982-1984.......... ERROR!

BOOKMARK NOT DEFINED.

TABLE 2.4: ADJUSTED GDP DEFLATOR: COMPOUND ANNUAL RATES OF GROWTH (%) BASE YEAR = 2009 ..............20
Price Inflation, Page 2

2 Price Inflation

2.1 Summary

For the 2014 Trustees Report, the Trustees set the assumed ultimate annual rates of increase in 

the CPI-W to 3.4 percent, 2.7 percent, and 2.0 percent for alternatives I, II, and III, respectively, 

as shown in Table 2.1. Trustees also set the ultimate annual rates of increase in the gross 

domestic product implicit price deflator (PGDP) to 3.1 percent, 2.3 percent, and 1.5 percent for 

alternatives I, II, and III, respectively. Thus, the Trustees set the ultimate price differential, 

defined as the PGDP less CPI-W average annual rates of increase, to -0.3, -0.4, -0.5 percentage 

point for alternatives I, II, and III, respectively.22 The CPI-W and PGDP assumptions differ in 

three ways from those in the 2013 Report. First, the rates of change for alternative II are 0.1 

percentage point lower than the ones assumed by the Trustees for the 2013 Report. Second, the 

alternative I assumptions now include a higher, and the alternative III assumptions a lower, rate 

of increase than the intermediate assumptions. This way, the assumption more (less) favorable

for the actuarial balance are now associated with the low (high) cost alternative. Third, the 

spreads in the assumed rates of increase in the CPI-W and PGDP are now narrower. The values 

for the price differential are unchanged from the 2013 Report in all three alternatives.

Table 2.1: : Assumed Ultimate Annual Rates of Increase in Inflation Measures

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

2013 Trustees Report

I II III I II III I II III

 CPI-W 3.4 2.7 2.0 1.8 2.8 3.8 1.6 -0.1 -1.8

 PGDP 3.1 2.3 1.5 1.5 2.4 3.3 1.6 -0.1 -1.8

 Price Differential

 (PGDP less CPI-W)

-0.3 -0.4 -0.5 -0.3 -0.4 -0.5 0.0 0.0 0.0

2.2 Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)

2.2.1 Historical Growth in the Adjusted CPI-W23

 

22 The projected price differential is important because it affects the real rate of increase in the average 

OASDI covered wage (see Section 3.3.2.4) and, therefore, the long-range actuarial balance. Holding other factors 

constant, if the ultimate price differential is moved from -0.4 to -0.5 percentage point, then the long-range real rate 

of increase in the average OASDI covered wage will decrease by 0.1 percentage point, which in turn, based on the 

2013 Trustees Report sensitivity analysis, will lower the long-range actuarial balance by about 0.16 percentage 

point.

23 See section 2.2.4 for a description of the adjusted CPI-W.
Price Inflation, Page 3

Over the last fifty years (1962 to 2012), the adjusted CPI-W grew at an average annual rate of 

3.8 percent, or about 1.0 percentage point higher than the assumed ultimate rate of increase of 

2.8 percent in the 2013 Trustees Report alternative II. Splitting this period into five decades, the 

CPI-W grew at average annual rates of 2.9, 7.8, 3.5, 2.2, and 2.5 percent over the 1962-72, 

1972-82, 1982-92, 1992-2002, and 2002-12 periods, respectively. Over the last five complete 

economic cycles (1966 to 2007), the adjusted CPI-W grew at an average annual rate of 4.2 

percent. The growth rates by cycle were 4.0, 7.6, 5.0, 2.6, and 2.6 percent for the 1966-73, 

1973-79, 1979-89, 1989-2000, and 2000-07 periods, respectively. The relatively higher inflation 

rates experienced from the mid-1960s to the mid-1980s can be reasonably attributed to high 

capacity utilization associated with the Vietnam War, the two oil price shocks in the early and 

late 1970s, and the fiscal and monetary policy responses to those events.

After 1981, various factors contributed to the slowdown in the inflation rate. Oil prices were 

mostly stable between 1980 and 2001, and the dependence of the US economy on oil has 

decreased since the 1970s. Economic output of developing nations with relatively low labor costs 

(for example, China and India) increased substantially, as did the share of US imports from those 

countries. The dollar increased relative to the trade-weighted average of other currencies 

between 1980 and 1985 and again between 1995 and 2002, further contributing to decreases in 

prices of imported goods. Although some of those factors have reversed in the last decades (in 

particular, the price of oil and other commodities increased sharply and the exchange rate of the 

dollar plummeted between 2002 and 2008), there was little corresponding increase in the 

inflation rate.24 This fact may point to the importance of monetary policy as the key factor of 

price inflation. Since 1979, the monetary policy of the Federal Reserve has been explicitly and 

consistently geared toward price stability.

2.2.2 Future Growth in the CPI-W 

If only past inflation rates were used to determine the assumed ultimate rate for the future, then 

only the period (e.g., the most recent 50 or 20 years) and method (e.g., a simple, weighted or 

geometric average) would need to be chosen. The best historical period would be the one that is 

most representative of the conditions that are expected to prevail over the upcoming 75-year 

projection period. The 50-year historical record is filled with inflation-related events, some of 

which occurred in unique circumstances and have limited relevance for projecting the future. 

These may include the Vietnam War, oil price shocks, and periods of price controls. 

Furthermore, after a historically unusual departure in the 1970s, monetary policy has returned to 

a strong emphasis on price stability. 

While these specific historical events will not recur in the future (at least not exactly as they have 

in the past), other inflation-related events may take their place. OCACT believes the average 

annual rate of increase in the CPI for medical services will continue to grow faster than the CPI 

for other consumer goods and services. OCACT also believes the effect of this trend on the 

overall CPI growth rate will be more pronounced in the future because the ratio of health 

 

24 CPI-W grew at a 3.1 percent annual rate over those 6 years, compared to 2.2 percent over the preceding 

10 years.
Price Inflation, Page 4

expenditures to total consumer expenditures will rise.25 It is also reasonable to expect some 

additional upward pressure on the future growth rate in the CPI due to changes in international 

trade. The ratio of net exports (i.e., exports less imports) to GDP averaged about -4.3 percent 

over the 10-year period from 2003 to 2012. Part of this imbalance is due to imports of relatively 

low-priced consumer goods from emerging markets, such as China. However, as these 

developing economies mature, their average wage and consumption are expected to rise relative 

to their output, and their currencies and price levels are expected to rise relative to those of the 

U.S. OCACT believes this may put further upward pressure on the prices of basic commodities 

and, therefore, the CPI. These trends are also expected to ultimately return the ratio of net 

exports to GDP to zero in the future. 

OCACT believes that the 3.8 percent average annual growth rate for the adjusted CPI-W for the 

50-year period from 1962 to 2012 is somewhat above the most reasonable assumption for the 

ultimate CPI-W annual rate of increase. OCACT also believes that the 2.6 percent average 

annual growth rate for the adjusted CPI-W over the last two complete economic cycles (as 

measured over an 18-year period from 1989 to 2007) will not be sustainable indefinitely.26 Since 

this period reflects the current domestic monetary policy environment expected to exist in the 

future, somewhat greater weight is placed on more recent experience. Thus, the Trustees set the 

assumed ultimate rate of increase in the CPI-W to 2.7 percent for the 2014 Trustees Report 

alternative II, and to 3.4 and 2.0 percent for alternatives I and III, respectively. 

2.2.3 Recent and Expected BLS Changes to the CPI

The Bureau of Labor Statistics (BLS) collects and publishes data on the CPI. BLS updated the 

consumption expenditure weights in the CPI-W and in the CPI for all Urban Consumers (CPI-U) 

from the 2007-2008 to 2009-2010 period, effective January 2012.27 Since 2000, BLS has been 

updating the weights every two years, and plans to continue on that schedule, instead of the 

pre-2000 historical average of about once per decade. BLS believes that more frequent updates 

of the consumption-expenditure weights will have little or no effect on the average future growth 

rate in the CPI over long periods.28 Recent data support this view for relatively short periods. 

When BLS switched from using 1999-2000 to 2001-2002 weights beginning in January 2004, it 

published monthly values for the CPI-W (and CPI-U) for January through June 2004 based on 

 

25 The Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance 

Trust Funds assume that the average annual rate of increase in total health expenditures over the next 75 years will 

continue to exceed the growth rate in GDP. See http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2013.pdf, 

pp. 13–20.

26 Peaks in economic cycles roughly follow the NBER cycle dating, except for short recoveries such as 

1980-81, which are not counted as separate cycles.

27 News Release for Consumer Price Index, January 2012, BLS, p. 7

http://stats.bls.gov/news.release/archives/cpi_02172012.pdf

28 Future Schedule for Expenditure Weight Updates in the Consumer Price Index, BLS, 

http://stats.bls.gov/cpi/cpiupdt.htm
Price Inflation, Page 5

the 1999-2000 expenditure weights.29 The values in June 2004 for the CPI-W (and CPI-U) based 

on the old and new weights were identical. However, the data may also vary over short periods. 

When BLS switched from using 2001-2002 to 2003-2004 weights beginning in January 2006, it 

published monthly values for the CPI-W (and CPI-U) for January through June 2006 based on 

the 2001-2002 expenditure weights.30 The data indicate that the growth rate in the CPI-W (and 

CPI-U) over this period was about 0.2 percentage point lower using the newer weights. 31

2.2.4 OCACT Adjustments to the Published CPI-W

Over the years, BLS has introduced numerous improvements to the CPI-W. For example, 

beginning in January 1995 and July 1996, BLS introduced changes to correct methodological 

errors introduced into the index in January 1978 and January 1987. And, beginning in January 

1999, BLS introduced a new geometric mean formula that assumes some lower-level substitution 

among items purchased by consumers within broad categories of goods and services due to 

changes in relative prices.

Since BLS has no plans to revise the historical CPI, these improvements present a comparability 

problem. The goal is to project future growth rates in the CPI, based, in part, on an analysis of 

historical growth rates. Any projected growth rate in the CPI will be affected by the BLS 

corrections mentioned above. Thus, OCACT adjusted the historical CPI to reflect the estimated 

effects of these corrections, effectively reducing the measured growth rate in the CPI-W over the 

historical period. This adjustment is the same as in last year’s Trustees Report. Table 2.3 lists the 

adjusted CPI-W. (See Section 2.6 Appendix for details on OCACT’s adjustments to the actual 

published CPI-W annual growth rates.)

2.3 Price Differential 

The Bureau of Economic Analysis (BEA) publishes values for the PGDP in its National Income 

and Product Accounts (NIPA). The price differential is defined as the annual growth rate in the 

PGDP less the annual growth rate in the CPI-W. The price differential is mostly due to 

differences in computational methods and, to a lesser degree, coverage differences between the 

CPI-W and the PGDP. For the 2014 Trustees Report alternative II, the Trustees set the ultimate 

price differential to -0.4 percentage point, which is equal to the sum of -0.3 percentage point due 

to the difference in computational methods and -0.1 percentage point due to coverage 

differences. 

 

29 News Release for Consumer Price Index, January through June 2004, BLS, Table 1(OW) and Table 

2(OW), http://stats.bls.gov/schedule/archives/cpi_nr.htm

30 News Release for Consumer Price Index, January through June 2006, BLS, Table 1(OW) and Table 

2(OW), http://stats.bls.gov/schedule/archives/cpi_nr.htm

31 This was partly due to the fact that, compared to the old 2001-2002 weight, the new 2003-2004 weight 

for gasoline fell by about 0.2 percentage point while the price of gasoline rose by about 25.0 percent from January to 

June 2006.
Price Inflation, Page 6

Over the 10-year complete economic cycle from 1979 to 1989, the average annual growth rates 

in the PGDP and the adjusted CPI-W were 4.68 and 5.02 percent, respectively, resulting in a 

price differential of -0.34 percentage point (i.e., approximately 4.68 less 5.02). Over the next 

complete economic cycle, an 11-year period from 1989 to 2000, the average annual growth rates 

in the PGDP and the adjusted CPI-W were 2.20 and 2.63 percent, respectively, resulting in a 

price differential of -0.43 percentage point (i.e., approximately 2.20 less 2.63). 

Over the latest complete economic cycle, a 7-year period from 2000 to 2007, the price 

differential averaged only -0.14 percentage point. It is reasonable to believe this experience was 

an aberration due to highly unusual price changes in areas where coverage is different between 

the CPI-W and the PGDP. As explained below, the causes for this peculiar circumstance are not 

sustainable and have already begun to reverse. For example, the average annual price differential 

over the 5-year period from 2007 to 2012 was -0.68 percentage point.

2.3.1 Computational Methods for Price Measures32

Prior to August 2002, BLS announced that it would produce an additional monthly price index 

based on the CPI-U using an alternative chained formula for combining prices across broad 

categories of goods and services.33 This measure (C-CPI-U) is designed to reflect changes in the 

distribution of consumer expenditures across these broad groups as they occur during each 

month. The CPI-U (as well as the CPI-W) reflects a static distribution of consumer expenditures 

on a monthly basis, adjusting the static distribution every 2 years. BLS simulated a C-CPI-U for 

the 1990 to 1995 period and estimated that the average annual growth rate in the C-CPI-U would 

have been 0.15 percentage point lower than the actual published CPI-U for the period. Based in 

part on this value, the Trustees assumed a 0.2 percentage point difference in the future ultimate 

average annual growth rates for the PGDP and CPI-W (i.e., a -0.2 price differential) in the 2000, 

2001, and 2002 Trustees Reports.

In August 2002, BLS began publishing monthly values for the C-CPI-U. BLS also improved and 

extended its simulation of the C-CPI-U and estimated that the average annual growth rate in the 

C-CPI-U would have been lower by 0.22 (instead of 0.15) percentage point over the 1990 to 

1995 period, 0.43 percentage point over the 1996 to 1999 period, and 0.30 percentage point over 

the combined 1990 to 1999 period.34 Based in part on these higher values, the Trustees increased 

the assumed difference in the future ultimate average annual growth rates for the PGDP and 

 

32 By convention, the computational effect and price differential are expressed in positive and negative 

terms, respectively. For example, a computational effect of 0.3 percentage point will, by itself, contribute -0.3 

percentage point to the price differential.

33 Note on a New, Supplemental Index of Consumer Price Change, BLS,

http://stats.bls.gov/cpi/cpisuptn.htm

34Simulated CPI-U compared to simulated C-CPI-U: U.S. city average, All-items, December indexes 

relative to previous December, BLS, http://stats.bls.gov/cpi/superchart2.htm
Price Inflation, Page 7

CPI-W from 0.2 to 0.3 percentage point (i.e., a change from a -0.2 to -0.3 price differential) for 

the 2003, 2004, and 2005 Trustees Reports.

Actual final monthly values for the C-CPI-U are now available back to December 1999.35 One 

can directly calculate the difference between the static and chained computational methods for 

the latest periods as the CPI-U less C-CPI-U annual growth rates. The average annual difference 

over the period from December 1999 to December 2011 was 0.28, and the differences for the 

12-month periods ending each December ranged from -0.1 to 0.8 percentage points. In 9 out of 

the 12 years, the difference was between 0.1 and 0.5 percentage points.

It is reasonable to believe that some of the difference between these computational methods in 

the more recent period may have been due to unique circumstances associated with price 

volatility in particular items such as energy, and thus that the difference between these two 

computational methods may be lower in the future. However, for the post-1999 period, the 

average annual difference using the all items less food and energy expenditure category for the 

C-CPI-U and CPI-U was 0.29 percent, approximately equal to the value for the all items

category.36

Summarizing the BLS data, the difference in growth in the CPI-U and the C-CPI-U was about 

0.3 percentage point over the 1990 to 1999 period and about 0.3 percentage point over the period 

from December 1999 to December 2011. This suggests that the difference in measured growth in 

prices in the CPI-U and the C-CPI-U is likely to average about 0.3 percentage point in the future.

2.3.2 Coverage Differences

The CPI-W covers the consumption pattern for roughly 32 percent of the U.S. population.37 The 

PGDP covers the consumption expenditures for the entire population, along with investment and 

government expenditures.38 In fact, the PGDP can be viewed as a weighted average of deflators 

for its principal components: personal consumption expenditures (PGDP_C), gross private 

 

35 Because the C-CPI-U is dependent upon expenditure data that lag the CPI release date, BLS publishes 

initial, interim, and final monthly values for each calendar year. As of October 2013, final values were only 

available through December 2011.

36 Using the all items less food and energy expenditure category for the C-CPI-U and CPI-U, the difference 

between the static and the chained computational methods was 0.7 percentage point in 2000 (compared to 0.8 using 

the all items category). For subsequent years, the difference was 0.6 (0.3), 0.3 (0.4), 0.4 (0.2), -0.1 (0.1), 0.3 (0.5), 

0.4 (0.3), 0.5 (0.4), 0.0 (-0.1), 0.3 (0.3), 0.2 (0.2), and -0.1 (0.0) percentage point for 12-month periods ending in 

December 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, and 2011, respectively. 

37 Overview of the CPI, BLS. http://stats.bls.gov/cpi/cpifaq.htm#Question_1

38 The PGDP also incorporates the effect of price changes in exports less the effect of price changes in 

imports. The net effect of these price changes over the historical period has been relatively small. For the long-range 

future, OCACT assumes net exports (i.e., exports minus imports) will be zero along with their effect on the total 

PGDP.
Price Inflation, Page 8

domestic investment (PGDP_I), and government consumption expenditures and gross investment 

(PGDP_G).

Table 2.2, below, shows the contribution to the price differential over varying historical periods 

due to including the PGDP_I and the PGDP_G in the PGDP. The contribution of the PGDP_I to 

the price differential is defined as the product of its growth rate differential (defined as PGDP_I 

less PGDP_C) and its GDP weight (defined as the ratio of nominal investment expenditures to 

nominal GDP). The contribution of the PGDP_G to the price differential is defined similarly. 

Columns (a) and (b) list the growth rate differentials for PGDP_I and PGDP_G, while columns 

(c) and (d) list the separate contributions to the price differential due to PGDP_I and PGDP_G. 

Column (e) lists the sum of the contributions to the price differential due to the PGDP_I and 

PGDP_G. Finally, the table includes the Trustees’ assumed ultimate values for the growth rate 

differentials, the weighted differentials, and the sum of the weighted differentials. (See section 

2.4.1 for a detailed development of these assumptions.) 

Table 2.2: Estimated Contribution to the Price Differential

Range

Differences in Deflator Growth Rates

Unweighted Weighted

(Contribution to the Price Differential)

PGDP_I PGDP_G PGDP_I PGDP_G PGDP_I

less less And

PGDP_C PGDP_C PGDP_G

(a) * weight (b) * weight (c + d)

(a) (b) (c) (d) (e)

Econ. Cycles

1979-1989 -1.44 -0.12 -0.27 -0.02 -0.29

1989-2000 -1.52 0.62 -0.27 0.12 -0.15

 2000-2007 0.00 1.68 0.00 0.32 0.32

Latest

2007-2012 -1.44 0.37 -0.21 0.08 -0.14

Assumed 

Values -1.11 0.58 -0.20 0.12 -0.08

The growth rate differentials for PGDP_I were -1.44 and -1.52 percent over the 1979 to 1989 and 

1989 to 2000 economic cycles, respectively. When weighted, these growth rate differentials 

contributed -0.27 and -0.27 percentage point to the overall price differential for the periods. The 

Trustees set the future assumed growth rate differential for PGDP_I to -1.11. When weighted, 

this will contribute about -0.20 to the overall price differential. The assumed future contribution 

to the price differential is about three-fourths (i.e., -0.20 / -0.27) of its historical contribution over 

the 1979 to 2000 period, due mostly to OCACT’s assumption that the price of computers and 

software will not fall as steeply in the long-range future compared to the post-1979 historical 

period. The 7-year period from 2000 to 2007 was discounted on the belief that the behavior of 

the PGDP_I during this period was an aberration. The growth rate differential for PGDP_I was 

0.0 percent during this period due to the relatively rapid growth in the investment deflators for 
Price Inflation, Page 9

residential and nonresidential structures. OCACT believes this behavior is not sustainable into 

the near future. In fact, the growth rate differential for PGDP_I turned back to an average annual 

value of -1.44 percent for the 5-year period from 2007 to 2012, reflecting, in part, actual declines 

in the price of new housing in most markets during the period.

