The Evolving Structure of the American Economy and the Employment Challenge

This paper examines the evolving structure of the American economy, specifically the trends in employment, value added, and value added per employee from 1990 to 2008. Employing historical time series data from the Bureau of Labor Statistics and the Bureau of Economic Analysis, US industries are separated into internationally tradable and nontradable components, allowing for employment and value added trends at both the industry and the aggregate level to be examined. Value added grew across the economy, but almost all of the incremental employment increase of 27.3 million jobs was on the nontradable side, where government and health care are the largest employers and provided the largest increments (an additional 10.4 million jobs) over the past two decades. There are obvious questions about whether those trends can continue; without fast job creation in the nontradable sector during this period, the United States would already have faced a major employment challenge. The nontradable sector also experienced much slower growth in value added per employee; because value added per employee is highly correlated with income, it goes a long way to explain the stagnation of wages across large segments of the workforce. The evolution of the US economy supports the notion of there being a long-term structural challenge with respect to the quantity and quality of employment opportunities in the United States.