The level of GDP per working age adult varies across these countries. The somewhat puzzling lack of convergence remains. Note everyone’s ratio of working age to total population peaked in 2010 and is headed downward. Japan just leads the trend, having peaked in 1990. The “right” number depends on what question you want to ask, what version of “how well is an economy doing?” If you want to know how many aircraft carriers a country can build, or if the government can repay its debts, you want GDP. If you want to measure labor productivity, the fundamental efficiency of its businesses, you want GDP per hour. If you want to measure overall average standard of living, GDP per person is a good beginning. GDP per working-age person is a measure of productivity that includes all the impediments from high taxes to regulations that discourage people working. It leaves out fertility, a country’s crucial ability to produce workers to pay for everyone else. That is an important issue, but it is at least a very long run issue, and not one on which we have well understood policies.
- Date Posted:
- January 31, 2024
A striking aspect of Figure 1 is a large disincentive for substantially increasing earnings. For example, consider a parent currently working 20 hours per week for $20 per hour (within a few dollars of the minimum wage in an increasing number of areas). Her annual earnings would total $20,000. By moving into full-time work at the same $20 hourly wage, her earnings would rise to $40,000. Under the proposed law, her total income would rise by only $3,400 as a result of earning $20,000 more, an effective tax rate of 83 percent. Under existing law, her total income would rise by $6,200, for an effective tax rate of 69%. A 14pp increase in the effective tax on moving from part-time to full-time work for some parents could ultimately stunt upward mobility. The effective tax on increasing earnings could even exceed 100% for other earnings changes, or when accounting for other means-tested benefits such as housing assistance.