The growth rate differentials for PGDP_G were -0.12 and 0.62 percent over the 1979 to 1989 

and 1989 to 2000 economic cycles, respectively. When weighted, these growth rate differentials 

contributed -0.02 and 0.12 percentage point to the overall price differential for those periods. The 

Trustees set the future assumed growth rate differential for PGDP_G to 0.58, which when 

weighted will contribute about 0.12 to the overall price differential. The assumed future 

contribution to the price differential is about 0.07 higher (i.e., 0.12 – 0.05) than its historical 

contribution over the 1979 to 2000 period. OCACT believes the PGDP_G contribution to the 

price differential during this historical period was temporarily depressed due to a relative 

increase in lower-paid state and local government workers. OCACT also believes the PGDP_G 

contribution to the price differential during the 7-year period from 2000 to 2007 was high 

because the growth rate in average military compensation averaged 9.2 percent over the period. 

OCACT believes this relatively high growth rate was due to temporary factors. Federal payments 

for basic military pay, reenlistment bonuses, and other types of incentive pay increased sharply 

after the 9/11 terrorist attacks. Furthermore, beginning in 2002, the BEA redefined military 

compensation to include federal payments to the Uniformed Services Retiree Healthcare Fund. 

In the future, OCACT believes that the annual growth rate in average military compensation will 

slow and follow the assumed ultimate 4.0 percent average annual growth rate in compensation 

for all workers.

Thus, the Trustees set the future contribution to the price differential due to the PGDP_I and the 

PGDP_G to -0.1 percentage point. This is approximately equal to the sum of a -0.20 percentage 

point price differential due to the PGDP_I and 0.12 percentage point due to the PGDP_G. The 

assumed future combined contribution of -0.1 percentage point is smaller (less negative) than the 

actual average annual historical combined contribution to the price differential of -0.22 

percentage point over the 1979 to 2000 period.

2.3.3 Future Expectations for the Price Differential

For the 2014 Trustees Report, the Trustees set the assumed ultimate price differential 

to -0.3, -0.4, and -0.5 percentage point for alternative I, II, and III, respectively. For the 

alternative II, the ultimate price differential of -0.4 percentage point is the sum of -0.3 percentage 

point due to the difference in computational methods and -0.1 percentage point due to coverage 

differences between the PGDP and CPI-W. These values are unchanged from the ones assumed 

by the Trustees for the 2013 Report.

2.4 Gross Domestic Product Implicit Price Deflator (PGDP)

2.4.1 Historical Behavior of the Adjusted PGDP 

As mentioned in section 2.3.2, for the future, the PGDP can be viewed as a weighted average of 

the PGDP_C, PGDP_I, and PGDP_G. The weights are the ratios of the components’ nominal 
Price Inflation, Page 10

expenditures to total nominal GDP. In 2012, the weights for personal consumption, investment, 

and government expenditures were about 0.69, 0.15, and 0.19, respectively. These weights 

summed to more than one because net exports were negative. However, OCACT believes that 

net exports in the long-range future will be zero and the weights will sum to 1.0. 

Because these weights have been relatively stable over the last four decades (and have summed 

to about 1.0), the long-run historical growth rate in PGDP is mostly explained by the separate 

historical growth rates in PGDP_C, PGDP_I, and PGDP_G. The historical and expected future 

growth rates for each component deflator are examined below.

2.4.1.1 Adjusted Deflator for Personal Consumption Expenditures (PGDP_C)

Given all of the changes to the CPI and PGDP over time, it seems reasonable to expect that the 

more recent decades best depict the future relationship between the two price measures; more 

specifically, only the post-1977 period when the adjusted CPI-W incorporates most of the 

improvements in the CPI as presently defined. Over the 33-year period from 1979 to 2012, the 

average annual growth rates for the adjusted PGDP_C and adjusted CPI-W were 3.02 and 3.29 

percent, respectively. Hence, the difference between these average annual growth rates over this 

period was about -0.27 percentage point (i.e., 3.02 − 3.29).

This -0.27 percentage point observed difference over the 1979 to 2012 period is approximately 

equal to the -0.30 percentage point expected future difference (consistent with the estimated 0.30 

percentage point difference due to the computational methods used for weighting broad groups 

of goods and services). Some differences between the two quantities can be expected because the 

populations covered by the two price measures are different. As mentioned in Section 2.3.2, the 

CPI-W covers the consumption pattern for roughly 32 percent of the population, while the 

PGDP_C covers personal consumption expenditures for the total population. The CPI-U, on the 

other hand, covers about 87 percent of the population. Over the 1979 to 2012 period, the CPI-U 

grew faster than the CPI-W by about 0.07 percentage point per year, mostly because the former 

had relatively larger weights for medical and college expenditures—two areas where prices had 

been rising faster than for other goods. If the CPI-W had the same expenditure weights as the 

CPI-U, then the adjusted CPI-W would have grown at an annual rate of roughly 0.07 percentage 

point faster than it did. This would have resulted in an observed difference (adjusted PGDP_C 

less adjusted CPI-W growth rates) of -0.34 (i.e., -0.27 − 0.07) percentage point, which again is 

approximately equal to the -0.30 percentage point expected difference due to computational 

methods alone.

The most recently revised BLS and BEA data for 2000 and later also support a 0.30 percentage 

point effect for the different computational methods (adjusted PGDP_C less adjusted CPI-W 

growth rates). As mentioned in Section 2.3.1, BLS has published initial, interim, and final 

monthly values for the C-CPI-U for each year beginning January 2000. Final values are now 

available for 2011. The average annual growth rate in the C-CPI-U from the first quarter of 2000 

to the fourth quarter of 2011 was 2.19 percent. Over the same period, the average annual growth 

rates in the PGDP_C, CPI-U, and CPI-W were approximately 2.07, 2.46, and 2.50 percent, 

respectively. The data suggest that over this period, the contribution of the difference in 
Price Inflation, Page 11

computational methods was about 0.27 percentage point (i.e., 2.46 − 2.19), and that the PGDP_C 

price differential was -0.39 percentage point (i.e., 2.07 − 2.46).39

Over the long-range period, it is reasonable to assume that the average annual growth rates in the 

CPI-W and CPI-U will be roughly equal. It also seems reasonable to assume that the difference 

in the long-range average annual growth rates (PGDP_C less CPI-W) will be -0.30 percentage 

point, and that this difference will be only due to the expected 0.30 percentage point effect from 

the different computational weighting methods. Stated differently, the expected growth-rate 

differential for the personal consumption deflator (PGDP_C less CPI-W) due to factors other 

than from the computational weighting methods is assumed to be zero. Thus, the Trustees set the 

assumed ultimate annual growth rate for PGDP_C to 2.4 percent, or equal to the assumed

ultimate annual growth rate for CPI-W (i.e., 2.7 percent) less the 0.30 percentage point effect of 

the different computational weighting methods.

2.4.1.2 Deflator for Investment Expenditures (PGDP_I)

The PGDP_I can be viewed as a weighted average of deflators for its principal components: 

investment in equipment (PGDP_INE), investment in intellectual property (PGDP_INIP), 

residential investment (PGDP_IR), and investment in nonresidential structures (PGDP_INS).40

The equipment and intellectual property components are new in the 2013 revisions to NIPA. 

Based on the revised NIPA data, the Trustees set some changes in assumptions for price changes 

and weights for the components of PGDP_I.

Deflator for Equipment (PGDP_INE) – Over the 33-year period from 1979 to 2012, the average 

annual growth rate was about 0.16 percent for the PGDP_INE, compared to 3.02 percent for the 

PGDP_C. The PGDP_INE growth rate has been depressed by the rise in nominal investment 

expenditures for computers and the sharp decline in their quality-adjusted prices. Over this 

period, the deflator for computers fell at an average annual rate of about 13.3 percent, and the 

ratio of nominal investment expenditures for computers to all investment expenditures for 

equipment rose from about 5 percent to about 13 percent in the late 1990s, followed by a decline 

to about 9 percent.

It seems reasonable to assume that quality-adjusted computer prices will continue to decline into 

the future, but at a somewhat slower rate. The average annual rate of decline was about 12.9 

percent over the 1982 to 1994 period, 22.2 percent over the 1994 to 1999 period, and 9.6 percent 

over the 1999 to 2012 period. The large rate of decline in the late 1990s was probably due to a 

combination of technological advances and production volume increases that are unlikely to be 

 

39 The data also suggest that over the period the average annual growth rate in the C-CPI-U (2.19 percent) 

was a reasonable approximation of the average annual growth rate in the PGDP_C (2.07 percent), and that the 

average annual growth rates in the CPI-U (2.46 percent) and CPI-W (2.50 percent) were approximately equal over 

the period, compared to the 0.07 average annual percentage point differential (CPI-U minus CPI-W) over the 

1979-2012 period. 

40 This decomposition excludes the change in business inventories, which has averaged roughly 2.0 percent 

of total investment expenditures over the 33-year period from 1979 to 2012. 
Price Inflation, Page 12

sustained over a longer period. It seems more reasonable to assume that the future rate of price 

decline will be similar to that over the last 13 years; thus, the Trustees assume a rate of decline of 

quality-adjusted computer prices of 10 percent per year. Furthermore, it is expected that the ratio 

of nominal investment expenditures for computers to all investment expenditures for equipment 

will stabilize at the approximate average value of the ratio over the last decade (i.e., 10 percent).

Over the period from 1979 to 2012, the deflator for equipment other than computers grew on 

average at a 1.78 percent annual rate, or 1.24 percent less than the 3.02 percent annual growth 

rate for the PGDP_C. Similarly, over the last three complete economic cycles (1979-2007), the 

deflator for other equipment grew slower by 1.33 percent per year than PGDP_C. OCACT 

believes that the growth rate in the price deflator for other equipment will continue to be 

depressed relative to the PGDP_C, since the prices for at least some items in other equipment 

(e.g., printers, calculators, etc.) will be driven down by the same types of future technological 

advancements expected for computers. Thus, OCACT believes that it is reasonable to expect 

that, in the future, the average annual growth rate in other equipment will be about 1.15 percent, 

or 1.25 percent less than the 2.4 percent assumed ultimate average annual growth rate in the 

PGDP_C. 

Using these average annual growth rates and weights, the Trustees set the assumed ultimate 

average annual rate of growth in PGDP_INE in the future to about 0.04 percent (i.e., -10.0 * 0.10 

+ 1.15 * 0.90).

Deflator for Intellectual Property (PGDP_INIP) – Over the 33-year period from 1979 to 2012, 

the average annual growth rate was about 1.64 percent for the PGDP_INIP, compared to 3.02 

percent for the PGDP_C. The PGDP_INIP growth rate has been depressed by the rise in nominal 

investment expenditures for software and a slow but steady decline in its quality-adjusted prices. 

Over this period, the deflator for software fell at an average annual rate of about 1.03 percent, 

and the ratio of nominal investment expenditures for software to all investment expenditures for 

intellectual property rose from about 17 percent to about 45 percent by 2000, and has remained 

at about that level since.

Software prices have been declining slowly, but steadily. They declined over four of the last five 

economic cycles (the only exception being the 1973-79 cycle), and their rate of decline averaged 

between 0 and 1 percent per year over three of those four cycles. (The rate of decline over the 

1989-2000 cycle was 1.9 percent per year.) The price level in 2012 was about the same as in 

2004. It seems reasonable to expect some future price decline, but at a somewhat slower rate than 

the average over the last 30 years. The Trustees assume that software prices will decline at a rate 

of 0.5 percent per year. OCACT also expects that the ratio of nominal investment expenditures 

for software to all investment expenditures for intellectual property will stabilize at about 45 

percent.

Over the period from 1979 to 2012, the deflator for intellectual property other than software 

grew on average at a 2.84 percent annual rate, or 0.18 percent less than the 3.02 percent annual 

growth rate for the PGDP_C. Over the last three complete economic cycles (1979-2007), the 

deflator for other intellectual property grew at an annual rate of 3.05 percent, slower by 0.19 
Price Inflation, Page 13

percent per year than the 3.24 percent growth rate in PGDP_C. OCACT believes that it is 

reasonable to expect that, in the future, the average annual growth rate in the price deflator for 

other intellectual property will continue to be somewhat lower than the PGDP_C. The Trustees 

set the growth rate at 2.2 percent, or 0.2 percent less than the 2.4 percent assumed ultimate 

average annual growth rate in the PGDP_C. 

Using these average annual growth rates and weights, OCACT believes that it is reasonable to 

set the assumed ultimate average annual rate of growth in PGDP_INIP in the future to about 0.99

percent (i.e., -0.5 * 0.45 + 2.2 * 0.55).

Deflator for Residential Investment (PGDP_IR) – Residential investment is almost entirely 

composed of investment in fixed structures which, in turn, is composed of single-family, 

multifamily, and other structures (e.g., manufactured homes, dormitories, etc.). Over the 21-year 

period from 1979 to 2000, the average annual growth rate was about 3.75 percent for the 

PGDP_IR, compared to 3.58 percent for the PGDP_C. Thus, the average annual growth rate for 

the PGDP_IR was about 0.17 percentage point (3.75 − 3.58) higher than the average annual 

growth rate in the PGDP_C over the period. However, over the next 7-year period, this 

differential increased substantially. From 2000 to 2007, the average annual growth rate was 

about 4.73 percent for the PGDP_IR and 2.24 percent for the PGDP_C. Thus, the average annual 

growth rate for the PGDP_IR was about 2.49 percentage points (4.73 – 2.24) higher than the 

average annual growth rate in the PGDP_C over the period.

OCACT believes that the 2.49 percent growth rate differential between the PGDP_IR and the 

PGDP_C over the last business cycle was a temporary market phenomenon characterized by 

overheated demand for housing, house “flipping,” subprime mortgage lending, and unusually 

high profits and gains in stock prices for the builders of new homes. Since 2007, there has been a 

market correction: the subprime mortgage market has collapsed, new and existing home sales 

have dropped nationally, actual prices of new homes in most markets have declined, and the 

profits and stock prices of new homebuilders have plummeted. For the 2007 to 2010 period, the 

average annual growth in PGDP_IR and PGDP_C was -1.8 and 1.5 percent, respectively, 

indicating a -3.3 percent (-1.8 − 1.5) differential between the two deflators. Although the growth 

rate of PGDP_IR turned positive again in 2011 and 2012, it averaged 0.8 percent and was still 

1.3 percentage points below the growth rate in PGDP_C (which was 2.1 percent).

OCACT believes it is reasonable to disregard the post-2000 period and set the assumed ultimate 

average annual rate of increase in the PGDP_IR to 2.6 percent, or about 0.2 percentage point 

higher than the 2.4 percent assumed ultimate average annual rate of increase in the PGDP_C. 

This is 0.1 percent higher than in the 2013 Trustees Report, a change consistent with the 

revisions in the historical data. 41

 

41 In the future, the PGDP_IR may grow faster than the PGDP_C due to more rapid increases in the prices 

of scarce land and basic building commodities such as copper, lumber, and cement. OCACT assumed a 2.8 percent 

annual rate in the 2012 Trustees Report and a 2.6 percent annual rate in the 2013 Trustees Report.
Price Inflation, Page 14

Deflator for Investment in Nonresidential Structures (PGDP_INS) – Investment in nonresidential 

structures includes amounts for drilling for petroleum and natural gas. Over the 21-year period 

from 1979 to 2000, the average annual growth rate for PGDP_INS was 3.62 percent, or slightly 

less than the 3.75 percent growth rate in PGDP_IR. However, over the 7-year period from 2000 

to 2007, the average annual growth rates for PGDP_INS and PGDP_IR were 7.29 and 4.73 

percent, respectively. The relatively faster average annual growth rate for PGDP_INS occurred 

because the average annual growth rate in the deflator for investment in petroleum and natural 

gas was about 20.9 percent. Excluding the effects of petroleum and natural gas, the average 

annual growth rate for PGDP_INS was about 6.4 percent, closer to the 4.7 percent average 

annual growth rate in PGDP_IR over the period.

OCACT believes the relatively rapid growth rate in the deflator for investment in petroleum and 

natural gas is another temporary market phenomenon associated with a run-up in oil prices. The 

price of a barrel of oil rose from about $26 in 2001 to $72 in 2007, or at an average annual rate 

of about 19.0 percent. As the market price for oil rose, previously expensive investment 

technologies became economically profitable. 

OCACT believes that in the future the average annual growth rate in the price of a barrel of oil 

will not be significantly greater than the growth rate in the PGDP_C and that the average annual 

growth rates in the PGDP_INS and PGDP_IR will be approximately equal. Thus, the Trustees

set the assumed ultimate average annual rate of increase in PGDP_INS to 2.6 percent, or 0.2 

percentage point higher than the 2.4 percent assumed ultimate average annual growth rate in the 

PGDP_C, and equal to the assumed ultimate average annual rate of increase in the PGDP_IR.

The ratio of investment expenditures in equipment to total investment expenditures has been 

stable over the past 60 years, averaging about 36 percent, so it is reasonable to assume that level 

will continue to hold in the future. Investment in intellectual property has been an increasing 

share of total investment. Much of the increase, however, has been due to the sharp rise in 

investment in software from the 1970s to the early 2000s. Since the share of software in the 

investment in intellectual property has stabilized recently, OCACT believes it is reasonable to 

assume that the ratio of investment in intellectual property to total investment will be similar to 

its recent levels, or about 24 percent. OCACT also assumes that the investment expenditure 

weights for nonresidential investment for structures and residential investment will account for 

approximately equal shares of the rest of the investment expenditures, or 20 percent each. Thus, 

the Trustees set the assumed ultimate average annual rate of increase for PGDP_I to 1.29 percent 

(i.e., 0.04 * 0.36 + 0.99 * 0.24 + 2.6 * (0.20 + 0.20)).

2.4.1.3 Deflator for Government Expenditures (PGDP_G)

The PGDP_G can be viewed as a weighted average of deflators for government consumption 

expenditures (PGDP_GC) and government investment (PGDP_GI). 

Deflator for Government Consumption Expenditures (PGDP_GC) – Government consumption 

expenditures can be separated into employee compensation and other (residual) government 

consumption expenditures. In the NIPA, the deflator for government consumption expenditures 
Price Inflation, Page 15

on employee compensation is defined as average employee compensation. From 1979 to 2000, a 

21-year period covering two complete economic cycles, the average annual growth rate in the 

deflator for employee compensation and the adjusted CPI-W were about 5.34 and 3.76 percent, 

respectively. This indicates that over the period, the real annual growth rate in average employee 

compensation was 1.58 percent (i.e., 5.34 – 3.76), slightly higher than the assumed ultimate real 

annual growth rate in average compensation in the 2013 Trustees Report.42

From 2000 to 2007, a 7-year period covering the latest economic cycle, the average annual 

growth rate in the deflator for employee compensation and the adjusted CPI-W were about 4.90 

and 2.64 percent, respectively. This indicates that over the period, the real annual growth rate in 

average government compensation was 2.26 percent (i.e., 4.90 − 2.64), a full percentage point 

higher than the 1.27 percent ultimate real annual growth rate in average compensation assumed 

in the 2013 Trustees Report.

OCACT believes that the relatively high growth rate in the deflator for employee compensation 

over the 2000 to 2007 period is a temporary phenomenon mostly associated with military pay 

incentives for the conflicts in Iraq and Afghanistan. Over this period, the average annual growth 

rates in the average compensation of state and local, federal civilian, and federal military 

employees were 4.34, 5.50, and 9.21 percent, respectively. By contrast, between 2007 and 2012, 

the average annual growth rates in the average compensation of state and local, federal civilian, 

and federal military employees were 2.28, 2.63, and 3.14 percent, respectively, and the average 

annual growth rate in the deflator for employee compensation was 2.53 percent, or just 0.32 

percentage points higher than the 2.21 percent growth rate in CPI-W over the same period. It is 

reasonable to assume that in the future the average annual growth rate in the average 

compensation for all government employees will be 4.07 percent, the same rate assumed for the 

economy-wide average compensation. Therefore, OCACT believes that the average annual 

growth rate in the deflator for government consumption expenditures on employee compensation 

will be 4.07 percent.

