It is difficult for the common good to prevail against
the intense concentration of those who have a special interest.
the intense concentration of those who have a special interest.
— Jimmy Carter
Healthcare, housing and education—while increasing in cost, but declining in value—have a stranglehold on the US economy that will eventually plunge most Americans into near-poverty, says a recent report from Gallup.
Ironically, white Americans are sicker than they were 40 years ago; live in older, smaller homes farther from their workplaces; and don't know what the Constitution is, or that the earth orbits the sun.
High healthcare costs are not only hammering businesses' profit margins, but dampening entrepreneurship and full-time hiring. And in industries where hiring is brisk, employers can't find Americans who are well enough, or smart enough, to perform the new jobs. Employers are forced to favor foreign-educated workers.
Other things are amiss in this land, too, according to the report.
What's behind our downward spiral? Special interest groups, Gallup says.
- In healthcare, paperwork, "defensive" medicine, and doctors' excessive salaries are driving up healthcare costs. Patients spend more for less, as a result. Trade groups like the American Medical Association and the American College of Physicians are to blame.
- In housing, zoning is distorting housing markets. Localities in demand allow only a fraction of their land to be used for high-density housing, which drives builders to start single-family homes in faraway places, at a pace that lags demand. The resulting undersupply drives up prices. Groups like neighborhood associations and The Sierra Club are to blame.
- In education, runaway administrator costs and unaccountable teachers are making education unaffordable and ineffective. From pre-school to grad school, the system rewards foolish initiatives. Unions like the National Education Association and the American Federation of Teachers are to blame.
re far less likely to be self-employed
<1 p="">than general practitioners, especially in the states with the most restrictions
on their practice. Nurse practitioners living in highly regulated states work
fewer hours, and insurance claims charge higher rates with no benefits in
health outcomes.117 The physicians who run the clinics can charge insurance
organizations the same or only a slightly reduced fee if a patient sees a nurse
practitioner while paying the nurse practitioner half as much, allowing the
physician to keep the rest as profit or salary.
These regulations on nurses may explain why physician and specialist
salaries are much higher in the United States than in other countries in
absolute terms and relative to GDP, while American nurses are paid essentially
the same salaries relative to GDP as they are in other countries.118
SHARE OF U.S. NURSE PRACTITIONERS IN LABOR FORCE
BY TYPE OF STATE REGULATION
% SHARE OF U.S. NURSE PRACTITIONERS IN LABOR FORCE
0
10
30
40
50
Full practice Reduced practice Restricted practice
22
20
Source: IPUMS-USA 2011-2013 American Community Survey and American Association
of Nurse Practitioners
37
41
Source: Analysis of IPUMS-CPS
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A similar dynamic is at play in the relationship between dental hygienists
and dentists. Only a tiny fraction of dental hygienists in the United States live
in states that allow them to practice independently of dentists, yet when most
people visit the dentist’s office for a routine visit, they are essentially spending
all of their time with the hygienist.119 Like nurse practitioners, hygienists earn
a small fraction of a dentist’s salary ($73,000, on average, compared with
$172,000).120 Dentists’ offices bring in $109 billion in annual revenue, so
shifting pay to hygienists could save tens of billions of dollars.
State laws protect hospital monopolies, driving up costs.
In the early 1970s, the federal government paid hospitals and medical
providers based on the services provided and their fixed costs, including the
cost of building and maintaining facilities.121 Because taxpayers were being
charged for expensive new hospitals under this model, federal regulators
compelled states to adopt laws to restrict the supply of new hospitals and
other medical technologies. By the early 1980s, every state except Louisiana
had adopted “Certificate of Need” (CON) laws that created state boards to
oversee approvals of new hospitals or providers of expensive capital-intensive
medical services. As the Federal Trade Commission has noted, the federal
government no longer directly reimburses hospitals or providers based on
their fixed costs, eliminating the justification for these laws.122 Federal laws
encouraging CONs were repealed in the 1980s, and yet 35 states retain some
form of CON laws.123 The FTC and Department of Justice Antitrust division
have argued that CON laws should be repealed because they create a barrier
to entry, limiting competition, raising prices and lowering consumer choice.124
A massive new study of insurance payments confirms the theoretical
predictions of consumer advocates.125 Hospitals in monopoly settings charge
15% higher costs, even after controlling for the local cost of labor, the share
of Medicare patients, the number of medical technologies and other factors.
