##erve. gov / newsevents / speech / powell20160628a. htm. the worldwide nature of the slowdown is documented in organisation for economic co - operation and development ( 2016 ), “ new oecd indicators trace productivity growth slowdown pre - and post - crisis, ” webpage, oecd, http : / / www. oecd. org / economy / newoecdindicatorstraceproductivitygrowthslowdownpre - andpost - crisis. htm. for a discussion of the effects of dynamism on productivity, see lucia foster, john haltiwanger, and c. j. krizan ( 2001 ), “ aggregate productivity growth : lessons from microeconomic evidence, ” in charles r. hulten, edwin r. dean, and michael j. harper, eds., new developments in productivity analysis ( chicago : university of chicago press ). on the pessimistic end of the spectrum are analysts such as robert j. gordon ( 2016 ), the rise and fall of american growth : the u. s. standard of living since the civil war ( princeton, n. j. : princeton university press ). among the optimists are erik brynjolfsson and andrew mcafee ( 2014 ), the second machine age : work, progress, and prosperity in a time of brilliant technologies ( new york : w. w. norton & company ). - 7policy is a factor in holding down longer - term yields. but longer - term rates have been declining for more than 30 years, for several reasons. much of the decline is due to significantly lower long - term expectations of inflation, as well as reduced term premiums, likely reflecting both lower inflation risk and the fact that, with anchored inflation expectations, nominal bonds have become an attractive hedge against market risk. regulatory changes have raised demand for safe assets. lower potential growth implies lower returns and therefore lower rates. changes in savings and investment demand owing to demographics and other factors have put downward pressure on yields as well. as a result, the real federal funds rate that is neither contractionary nor expansionary when the economy is operating near its potential - - the so - called neutral real rate or r * - - has declined significantly. we cannot directly observe the neutral rate but can only infer it from the evolution of the economy - - it “ is seen by its works. ” 10 the neutral rate changes

##ing inflation expectations. many indicators show that we have also made significant progress toward maximum employment. since 2010, payroll employment has increased by almost 16 million jobs, and the unemployment rate has fallen from 10 percent to 4. 8 percent - - in line with most estimates of the longer - run normal level ( or natural rate ) of unemployment and with the median estimate by fomc participants in the december 2016 summary of economic projections ( sep ). accordingly, the red line in the figure indicates that the unemployment rate gap has essentially been closed. 2 a variety of other measures also suggest that we are close to maximum employment. surveys of household sentiment about the availability of jobs and of business sentiment regarding the difficulty of filling jobs have now reached levels seen in prior periods of full employment. moreover, although the pace of wage increases is slower than during pre - crisis periods of full employment, wages have been increasing faster than both output per hour ( productivity ) and inflation, and labor ’ s share of income has begun to move up after a long decline. all in all, we appear to be close to our employment objective, and are nearing our inflation objective. while the pace of progress has at times been frustratingly slow, this outcome is a better one than that achieved by most other advanced economies. even so, it is worth remembering that the current and future states of the economy are always figure 1 reports the unemployment rate gap using the congressional budget office ( cbo ) estimates because they extend further back in time than projections from the sep. the cbo ’ s estimate of the natural rate for 2017 is 4. 7 percent. - 3uncertain, and today is no exception. our discussions of the economy may sometimes ring in the ears of the public with more certainty than is appropriate. take the concept of “ maximum employment, ” which requires an estimate of both the natural rate of unemployment for those who are in the labor force and the sustainable level of labor force participation. 3 the natural rate of unemployment is not directly observed, and the record suggests that it could be materially lower or higher than current estimates. 4 there is also uncertainty about the underlying trend level of labor force participation. participation has been declining since about 2000 because of the aging of our population and other secular trends, and analysts generally agree that participation will continue to decline over time for these reasons ( figure 2 ). a canonical paper by a group of fed economists estimates a trend rate of decline of about 0. 3 percentage point per year. 5