It is also reasonable and consistent to assume that the average annual growth rate in the deflator 

for other government consumption will be equal to the assumed ultimate average annual growth 

rate in the PGDP_C. Hence, OCACT assumes that the average annual growth rate in the deflator 

for other government consumption will be 2.4 percent, or equal to the assumed ultimate average 

annual growth rate in the PGDP_C.

Using rough averages over the 1979 to 2012 period, OCACT assumes that future government 

consumption expenditures for employee compensation will be about 64.0 percent of total 

government consumption expenditures. Thus, the Trustees set the assumed ultimate average 

annual growth rate for PGDP_GC to 3.40 percent (i.e., 3.97 * 0.64 + 2.4 * 0.36).

Deflator for Government Investment (PGDP_GI) – Government investment can be separated 

into 1) structures, 2) equipment, and 3) intellectual property. It is reasonable to assume that the 

 

42 For the 2013 Trustees Report alternative II, the Trustees assumed that the ultimate average annual rates 

of increase in the average compensation for all employees and in the CPI were 4.07 and 2.8 percent, respectively.
Price Inflation, Page 16

future average annual growth rate in the deflator for government investment for structures will be 

2.6 percent, or equal to the expected future average annual growth rate in private investment in 

nonresidential structures (PGDP_INS). Similarly, OCACT also assumes the future average 

annual growth rates in the deflator for government investment in equipment and intellectual 

property will be 0.04 percent and 0.99 percent, respectively, or equal to the expected future 

average annual growth rate in PGDP_INE and PGDP_INIP.

Using rough averages over the 1979 to 2010 period, OCACT assumes the future ratio of 

government investment components to total government investment will be about 0.45 for 

structures, about 0.25 for equipment, and about 0.30 for intellectual property. Thus, the Trustees

set the assumed ultimate average annual growth rate for PGDP_GI to 1.48 percent (i.e., 2.6 * 

0.45 + 0.04 * 0.25 + 0.99 * 0.30).

Finally, the historical proportions of government consumption and investment expenditures have 

been relatively stable over the 40-year period from 1972 to 2012, averaging about 78 and 22 

percent of total government expenditures, respectively. Hence, the Trustees also set the assumed 

ultimate average annual rate of increase in the PGDP_G to 2.98 percent (i.e., 3.4 * 0.78 + 1.48 * 

0.22). 

2.4.2 Recent BEA Changes to PGDP

On July 29, 2013, BEA released a comprehensive revision to the NIPA back to 1929.43 The 

revisions introduced some new categories. Most importantly for the analysis in this section, the 

former investment category “Equipment and Software” has been split into two categories: 

Equipment and Intellectual Property Products. The latter category includes software and also 

expenditures on Research and Development and Entertainment, literary, and artistic originals, 

which were previously not included in the investment component of GDP. The changes resulted 

in the level of GDP about 3 percent higher than before, and in somewhat higher weights for 

investment and government components. Compared to the unrevised data, BEA decreased the 

average annual growth rate in the PGDP by about 0.06 percentage point over the last three and 

over the last five economic cycles, and by 0.17 percentage point over the period from 2007 to 

2011.

2.4.3 OCACT Adjustments to the Published PGDP 

BEA’s estimate of the PGDP is based, in part, on BLS’s estimate of the CPI. BLS has introduced 

numerous improvements to the CPI that have lowered its post-1995 growth rate. BEA 

“backcasted” these improvements in the NIPA, lowering the growth rate in the PGDP (and 

raising the real growth rate in GDP). However, because BEA only backcasted these effects to 

1978, OCACT has lowered the pre-1978 growth rate in the PGDP for consistency (see Section 

2.6 Appendix for further details on the adjustments to the actual published annual growth rates in 

PGDP and annual real growth rates in GDP). The adjusted PGDP is shown in Table 2.4.

 

43 “2013 Comprehensive Revision of the National Income and Product Accounts.”

http://bea.gov/national/an1.htm#2013comprehensive. 
Price Inflation, Page 17

2.5 Projections from Other Sources

Global Insight, Inc. includes projections through 2043 in its latest long-run trend forecast (see

September 2013 30-year US Macro Baseline Forecast). Over the 20-year period from 2023 to 

2043, Global Insight, Inc. projects an average annual rate of increase of 2.10 percent for the CPI 

and 1.93 percent for the PGDP, with a resulting price differential of -0.17 percentage point 

(1.93 − 2.10). Macroeconomic Advisers publishes its latest long-run projections (Long-Term 

Economic Outlook, Third Quarter, 2013) through 2022. Over the 5-year period from 2017 to 

2022, it projects an average annual rate of increase of 2.13 percent for the CPI and 2.09 percent 

for the PGDP, for a price differential of -0.04 percentage point (2.09 − 2.13). The Moody’s 

Analytics’ September 2013 forecast extends to 2043. Over the 20-year period from 2023 to 2043, 

Moody’s Analytics projects an average annual growth rate of 1.86 percent for the CPI and 1.85 

percent for the PGDP, for a price differential of -0.01 percentage point (1.85 – 1.86).

The Office of Management and Budget (OMB) Mid-Session Review of the Fiscal Year 2014 

Budget includes projections through 2090. OMB’s annual growth rates for the PGDP and CPI-W 

(and CPI-U) for the 2026-2090 period were 1.90 and 2.15 percent, respectively. Thus, OMB 

projects a price differential of -0.25 percentage point (i.e., 1.90 – 2.15). The Congressional 

Budget Office (CBO) September 2013 report, The 2013 Long-Term Budget Outlook, includes 

projections through 2088. CBO’s annual growth rates for the PGDP and CPI-W (and CPI-U) for 

2024 and later were 2.2 and 2.5 percent, respectively.. Thus, CBO projects an average annual 

price differential of -0.3 percentage point (i.e., 2.2 − 2.5) for the period. The Social Security 

Advisory Board’s 2011 Technical Panel on Assumptions and Methods recommended assuming 

an ultimate (i.e., long-range average) annual rate of increase in the CPI-W of 2.8 percent for 

alternative II, and a price differential of -0.2 percentage point.
Price Inflation, Page 18

Table 2.3: Adjusted CPI W: Compound Annual Rates of Growth (%) Base Year = 1982 1984

From

To Variable 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

1961 35.41

1962 35.69 0.80

1963 36.09 0.96 1.12

1964 36.48 1.00 1.11 1.10

1965 36.99 1.10 1.21 1.25 1.40

1966 37.97 1.41 1.56 1.71 2.02 2.64

1967 39.06 1.65 1.82 2.00 2.30 2.75 2.87

1968 40.42 1.91 2.10 2.29 2.59 2.99 3.17 3.48

1969 42.13 2.20 2.40 2.61 2.92 3.30 3.53 3.86 4.24

1970 44.07 2.46 2.67 2.90 3.20 3.56 3.80 4.11 4.42 4.61

1971 45.87 2.62 2.83 3.04 3.33 3.65 3.85 4.10 4.31 4.34 4.08

1972 47.31 2.67 2.86 3.05 3.30 3.58 3.73 3.91 4.01 3.94 3.60 3.13

1973 50.13 2.94 3.14 3.34 3.59 3.87 4.05 4.25 4.40 4.44 4.39 4.54 5.98

1974 55.09 3.46 3.68 3.92 4.21 4.52 4.76 5.03 5.30 5.51 5.73 6.29 7.91 9.87

1975 59.44 3.77 4.00 4.25 4.54 4.86 5.10 5.39 5.66 5.90 6.16 6.69 7.91 8.88 7.90

1976 62.71 3.88 4.11 4.34 4.62 4.91 5.15 5.40 5.64 5.85 6.05 6.45 7.30 7.75 6.70 5.51

1977 66.55 4.02 4.24 4.47 4.73 5.02 5.23 5.47 5.70 5.88 6.06 6.40 7.07 7.34 6.51 5.82 6.13

1978 70.97 4.18 4.39 4.61 4.87 5.14 5.35 5.58 5.79 5.96 6.14 6.43 6.99 7.20 6.54 6.09 6.38 6.63

1979 77.82 4.47 4.69 4.92 5.18 5.46 5.68 5.91 6.14 6.33 6.52 6.83 7.37 7.60 7.16 6.97 7.46 8.14 9.66

1980 86.39 4.81 5.03 5.27 5.54 5.82 6.05 6.30 6.53 6.75 6.96 7.29 7.82 8.08 7.79 7.77 8.34 9.09 10.33

1981 94.56 5.03 5.26 5.50 5.76 6.04 6.27 6.52 6.76 6.97 7.19 7.50 8.00 8.25 8.03 8.05 8.56 9.18 10.04

1982 100.13 5.08 5.29 5.52 5.77 6.03 6.25 6.48 6.69 6.89 7.08 7.35 7.79 7.99 7.76 7.74 8.11 8.51 8.99

1983 104.31 5.03 5.24 5.45 5.68 5.93 6.12 6.33 6.52 6.69 6.85 7.09 7.45 7.60 7.35 7.28 7.54 7.78 8.01

1984 108.47 4.99 5.18 5.38 5.60 5.83 6.00 6.19 6.36 6.51 6.64 6.84 7.16 7.27 7.01 6.91 7.09 7.23 7.33

1985 112.11 4.92 5.10 5.29 5.49 5.70 5.86 6.03 6.19 6.31 6.42 6.59 6.86 6.94 6.67 6.55 6.67 6.74 6.75

1986 113.84 4.78 4.95 5.12 5.31 5.50 5.64 5.79 5.92 6.02 6.11 6.25 6.47 6.51 6.24 6.09 6.14 6.15 6.09

1987 117.62 4.73 4.89 5.05 5.22 5.40 5.53 5.67 5.78 5.87 5.94 6.06 6.26 6.28 6.01 5.85 5.88 5.86 5.77

1988 121.78 4.68 4.83 4.99 5.15 5.32 5.44 5.56 5.67 5.75 5.81 5.91 6.09 6.10 5.83 5.67 5.69 5.65 5.55

1989 126.99 4.67 4.81 4.96 5.12 5.27 5.39 5.51 5.60 5.67 5.73 5.82 5.98 5.98 5.73 5.57 5.58 5.53 5.43

1990 133.09 4.67 4.81 4.95 5.10 5.25 5.36 5.47 5.57 5.63 5.68 5.77 5.91 5.91 5.67 5.52 5.52 5.48 5.38

1991 137.73 4.63 4.77 4.90 5.04 5.19 5.29 5.39 5.48 5.53 5.58 5.65 5.79 5.77 5.54 5.39 5.39 5.33 5.23

1992 141.08 4.56 4.69 4.81 4.95 5.08 5.18 5.27 5.35 5.39 5.43 5.50 5.62 5.60 5.36 5.22 5.20 5.14 5.03

1993 144.32 4.49 4.61 4.73 4.86 4.98 5.07 5.16 5.22 5.26 5.29 5.35 5.45 5.43 5.20 5.05 5.03 4.96 4.85

1994 147.26 4.41 4.53 4.64 4.76 4.88 4.96 5.04 5.10 5.13 5.15 5.20 5.30 5.26 5.04 4.89 4.86 4.78 4.67

1995 150.88 4.36 4.47 4.57 4.69 4.80 4.87 4.94 5.00 5.03 5.05 5.09 5.17 5.14 4.92 4.77 4.73 4.65 4.54

1996 154.78 4.30 4.41 4.51 4.62 4.73 4.80 4.86 4.91 4.94 4.95 4.98 5.06 5.02 4.81 4.66 4.62 4.54 4.43

1997 158.08 4.24 4.34 4.44 4.54 4.64 4.71 4.77 4.82 4.84 4.84 4.87 4.94 4.90 4.69 4.55 4.50 4.42 4.31

1998 159.93 4.16 4.25 4.35 4.44 4.54 4.60 4.65 4.69 4.71 4.71 4.73 4.80 4.75 4.54 4.40 4.35 4.26 4.15

1999 163.24 4.10 4.19 4.28 4.37 4.46 4.52 4.57 4.61 4.62 4.62 4.64 4.69 4.65 4.44 4.30 4.25 4.16 4.05

2000 168.93 4.09 4.18 4.26 4.35 4.43 4.49 4.54 4.57 4.58 4.58 4.60 4.65 4.60 4.40 4.27 4.22 4.13 4.02

2001 173.46 4.05 4.14 4.22 4.30 4.39 4.44 4.48 4.51 4.52 4.52 4.53 4.58 4.53 4.34 4.21 4.15 4.07 3.96

2002 175.92 3.99 4.07 4.15 4.23 4.30 4.35 4.39 4.42 4.43 4.42 4.43 4.48 4.42 4.23 4.10 4.05 3.96 3.86

2003 179.74 3.94 4.02 4.10 4.17 4.25 4.29 4.33 4.36 4.36 4.35 4.36 4.40 4.35 4.16 4.03 3.98 3.90 3.79

2004 184.51 3.91 3.99 4.06 4.14 4.21 4.25 4.29 4.31 4.31 4.30 4.31 4.35 4.29 4.11 3.98 3.93 3.85 3.74

2005 190.95 3.90 3.98 4.05 4.12 4.19 4.23 4.26 4.29 4.29 4.28 4.28 4.32 4.27 4.09 3.97 3.91 3.84 3.73

2006 197.15 3.89 3.96 4.03 4.10 4.17 4.20 4.24 4.26 4.26 4.25 4.25 4.29 4.24 4.07 3.94 3.89 3.82 3.72

2007 202.79 3.87 3.94 4.00 4.07 4.13 4.17 4.20 4.22 4.22 4.21 4.22 4.25 4.20 4.03 3.91 3.86 3.78 3.69

2008 211.09 3.87 3.94 4.00 4.07 4.13 4.17 4.20 4.22 4.22 4.21 4.21 4.24 4.19 4.03 3.92 3.87 3.79 3.70

2009 209.61 3.77 3.84 3.90 3.96 4.02 4.05 4.08 4.10 4.09 4.08 4.08 4.11 4.05 3.89 3.78 3.72 3.65 3.56

2010 213.97 3.74 3.80 3.86 3.92 3.98 4.01 4.03 4.05 4.04 4.03 4.03 4.05 4.00 3.84 3.73 3.68 3.60 3.51

2011 221.58 3.74 3.80 3.85 3.91 3.97 4.00 4.02 4.04 4.03 4.02 4.02 4.04 3.99 3.83 3.72 3.67 3.60 3.51

2012 226.23 3.70 3.76 3.82 3.87 3.93 3.96 3.98 3.99 3.99 3.97 3.97 3.99 3.94 3.79 3.68 3.63 3.56 3.47
Price Inflation, Page 19

Table 2.3 (continued). Adjusted CPI-W: Compound Annual Rates of Growth (%) Base Year = 1982-1984

From

To Variable 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

1978 70.97

1979 77.82 9.66

1980 86.39 10.33 11.01

1981 94.56 10.04 10.23 9.46

1982 100.13 8.99 8.76 7.66 5.89

1983 104.31 8.01 7.60 6.48 5.03 4.17

1984 108.47 7.33 6.87 5.86 4.68 4.08 3.99

1985 112.11 6.75 6.27 5.35 4.35 3.84 3.67 3.36

1986 113.84 6.09 5.58 4.71 3.78 3.26 2.96 2.45 1.54

1987 117.62 5.77 5.30 4.51 3.70 3.27 3.05 2.74 2.43 3.32

1988 121.78 5.55 5.10 4.38 3.68 3.32 3.15 2.93 2.79 3.43 3.53

1989 126.99 5.43 5.02 4.37 3.75 3.45 3.33 3.20 3.16 3.71 3.91 4.28

1990 133.09 5.38 5.00 4.42 3.87 3.62 3.54 3.47 3.49 3.98 4.20 4.54 4.80

1991 137.73 5.23 4.87 4.33 3.83 3.61 3.54 3.47 3.49 3.88 4.02 4.19 4.14 3.49

1992 141.08 5.03 4.68 4.17 3.70 3.49 3.41 3.34 3.34 3.64 3.70 3.75 3.57 2.96 2.43

1993 144.32 4.85 4.51 4.03 3.59 3.38 3.30 3.22 3.21 3.45 3.47 3.46 3.25 2.74 2.37 2.30

1994 147.26 4.67 4.34 3.88 3.47 3.27 3.18 3.10 3.08 3.27 3.26 3.22 3.01 2.56 2.26 2.17 2.04

1995 150.88 4.54 4.22 3.79 3.39 3.20 3.12 3.05 3.01 3.18 3.16 3.11 2.91 2.54 2.31 2.27 2.25 2.46

1996 154.78 4.43 4.13 3.71 3.34 3.16 3.08 3.01 2.97 3.12 3.10 3.04 2.87 2.55 2.36 2.34 2.36 2.52

1997 158.08 4.31 4.02 3.62 3.26 3.09 3.01 2.94 2.90 3.03 3.00 2.94 2.78 2.49 2.32 2.30 2.30 2.39

1998 159.93 4.15 3.86 3.48 3.14 2.97 2.89 2.81 2.77 2.87 2.83 2.76 2.60 2.32 2.16 2.11 2.08 2.09

1999 163.24 4.05 3.77 3.41 3.08 2.92 2.84 2.76 2.72 2.81 2.77 2.70 2.54 2.29 2.15 2.11 2.07 2.08

2000 168.93 4.02 3.76 3.41 3.10 2.95 2.88 2.81 2.77 2.86 2.82 2.76 2.63 2.41 2.29 2.28 2.27 2.31

2001 173.46 3.96 3.71 3.38 3.08 2.93 2.87 2.80 2.77 2.85 2.81 2.76 2.63 2.44 2.33 2.32 2.33 2.37

2002 175.92 3.86 3.61 3.29 3.00 2.86 2.79 2.72 2.69 2.76 2.72 2.66 2.54 2.35 2.25 2.23 2.22 2.25

2003 179.74 3.79 3.55 3.24 2.96 2.82 2.76 2.69 2.66 2.72 2.69 2.63 2.51 2.34 2.24 2.23 2.22 2.24

2004 184.51 3.74 3.51 3.21 2.95 2.82 2.75 2.69 2.66 2.72 2.68 2.63 2.52 2.36 2.27 2.26 2.26 2.28

2005 190.95 3.73 3.51 3.22 2.97 2.85 2.79 2.73 2.70 2.76 2.73 2.68 2.58 2.44 2.36 2.36 2.36 2.39

2006 197.15 3.72 3.50 3.22 2.98 2.86 2.81 2.75 2.72 2.78 2.76 2.71 2.62 2.49 2.42 2.42 2.43 2.46

2007 202.79 3.69 3.48 3.21 2.98 2.86 2.81 2.76 2.73 2.79 2.76 2.72 2.63 2.51 2.45 2.45 2.46 2.49

2008 211.09 3.70 3.50 3.24 3.02 2.91 2.86 2.81 2.79 2.85 2.82 2.79 2.71 2.60 2.54 2.55 2.57 2.61

2009 209.61 3.56 3.36 3.10 2.88 2.77 2.72 2.67 2.64 2.69 2.66 2.62 2.54 2.42 2.36 2.36 2.36 2.38

2010 213.97 3.51 3.32 3.07 2.86 2.75 2.70 2.65 2.62 2.66 2.64 2.60 2.52 2.40 2.35 2.34 2.34 2.36

2011 221.58 3.51 3.32 3.08 2.88 2.78 2.73 2.68 2.65 2.70 2.67 2.64 2.56 2.46 2.41 2.40 2.41 2.43

2012 226.23 3.47 3.29 3.05 2.85 2.75 2.71 2.66 2.63 2.68 2.65 2.61 2.54 2.44 2.39 2.39 2.39 2.41

From

To Variable 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1994 147.26

1995 150.88 2.46

1996 154.78 2.52 2.58

1997 158.08 2.39 2.36 2.14

1998 159.93 2.09 1.96 1.65 1.17

1999 163.24 2.08 1.99 1.79 1.62 2.07

2000 168.93 2.31 2.29 2.21 2.24 2.77 3.48

2001 173.46 2.37 2.35 2.31 2.35 2.74 3.08 2.69

2002 175.92 2.25 2.22 2.16 2.16 2.41 2.52 2.05 1.42

2003 179.74 2.24 2.21 2.16 2.16 2.36 2.44 2.09 1.79 2.17

2004 184.51 2.28 2.26 2.22 2.23 2.41 2.48 2.23 2.08 2.41 2.65

2005 190.95 2.39 2.38 2.36 2.39 2.56 2.65 2.48 2.43 2.77 3.07 3.49

2006 197.15 2.46 2.46 2.45 2.48 2.65 2.73 2.61 2.59 2.89 3.13 3.37 3.25

2007 202.79 2.49 2.49 2.49 2.52 2.67 2.75 2.64 2.64 2.88 3.06 3.20 3.06 2.86

2008 211.09 2.61 2.62 2.62 2.66 2.81 2.90 2.82 2.84 3.08 3.27 3.42 3.40 3.47 4.09