Hospitals in only weakly competitive markets also raise prices by 5% to
6%. Overall, 37% of hospitals are located in at least weakly competitive
local markets, driving up the national costs of hospital care by 6%.126 That
represents $55 billion in wasted medical expenses.127
Lack of competition among hospitals results in
$55 billion in annual waste.
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Excessive assessments in K–12 education and low pay unrelated to
performance has made the teaching profession inefficient and unattractive.
Teachers, students and parents are becoming increasingly frustrated with
the massive effort directed at testing, much of which is to satisfy purely
administrative requirements created by various levels of government with
limited or no direct value to students. Gallup survey data find that 83% of
teachers and 79% of superintendents believe students spend too much
time on testing.128 Testing and test preparation increasingly restrict teacher
autonomy, driving away top students from entering the profession and making
it increasingly difficult to retain top performers. A survey from the American
Federation of Teachers found that only 15% of teachers report being
enthusiastic about their profession, even though 89% said they started out
their career that way. Many listed standardized testing and pedagogical control
as major sources of stress and dissatisfaction.129
In one urban school district, students take 47 different assessments per
year.130 Students in grades six to 11 spend 55 hours per year on testing, and
their teachers devote an additional 80 hours per year of class time to test
preparation, not including 10 hours of administrative tasks related to the test.131
Another study examined testing in 66 large, urban school districts and
found that the average middle school student is mandated to take at least
10 assessments per year, not counting testing done by his or her teacher
for that specific class.132 In short, this massive amount of testing time — and
preparation for it — is wasted from the students’ perspective in that it detracts
from time spent learning.
In Florida, meanwhile, The New York Times reports that “many schools this
year will dedicate on average 60 to 80 days out of the 180-day school year to
standardized testing. In a few districts, tests were scheduled to be given every
day to at least some students.”133
The rise of testing is driven by the real need to hold poor-performing
schools accountable, but it can also be linked to lobbying efforts on behalf of
the testing industry to expand the number and purpose of tests.134 Just four
large testing companies spent an estimated $20 million on lobbying state and
federal policymakers from 2009 to 2014.
Another possible explanation for declining educational quality is the role of
unions in compressing pay and deterring professionals who would otherwise
be highly paid. Between 1959 and 1987, 33 states adopted laws requiring
states to collectively bargain with their public school teachers.135 Pay became
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
linked tightly to seniority rather than performance. Over the same period and
through 2000, the relative aptitude — measured by intelligence exams — of
high school graduates entering the teaching profession declined.136 A related
study looks at changes from 1963 to 2000 and finds a large increase in the
percentage of teachers who attended the least selective schools (16% in
1963 to 36% in 2000) and a fall in the percentage of teachers from the most
selective schools (5% to 1%).137 These changes are substantially correlated at
the state level with changes in “pay compression” (a fall in the salaries for high
achievers relative to the salaries of low achievers). Pay compression, this study
concludes, drove out of teaching many of the women most likely to succeed in
other professions and drew into teaching women who benefited from a higher
salary than they would otherwise be able to earn.
Relatedly, teachers are paid considerably less than other comparable
professionals, and this pay gap is especially high in the United States.138 Relative
teacher pay is particularly low during early and middle phases of the career and
rises somewhat for veteran teachers. For women with a bachelor’s or master’s
degree working full time between the ages of 35 to 39, pre-kindergarten and
kindergarten teachers are the lowest-paying professional occupation, with
median salaries of just $30,000 in 2014. That salary is much lower than women
with similar education levels working in administrative jobs, social support
occupations, sales, and art and design occupations. The comparable median
salary for teachers aged 35 to 39 in elementary and secondary schools is
$48,000 and $50,000, respectively. Those pay levels are equivalent to 86 cents
and 89 cents for every dollar earned by the median comparable woman in all
professional occupations. Salaries for women in this age group and with this
education are much higher in healthcare and engineering occupations, where
median pay is $63,000 and $80,000, respectively.