2009 209.61 2.38 2.38 2.36 2.38 2.49 2.53 2.43 2.39 2.53 2.60 2.58 2.36 2.06 1.67 -0.70

2010 213.97 2.36 2.36 2.34 2.36 2.46 2.49 2.39 2.36 2.48 2.52 2.50 2.30 2.07 1.80 0.68 2.08

2011 221.58 2.43 2.43 2.42 2.44 2.54 2.58 2.50 2.48 2.60 2.65 2.65 2.51 2.36 2.24 1.63 2.81 3.55

2012 226.23 2.41 2.41 2.40 2.42 2.51 2.54 2.46 2.44 2.55 2.59 2.58 2.45 2.32 2.21 1.75 2.58 2.82 2.10
Price Inflation, Page 20

Table 2.4: Adjusted GDP Deflator: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

1961 18.02

1962 18.22 1.14

1963 18.41 1.07 1.01

1964 18.67 1.19 1.22 1.44

1965 18.99 1.32 1.38 1.56 1.69

1966 19.50 1.60 1.71 1.95 2.20 2.72

1967 20.05 1.80 1.93 2.16 2.40 2.76 2.80

1968 20.88 2.13 2.29 2.55 2.83 3.22 3.46 4.13

1969 21.89 2.46 2.65 2.93 3.23 3.62 3.92 4.48 4.83

1970 23.02 2.76 2.97 3.25 3.55 3.93 4.23 4.72 5.01 5.20

1971 24.17 2.98 3.19 3.46 3.75 4.10 4.38 4.78 5.00 5.08 4.97

1972 25.19 3.09 3.29 3.55 3.81 4.12 4.36 4.67 4.81 4.80 4.60 4.23

1973 26.53 3.28 3.47 3.72 3.98 4.27 4.49 4.78 4.91 4.93 4.84 4.77 5.33

1974 28.87 3.69 3.91 4.18 4.46 4.77 5.03 5.35 5.55 5.70 5.82 6.11 7.06 8.83

1975 31.53 4.08 4.31 4.59 4.88 5.20 5.48 5.82 6.07 6.28 6.49 6.88 7.78 9.02 9.21

1976 33.23 4.16 4.38 4.65 4.92 5.22 5.47 5.77 5.98 6.15 6.30 6.57 7.17 7.79 7.27 5.36

1977 35.24 4.28 4.50 4.75 5.01 5.29 5.53 5.80 5.99 6.14 6.27 6.49 6.95 7.36 6.87 5.72 6.08

1978 37.69 4.44 4.65 4.89 5.14 5.42 5.64 5.91 6.08 6.23 6.35 6.55 6.95 7.27 6.89 6.12 6.51 6.94

1979 40.80 4.64 4.86 5.10 5.35 5.62 5.84 6.10 6.28 6.43 6.56 6.76 7.13 7.44 7.16 6.65 7.08 7.59 8.25

1980 44.49 4.87 5.08 5.33 5.58 5.84 6.07 6.32 6.51 6.66 6.81 7.02 7.37 7.66 7.47 7.13 7.57 8.07 8.65

1981 48.66 5.09 5.31 5.55 5.80 6.06 6.28 6.54 6.73 6.89 7.04 7.25 7.59 7.88 7.74 7.50 7.93 8.40 8.89

1982 51.63 5.14 5.34 5.58 5.81 6.06 6.27 6.51 6.68 6.82 6.96 7.14 7.44 7.68 7.53 7.30 7.62 7.93 8.19

1983 53.66 5.09 5.28 5.50 5.71 5.94 6.13 6.35 6.50 6.62 6.73 6.87 7.12 7.30 7.13 6.87 7.09 7.26 7.32

1984 55.57 5.02 5.20 5.40 5.60 5.81 5.99 6.18 6.31 6.41 6.50 6.61 6.82 6.95 6.77 6.50 6.64 6.72 6.68

1985 57.35 4.94 5.11 5.30 5.49 5.68 5.84 6.01 6.12 6.21 6.27 6.37 6.53 6.63 6.44 6.16 6.25 6.27 6.18

1986 58.51 4.82 4.98 5.16 5.33 5.51 5.65 5.80 5.89 5.95 6.00 6.07 6.20 6.27 6.06 5.78 5.82 5.79 5.65

1987 59.94 4.73 4.88 5.04 5.20 5.36 5.49 5.63 5.71 5.76 5.79 5.84 5.95 5.99 5.78 5.50 5.51 5.45 5.29

1988 62.04 4.69 4.82 4.98 5.13 5.28 5.40 5.53 5.60 5.64 5.66 5.70 5.80 5.83 5.61 5.34 5.34 5.27 5.11

1989 64.46 4.66 4.79 4.94 5.08 5.22 5.33 5.45 5.52 5.55 5.57 5.60 5.68 5.71 5.50 5.24 5.23 5.16 5.00

1990 66.85 4.62 4.75 4.89 5.03 5.16 5.27 5.38 5.43 5.46 5.47 5.50 5.57 5.59 5.39 5.14 5.12 5.05 4.89

1991 69.06 4.58 4.70 4.84 4.96 5.09 5.19 5.29 5.34 5.36 5.37 5.39 5.45 5.46 5.26 5.02 5.00 4.92 4.77

1992 70.64 4.51 4.62 4.75 4.87 4.99 5.07 5.17 5.21 5.23 5.23 5.24 5.29 5.29 5.10 4.86 4.83 4.74 4.59

1993 72.32 4.44 4.55 4.67 4.78 4.89 4.97 5.06 5.10 5.11 5.10 5.11 5.15 5.14 4.95 4.72 4.68 4.59 4.44

1994 73.86 4.37 4.47 4.58 4.69 4.80 4.87 4.95 4.98 4.99 4.98 4.98 5.01 5.00 4.81 4.58 4.54 4.45 4.29

1995 75.40 4.30 4.40 4.50 4.61 4.70 4.77 4.84 4.87 4.87 4.86 4.85 4.88 4.86 4.68 4.46 4.41 4.32 4.16

1996 76.78 4.23 4.32 4.42 4.52 4.61 4.67 4.74 4.76 4.76 4.74 4.73 4.75 4.73 4.55 4.33 4.28 4.18 4.03

1997 78.10 4.16 4.25 4.34 4.43 4.52 4.58 4.64 4.65 4.65 4.63 4.61 4.63 4.60 4.42 4.21 4.15 4.06 3.91

1998 78.94 4.07 4.16 4.25 4.33 4.41 4.47 4.52 4.53 4.52 4.50 4.48 4.49 4.46 4.28 4.07 4.01 3.91 3.77

1999 80.07 4.00 4.08 4.17 4.25 4.32 4.37 4.42 4.43 4.42 4.39 4.37 4.38 4.34 4.16 3.96 3.90 3.80 3.65

2000 81.89 3.96 4.03 4.12 4.19 4.26 4.31 4.36 4.36 4.35 4.32 4.30 4.30 4.26 4.09 3.89 3.83 3.73 3.59

2001 83.77 3.92 3.99 4.07 4.14 4.21 4.25 4.30 4.30 4.28 4.25 4.23 4.23 4.19 4.02 3.83 3.77 3.67 3.53

2002 85.06 3.86 3.93 4.00 4.07 4.14 4.18 4.22 4.22 4.20 4.17 4.14 4.14 4.10 3.93 3.74 3.68 3.59 3.45

2003 86.75 3.81 3.88 3.95 4.02 4.08 4.12 4.15 4.15 4.13 4.10 4.07 4.07 4.03 3.87 3.68 3.62 3.52 3.39

2004 89.13 3.79 3.85 3.92 3.99 4.04 4.08 4.11 4.11 4.09 4.06 4.03 4.03 3.99 3.83 3.65 3.59 3.50 3.37

2005 91.99 3.77 3.84 3.91 3.97 4.02 4.06 4.09 4.09 4.07 4.04 4.01 4.00 3.96 3.81 3.63 3.57 3.49 3.36

2006 94.82 3.76 3.82 3.89 3.94 4.00 4.03 4.06 4.06 4.04 4.01 3.98 3.98 3.94 3.79 3.62 3.56 3.47 3.35

2007 97.34 3.73 3.79 3.86 3.91 3.97 4.00 4.03 4.03 4.01 3.97 3.95 3.94 3.90 3.75 3.59 3.53 3.44 3.33

2008 99.21 3.70 3.75 3.81 3.87 3.92 3.95 3.98 3.97 3.95 3.92 3.89 3.88 3.84 3.70 3.53 3.48 3.39 3.28

2009 100.00 3.63 3.69 3.75 3.80 3.85 3.87 3.90 3.89 3.87 3.84 3.81 3.80 3.75 3.61 3.45 3.40 3.31 3.20

2010 101.22 3.58 3.64 3.69 3.74 3.79 3.81 3.84 3.83 3.81 3.77 3.74 3.73 3.69 3.55 3.39 3.33 3.25 3.14

2011 103.20 3.55 3.60 3.66 3.70 3.75 3.77 3.79 3.79 3.76 3.73 3.70 3.68 3.64 3.50 3.35 3.29 3.21 3.10

2012 105.01 3.52 3.56 3.62 3.66 3.71 3.73 3.75 3.74 3.71 3.68 3.65 3.63 3.59 3.46 3.30 3.25 3.17 3.06
Price Inflation, Page 21

Table 2.4 (continued). Adjusted GDP Deflator: Compound Annual Rates of Growth (%) Base Year = 2009

From

To Variable 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

1978 37.69

1979 40.80 8.25

1980 44.49 8.65 9.04

1981 48.66 8.89 9.21 9.37

1982 51.63 8.19 8.16 7.73 6.10

1983 53.66 7.32 7.09 6.45 5.01 3.93

1984 55.57 6.68 6.37 5.72 4.53 3.75 3.56

1985 57.35 6.18 5.84 5.21 4.19 3.56 3.38 3.20

1986 58.51 5.65 5.29 4.67 3.76 3.18 2.93 2.61 2.02

1987 59.94 5.29 4.93 4.35 3.54 3.03 2.81 2.56 2.23 2.44

1988 62.04 5.11 4.77 4.24 3.53 3.11 2.94 2.79 2.65 2.97 3.50

1989 64.46 5.00 4.68 4.21 3.58 3.22 3.10 3.01 2.96 3.28 3.70 3.90

1990 66.85 4.89 4.59 4.16 3.59 3.28 3.19 3.13 3.11 3.39 3.70 3.80 3.71

1991 69.06 4.77 4.48 4.08 3.56 3.28 3.20 3.15 3.15 3.37 3.60 3.64 3.51 3.31

1992 70.64 4.59 4.31 3.93 3.45 3.18 3.10 3.04 3.02 3.19 3.34 3.30 3.10 2.80 2.29

1993 72.32 4.44 4.17 3.81 3.36 3.11 3.03 2.97 2.94 3.07 3.18 3.11 2.92 2.66 2.33 2.38

1994 73.86 4.29 4.04 3.69 3.26 3.03 2.95 2.89 2.85 2.95 3.03 2.95 2.76 2.52 2.27 2.25 2.13

1995 75.40 4.16 3.91 3.58 3.18 2.96 2.88 2.81 2.77 2.86 2.91 2.83 2.65 2.44 2.22 2.20 2.11 2.09

1996 76.78 4.03 3.79 3.47 3.09 2.88 2.79 2.73 2.69 2.75 2.79 2.70 2.53 2.34 2.14 2.11 2.01 1.96

1997 78.10 3.91 3.67 3.37 3.00 2.80 2.72 2.65 2.61 2.66 2.68 2.59 2.43 2.25 2.07 2.03 1.94 1.88

1998 78.94 3.77 3.53 3.24 2.89 2.69 2.61 2.54 2.49 2.53 2.53 2.44 2.28 2.10 1.93 1.87 1.77 1.68

1999 80.07 3.65 3.43 3.14 2.81 2.61 2.53 2.46 2.41 2.44 2.44 2.35 2.19 2.03 1.87 1.81 1.71 1.63

2000 81.89 3.59 3.37 3.10 2.78 2.60 2.52 2.45 2.40 2.43 2.43 2.34 2.20 2.05 1.91 1.86 1.79 1.73

2001 83.77 3.53 3.32 3.06 2.75 2.58 2.51 2.44 2.40 2.42 2.42 2.34 2.21 2.07 1.95 1.91 1.85 1.81

2002 85.06 3.45 3.25 2.99 2.70 2.53 2.45 2.39 2.35 2.37 2.36 2.28 2.16 2.03 1.91 1.87 1.82 1.78

2003 86.75 3.39 3.19 2.95 2.66 2.50 2.43 2.37 2.33 2.34 2.34 2.26 2.14 2.02 1.92 1.89 1.84 1.80

2004 89.13 3.37 3.18 2.94 2.67 2.51 2.45 2.39 2.35 2.37 2.36 2.29 2.18 2.08 1.98 1.96 1.92 1.90

2005 91.99 3.36 3.18 2.95 2.69 2.54 2.48 2.43 2.39 2.41 2.41 2.34 2.25 2.15 2.07 2.05 2.03 2.02

2006 94.82 3.35 3.17 2.95 2.70 2.57 2.51 2.46 2.42 2.44 2.44 2.38 2.30 2.21 2.14 2.13 2.11 2.10

2007 97.34 3.33 3.15 2.94 2.70 2.57 2.51 2.47 2.43 2.45 2.45 2.40 2.32 2.23 2.17 2.16 2.14 2.15

2008 99.21 3.28 3.11 2.91 2.67 2.54 2.49 2.44 2.41 2.43 2.43 2.38 2.30 2.22 2.15 2.15 2.13 2.13

2009 100.00 3.20 3.03 2.83 2.61 2.48 2.42 2.38 2.34 2.36 2.35 2.30 2.22 2.14 2.08 2.07 2.05 2.04

2010 101.22 3.14 2.97 2.78 2.56 2.43 2.38 2.33 2.30 2.31 2.30 2.25 2.17 2.10 2.03 2.02 2.00 1.99

2011 103.20 3.10 2.94 2.75 2.54 2.42 2.36 2.32 2.29 2.30 2.29 2.24 2.16 2.09 2.03 2.02 2.00 1.99

2012 105.01 3.06 2.91 2.72 2.51 2.39 2.34 2.30 2.27 2.27 2.27 2.22 2.14 2.07 2.02 2.00 1.98 1.97

From

To Variable 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1994 73.86

1995 75.40 2.09

1996 76.78 1.96 1.83

1997 78.10 1.88 1.77 1.72

1998 78.94 1.68 1.54 1.40 1.08

1999 80.07 1.63 1.51 1.41 1.25 1.43

2000 81.89 1.73 1.67 1.62 1.59 1.85 2.27

2001 83.77 1.81 1.77 1.76 1.77 2.00 2.28 2.30

2002 85.06 1.78 1.74 1.72 1.72 1.88 2.04 1.92 1.54

2003 86.75 1.80 1.77 1.76 1.77 1.90 2.02 1.94 1.76 1.99

2004 89.13 1.90 1.88 1.88 1.91 2.04 2.17 2.14 2.09 2.36 2.74

2005 91.99 2.02 2.01 2.03 2.07 2.21 2.34 2.35 2.37 2.65 2.98 3.21

2006 94.82 2.10 2.11 2.13 2.18 2.32 2.44 2.47 2.51 2.75 3.01 3.14 3.08

2007 97.34 2.15 2.15 2.18 2.23 2.36 2.47 2.50 2.53 2.73 2.92 2.98 2.87 2.66

2008 99.21 2.13 2.13 2.16 2.20 2.31 2.41 2.43 2.45 2.60 2.72 2.71 2.55 2.29 1.92

2009 100.00 2.04 2.04 2.05 2.08 2.17 2.25 2.24 2.24 2.34 2.40 2.33 2.11 1.79 1.36 0.80

2010 101.22 1.99 1.98 1.99 2.01 2.09 2.15 2.14 2.12 2.20 2.23 2.14 1.93 1.65 1.31 1.01 1.22

2011 103.20 1.99 1.98 1.99 2.01 2.08 2.14 2.12 2.11 2.17 2.19 2.12 1.93 1.71 1.47 1.32 1.59 1.96

2012 105.01 1.97 1.97 1.98 1.99 2.06 2.11 2.09 2.08 2.13 2.15 2.07 1.91 1.72 1.53 1.43 1.64 1.85 1.75
Price Inflation, Page 22

2.6 Appendix

OCACT adjustments to the actual published CPI-W annual growth rates. Between 1978 and 

2012, OCACT set the annual growth rate in the adjusted CPI-W to the growth rate in the actual 

published CPI-W plus an annual growth rate differential, defined as the growth rate in the CPI-U 

“Research Series” (CPI-U-RS) less the growth rate in the actual published CPI-U. BLS 

constructs the CPI-U-RS by recalculating the CPI-U back to 1978 using present methodology 

(see http://stats.bls.gov/cpi/cpiurs.htm). An exception to this specification was made because 

BLS introduced an improvement for “rental equivalence” in 1983 for the CPI-U, but not until 

1985 for the CPI-W. Thus, for 1983 and 1984, the annual percent change in the adjusted CPI-W 

is defined as the percent change in the CPI-U-RS less 0.1 percentage point. This adjustment 

reflects the belief that, had the introductions been simultaneous in 1983, the observed differences 

in growth between the two inflation measures would have been equal to their published 

compound average annual difference (0.1 percentage point) over the post-1985 period.

Between 1967 and 1977, the annual growth rate in the adjusted CPI-W was set to the growth rate 

in the actual published CPI-W less 0.2 percentage point plus an annual growth rate differential, 

defined as the growth rate in the CPI-U-X1 (a BLS “experimental series” that incorporates the 

improvement for rental equivalence into the historical CPI-U) less the growth rate in the actual 

published CPI-U. The 0.2 percentage point adjustment reflects a BLS estimate of the effect of 

introducing an improved geometric weighting formula into the CPI-W beginning in January 

1999. Finally, for 1966 and earlier, the annual growth rate in the adjusted CPI-W was set to the 

growth rate in the actual published CPI-W less the 0.2 percentage point adjustment for the 

improved geometric formula. 

OCACT adjustments to the actual published PGDP and real GDP (and therefore productivity) 

annual growth rates. As mentioned above, starting in January 1999, BLS introduced a new 

geometric weighting formula to the CPI, estimating that it would lower the future annual growth 

rate in the CPI by about 0.2 percentage point. BEA estimates that this change would have had a 

50.0 percent “feed-through” effect on the aggregate annual PGDP growth rate in the past. Thus, 

due to BLS’ introduction of an improved geometric weighting formula to the CPI, BEA lowered 

the annual growth rate in the aggregate PGDP by about 0.1 percentage point (0.2 * 50.0%). And, 

since the BLS improvement to the CPI does not alter the historical path of nominal GDP, BEA 

raised the annual real growth rate in the GDP by about 0.1 percentage point. However, BEA 

made these adjustments only back to 1978. Thus, to improve consistency, OCACT added the 

effect of this BLS improvement to the earlier data. That is, for 1978 and each earlier year, 

OCACT lowered the annual growth rate in the CPI by 0.2 percentage point, lowered the annual 

growth rate in the aggregate PGDP index by 0.1 percentage point, and raised the annual real 

growth rate in GDP, and therefore productivity, by 0.1 percentage point. Furthermore, a change 

in the CPI growth rate affects the PGDP through about 85.0% of the prices used to determine one 

of the components of the PGDP, that is, the GDP deflator for consumption (PGDP_C). Hence, 

the annual growth rate for the PGDP_C in 1978 and earlier was lowered by about 0.17 percent 

(0.2 * 0.85).
Average Real Wage Differential, Page 1

3. AVERAGE REAL WAGE DIFFERENTIAL

THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION

TABLE OF CONTENTS PAGE

3 AVERAGE REAL WAGE DIFFERENTIAL...................................................................................................2

3.1 SUMMARY ......................................................................................................................................................2

3.2 DEFINITION OF AVERAGE REAL WAGE DIFFERENTIAL...................................................................................3

3.3 AVERAGE REAL ECONOMY-WIDE EARNINGS GROWTH .................................................................................3

3.3.1 Productivity............................................................................................................................................5

3.3.2 Other Components: Links between Real Earnings and Productivity.....................................................5

3.3.2.1 Ratio of Compensation to Nominal GDP........................................................................................................... 6

3.3.2.2 Ratio of Earnings to Compensation.................................................................................................................... 7

3.3.2.3 Average Hours Worked...................................................................................................................................... 8

3.3.2.4 Price Differential (Expressed as Ratio of PGDP to CPI-W) .............................................................................. 9

3.3.2.5 Total Links......................................................................................................................................................... 9

3.4 PROJECTIONS FROM OTHER SOURCES.............................................................................................................9

3.5 APPENDIX A .................................................................................................................................................13

3.6 APPENDIX B .................................................................................................................................................16

TABLE OF TABLES PAGE

TABLE 3.1: ASSUMED AVERAGE REAL WAGE DIFFERENTIAL........................................................................................2

TABLE 3.2: AVERAGE ANNUAL REAL PERCENTAGE CHANGE IN AVERAGE EARNINGS: COMPARISON OF THE U.S.

ECONOMY TO OASDI COVERED ............................................................................................................................4

TABLE 3.3: AVERAGE ANNUAL REAL PERCENTAGE CHANGE IN AVERAGE EARNINGS: TOTAL U.S. ECONOMY AND ITS 

COMPONENTS .........................................................................................................................................................6

TABLE 3.4: AVERAGE HOURS WORKED PER WEEK, TOTAL U.S.: COMPOUND ANNUAL RATES OF CHANGE (%).........11
Average Real Wage Differential, Page 2

3 Average Real Wage Differential

3.1 Summary

For the 2014 Trustees Report, over the 65-year period from 2023 to 2088, the Trustees set the 

average annual growth rate in the OASDI covered wage to 5.2 percent, 3.8 percent, and 2.5

percent for alternatives I, II, and III, respectively (Table 3.1). 44,45 Also for the 2014 Trustees 

Report, the Trustees set the assumed ultimate annual rates of increase in the CPI-W to 3.4

percent, 2.7 percent, and 2.0 percent for alternatives I, II, and III, respectively (Table 2.1). Thus, 

for the 2014 Trustees Report, the Trustees set the average real wage differential, over the 65-year 

period from 2023 to 2088, to 1.8 percent (5.2 less 3.4), 1.1 percent (3.8 less 2.7), and 0.5 percent 

(2.5 less 2.0) for alternatives I, II, and III, respectively.46 These average real wage differentials 

for alternatives I, II, and III are approximately equal to those used in the 2013 Trustees Report.47

Table 3.1: Assumed Average Real Wage Differential

Average Annual Percent Change

(2023 to 2088)

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

2013 Trustees Report

I II III I II III I II III

Average Nominal Wage 5.2 3.8 2.5 3.5 3.9 4.3 1.7 -0.1 -1.8

Less: CPI-W 3.4 2.7 2.0 1.8 2.8 3.8 1.6 -0.1 -2.0

Equals: 

Average Real Wage Differential 1.8 1.1 0.5 1.7 1.1 0.5 0.0 0.0 0.0

 

44 The 65-year period begins with the last year of the 10-year (2013 to 2023) “short-range” projection 

period and ends with the last year of the 75-year (2013 to 2088) “long-range” projection period. 

45 For the 2009 Trustees Report, the annual growth rate in the average OASDI covered wage was assumed

to have a constant “ultimate” value over the last 65 years of the projection period. This was due, in part, to the 

assumption that the ratio of wages to compensation would decline at a fixed “ultimate” rate per year (e.g., 0.2 

percent for alternative II) over the period. Starting with the 2010 Trustees Report, the annual growth rate in the 

average OASDI covered wage was assumed to vary over the last 65 years of the projection. This was due to the 

assumption that the ratio of wages to compensation would decline at a varying rate over the period due, in turn, to 

the assumed effect of the 2010 health care legislation on employer contributions to employee group health 

insurance. 

46 The real wage differential is defined as the annual percent change in the average OASDI covered wage 

minus the annual percent change in the CPI.

47 The assumed annual real growth rate in the average wage is unchanged from last year. The real wage 

differential, however, is calculated as the difference of growth rates in the average wage and in the CPI-W, and is 

slightly different as a mathematical consequence of the changes in the assumed growth rates for the CPI-W and 

GDP deflator.
Average Real Wage Differential, Page 3

3.2 Definition of Average Real Wage Differential 

The average OASDI covered wage is defined as the ratio of OASDI covered wages to 

employment. The annual real wage differential is defined as the annual percentage change in the 

average OASDI covered wage minus the annual percentage change in the CPI. The average real 

wage differential over the 65-year period from 2023 to 2088 is the average of annual real wage 

differentials over the period.

Both the income to the Social Security program and the benefits paid are related to total covered 

earnings (i.e., the combination of covered wages and covered net earnings from 

self-employment). For this reason, the growth in average earnings, not average wages, is the 

subject of the balance of this section. 

3.3 Average Real Economy-Wide Earnings Growth 

Average real earnings in the total U.S. economy are defined as the ratio of total nominal earnings 

(wage and salary disbursements and net proprietors’ income) to total adjusted civilian 

employment (see Section 3.5 Appendix A) and U.S. Armed Forces, divided by the adjusted 

CPI-W. BEA estimates historical values for nominal earnings as part of its broader responsibility 

of maintaining the NIPA for the U.S. economy. BLS estimates the CPI-W and the civilian 

employment from its monthly CPS data. Because CPS data for the U.S. represent average 

weekly employment, the growth in average earnings for the total U.S. economy represents the 

growth in average weekly earnings for those employed.

Average real weekly earnings in the total U.S. economy increased at an average annual rate of 

0.78 percent over the last 40 years (1972-2012), 1.26 percent over the last 30 years (1982-2012), 

1.20 percent over the last 20 years (1992-2012), and 0.32 percent over the last 10 years 

(2002-2012). The average real earnings of OASDI covered workers (which differs from average 

real weekly earnings in the total economy partly because of changes in the number and kind of 

workers covered by the OASDI program) increased at an average annual rate of 0.78 percent 

over the last 40 years, 1.04 percent over the last 30 years, 0.94 percent over the last 20 years, and 

0.30 percent over the last 10 years (see Table 3.2 below). Note that these periods do not cover 

complete economic cycles and thus may not be the best indicators of true trend growth rates. 

Federal civilian government employees will become completely covered under OASDI around 

2030 (all employees hired after 1983 are covered). As a result, the composition of OASDI 

covered employment, which has varied since 1940, will stabilize around 2030. This suggests that 

it is reasonable to evaluate the 1.1 percent average real rate of increase for covered earnings for 

alternative II in relation to the historical real growth rate in earnings for all workers in the total 

economy. Therefore, the balance of this section focuses on the past trends for average earnings in 

the U.S. economy.

Considering complete economic cycles, the average annual real growth rate in earnings for all 

workers in the total U.S. economy was 2.08 percent from 1966 to 1973 (7 years), -0.46 percent 

from 1973 to 1979 (6 years), 0.48 percent from 1979 to 1989 (10 years), 2.08 percent from 1989 
Average Real Wage Differential, Page 4

to 2000 (11 years), and 0.55 percent from 2000 to 2007 (7 years).48 The 1.1 percent assumed 

average future annual real growth rate in average economy-wide earnings is about equal to the 

1.05 percent historical average annual real growth rate over the last five complete cycles 

(41-year period from 1966 to 2007).

Table 3.2: Average Annual Real Percentage Change in Average Earnings: Comparison of the U.S. Economy to 

OASDI Covered

The real growth rate in average earnings of all workers in the economy was depressed for the 

1973-1979 and 1979-1989 cycles in a way not expected to be repeated in the future. During this 

period, the baby boom generation reached working age and the proportion of women in the labor 

force increased dramatically. As a result, the economy accommodated an extraordinary number 

 

48 Peaks in economic cycles roughly follow the NBER cycle dating, except for short recoveries such as 

1980-81, which are not counted as separate cycles.

Average Real Ratio of Employed Ratio of Average Real

Earnings for Total Labor Force to Covered Earnings Earnings for

Period U.S. Economy Links Covered Workers to U.S. Earnings OASDI Covered

Historical: (1) (2) (3) (4) (5)

 By Decade:

 1962-1972 2.49 -0.24 -0.58 0.34 2.25

 1972-1982 -0.63 0.61 0.40 0.21 -0.02

 1982-1992 1.37 -0.13 -0.10 -0.03 1.24

 1992-2002 2.09 -0.48 -0.19 -0.29 1.60

 2002-2012 0.32 -0.02 0.04 -0.07 0.30

 1962-2012 1.12 -0.05 -0.09 0.03 1.07

 1972-2012 0.78 -0.01 0.04 -0.04 0.78

 1982-2012 1.26 -0.21 -0.08 -0.13 1.04

 1992-2012 1.20 -0.25 -0.07 -0.18 0.94

 2002-2012 0.32 -0.02 0.04 -0.07 0.30

 By Complete Economic Cycle (Peak-to-Peak):

 Individual Cycle

 1966-1973 2.08 -0.25 -0.35 0.10 1.82

 1973-1979 -0.46 1.01 0.47 0.53 0.54

 1979-1989 0.48 0.21 0.12 0.09 0.69

 1989-2000 2.08 -0.38 -0.21 -0.17 1.69

 2000-2007 0.55 0.03 0.05 -0.02 0.58

 Last Two Cycles

 1989-2007 1.48 -0.22 -0.11 -0.11 1.26

 Last Three Cycles

 1979-2007 1.12 -0.07 -0.03 -0.04 1.05

 Last Four Cycles

 1973-2007 0.84 0.12 0.06 0.06 0.96

 Last Five Cycles

 1966-2007 1.05 0.06 -0.01 0.07 1.11
Average Real Wage Differential, Page 5

of relatively low-paid (inexperienced and young) workers, thus depressing the real growth in the 

overall average earnings. However, the inclusion of baby boomers in the labor force ended in the 

mid-1980s, and the increasing percentage of women under age 60 in the labor force stabilized 

more recently.

The rapid increase in average earnings during the complete economic cycle from 1989 to 2000 

may reflect maturation of the baby boomers and women in the labor force. The large number of 

baby boomers and women in the labor force have been reaching prime working ages and thus 

boosted growth since 1989. This kind of swing in demographic trends is not projected to occur in 

the future, so consideration of the longer period of the last five complete economic cycles seems 

appropriate. This approach allows us to average out the effects of past demographic trends, 

which initially depressed and later boosted average earnings growth. 

Additional circumstances contributing to potential future growth are discussed in the next two 

sections on productivity growth and earnings links to productivity.

3.3.1 Productivity

Total-economy productivity is defined as the ratio of real GDP to total hours worked in the U.S. 

economy. For the 2014 Trustees Report, the Trustees set the assumed ultimate annual rates of 

increase in total-economy productivity to 1.98 percent, 1.68 percent, and 1.38 percent for 

alternatives I, II, and III, respectively. OCACT believes that these ultimate rates of increase for 

total-economy productivity are approximately consistent with ultimate annual rates of increase in 

nonfarm business productivity of 2.42 percent, 2.06 percent, and 1.69 percent for alternatives I, 

II, and III, respectively (see Section 1).

3.3.2 Other Components: Links between Real Earnings and Productivity

Not all of the historical gains in productivity have resulted in proportional increases in average 

real earnings. For example, over the last four economic cycles (1973-2007), average real 

earnings increased at an average annual rate of only 0.84 percent per year, while productivity for 

the total U.S. economy increased at 1.64 percent per year. The approximate difference of -0.79 

percent per year (1.0084 / 1.0164) was due to changes in the links, that is, those factors that 

connect productivity to average real earnings in a multiplicative fashion. Table 3.3 summarizes 

the U.S. experience over the last five decades for each of these factors.49 They include the ratio 

of compensation to nominal GDP, the ratio of earnings to compensation, the ratio of total hours 

worked to total average (weekly) employment, and the ratio of the gross domestic product 

 

49 For consistency, Section 3 calculates values for productivity, hours per week, price differential, and 

average real earnings using adjusted data for the CPI, PGDP, real GDP, and employment (weeks worked). Hence, 

Table 3.3 contains adjusted productivity values which may not equal the unadjusted productivity values on Table 1.4 

in Section 1. Adjustments to the CPI, PGDP and real GDP are described in Section 2.6 Appendix. Adjustments to 

employment are described in Section 3.5 Appendix A. 
Average Real Wage Differential, Page 6

implicit price deflator (PGDP) to the CPI-W. Each is discussed separately below.

3.3.2.1 Ratio of Compensation to Nominal GDP 

The first link is the ratio of total compensation to nominal GDP, or the total compensation ratio 

(CR). Total compensation is the sum of employee compensation and self-employed 

(proprietors’) income to nominal GDP. For the 2014 Trustees Report, the Trustees set the 

assumed ultimate annual rate of change in the CR to 0.0 percent in alternatives I, II, and III. This 

is consistent with the relatively small average annual growth rate of -0.09 percent experienced 

over the last five economic cycles (the 41-year period from 1966 to 2007).

The CR is closely related to the labor’s share of total output. Most economists believe that the 

shares of total output going to the various factors of production will be stable in the long run. 

Therefore, OCACT believes that it is reasonable to assume the CR will be a constant in the 

long-range future.

Total Compensation Earnings to Hours per Price Average

Period Productivity Links to GDP Compensation Week Differential Residual Real Earnings

Historical: (1) (2) (3) (4) (5) (6) (7) (8)

 By Decade:

 1962-1972 2.71 -0.22 0.08 -0.31 -0.40 0.42 0.00 2.49

 1972-1982 1.16 -1.76 -0.45 -0.39 -0.60 -0.32 0.00 -0.63

 1982-1992 1.85 -0.47 0.09 -0.29 0.02 -0.29 0.00 1.37

 1992-2002 1.85 0.23 0.25 0.12 0.22 -0.35 0.00 2.09

 2002-2012 1.72 -1.37 -0.53 -0.10 -0.34 -0.41 0.00 0.32

 1962-2012 1.86 -0.72 -0.11 -0.20 -0.22 -0.19 0.00 1.12

 1972-2012 1.65 -0.85 -0.16 -0.17 -0.18 -0.34 0.00 0.78

 1982-2012 1.81 -0.54 -0.07 -0.09 -0.04 -0.35 0.00 1.26

 1992-2012 1.79 -0.57 -0.14 0.01 -0.06 -0.38 0.00 1.20

 2002-2012 1.72 -1.37 -0.53 -0.10 -0.34 -0.41 0.00 0.32

 By Complete Economic Cycle (Peak-to-Peak):

 Individual Cycle

 1966-1973 2.37 -0.28 0.30 -0.29 -0.72 0.43 0.00 2.08

 1973-1979 1.20 -1.62 -0.48 -0.43 -0.57 -0.16 0.00 -0.46

 1979-1989 1.39 -0.91 -0.24 -0.28 -0.07 -0.32 0.00 0.48

 1989-2000 1.80 0.28 0.39 0.05 0.25 -0.42 0.00 2.08

 2000-2007 2.15 -1.56 -0.67 -0.23 -0.52 -0.14 0.00 0.55

 Last Two Cycles

 1989-2007 1.93 -0.44 -0.02 -0.06 -0.05 -0.31 0.00 1.48

 Last Three Cycles

 1979-2007 1.74 -0.61 -0.10 -0.14 -0.06 -0.31 0.00 1.12

 Last Four Cycles

 1973-2007 1.64 -0.79 -0.17 -0.19 -0.15 -0.29 0.00 0.84

 Last Five Cycles

 1966-2007 1.77 -0.70 -0.09 -0.20 -0.25 -0.17 0.00 1.05

 I 1.98 -0.26 0.00 -0.02 0.05 -0.29 0.00 1.71

 II 1.68 -0.55 0.00 -0.11 -0.05 -0.39 0.00 1.12

 III 1.38 -0.83 0.00 -0.19 -0.15 -0.49 0.00 0.54

Future Average Annual Rates of Increase for the 2014 Trustees Report (2023-2088)

Table 3.3: Average Annual Real Percentage Change in Average Earnings: Total U.S. Economy and Its 

Components
Average Real Wage Differential, Page 7

3.3.2.2 Ratio of Earnings to Compensation 

The second link is the ratio of total worker earnings to compensation. Using NIPA definitions, 

total worker earnings are the sum of total wage and salary disbursements and total proprietors’ 

income. Total compensation is the sum of employee compensation and total proprietors’ income. 

Total employee compensation is the sum of total wage and salary disbursements, employer 

contributions for employee pension and insurance funds, and employer contributions to 

government social insurance. Employer contributions to government social insurance include 

payments for public insurance and publicly mandated insurance such as for unemployment, 

workers’ compensation, Medicare, and Social Security.

The average annual rate of change for the ratio was -0.20 percent from 1966 to 2007, a 41-year 

period that covers the last five peak-to-peak economic cycles. The historical decline in the ratio 

has been due primarily to the relatively faster growth in employer contributions to employee 

pensions and health insurance.

Most employer contributions to pensions are for employees in the private sector and are 

composed of contributions to defined-benefit and defined-contribution plans. Since 2000, 

employer contributions to employee defined-benefit plans have risen sharply due to the decline 

in the stock market and relatively low interest rates. It is plausible to expect these contributions 

to decline in the near future if interest rates and the stock market rebound. OCACT also expects a 

relative increase in employer contributions to employee pension funds due to increased life 

expectancy, and a relative decrease due to a continued shift from defined-benefit to 

defined-contribution plans.

Contributions to employer-sponsored group health insurance (ESI) in the future are expected to 

be significantly affected by the health care legislation enacted in 2010. This expectation led to a 

significant change in the assumed future path of the ratio of earnings to compensation between 

the 2009 and subsequent Trustees Reports.50For the 2014 Trustees Report, the Trustees set a path 

for the annual rates of change in the ratio of WSD to WSS over the last 65 years of the projection 

horizon (2023 to 2088) consistent with the annual rates of change over the same period from the 

2013 Trustees Report. This will result in an average annual rate of growth in the ratio of WSD to 

WSS of about -0.13 percent for alternative II over the last 65 years of the 75-year projection 

period.

Hence, for the 2014 Trustees Report, the Trustees set the average annual rate of change in the 

ratio of wages to employee compensation over the last 65 years of the projection horizon (2023

to 2088) to -0.03, -0.13, and -0.23 percentage point for alternatives I, II, and III, respectively. 

Consistent with this, the Trustees set the average annual rate of change in the ratio of earnings to 

total compensation over the last 65 years of the projection horizon (2023 to 2088) to -0.02, -0.11, 

and -0.19 percentage point for alternatives I, II, and III, respectively.

 

50 For details, see Section 3.6 Appendix B.
Average Real Wage Differential, Page 8

3.3.2.3 Average Hours Worked

The third link is average hours worked per week (AHW), defined as the ratio of total hours 

worked to total employment in the U.S. economy. Its compounded annual rate of change is 

shown in Table 3.4. Total hours worked in the U.S. economy is an unpublished series provided 

by BLS, based mostly on the CES. Total employment, computed on an average weekly basis, is 

the sum of civilian employment and the U.S. Armed Forces. BLS publishes total civilian 

employment from the CPS. The Census Bureau provides estimates for the U.S. Armed Forces.

For the 2014 Trustees Report, the Trustees set the assumed ultimate annual rate of change in 

average hours worked to +0.05 percent, -0.05 percent and -0.15 percent in alternatives I, II, and 

III, respectively. These rates of increase are the same as those used in the 2013 Trustees Report.