As shown in the graph on page 91, teacher pay is low for those aged 30
to 44 but rises closer to the median after age 45. For female teachers 50 and
older, teacher pay is higher than pay for those in art, design and entertainment
occupations, but it is still well below those in healthcare and other high-paying
occupations. For teachers in pre-K or kindergarten, pay remains extremely low
throughout their careers. The pay gap is even worse for male elementary or
secondary teachers aged 35 to 39, who earn 68 cents for every dollar earned
by comparable men in other occupations with the same level of education. The
gap never shrinks closer than 81 cents for every dollar, which is the pay gap for
male secondary teachers aged 60 to 64.
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RATIO OF MEDIAN TEACHER PAY TO MEDIAN PAY FOR ALL FULL-TIME
WORKING WOMEN BY AGE AND SELECTED OCCUPATIONS
0.3
0.6
0.9
1.2
1.5
21 64
Pre-K and kindergarten Elementary school Secondary school
Healthcare Art, design, entertainment
0.72
0.78
1.17
0.92
0.83
1.10
1.07
1.03
0.58
Source: Analysis of IPUMS-USA
Between the ages of 40 and 44, female
elementary and secondary teachers earn 83 cents
for every dollar earned by women in comparable
occupations, and pre-K and kindergarten teachers
earn just 52 cents.
International evidence suggests that making the teaching profession
more attractive to top students would substantially boost U.S. test scores.139
Teachers in high-scoring countries like Finland, Singapore and South Korea
are recruited primarily from the top third of their academic cohort, whereas
this is true for only a minority of U.S. teachers.140 One study estimates that if
U.S. teachers scored as highly on cognitive exams as teachers in Finland, U.S.
students would gain 0.55 standard deviations in math proficiency.141
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The weak pay and increased scrutiny facing teachers has also coincided
with declining productivity of the school system generally. In 1980, there were
18.7 students per teacher in U.S. elementary and secondary schools, and
this ratio fell to 16 by 2012.142 This reduction in classroom size represents
falling productivity because test scores did not increase. Over the same
period, however, non-teachers in the school system saw an even larger drop
in productivity. The number of students for every district-level administrator —
who does not interact with students — fell from 519 in 1980 to 365 in 2012.
Principals and assistant principals managed 382 students in 1980 but only
294 in 2012. Likely, the rise of complex, multi-jurisdictional accountability
regulations — at local, state, and federal levels — has contributed to this fall in
bureaucratic productivity.
In summary, the teaching profession has become an increasingly
unattractive career choice, and this has likely occurred because salaries start
off very low, remain somewhat low and do not rise based on merit. Excessive
testing requirements by state and district governments have also undermined
the autonomy and efficacy of teachers and likely exacerbated the declining
bureaucratic efficiency of school districts. There is no evidence that unions are
inherently harmful to students, as the top-performing nations all have teachers’
unions, and tests administered at the beginning and end of the year are
important in evaluating student and teaching performance and holding schools
publicly accountable. The needed reforms do not require radical changes, so
much as a willingness to start fresh on testing and pay policies with a shared
understanding of basic principles.
Most higher-education subsidies go to schools with the
lowest-performing outcomes.
Much of the growth in student borrowing has come from attendance at
for-profit and two-year colleges, as well as non-selective four-year schools.143
Unfortunately, students who attend these institutions tend to graduate less
frequently, earn lower salaries after attendance and are more likely to default on
their loans. As of 2014, two-thirds of aggregate federal student loan debt aided
students at these institutions, leaving only one-third for selective four-year
colleges and graduate degree programs.144 This share has been rising over the
last few decades. To the extent that this trend has empowered students from
low-income families whose parents have not gone to college, these trends are
positive for the country, but many of these students have not been empowered
by their educational experience, as evidenced by a variety of outcomes data.
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In fact, the institutions with the highest default rates on student loans are
receiving the largest increase in federal lending and now account for onethird
of all loans . At the poor-performing schools, many students — 13% in
2012 — have not made even one monthly payment on their loans in two years.
There are roughly 200 schools in this group. The default rate at these bottomquintile
institutions is six times higher (in 2012) than the default rate at the top
quintile of institutions. The federal lending program is thus subsidizing highereducational
experiences that are leading to very poor labor market outcomes.