The average annual rate of change in AHW was -0.25 percent over the last five economic cycles, 

a 41-year period from 1966 to 2007. Looking at individual cycles, the average annual rate of 

change in AHW was -0.72 percent, -0.57 percent, -0.07 percent, 0.25 percent, and -0.52 percent, 

over the 1966-1973, 1973-1979, 1979-1989, 1989-2000, and 2000-2007 periods, respectively. To 

reflect, in part, the shift from negative to positive rates of change over the 1966 to 2000 period, 

the Trustees raised the assumed ultimate intermediate case annual rate of change in AHW 

from -0.2 percent for the 1996 Trustees Report to -0.1 percent for the 1997 through 2002 

Reports, and to 0.0 percent for the 2003 through 2011 Reports.

At least some of the reversal in the historical decline in AHW between 1982 and 1999 is due to 

changes in the education and age-sex distributions of the workforce. Workers with higher 

education tend to work more hours than their less-educated counterparts, males tend to work 

more hours than females, and prime-age workers more than the very young and the very old. In 

analyses for the 2001 Trustees Reports (see memorandum dated October 6, 2000 on AHW for 

more details), OCACT estimated that, due to changes in the education and age-sex distributions 

of the workforce alone, the average annual rate of change in AHW increased by about 0.18 

percent per year over the 1979-1989 period, and by 0.06 percent over the 1989-1998 period. 

Thus, as a rough approximation, the underlying “trend” rate of change in the AHW was 

estimated to be about -0.25 percent (-0.07 − 0.18) over the 1979-1989 economic cycle, and about 

0.19 percent (0.25 − 0.06) over the 1989-2000 economic cycle.

Other data from the CPS also suggested that the trend movement in the average annual rate of 

change in AHW was close to 0.0 percent over the 1989 to 2000 period. BLS publishes a 

CPS-based measure of average hours worked per week for the total labor force (AHW_CPS). 

The average annual rate of change in the AHW_CPS was about 0.02 percent over the 1989 to 

2000 period. If the effect of changes in the education and age-sex distributions of the workforce 

is removed from this measure, the residual average annual rate of change in the AHW_CPS 

would have been about -0.04 percent (0.02 − 0.06) over the period.

The average annual rate of change in AHW was -0.52 percent over the last economic cycle, a 

7-year period from 2000 to 2007, suggesting a return to the steep declines over the period from 

1966 to 1979. However, the magnitude of this drop should be viewed with some uncertainty 

because the average annual rate of change in AHW_CPS suggests a much more moderate decline 
Average Real Wage Differential, Page 9

of about 0.22 percent over the period. Regardless, the return to declines in the rate of change in 

AHW since 2000 was substantial. Accordingly, the Trustees lowered the assumed ultimate 

annual rate of change in AHW to -0.05 percent starting with the 2012 Report, or approximately 

equal to the average annual rate of change of -0.06 percent over the last three economic cycles, a 

28-year period from 1979 to 2007.

OCACT believes that there are factors that may affect the future AHW in offsetting ways. On 

one hand, the assumed steady increases in productivity will allow workers to gradually increase 

leisure time while still maintaining increases in weekly and annual earnings. On the other hand, 

OCACT also believes that the assumed future increases in life expectancy will raise labor force 

participation rates for older workers and may also raise AHW, holding other factors constant.

The average projected changes in the education and age-sex distributions of the workforce are 

not expected to significantly affect the average annual rate of change in the AHW in the future. 

3.3.2.4 Price Differential (Expressed as Ratio of PGDP to CPI-W)

The final link is the ratio of the PGDP to the CPI-W. Including this ratio is necessary because 

nominal earnings depend on nominal GDP (i.e., the product of real GDP and the PGDP), but are 

converted to real earnings using the CPI-W. For the 2014 Trustees Report, the Trustees set the 

assumed ultimate price differential (expressed as the PGDP less CPI-W average annual rates of 

increase) to -0.3, -0.4, and -0.5 percentage point for alternative I, II, and III, respectively. For 

alternative II, the 0.4 percentage point price differential is the sum of a 0.3 percentage point 

computational difference and a 0.1 percentage point coverage difference (see Section 2.3). These 

values are unchanged from the ones assumed in the 2013 Trustees Report.

3.3.2.5 Total Links

The average annual change in the total links was -0.61 percent over the last three economic 

cycles and -0.79 percent over the last four cycles. For the 2014 Trustees Report, the Trustees set

the assumed average annual changes in the total links to approximately -0.26 percentage 

point, -0.55 percentage point, and -0.83 percentage point for alternatives I, II, and III, 

respectively.

3.4 Projections from Other Sources

Global Insight, Inc. includes projections through 2043 in its latest long-run trend forecast (see

September 2013 30-year US Macro Baseline Forecast). Global Insight, Inc. projects that the 

average annual real growth rate for average U.S. earnings will slow from about 1.8 percent over 

the 10-year period from 2023 to 2033 to about 1.4 percent over the 5-year period from 2038 to 

2043. Macroeconomic Advisers publishes its latest long-run projections (Long-Term Economic 

Outlook, Third Quarter, 2013) through 2022. For 2021 and 2022, it projects an average annual 

real growth rate for average U.S. earnings of about 1.5 percent. Moody’s Analytics’ September

2013 forecast extends to 2043. Over the 20-year period from 2023 to 2043, Moody’s Analytics 

projects that the annual real growth rate for average U.S. earnings will average 1.3 percent.
Average Real Wage Differential, Page 10

The Office of Management and Budget (OMB) Mid-Session Review of the Fiscal Year 2014

Budget includes projections through 2091. OMB projects that the annual growth real rate for 

average U.S. earnings will average about 1.3 percent for the 65-year period from 2026 to 2091. 

The Congressional Budget Office (CBO) September 2013 report, The 2013 Long-Term Budget 

Outlook, includes projections through 2088. CBO projects that the annual real growth rate for 

average U.S. wages will average about 1.4 percent from 2023 to 2088. The Social Security 

Advisory Board’s 2011 Technical Panel on Assumptions and Methods recommended assuming 

an ultimate (i.e., long-range average) annual real rate of increase in the average wage of 1.5 

percent for alternative II.
Differential, Page 

Average Real Wage 

11

Table 3.4: Average Hours Worked per Week, Total U.S.: Compound Annual Rates of change (%)

From

To Variable 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 197

1961 37.47

1962 37.74 0.73

1963 37.52 0.07 -0.59

1964 37.67 0.18 -0.09 0.40

1965 37.93 0.30 0.16 0.54 0.68

1966 38.11 0.34 0.24 0.52 0.58 0.48

1967 37.63 0.07 -0.06 0.07 -0.04 -0.40 -1.27

1968 37.52 0.02 -0.10 0.00 -0.10 -0.36 -0.78 -0.28

1969 37.52 0.01 -0.09 0.00 -0.08 -0.27 -0.52 -0.15 -0.01

1970 36.64 -0.25 -0.37 -0.34 -0.46 -0.69 -0.98 -0.88 -1.18 -2.33

1971 36.34 -0.31 -0.42 -0.40 -0.51 -0.71 -0.95 -0.87 -1.06 -1.58 -0.82

1972 36.27 -0.30 -0.40 -0.38 -0.47 -0.64 -0.82 -0.73 -0.84 -1.12 -0.50 -0.18

1973 36.23 -0.28 -0.37 -0.35 -0.43 -0.57 -0.72 -0.63 -0.70 -0.87 -0.37 -0.15 -0.11

1974 35.69 -0.37 -0.47 -0.45 -0.54 -0.67 -0.82 -0.75 -0.83 -0.99 -0.66 -0.60 -0.81 -1.51

1975 35.06 -0.47 -0.57 -0.56 -0.65 -0.78 -0.92 -0.88 -0.96 -1.12 -0.88 -0.89 -1.13 -1.63 -1.75

1976 34.93 -0.47 -0.55 -0.55 -0.63 -0.75 -0.87 -0.82 -0.89 -1.02 -0.79 -0.79 -0.94 -1.22 -1.07 -0.38

1977 34.91 -0.44 -0.52 -0.52 -0.59 -0.69 -0.80 -0.75 -0.80 -0.90 -0.69 -0.67 -0.77 -0.93 -0.74 -0.22 -0.07

1978 35.05 -0.39 -0.46 -0.45 -0.51 -0.61 -0.70 -0.64 -0.68 -0.75 -0.55 -0.51 -0.57 -0.66 -0.45 -0.01 0.17 0.4

1979 35.01 -0.38 -0.44 -0.43 -0.49 -0.57 -0.65 -0.60 -0.63 -0.69 -0.50 -0.46 -0.50 -0.57 -0.38 -0.04 0.08 0.1

1980 34.74 -0.40 -0.46 -0.45 -0.51 -0.58 -0.66 -0.61 -0.64 -0.70 -0.53 -0.50 -0.54 -0.60 -0.45 -0.18 -0.13 -0.1

1981 34.41 -0.43 -0.49 -0.48 -0.53 -0.61 -0.68 -0.64 -0.66 -0.72 -0.57 -0.54 -0.59 -0.64 -0.52 -0.31 -0.30 -0.3

1982 34.14 -0.44 -0.50 -0.50 -0.55 -0.62 -0.69 -0.65 -0.67 -0.72 -0.59 -0.57 -0.60 -0.66 -0.55 -0.38 -0.38 -0.4

1983 34.28 -0.40 -0.46 -0.45 -0.50 -0.56 -0.62 -0.58 -0.60 -0.64 -0.51 -0.49 -0.51 -0.55 -0.45 -0.28 -0.27 -0.3

1984 34.57 -0.35 -0.40 -0.39 -0.43 -0.49 -0.54 -0.50 -0.51 -0.54 -0.41 -0.38 -0.40 -0.43 -0.32 -0.16 -0.13 -0.1

1985 34.64 -0.33 -0.37 -0.36 -0.40 -0.45 -0.50 -0.46 -0.47 -0.50 -0.37 -0.34 -0.35 -0.37 -0.27 -0.12 -0.09 -0.1

1986 34.25 -0.36 -0.40 -0.40 -0.43 -0.49 -0.53 -0.49 -0.51 -0.54 -0.42 -0.39 -0.41 -0.43 -0.34 -0.21 -0.20 -0.2

1987 34.27 -0.34 -0.39 -0.38 -0.41 -0.46 -0.50 -0.47 -0.48 -0.50 -0.39 -0.37 -0.38 -0.40 -0.31 -0.19 -0.17 -0.1

1988 34.52 -0.30 -0.34 -0.33 -0.36 -0.41 -0.45 -0.41 -0.42 -0.44 -0.33 -0.30 -0.31 -0.32 -0.24 -0.12 -0.10 -0.1

1989 34.76 -0.27 -0.30 -0.29 -0.32 -0.36 -0.40 -0.36 -0.36 -0.38 -0.28 -0.25 -0.25 -0.26 -0.18 -0.06 -0.04 -0.0

1990 34.63 -0.27 -0.31 -0.30 -0.32 -0.36 -0.40 -0.36 -0.36 -0.38 -0.28 -0.25 -0.26 -0.27 -0.19 -0.08 -0.06 -0.0

1991 34.42 -0.28 -0.32 -0.31 -0.33 -0.37 -0.41 -0.37 -0.37 -0.39 -0.30 -0.27 -0.28 -0.29 -0.21 -0.12 -0.10 -0.1

1992 34.22 -0.29 -0.33 -0.32 -0.34 -0.38 -0.41 -0.38 -0.38 -0.40 -0.31 -0.29 -0.29 -0.30 -0.23 -0.14 -0.13 -0.1

1993 34.52 -0.26 -0.29 -0.28 -0.30 -0.34 -0.37 -0.33 -0.33 -0.35 -0.26 -0.23 -0.24 -0.24 -0.17 -0.09 -0.07 -0.0

1994 34.96 -0.21 -0.24 -0.23 -0.25 -0.28 -0.31 -0.27 -0.27 -0.28 -0.20 -0.17 -0.17 -0.17 -0.10 -0.01 0.01 0.0

1995 35.29 -0.18 -0.20 -0.19 -0.21 -0.24 -0.27 -0.23 -0.23 -0.24 -0.15 -0.12 -0.12 -0.12 -0.05 0.03 0.05 0.0

1996 35.20 -0.18 -0.21 -0.19 -0.21 -0.24 -0.26 -0.23 -0.23 -0.24 -0.15 -0.13 -0.13 -0.13 -0.06 0.02 0.04 0.0

1997 35.41 -0.16 -0.18 -0.17 -0.19 -0.21 -0.24 -0.20 -0.20 -0.21 -0.13 -0.10 -0.10 -0.10 -0.03 0.05 0.07 0.0

1998 35.63 -0.14 -0.16 -0.15 -0.16 -0.19 -0.21 -0.18 -0.17 -0.18 -0.10 -0.07 -0.07 -0.07 -0.01 0.07 0.09 0.1

1999 35.75 -0.12 -0.15 -0.13 -0.15 -0.17 -0.19 -0.16 -0.16 -0.16 -0.08 -0.06 -0.05 -0.05 0.01 0.08 0.10 0.1

2000 35.75 -0.12 -0.14 -0.13 -0.15 -0.17 -0.19 -0.16 -0.15 -0.16 -0.08 -0.06 -0.05 -0.05 0.01 0.08 0.10 0.1

2001 35.30 -0.15 -0.17 -0.16 -0.18 -0.20 -0.22 -0.19 -0.18 -0.19 -0.12 -0.10 -0.09 -0.09 -0.04 0.03 0.04 0.0

2002 34.96 -0.17 -0.19 -0.18 -0.20 -0.22 -0.24 -0.21 -0.21 -0.21 -0.15 -0.12 -0.12 -0.12 -0.07 -0.01 0.00 0.0

2003 34.63 -0.19 -0.21 -0.20 -0.22 -0.24 -0.26 -0.23 -0.23 -0.23 -0.17 -0.15 -0.15 -0.15 -0.10 -0.04 -0.03 -0.0

2004 34.59 -0.19 -0.21 -0.20 -0.21 -0.24 -0.25 -0.23 -0.23 -0.23 -0.17 -0.15 -0.15 -0.15 -0.10 -0.05 -0.03 -0.0

2005 34.53 -0.19 -0.21 -0.20 -0.21 -0.23 -0.25 -0.23 -0.22 -0.23 -0.17 -0.15 -0.15 -0.15 -0.11 -0.05 -0.04 -0.0

2006 34.52 -0.18 -0.20 -0.19 -0.21 -0.23 -0.25 -0.22 -0.22 -0.22 -0.17 -0.15 -0.15 -0.15 -0.10 -0.05 -0.04 -0.0

2007 34.46 -0.18 -0.20 -0.19 -0.21 -0.23 -0.25 -0.22 -0.22 -0.22 -0.17 -0.15 -0.15 -0.15 -0.11 -0.05 -0.04 -0.0

2008 34.13 -0.20 -0.22 -0.21 -0.22 -0.24 -0.26 -0.24 -0.24 -0.24 -0.19 -0.17 -0.17 -0.17 -0.13 -0.08 -0.07 -0.0

2009 33.41 -0.24 -0.26 -0.25 -0.27 -0.29 -0.31 -0.28 -0.28 -0.29 -0.24 -0.22 -0.22 -0.22 -0.19 -0.14 -0.13 -0.1

2010 33.55 -0.23 -0.25 -0.24 -0.25 -0.27 -0.29 -0.27 -0.27 -0.27 -0.22 -0.20 -0.21 -0.21 -0.17 -0.13 -0.12 -0.1

2011 33.77 -0.21 -0.23 -0.22 -0.23 -0.25 -0.27 -0.25 -0.24 -0.25 -0.20 -0.18 -0.18 -0.19 -0.15 -0.10 -0.10 -0.1

2012 33.78 -0.20 -0.22 -0.21 -0.23 -0.25 -0.26 -0.24 -0.24 -0.24 -0.19 -0.18 -0.18 -0.18 -0.14 -0.10 -0.09 -0.0
Differential, Page 

Average Real Wage 

12

Table 3.4 (continued). Average Hours Worked per Week, Total U.S.: Compound Annual Rates of change (%)

From

To Variable 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

1978 35.05

1979 35.01 -0.10

1980 34.74 -0.44 -0.78

1981 34.41 -0.62 -0.87 -0.96

1982 34.14 -0.66 -0.84 -0.87 -0.78

1983 34.28 -0.44 -0.53 -0.45 -0.19 0.41

1984 34.57 -0.23 -0.25 -0.12 0.16 0.63 0.86

1985 34.64 -0.17 -0.18 -0.06 0.17 0.48 0.52 0.19

1986 34.25 -0.29 -0.32 -0.24 -0.09 0.08 -0.03 -0.47 -1.13

1987 34.27 -0.25 -0.27 -0.19 -0.06 0.08 0.00 -0.29 -0.53 0.08

1988 34.52 -0.15 -0.16 -0.08 0.05 0.19 0.14 -0.04 -0.11 0.40 0.72

1989 34.76 -0.08 -0.07 0.01 0.13 0.26 0.23 0.11 0.09 0.50 0.71 0.69

1990 34.63 -0.10 -0.10 -0.03 0.07 0.18 0.15 0.03 0.00 0.28 0.35 0.16 -0.38

1991 34.42 -0.14 -0.14 -0.09 0.00 0.09 0.05 -0.07 -0.11 0.10 0.10 -0.10 -0.50 -0.62

1992 34.22 -0.17 -0.18 -0.13 -0.05 0.02 -0.02 -0.13 -0.17 -0.01 -0.03 -0.22 -0.52 -0.60 -0.57

1993 34.52 -0.10 -0.10 -0.05 0.03 0.10 0.07 -0.02 -0.04 0.11 0.12 0.00 -0.17 -0.11 0.15 0.88

1994 34.96 -0.02 -0.01 0.05 0.12 0.20 0.18 0.11 0.10 0.26 0.28 0.21 0.12 0.24 0.53 1.08 1.29

1995 35.29 0.04 0.05 0.10 0.18 0.25 0.24 0.19 0.19 0.33 0.36 0.31 0.25 0.38 0.63 1.03 1.10 0.92

1996 35.20 0.02 0.03 0.08 0.15 0.22 0.20 0.15 0.15 0.27 0.30 0.24 0.18 0.27 0.45 0.71 0.65 0.33

1997 35.41 0.05 0.06 0.11 0.18 0.24 0.23 0.18 0.18 0.31 0.33 0.28 0.23 0.32 0.48 0.69 0.64 0.43

1998 35.63 0.08 0.09 0.14 0.21 0.27 0.26 0.21 0.22 0.33 0.35 0.32 0.27 0.36 0.50 0.67 0.63 0.47

1999 35.75 0.09 0.10 0.15 0.21 0.27 0.26 0.22 0.23 0.33 0.35 0.32 0.28 0.35 0.48 0.63 0.59 0.45

2000 35.75 0.09 0.10 0.14 0.20 0.26 0.25 0.21 0.21 0.31 0.32 0.29 0.25 0.32 0.42 0.55 0.50 0.37

2001 35.30 0.03 0.04 0.08 0.13 0.18 0.16 0.12 0.12 0.20 0.21 0.17 0.13 0.17 0.25 0.35 0.28 0.14

2002 34.96 -0.01 -0.01 0.03 0.08 0.12 0.10 0.06 0.06 0.13 0.13 0.09 0.05 0.08 0.14 0.22 0.14 0.00

2003 34.63 -0.05 -0.05 -0.01 0.03 0.07 0.05 0.01 0.00 0.07 0.07 0.02 -0.03 0.00 0.05 0.11 0.03 -0.11

2004 34.59 -0.05 -0.05 -0.02 0.02 0.06 0.04 0.00 -0.01 0.06 0.05 0.01 -0.03 -0.01 0.04 0.09 0.02 -0.11

2005 34.53 -0.06 -0.05 -0.02 0.01 0.05 0.03 -0.01 -0.02 0.04 0.04 0.00 -0.04 -0.02 0.02 0.07 0.00 -0.11

2006 34.52 -0.05 -0.05 -0.02 0.01 0.05 0.03 -0.01 -0.02 0.04 0.04 0.00 -0.04 -0.02 0.02 0.06 0.00 -0.11

2007 34.46 -0.06 -0.06 -0.03 0.01 0.04 0.02 -0.01 -0.02 0.03 0.03 -0.01 -0.05 -0.03 0.01 0.05 -0.01 -0.11

2008 34.13 -0.09 -0.09 -0.06 -0.03 0.00 -0.02 -0.05 -0.06 -0.01 -0.02 -0.06 -0.10 -0.08 -0.05 -0.02 -0.07 -0.17