From 1997 to 2012, the share of federal loans
going to schools with the highest default rates
went from 15% to 32%.
Part of the problem is that federal aid programs do not automatically
discriminate across schools. Recently, a few schools with very poor track
records have been cut off from receiving further federal subsidies, but a more
systematic approach would require risk-sharing.145 That is, schools would have
to pay a portion of the defaulted loan amount. To avoid punishing schools that
take the most at-risk students, however, the amount a school repays should
be reduced by expected default rates using statistical models that consider
student characteristics at the time of admission.
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ESTIMATED SHARE OF STUDENT LOANS GOING TO TOP- AND
BOTTOM-QUINTILE INSTITUTIONS AS RANKED BY TWO-YEAR DEFAULT
RATES FROM 1997 TO 2012
10
15
20
25
35
1997 2012
% Lowest quintile % Highest quintile
15
14
30
32
12
Source: Analysis of Department of Education’s College Scorecard database; to estimate total debt by
institution, the number of borrowers was multiplied by median debt amount (debt_mdn) since the
mean was not reported; schools were ranked by the two-year default rate and grouped into quintiles
Higher education has become bloated with highly paid non-teaching staff.
Two major reasons why college costs have soared are that a larger number of
staff now support each student, and the type of staff who supports students
has shifted toward higher-paying occupations.
In 1988, there were 4.3 full-time equivalent students for every college
employee — full and part time. By 2012, this fell to 3.1. Looking at it another
way, it now takes 31 staff to serve every 100 students when it used to take
only 23. If these changes reflected a greater investment in faculty, it may
have increased student outcomes and proven to be a worthwhile investment.
Unfortunately, that is not the case.
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STAFF PER FULL-TIME EQUIVALENT STUDENT IN HIGHER EDUCATION
FROM 1988 TO 2012
20
25
30
35
1988 2012
% All institutions % Four-year matched set
26
23
33
31
Source: Analysis of IPEDS matched-set data from the Delta Cost Project; all institutions with missing
staff or missing full-time equivalent student data were dropped for a given year; “all institutions”
includes every school in the IPEDS database with non-missing data; the matched set requires that
the school report data on three measures — fall full-time equivalent (FTE) student enrollment,
instructional expenditures and student completions — for every year in the panel time period, which is
1987 to 2013
40
From 1988 to 2012, there has been a massive reallocation of university and
college employment away from lower-paying support occupations — including
clerical workers and maintenance workers — toward high-paying professional
jobs in healthcare, computer and information management, and business and
finance. These jobs have gained even relative to teaching staff.146 The executive
and professional share of total employment went from 22% of all workers to
37%. As of 2006, there are now more managers and professionals in higher
education than there are instructors.
Thus, when combined with the overall fall in efficiency — as measured
by the number of students per employee — this trend has led to spiraling
price escalation as each student has to pay for a larger number of highly
paid workers than in the past. Ironically, this trend has not coincided with an
increase in faculty pay, which has increased very slowly over the period.147
These data imply that many colleges face weak competitive pressure on price.
One reason for that is that many students select their local institutions. Across
all public four-year colleges, 81% of students, as of 2013, live in the same
state, a number which has changed little since 2000.148
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SHARE OF WORKERS IN HIGHER EDUCATION BY FUNCTION
FROM 1988 TO 2012
20
40
50
1988 2012
% Faculty % Executives and professionals % Lower-paying occupations
41
30
37
22
33
30
37
Source: Analysis of IPEDS data from the Delta Cost Project; all institutions with missing staff or
missing full-time equivalent student data were dropped for a given year; “all institutions” includes
every school in the IPEDS database with non-missing data; executives and professionals include
executives, managers, as well as computer workers, engineers, library staff, finance and human
resource staff, coaches, trainers and healthcare professionals
Lack of public support for higher education does not explain why costs
have increased.
An alternative explanation for the rising cost of education is a lack of
government investment. State disinvestment has shifted costs to students and
away from taxpayers, but federal support for higher education has made up for
the state decrease at four-year public colleges.
Many analysts of higher education have noted that tuition makes up a
larger share of total revenue at public colleges and universities now than
in previous years, as state subsidies have been scaled back.149 Even if the
expense of college had otherwise not changed, this shift in spending would
be registered in higher-education inflation metrics, which only count payments
from consumers, not taxpayers. But state cutbacks and lack of public support
explain very little of the rise in college tuition.
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First, total revenue per student, adjusted for inflation, has increased
substantially across all sectors of higher education. If public funding cutbacks
explained the entire rise in tuition, then there should have been no change in
revenue per student. Public four-year colleges saw a 37% increase in revenue
per student from 1987 to 2013, amounting to a $9,000 increase in annual
revenue per student, or $36,000 over four years. Over this period, net tuition
(which subtracts aid that comes from the colleges themselves) increased by
164%, amounting to $5,821 per year.
To understand the public role in these changes, consider that states
reduced total grants and appropriations to students by $2,300 per student
over the period. That would explain 40% of the increase in tuition, but the
federal government increased support to public colleges by almost exactly the
same amount, offsetting the drop in state support. The public funding of higher
education has shifted away from local and state taxpayers to federal taxpayers,
but tuition could have remained at 1987 levels if schools held their costs down
to levels of inflation.
A second important piece of evidence needed to understand inflated
college costs is that private and for-profit colleges have also raised tuition. If
waning state subsidies explained higher-education inflation, then inflation for
non-public colleges should have been minimal. It has not been. Average net
tuition has increased by 92% and 60% at private for-profit and not-for-profit
four-year colleges, respectively.
Finally, the trends for two-year and lower colleges have been similar.
Revenue per student is up, along with tuition. Government funding per student
at public two-year colleges has actually increased, though not nearly enough to
offset the price increase.
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GROWTH IN REVENUE AND NET TUITION PER STUDENT FROM
1987 TO 2013, INFLATION ADJUSTED
Growth in
revenue
per student
Growth in
net tuition
per student
Change in share
of revenue from
government
sources
Change in
government
funding
per student
Four-year and higher colleges
Private for-profit 53% 92% -11% -$1,541
Private non-profit 64% 60% -6% $270
Public 37% 164% -15% $59
Two-year and lower colleges
Private for-profit 63% 89% -14% -$1,625
Private non-profit 6% 62% -5% -$868
Public 25% 131% 0% $1,956
Analysis of IPEDS 1987 to 2013 matched-set data from the Delta Cost Project for panel of institutions
with non-missing data each year for full-time equivalent student enrollment, instructional expenditures
and student completions; dollars figures are converted to 2013 dollars using Consumer Price Index
provided by Delta Cost Project database; variables used are fte_count, nettuition01 and total03_revenue,
federal10, state09 and iclevel to determine four- vs. two-year schools; net tuition is defined as tuition
revenue less total institutional student aid
Local land-use regulations explain why housing markets are
so dysfunctional.
The core problem with the housing market is that it is not allowed to function as
a market at all. In a healthy market, an increase in demand for a product leads
to a greater supply and prices stay the same. In housing markets, demand
increases as new households are formed, which results from natural population
growth and immigration. The problem is that new supply is massively restricted,
leading to inflation.
The development of new housing units is restricted by a massive layer
of local regulations called zoning that block new housing from being built
and being built where people most want to live. Zoning forces artificially
low housing densities in many desirable locations and often blocks new
development of any density. Regulations often outlaw apartment buildings,
condos and even single-family attached townhouses from the most expensive
neighborhoods. The vast majority of local governments surveyed (84%) report
that they require minimum lot sizes that are designed to limit density.150 A
large academic literature shows that more restrictive zoning laws drive up
housing costs.151
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Local zoning boards and planning agencies have almost complete discretion
over what gets built where, and they are under intense political pressure
from homeowners’ associations and other groups to block development in
high-priced, low-density areas for cultural and economic reasons. Culturally,
homeowners clamor to preserve what they regard as the “character” of their
communities, by which they mean things like traffic, the race and social status
of their neighbors, and environmental amenities like green space and scenic
views. Additionally, homeowners have strong economic interests in restricting
the supply of housing in their neighborhood for two reasons: having more
people, especially people with young children, requires a higher tax rate
on property, and even more fundamentally, greater housing supply in their
neighborhood lowers the value of their unit relative to the prevailing scarcity.