2009 33.41 -0.15 -0.16 -0.13 -0.10 -0.08 -0.10 -0.14 -0.15 -0.11 -0.12 -0.16 -0.20 -0.19 -0.16 -0.14 -0.20 -0.30

2010 33.55 -0.14 -0.14 -0.12 -0.09 -0.06 -0.08 -0.12 -0.13 -0.09 -0.09 -0.13 -0.17 -0.16 -0.13 -0.11 -0.17 -0.26

2011 33.77 -0.11 -0.11 -0.09 -0.06 -0.04 -0.05 -0.09 -0.10 -0.06 -0.06 -0.10 -0.13 -0.12 -0.09 -0.07 -0.12 -0.20

2012 33.78 -0.11 -0.11 -0.09 -0.06 -0.04 -0.05 -0.08 -0.09 -0.05 -0.06 -0.09 -0.12 -0.11 -0.09 -0.06 -0.11 -0.19

From

To Variable 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1994 34.96

1995 35.29 0.92

1996 35.20 0.33 -0.25

1997 35.41 0.43 0.18 0.61

1998 35.63 0.47 0.32 0.61 0.61

1999 35.75 0.45 0.33 0.52 0.47 0.34

2000 35.75 0.37 0.26 0.39 0.31 0.16 -0.01

2001 35.30 0.14 0.01 0.06 -0.08 -0.31 -0.63 -1.24

2002 34.96 0.00 -0.13 -0.11 -0.25 -0.47 -0.74 -1.10 -0.95

2003 34.63 -0.11 -0.23 -0.23 -0.37 -0.57 -0.79 -1.05 -0.95 -0.95

2004 34.59 -0.11 -0.22 -0.22 -0.34 -0.49 -0.66 -0.82 -0.68 -0.54 -0.13

2005 34.53 -0.11 -0.22 -0.21 -0.31 -0.45 -0.58 -0.69 -0.55 -0.42 -0.15 -0.17

2006 34.52 -0.11 -0.20 -0.19 -0.28 -0.39 -0.50 -0.58 -0.45 -0.32 -0.11 -0.10 -0.03

2007 34.46 -0.11 -0.20 -0.19 -0.27 -0.37 -0.46 -0.52 -0.40 -0.29 -0.13 -0.13 -0.11 -0.19

2008 34.13 -0.17 -0.25 -0.25 -0.33 -0.43 -0.51 -0.57 -0.48 -0.40 -0.29 -0.33 -0.38 -0.56 -0.93

2009 33.41 -0.30 -0.39 -0.40 -0.48 -0.58 -0.67 -0.75 -0.68 -0.65 -0.60 -0.69 -0.82 -1.08 -1.53 -2.12

2010 33.55 -0.26 -0.34 -0.34 -0.41 -0.50 -0.58 -0.63 -0.56 -0.52 -0.45 -0.51 -0.58 -0.71 -0.89 -0.86 0.41

2011 33.77 -0.20 -0.27 -0.28 -0.34 -0.41 -0.47 -0.52 -0.44 -0.39 -0.32 -0.34 -0.37 -0.44 -0.50 -0.36 0.53 0.65

2012 33.78 -0.19 -0.26 -0.26 -0.31 -0.38 -0.44 -0.47 -0.40 -0.34 -0.28 -0.30 -0.31 -0.36 -0.40 -0.26 0.37 0.34 0.03
Average Real Wage Differential, Page 13

3.5 Appendix A

BLS has introduced numerous changes to the Current Population Survey (CPS) concepts over 

the historical period, such that values for employment are not historically comparable over the 

period (for more detail on noncomparability of CPS concepts, see 

http://www.bls.gov/cps/eetech_methods.pdf). To make the total employment series more 

comparable, OCACT adjusted the published values for the following: 

1990 Census − 1990 Census-based population controls were introduced in January 1994 by BLS, 

increasing employment levels for 1990 from the originally-published estimates by about 880,000 

(0.7%). BLS later revised the 1990 to 1993 estimates, but not those for earlier years. 

Consequently, OCACT adjusted the CPS data for 1981 to 1989 using a linear interpolation of the 

0.7% increase.

2000 Census − Population controls based on Census 2000 results were introduced by BLS in 

January 2003. The revised employment series for 2000 was 1.27% (or 1.724 million persons) 

higher than the previously published series. BLS revised the CPS data only back to January 

2000. OCACT adjusted the CPS data back to 1991 by linearly interpolating the 1.27% 

adjustment.

1994 CPS Methodology Change − In 1994, BLS introduced methodology changes and a 

complete redesign of its CPS. Because the survey redesign and methodology changes raised the 

aggregate employment for 1994, the series was not comparable with earlier years. Thus, OCACT 

applied a multiplicative-adjustment factor estimated by Polivka and Miller (1995)51 to the series 

for years prior to 1994. The aggregate employment series was adjusted for 1993 and earlier years 

by a factor of 1.0053.

Population Controls since the 2000 Census − Beginning in January 2003, the U.S. Census 

Bureau reflected its updated population controls in the CPS estimates. The difference between 

the updated and originally published employment values for December 2002 is an increase of 

576,000 persons. Data from December 2002 and earlier are not updated by BLS. OCACT 

adjusted the employment series back to 2000. 

In January 2004, the U.S. Census Bureau reflected revised net international migration estimates 

in its updated population controls. The difference between the updated and originally published 

employment values for December 2003 is a decrease of 409,000 persons. Data from December 

2003 and earlier are not updated by BLS. OCACT adjusted the employment series back to 2000. 

 

51 Anne E. Polivka and Stephen M. Miller, "The CPS after the Redesign: Refocusing the Economic Lens,” 

Labor Statistics Measurement Issues; Studies in Income and Wealth Volume 60, Edited by John Haltiwanger, 

Marilyn E. Manser and Robert Topel, National Bureau of Economic Research, 1998, Table 6. Also available at

http://www.bls.gov/ore/pdf/ec950090.pdf . Polivka and Miller’s adjustment factors are for employment-population 

ratios, not employment levels. Because the CPS methodology change affected the employment levels, but not the 

civilian noninstitutional population, we can use their multiplicative employment-population ratio factors to adjust 

the employment levels.
Average Real Wage Differential, Page 14

Beginning in January 2005, the U.S. Census Bureau began using its updated population controls, 

which reflected updated vital statistics information, as well as revised estimates of net 

international migration. The difference between the updated and originally published 

employment values for December 2004 is a decrease of 45,000 persons. Data from December 

2004 and earlier are not updated by BLS. OCACT adjusted the employment series back to 2000. 

In January 2006, the U.S. Census Bureau introduced updated population controls, which 

reflected updated vital statistics information, as well as revised estimates of net international 

migration. The difference between the updated and originally published employment values for 

December 2005 is a decrease of 123,000 persons. Data from December 2005 and earlier are not 

updated by BLS. OCACT adjusted the employment series back to 2000.

In January 2007, the U.S. Census Bureau introduced updated population controls, which 

reflected revised estimates of net international migration and updated vital statistics information. 

The difference between the updated and originally published employment values for December 

2006 is an increase of 153,000 persons. Data from December 2006 and earlier are not updated by 

BLS. OCACT adjusted the employment series back to 2000.

Beginning in January 2008, the U.S. Census Bureau began using its updated population controls, 

which reflected updated vital statistics information, as well as revised estimates of net 

international migration and the institutional population. The difference between the updated and 

originally published employment values for December 2007 is a decrease of 598,000 persons. 

Data from December 2007 and earlier are not updated by BLS. OCACT adjusted the 

employment series back to 2000.

In January 2009, the U.S. Census Bureau introduced updated population controls, reflecting 

revised net international migration and vital statistics information. The difference between the 

updated and originally published employment values for December 2008 is a decrease of 

483,000 persons. Data from December 2008 and earlier are not updated by BLS. OCACT 

adjusted the employment series back to 2000.

Beginning in January 2010, the U.S. Census Bureau began using its updated population controls, 

reflecting updated vital statistics information, revised estimates of net international migration, as 

well as methodological changes in the population estimation process. The difference between the

updated and originally published employment values for December 2009 is a decrease of 

243,000 persons. BLS does not update data from December 2009 and earlier. OCACT adjusted 

the employment series back to 2000.

In January 2011, the U.S. Census Bureau introduced updated population controls, reflecting 

revised net international migration, vital statistics information, and some methodological changes 

in the population estimation process. The difference between the updated and originally 

published employment values for December 2010 is a decrease of 472,000 persons. BLS does 

not update data from December 2010 and earlier. OCACT adjusted the employment series back 

to 2000.
Average Real Wage Differential, Page 15

Beginning in January 2012, the U.S. Census Bureau incorporated the Census 2010 population 

base, as well as adjustments for net international migration, updated vital statistics information, 

and methodological changes in the population estimation process. The difference between the 

updated and originally published employment values for December 2011 is an increase of 

216,000 persons. BLS does not update data from December 2011 and earlier. OCACT adjusted 

the employment series back to 2000.

In January 2013, the U.S. Census Bureau introduced updated population controls, reflecting net 

international migration adjustments, updated vital statistics information, and some 

methodological changes in the population estimation process. The difference between the 

updated and originally published employment values for December 2012 is an increase of 

138,000 persons. BLS does not update data from December 2012 and earlier. OCACT adjusted 

the employment series back to 2000. 
Average Real Wage Differential, Page 16

3.6 Appendix B

For the 2009 Trustees Report, the ratio of wages and salaries disbursements (WSD) to employee 

compensation (WSS) was assumed to decline at a fixed “ultimate” annual rate in each of the last 

65 years of the 75-year projection horizon. The assumed ultimate annual rate of change in the 

ratio of WSD to WSS was set to -0.1, -0.2, and -0.3 percentage point for alternative I, II, and III, 

respectively. The assumed average annual rate of change of -0.20 percent for alternative II was 

roughly consistent with the historical record over the last 50 years and the assumed average 

annual rate of increase in the ratio of ESI to WSS over the next 75 years. In turn, the assumed 

average annual rate of increase in the ratio of ESI to WSS was mostly based on the Centers for 

Medicare and Medicaid Services’ (CMS) assumption that the average annual growth rate in 

national health care expenditures will be about 1.0 percentage point higher than the average 

annual growth rate in GDP (and in WSS).

For the 2010 Trustees Report, CMS projected components of national health care expenditures, 

including ESI, under pre-new-law assumptions and new-law assumptions (i.e., before and after 

the new health care reform legislation enacted in 2010). The more detailed CMS data enabled 

projection of annual rates of change for the ratio of WSD to WSS. 

For alternative II pre-new-law assumptions, the projected annual rate of change in the ratio of 

WSD to WSS averaged:

• -0.01 percentage point over the first 10 years (i.e., from 2009 to 2019), 

• -0.27 percentage point over the next 30 years (from 2019 to 2049), 

• -0.20 percentage point over the last 35 years (from 2049 to 2084), and 

• -0.20 percentage point over the total 75-year projection horizon (from 2009 to 

2084).

Although the projected 75-year average rate of change in the ratio of WSD to WSS was 

approximately 0.20 percent per year for alternative II in both the 2009 Trustees Report and in the

2010 Trustees Report pre-new-law assumptions, the annual rates of change for each year were 

different. For alternative II, the projected average annual rate of change in the ratio for the 2010 

Trustees Report pre-new-law assumptions, compared to that for the 2009 Trustees Report, was: 

• Higher by 0.19 percentage point (-0.01 less -0.20) over the first 10 years of the 

75-year projection horizon, 

• Lower by 0.07 percentage point (-0.27 less -0.20) over the next 30 years, and 

• About equal at -0.20 percentage point over the last 35 years.

For the alternative II new-law assumptions, CMS incorporated the effects of the new health care 

legislation and updated its projection of ESI, which gave a corresponding change in projected 

annual rates of change for the ratio of WSD to WSS. For the alternative II new-law assumptions, 

the projected annual rate of change in the ratio of WSD to WSS averaged:

• +0.02 percentage point over the first 10 years (i.e., from 2009 to 2019), 
Average Real Wage Differential, Page 17

• -0.11 percentage point over the next 30 years (from 2019 to 2049), 

• -0.15 percentage point over the last 35 years (from 2049 to 2084), and 

• -0.13 percentage point over the total 75-year projection horizon (from 2009 to 

2084).

The projected average annual rate of change in the ratio of WSD to WSS was higher than in the 

pre-new-law assumptions by:

• 0.03 percentage point (+0.02 less -0.01) over the first 10 years of the 75-year 

projection horizon, 

• 0.16 percentage point (-0.11 less -0.27) over the next 30 years, 

• 0.05 percentage point (-0.15 less -0.20) over the last 35 years, and 

• 0.07 percentage point (-0.13 less -0.20) over the total 75-year projection horizon.
Unemployment Rate, Page 1

4. UNEMPLOYMENT

THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION

TABLE OF CONTENTS PAGE

4 UNEMPLOYMENT RATE................................................................................................................................2

4.1 SUMMARY ......................................................................................................................................................2

4.2 PAST EXPERIENCE ..........................................................................................................................................2

4.3 FUTURE EXPECTATIONS .................................................................................................................................3

4.4 PROJECTIONS FROM OTHER SOURCES.............................................................................................................4

TABLE OF TABLES PAGE

TABLE 4.1: ASSUMED ULTIMATE TOTAL CIVILIAN UNEMPLOYMENT RATE...........ERROR! BOOKMARK NOT DEFINED.

TABLE 4.2: CIVILIAN UNEMPLOYMENT RATES OVER COMPLETE ECONOMIC CYCLES (PEAK-TO-PEAK)............ ERROR!

BOOKMARK NOT DEFINED.

TABLE 4.3: TOTAL AND AGE-SEX ADJUSTED CIVILIAN UNEMPLOYMENT RATES OVER SELECTED INTERVALS (%)

.......................................................................................................................ERROR! BOOKMARK NOT DEFINED.
Unemployment Rate, Page 2

4 Unemployment Rate

4.1 Summary

For the 2014 Trustees Report, the Trustees assume ultimate total civilian unemployment rates 

(adjusted by the age and sex distribution of the 2011 civilian labor force) of 4.5 percent, 5.5 

percent, and 6.5 percent for alternatives I, II, and III, respectively (Table 4.1). These assumptions 

are the same as those used for the 2013 Trustees Report.

Table 4.1: Assumed Ultimate Total Civilian Unemployment Rate

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

2013 Trustees Report

I II III I II III I II III

Civilian Unemployment Rate 4.5 5.5 6.5 4.5 5.5 6.5 0.0 0.0 0.0

4.2 Past Experience

BLS publishes civilian unemployment rates, defined as the proportion of unemployed persons in 

the civilian labor force, by sex and age group as part of its Current Population Survey. The 

Trustees’ ultimate civilian unemployment rate assumptions are based on analysis of historical 

experience and expected future conditions and trends. Because the aggregate unemployment rate 

is sensitive to changes in the age-sex composition of the civilian labor force, OCACT 

constructed an age-sex-adjusted unemployment rate by weighting the unadjusted age-sex 

unemployment rates by the age-sex distribution of the 2011 civilian labor force. Since the 

civilian unemployment rate varies significantly over an economic cycle, it is useful to look at 

averages over complete economic cycles or long periods (decades). Table 4.2 shows average 

civilian unemployment rates over complete (peak-to-peak) economic cycles. Over the last two 

(1989-2007), three (1979-2007), four (1973-2007), and five (1966-2007) complete economic 

cycles, the age-sex adjusted unemployment rate averaged 5.1, 5.5, 5.5, and 5.2 percent, 

respectively.52 Table 4.3 shows annual values for both the adjusted and unadjusted civilian rates. 

Over the 10-year, 20-year, 30-year, and 40-year periods ending in 2012, the age-sex adjusted 

total unemployment rates averaged 6.7, 5.8, 5.9, and 5.8 percent, respectively. Average rates 

over economic cycles and long periods suggest an ultimate age-sex adjusted unemployment rate 

in the 5.1 to 5.9 percent range. 

 

52 Peaks in economic cycles roughly follow the NBER cycle dating, except for short recoveries such as 

1980-81, which are not counted as separate cycles.
Unemployment Rate, Page 3

Table 4.2: Civilian Unemployment Rates over Complete Economic Cycles (Peak to Peak)

Total Rate Age-Sex Adjusted Rate

Individual Cycle:

1966-1972 4.5 3.8

1973-1978 6.6 5.5

1979-1988 7.3 6.3

1989-2000 5.6 5.1

2001-2007 5.2 5.0

Last Two Cycles

1989-2007 5.4 5.1

Last Three Cycles

1979-2007 6.1 5.5

Last Four Cycles

1973-2007 6.2 5.5

Last Five Cycles

1966-2007 5.9 5.2

It is also useful to look at unemployment rates over specific periods. Beginning around 1975, and 

lasting through about 1994, the U.S. experienced generally high unemployment rates. There are 

several possible explanations for why these higher levels of unemployment occurred during this 

period. Firstly, due to rapid changes in technology and increased global competition, job 

searches and retraining may have become more frequent and lasted for longer periods. Secondly, 

the huge influx of women and baby boomers into the labor market may have increased the 

quantity of labor supplied beyond the quantity demanded in the 1970s and 1980s. Between 1997 

and 2000, rapid economic expansion reduced unemployment rates to unusually low levels. A 

mild recession raised rates above the ultimate assumed level in 2002 and 2003. In addition, the 

most recent recession has resulted in rates above the ultimate assumed level.

4.3 Future Expectations

It is not clear how the aging baby boomers will affect the unemployment rate into the future. As 

these workers age, the working-age population is expected to grow more slowly, particularly in 

relation to the size of the total population. This demographic shift can be expected to increase the 

demand for older workers. Meanwhile, the supply of potential older workers is expected to 

increase, as a significant portion of the baby boomers is expected to remain in the labor force, in 

many cases, out of necessity (as their life expectancies increase). Even with increases in labor 

supply from older workers, it seems likely the increasing age-dependency ratio will exert 

downward pressure on the age-sex-adjusted unemployment rate.

OCACT expects slower rates of increase in female labor force participation, as their rates of 

labor force participation stabilize closer to, but generally below, those of their male counterparts. 

The expected slower growth in the labor supply in the future relative to the total population is 

expected to produce an age-sex adjusted unemployment rate below the 5.8 percent experienced 

over the last 40 years (1972-2012). OCACT believes it is more reasonable to expect that the 
Unemployment Rate, Page 4

ultimate future age-sex-adjusted unemployment rate will be between 5.5 and 5.8 percent, the 

levels experienced over the last 50 years (1962-2012) and 40 years (1972-2012). Therefore, the 

Trustees set the assumed ultimate average unemployment rate to 5.5 percent (age-sex adjusted to 

the 2011 labor force) for alternative II.

4.4 Projections from Other Sources

The most recent Global Insight, Inc. 30-year trend projections (September 2013 30-Year US 

Macro Baseline Forecast) assume that the civilian unemployment rate will be 5.2 percent in 2023 

and 5.1 percent in 2043. Macroeconomic Advisers’ ten-year forecast (Long-Term Economic 

Outlook, Third Quarter 2013) has a civilian unemployment rate of 5.5 percent in 2022. The 

Moody’s Analytics September 2013 forecast shows a civilian unemployment rate of 5.4 percent 

in 2023 and 5.3 percent in 2043.