Thus, even as housing prices increased, U.S. population density actually fell
from 2000 to 2010 for metropolitan area residents as newer housing units
were pushed further out into the distant suburbs.152
There is no comprehensive database of zoning laws, and so it is difficult to
measure, but historical documents, surveys of local governments, court records
and news accounts all suggest that zoning has become more widespread
and restrictive since it was first enacted in the 1920s by local governments,
and there is strong evidence that it increases housing prices.153 It has been
ubiquitous among urban and suburban governments for decades, and even
if zoning had not increased in severity, its limitations on new development
would drive up housing costs in the face of increased demand from population
growth and rising incomes.
Take Palo Alto, California, for example, in the heart of Silicon Valley. In
2014, the median home in the city was valued at over $1 million, making it
among the most expensive places in the United States, if not the world.154
Demand for housing is extraordinary in large part because Palo Alto is in the
middle of a global hub for innovation and entrepreneurship, greatly increasing
demand to live there and increasing the purchasing power of tech executives
and employees. But high demand does not require sky-high prices in other
markets. Demand for smartphones has soared, for example, but prices have
not, because governments do not impose artificial limits on the number of units
manufacturers are allowed to make available.155
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Housing developers could make a fortune by converting underutilized land
in Palo Alto into high-density residential buildings, but zoning won’t allow it.
Only 27% of Palo Alto’s land area is even zoned for residential use. The bulk
(59%) is protected natural space. Already, this regulation cuts deeply into the
potential supply of housing. The problem is much worse, however. Just 3.5%
of the city’s land is zoned to permit multi-family housing, which would include
apartments and condos. Most residential space, 23% of total land, is zoned
for detached single-family housing.156 Overall, the city allows more land to
be used for industrial purposes (7.4%) than for multi-family housing. In 2014,
the city granted a single building permit for multi-family housing: one building
with four units.157 Partly as a result, a huge percentage — almost half — of the
city’s total workforce lives outside the city, making Palo Alto one of the places
with the largest ratio of non-resident commuters to resident workers in the
United States.158
Just 3.5% of Palo Alto's land is zoned
multi-family housing, which would include
apartments and condos.
In absence of statutory data, a rough proxy measure for the stringency of
zoning laws is the percentage of housing units that are single-family detached,
which is the lowest-density form of development. When confronted with higher
demand, this percentage should fall as developers build at higher densities, but
because of zoning, demand growth — measured by job or GDP growth in the
metropolitan area or commuting zone — predicts an increase in the share of
single-family detached units at the county level.
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Across all U.S. counties, there is a strong and significant relationship
between land use and price growth. Counties with a high percentage of
single-family detached housing units in 1990 experienced more rapid housing
cost inflation from 1990 to 2014. This relationship remains statistically
significant after controlling for employment growth or GDP growth in the larger
commuting zone, as well initial population density or region of the country.
Areas with a higher share of single-family detached housing in 1990 also
saw lower growth in the total number of housing units from 1990 to 2014,
even controlling for initial rent. Moreover, comparing counties within the
same commuting zone, those with a higher percentage of single-family units
experienced more rapid housing cost inflation and lower supply growth.159
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Targeted bipartisan policy interventions can
reverse economic deterioration.
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
10. Reviving Growth Will
Require a New Strategy
FOR DECADES, PARTISAN DEBATES HAVE battled over broad philosophical issues
such as openness to trade and the government’s role in taxing, subsidizing or
mandating various economic outcomes. The major debates over economic policy
have mostly focused on the size of the federal government, marginal tax rates and
interest rate policies of the Federal Reserve Bank.
These issues are important for economic growth, but changes in the level of
taxation and government spending do not account for the long-term slowdown
described in this report because the burden on businesses and taxpayers
has generally decreased. Likewise, the Federal Reserve Bank’s policies, while
widely regarded as useful in averting a longer recession, have not solved the
more fundamental problems of sluggish economic growth. Both imports and
exports have increased as a share of GDP in recent decades. The consensus
among economists, however, is that the adverse effects of trade on particular
workers and communities are offset by broader and much larger gains to
consumers and businesses through lower prices, greater access to goods and
services, and more competitive, innovative markets.