The OMB Mid-Session Review of the 2014 Fiscal Year Budget includes long-range projections 

through 2091. OMB projects an aggregate civilian unemployment rate of 5.4 percent for 2018 

and later. The Congressional Budget Office (CBO) report, The 2013 Long-Term Outlook

(published September 2013), includes projections through 2088. CBO projects an aggregate 

civilian unemployment rate of 5.3 percent for 2023 and 2088. The Social Security Advisory 

Board’s 2011 Technical Panel on Assumptions and Methods recommended assuming an ultimate 

(i.e., long-range average) aggregate civilian unemployment rate of 5.5 percent for alternative II.
Unemployment Rate, 

Page 5

Table 4.3: Total and Age Sex Adjusted Civilian Unemployment Rates over Selected Intervals (%)

Year 1 5 10 15 20 25 30 35 40 45 50 1 5 10 15 20 25 30 35 40 45 50

1961 6.7 6.3

1962 5.5 5.2

1963 5.6 5.2

1964 5.2 4.7

1965 4.5 5.5 4.0 5.1

1966 3.8 4.9 3.3 4.5

1967 3.8 4.6 3.3 4.1

1968 3.5 4.2 3.0 3.6

1969 3.5 3.8 2.9 3.3

1970 5.0 3.9 4.7 4.2 3.3 4.2

1971 6.0 4.4 4.6 5.1 3.7 4.1

1972 5.6 4.7 4.7 4.7 4.0 4.0

1973 4.9 5.0 4.6 3.9 4.2 3.9

1974 5.6 5.4 4.6 4.5 4.5 3.9

1975 8.5 6.1 5.0 5.2 7.2 5.1 4.2 4.5

1976 7.7 6.5 5.4 5.2 6.4 5.3 4.5 4.5

1977 7.0 6.7 5.7 5.3 5.8 5.6 4.8 4.5

1978 6.1 7.0 6.0 5.4 4.9 5.8 5.0 4.5

1979 5.8 7.0 6.2 5.4 4.7 5.8 5.1 4.5

1980 7.2 6.8 6.4 5.6 5.6 5.9 5.6 5.3 4.7 4.8

1981 7.6 6.7 6.6 5.9 5.6 6.3 5.5 5.4 4.9 4.8

1982 9.7 7.3 7.0 6.2 5.8 8.3 6.0 5.8 5.2 4.9

1983 9.6 8.0 7.5 6.6 6.0 8.3 6.7 6.2 5.5 5.1

1984 7.5 8.3 7.7 6.9 6.1 6.5 7.1 6.4 5.8 5.2

1985 7.2 8.3 7.5 7.1 6.3 6.1 6.3 7.1 6.3 5.9 5.3 5.2

1986 7.0 8.2 7.5 7.1 6.4 6.1 6.1 7.1 6.3 6.0 5.4 5.2

1987 6.2 7.5 7.4 7.2 6.6 6.2 5.4 6.5 6.3 6.0 5.5 5.2

1988 5.5 6.7 7.3 7.2 6.7 6.2 4.9 5.9 6.3 6.1 5.6 5.2

1989 5.3 6.2 7.3 7.2 6.7 6.2 4.7 5.5 6.3 6.1 5.7 5.2

1990 5.6 5.9 7.1 7.0 6.8 6.2 6.1 5.0 5.2 6.2 6.0 5.7 5.3 5.2

1991 6.8 5.9 7.0 6.9 6.8 6.3 6.1 6.2 5.2 6.2 6.0 5.8 5.4 5.2

1992 7.5 6.1 6.8 7.0 6.9 6.5 6.2 6.9 5.6 6.0 6.0 5.9 5.5 5.3

1993 6.9 6.4 6.6 7.0 7.0 6.6 6.2 6.4 5.9 5.9 6.1 6.0 5.7 5.3

1994 6.1 6.6 6.4 7.0 7.0 6.7 6.2 5.7 6.1 5.8 6.2 6.1 5.8 5.4

1995 5.6 6.6 6.3 6.9 6.9 6.7 6.3 6.2 5.2 6.1 5.7 6.2 6.0 5.8 5.4 5.4

1996 5.4 6.3 6.1 6.8 6.8 6.7 6.3 6.1 5.0 5.8 5.5 6.1 5.9 5.8 5.5 5.3

1997 4.9 5.8 6.0 6.5 6.7 6.7 6.4 6.1 4.6 5.4 5.5 5.8 5.9 5.8 5.5 5.3

1998 4.5 5.3 5.9 6.1 6.6 6.7 6.4 6.1 4.2 4.9 5.4 5.5 5.8 5.8 5.5 5.3

1999 4.2 4.9 5.8 5.9 6.5 6.6 6.4 6.0 3.9 4.6 5.3 5.4 5.8 5.8 5.6 5.3

2000 4.0 4.6 5.6 5.7 6.4 6.4 6.4 6.0 6.0 3.7 4.3 5.2 5.2 5.7 5.7 5.6 5.2 5.2

2001 4.8 4.5 5.4 5.6 6.2 6.3 6.3 6.1 5.9 4.5 4.2 5.0 5.1 5.6 5.6 5.5 5.3 5.2

2002 5.8 4.6 5.2 5.5 6.0 6.3 6.3 6.1 5.9 5.5 4.4 4.9 5.1 5.5 5.6 5.6 5.3 5.2

2003 6.0 4.9 5.1 5.6 5.8 6.3 6.4 6.2 5.9 5.8 4.7 4.8 5.2 5.3 5.6 5.6 5.4 5.2

2004 5.5 5.2 5.1 5.6 5.7 6.3 6.4 6.2 5.9 5.3 5.0 4.8 5.2 5.3 5.6 5.7 5.5 5.2

2005 5.1 5.4 5.0 5.5 5.6 6.2 6.3 6.2 6.0 5.9 4.9 5.2 4.8 5.2 5.2 5.6 5.6 5.5 5.2 5.2

2006 4.6 5.4 4.9 5.4 5.5 6.1 6.2 6.2 6.0 5.9 4.5 5.2 4.7 5.1 5.1 5.5 5.5 5.5 5.3 5.2

2007 4.6 5.2 4.9 5.2 5.4 5.8 6.1 6.2 6.0 5.8 4.5 5.0 4.7 4.9 5.1 5.4 5.5 5.5 5.3 5.2

2008 5.8 5.1 5.0 5.1 5.5 5.7 6.1 6.2 6.1 5.8 5.7 5.0 4.8 4.9 5.1 5.3 5.5 5.5 5.4 5.2

2009 9.3 5.9 5.5 5.3 5.7 5.8 6.2 6.3 6.2 5.9 9.2 5.8 5.4 5.1 5.3 5.4 5.7 5.7 5.5 5.3

2010 9.6 6.8 6.1 5.6 5.9 5.9 6.3 6.3 6.3 6.0 6.0 9.6 6.7 6.0 5.4 5.6 5.5 5.8 5.7 5.7 5.4 5.4

2011 8.9 7.7 6.5 5.8 6.0 5.9 6.3 6.4 6.4 6.2 6.0 8.9 7.6 6.4 5.7 5.7 5.6 5.9 5.8 5.8 5.5 5.4

2012 8.1 8.3 6.8 6.1 6.0 6.0 6.3 6.4 6.5 6.3 6.1 8.1 8.3 6.7 5.9 5.8 5.7 5.9 5.9 5.8 5.6 5.5

Total Rate Age-Sex Adjusted Rate

Annual Average over the Following Number of Years Annual Average over the Following Number of Years
Annual Trust Fund Real Interest Rate, Page 1

5. ANNUAL TRUST FUND REAL INTEREST RATE

THE 2014 TRUSTEES REPORT

OFFICE OF THE CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION

TABLE OF CONTENTS PAGE

5 ANNUAL TRUST FUND REAL INTEREST RATE.......................................................................................2

5.1 SUMMARY ......................................................................................................................................................2

5.2 PAST EXPERIENCE ..........................................................................................................................................2

5.3 FUTURE EXPECTATIONS .................................................................................................................................4

5.4 PROJECTIONS FROM OTHER SOURCES.............................................................................................................5

TABLE OF TABLES PAGE

TABLE 5.1: ASSUMED ULTIMATE REAL INTEREST RATES ......................................ERROR! BOOKMARK NOT DEFINED.

TABLE 5.2: AVERAGE ANNUAL REAL INTEREST RATE...........................................ERROR! BOOKMARK NOT DEFINED.

TABLE 5.3: REAL INTEREST RATES FOR OASDI TRUST FUND NEW ISSUES AND THE COMPOUND AVERAGE REAL 

YIELD OVER SELECTED INTERVALS................................................................ERROR! BOOKMARK NOT DEFINED.
Annual Trust Fund Real Interest Rate, Page 2

5 Annual Trust Fund Real Interest Rate

5.1 Summary

For the 2014 Trustees Report, the Trustees assume ultimate real interest rates (effective annual 

real yields on special public debt obligations issuable to the trust funds by the U.S. Treasury) of 

3.4 percent, 2.9 percent, and 2.4 percent for alternatives I, II, and III, respectively (Table 5.1). 

These assumptions are identical to the rates used for the 2013 Trustees Report.

Table 5.1: Assumed Ultimate Real Interest Rates

2014 Trustees Report 

Alternative

2013 Trustees Report 

Alternative

2014 Trustees Report Less 

Actual 2013 Trustees Report

I II III I II III I II III

Real Interest Rate 3.4 2.9 2.4 3.4 2.9 2.4 0.0 0.0 0.0

Since October 1960, interest rates on special public debt obligations issuable to the trust funds 

each month have been set equal to the average market yield on all marketable fixed-rate Federal 

obligations that are not callable and do not mature within the next 4 years. As such, the rate on 

new issues to the trust funds represents a fair market return for longer-term, highly liquid,

default-risk-free obligations. The real interest rate (real effective annual yield) on these 

obligations can be computed either as an expected yield (i.e., nominal effective annual yield less 

expected future inflation rate) or as the actual realized yield over some period after issue (i.e., 

nominal effective annual yield less the actual increase in price levels after issue). For the purpose 

of this analysis, actual realized yields over the year after issue will be examined for obligations 

issuable each year. Real interest rates over periods of two or more years are computed as the 

average annual yield of an investment at the beginning of the period that is reinvested annually at 

the new issue rate.

5.2 Past Experience

Tables 5.2 and 5.3 show the average annual real interest rates over various decades and 

economic cycles, using an adjusted CPI-W that reflects BLS improvements to the Index.53 (See 

Section 2.6 Appendix.) 

The average annual real interest rate on trust fund assets over the past 40 years was 3.06 percent 

(computed as the average annual return, as of 2012, for investments in 1972 which were 

reinvested annually at the new issue rates for years 1972 through 2011). Annual real interest 

 

53 Peaks in economic cycles roughly follow the NBER cycle dating, except for short recoveries such as 

1980-81, which are not counted as separate cycles.
Annual Trust Fund Real Interest Rate, Page 3

rates for individual years within this period varied substantially from this average of 3.06 

percent. Even the average rates of 0.66, 6.27, 4.10, and 1.33 percent for the 10-year periods 

ending with 1982, 1992, 2002, and 2012, respectively, varied substantially from one another. 

The large differences among these periods suggest substantially different conditions across these 

decades.

Table 5.2: Average Annual Real Interest Rate

Period

Average Annual Real Interest Rate 

(percent)

Historical:

 By Decade

 1972-1982 0.66

 1982-1992 6.27

 1992-2002 4.10

 2002-2012 1.33

 1972-2012 3.06

 1982-2012 3.88

 1992-2012 2.70

 By Complete Economic Cycle (Peak-to-Peak)

 Individual Cycle

 1966-1973 1.84

 1973-1979 -0.13

 1979-1989 5.54

 1989-2000 4.38

 2000-2007 2.19

 Last Two Cycles

 1989-2007 3.52

 Last Three Cycles

 1979-2007 4.24

 Last Four Cycles

 1973-2007 3.45

 Last Five Cycles

 1966-2007 3.17

Alternative

Ultimate Assumptions I II III

2013 Trustees Report (Actual) 3.4 2.9 2.4

2014 Trustees Report (Assumed) 3.4 2.9 2.4

 
Annual Trust Fund Real Interest Rate, Page 4

After experiencing negative real yields in the investments in U.S. Treasury securities from 1974 

through 1980, caused largely by higher-than-expected price inflation, investors demanded higher 

interest rates to protect their investments. Sustained high real interest rates in the years after 1981 

have resulted from the following factors: constrained money supply growth, increased borrowing 

by businesses, reduced savings rates in the U.S. economy, deregulation of banks and other 

financial institutions, and lower than expected inflation in the beginning of that period.

As the rate of inflation declined from the highs of the early 1980s and remained under control, 

the real interest rate slowly followed suit, declining to 2.39 percent in 2000. In October 2001, the 

federal government, in response to its favorable budget situation, suspended the sale of 30-year 

Treasury securities (leaving the 10-year notes as the longest duration being issued). Since then, 

the budget has fallen back into deficit and, beginning in February 2006, the Treasury 

re-introduced regular semi-annual auctions of the 30-year nominal Treasury bond. Neither the 

budget deficits nor the federal funds rate hikes by the Federal Reserve between 2004 and 2006 

have resulted in a spike in real interest rates, due in part to foreigners’ increased willingness to 

accumulate Treasury securities. Instead, the real interest rate continued to trend downwards, 

reaching a low of 0.60 percent in 2008. After rebounding to 4.40 percent in 2009, the real 

interest rate fell to -0.75 percent in 2011, before rising to 0.32 percent in 2012. These swings 

partly reflect volatile energy prices.

5.3 Future Expectations

Over the near term, yields on Treasury securities can be expected to rise moderately as long as 

the economy and labor market continue to improve. The Federal Reserve, which has been 

purchasing $45 billion of agency mortgage-backed securities and $40 billion of longer-term 

Treasury securities per month, recently decided to refrain from slowing the rate of asset 

purchases until it sees further evidence of a durable economic recovery. The decision to delay 

tapering asset purchases was largely due to concerns that the recent tightening financial 

conditions, if sustained, could pose new downside risks to the economy and labor market. By 

maintaining its existing policy of asset purchases, the Federal Reserve hopes to continue to exert 

downward pressure on longer-term interest rates, thus supporting the mortgage market and 

promoting a sustained economic recovery. 

The realized average real interest rate over the post-1987 period is a useful indicator of the likely 

future rate. During this period, monetary policy was stable with few periods of inflation surprises 

that distort real realized rates. The CPI growth rate averaged 2.7 percent and the real interest rate 

averaged 3.1 percent. However, one of the fairly consistent conditions that prevailed in this 

period is that the federal government ran large budget deficits much of the time. These deficits 

put upward pressure on real interest rates during the period from the late 1980s to the early 

1990s. Although the federal debt is expected to continue to grow over the short-range period, it is 

reasonable to believe that the Federal government would have to restore fiscal sustainability over 

the remainder of the long-range period. Thus, OCACT feels that an ultimate interest rate of 2.9 

percent for the intermediate (alternative II) assumption is appropriate. However, if the 

government debt grows to a level higher than what investors are willing to absorb, then a higher 

real interest rate assumption would be reasonable.
Annual Trust Fund Real Interest Rate, Page 5

5.4 Projections from Other Sources

Global Insight, Inc. includes projections through 2043 in its latest long-run trend forecast (see

September 2013 30-year US Macro Baseline Forecast). They project real yields on 10-year U.S. 

Treasury notes to rise to 2.7 percent for 2023 before declining to an ultimate rate of 2.3 percent 

for 2041 and thereafter. Moody’s Analytics’ September 2013 forecast projects real yields on 

10-year U.S. Treasury notes to rise from 0.3 percent in 2013 to an ultimate rate in the 2.7 to 2.8 

percent range for 2023 and thereafter (through 2043). Macroeconomic Advisers produces 

forecasts to 2022 only. In its third quarter 2013 Long-Term Economic Outlook publication, 

Macroeconomic Advisers projects real yields on 10-year U.S. Treasury notes to be 2.7 percent 

for 2020 through 2022. 

The Office of Management and Budget (OMB) Mid-Session Review of the Fiscal Year 2014 

Budget projects the real yield on the trust funds’ special-issue securities to reach 2.8 percent by 

2023 and remain at that level for the remainder of the long-range projection period (through 

2091). The Congressional Budget Office (CBO) The 2013 Long-Term Outlook (published 

September 2013) includes projections through 2088. CBO projects real yields on 10-year 

Treasury notes of 3.0 percent in 2029 and later. The Social Security Advisory Board’s 2011 

Technical Panel on Assumptions and Methods recommended lowering the alternative II real 

interest rate assumption to 2.7 percent. The prior technical panel, which met in 2007, 

recommended lowering the alternative II real interest rate assumption to 2.6 percent.
Annual Trust Fund Real Interest Rate, Page 6

Table 5.3: Real Interest Rates for OASDI Trust Fund New Issues and the Compound Average Real Yield over 

Selected Intervals
Annual Trust Fund Real Interest Rate, Page 7

To RYINDEX 1 5 10 15 20 25 30 35 40 45 50

1961 23.19

1962 23.90 3.03

1963 24.55 2.74

1964 25.24 2.81

1965 25.93 2.73

1966 26.34 1.56 2.57

1967 26.88 2.08 2.38

1968 27.29 1.49 2.13

1969 27.63 1.27 1.83

1970 28.19 2.00 1.68

1971 29.08 3.18 2.00 2.29

1972 29.91 2.85 2.16 2.27

1973 29.92 0.04 1.86 2.00

1974 29.07 -2.84 1.02 1.42

1975 29.00 -0.25 0.57 1.12

1976 29.56 1.92 0.32 1.16 1.63

1977 29.88 1.08 -0.02 1.06 1.50

1978 30.04 0.54 0.08 0.97 1.35

1979 29.68 -1.18 0.42 0.72 1.09

1980 29.23 -1.52 0.16 0.36 0.80

1981 29.72 1.69 0.11 0.22 0.81 1.25

1982 31.94 7.45 1.34 0.66 1.15 1.46

1983 34.70 8.66 2.93 1.49 1.62 1.75

1984 37.15 7.06 4.59 2.48 1.99 1.95

1985 40.54 9.12 6.76 3.41 2.45 2.26

1986 44.35 9.39 8.33 4.14 2.85 2.64 2.63

1987 46.42 4.67 7.76 4.50 2.97 2.77 2.69

1988 48.68 4.87 7.00 4.95 3.30 2.94 2.78

1989 50.89 4.54 6.49 5.54 3.80 3.10 2.84

1990 52.85 3.86 5.45 6.10 4.08 3.19 2.89

1991 55.57 5.15 4.62 6.46 4.30 3.29 3.03 2.96

1992 58.66 5.55 4.79 6.27 4.60 3.42 3.17 3.04

1993 61.47 4.80 4.78 5.88 4.89 3.67 3.30 3.11

1994 63.95 4.04 4.68 5.58 5.25 4.02 3.41 3.15

1995 66.89 4.60 4.83 5.14 5.67 4.27 3.52 3.21

1996 69.77 4.30 4.66 4.64 5.85 4.39 3.56 3.30 3.20

1997 72.89 4.47 4.44 4.62 5.66 4.56 3.63 3.38 3.24

1998 76.88 5.47 4.57 4.68 5.45 4.81 3.85 3.51 3.31

1999 79.61 3.56 4.48 4.58 5.21 5.06 4.11 3.59 3.34

2000 81.51 2.39 4.03 4.43 4.77 5.26 4.22 3.60 3.33

2001 84.41 3.56 3.88 4.27 4.38 5.36 4.29 3.62 3.38 3.28

2002 87.64 3.83 3.75 4.10 4.33 5.18 4.40 3.65 3.43 3.30

2003 90.00 2.69 3.20 3.89 4.18 4.88 4.49 3.74 3.47 3.30

2004 91.28 1.42 2.77 3.62 3.97 4.60 4.60 3.89 3.47 3.27

2005 92.01 0.80 2.45 3.24 3.77 4.18 4.69 3.92 3.44 3.22

2006 93.01 1.08 1.96 2.92 3.49 3.77 4.67 3.90 3.38 3.20 3.13

2007 94.83 1.96 1.59 2.67 3.25 3.64 4.45 3.93 3.35 3.20 3.11

2008 95.40 0.60 1.17 2.18 2.97 3.42 4.13 3.93 3.37 3.18 3.06

2009 99.59 4.40 1.76 2.26 3.00 3.41 4.02 4.12 3.58 3.26 3.10

2010 100.43 0.84 1.77 2.11 2.75 3.26 3.70 4.20 3.61 3.23 3.05

2011 99.68 -0.75 1.40 1.68 2.41 2.96 3.29 4.12 3.53 3.13 3.00 2.96

2012 100.00 0.32 1.07 1.33 2.13 2.70 3.12 3.88 3.51 3.06 2.96 2.90

Average Annual Percentage Change over the Following Number of Years:

Note: The index for each year is the accumulated value in that year of an investment made in the prior year in the 

amount of the prior year's index, with interest paid at the average rate for special public debt obligations issuable 

to the OASI and DI Trust Funds during the prior year.