As part of a strategy to revitalize growth, leaders need to reconsider ways
to make markets work better. It is widely accepted that market competition
generally leads to lower prices for consumers and higher-quality products,
as the Obama administration’s Council of Economic Advisers has recently
argued.160 In many cases, however, unnecessary laws and regulations
are obstructing mutually beneficial transactions from happening, such as
developing new homes, efficiently collecting revenue for healthcare services,
opening a new hospital, receiving affordable healthcare from a nurse
practitioner or dental hygienist and using federal student loans to learn new
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
skills from an effective but unaccredited provider. In other cases, it is the labor
market that is broken, as in elementary and secondary education where rules
make the pay and practice of teaching unattractive.
The goal of regulatory reform should not be to discard the rules governing
economic transactions but to ensure those rules accomplish their goals —
such as preventing fraud or pollution and maintaining safety — in the most
effective manner without unduly inhibiting entrepreneurship and commerce.
For example, rules can be written in such a manner as to streamline or even
automate compliance with information that is already gathered during the
course of business.
In upcoming articles, Gallup will lay out potential policy solutions based on
the analysis in this paper. Several practical bipartisan actions could significantly
boost the productivity of the healthcare, education and housing sectors to
return the U.S. to a higher economic growth trajectory. Problems in these three
sectors present considerable and distinct challenges to achieving higher living
standards, but the focus on them is not intended to imply that fixing these
sectors will solve all of the nation’s economic challenges. A comprehensive
discussion of all of the ways to achieve higher economic growth is beyond the
scope of this research effort.
What’s clear is that current strategies — dialing taxes up or down,
injecting stimulus, lowering interest rates and enacting or repealing highprofile
regulations — have not brought about long-term economic growth over
the past three or four decades. Leaders worldwide are confronting intense
dissatisfaction with the low-growth status quo. Reversing the drop in longterm
growth requires a new strategy that grapples with the details of decline to
understand the causes and propose real remedies.
<1 p="">than general practitioners, especially in the states with the most restrictions
on their practice. Nurse practitioners living in highly regulated states work
fewer hours, and insurance claims charge higher rates with no benefits in
health outcomes.117 The physicians who run the clinics can charge insurance
organizations the same or only a slightly reduced fee if a patient sees a nurse
practitioner while paying the nurse practitioner half as much, allowing the
physician to keep the rest as profit or salary.
These regulations on nurses may explain why physician and specialist
salaries are much higher in the United States than in other countries in
absolute terms and relative to GDP, while American nurses are paid essentially
the same salaries relative to GDP as they are in other countries.118
SHARE OF U.S. NURSE PRACTITIONERS IN LABOR FORCE
BY TYPE OF STATE REGULATION
% SHARE OF U.S. NURSE PRACTITIONERS IN LABOR FORCE
0
10
30
40
50
Full practice Reduced practice Restricted practice
22
20
Source: IPUMS-USA 2011-2013 American Community Survey and American Association
of Nurse Practitioners
37
41
Source: Analysis of IPUMS-CPS
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A similar dynamic is at play in the relationship between dental hygienists
and dentists. Only a tiny fraction of dental hygienists in the United States live
in states that allow them to practice independently of dentists, yet when most
people visit the dentist’s office for a routine visit, they are essentially spending
all of their time with the hygienist.119 Like nurse practitioners, hygienists earn
a small fraction of a dentist’s salary ($73,000, on average, compared with
$172,000).120 Dentists’ offices bring in $109 billion in annual revenue, so
shifting pay to hygienists could save tens of billions of dollars.
State laws protect hospital monopolies, driving up costs.
In the early 1970s, the federal government paid hospitals and medical
providers based on the services provided and their fixed costs, including the
cost of building and maintaining facilities.121 Because taxpayers were being
charged for expensive new hospitals under this model, federal regulators
compelled states to adopt laws to restrict the supply of new hospitals and
other medical technologies. By the early 1980s, every state except Louisiana
had adopted “Certificate of Need” (CON) laws that created state boards to
oversee approvals of new hospitals or providers of expensive capital-intensive
medical services. As the Federal Trade Commission has noted, the federal
government no longer directly reimburses hospitals or providers based on
their fixed costs, eliminating the justification for these laws.122 Federal laws
encouraging CONs were repealed in the 1980s, and yet 35 states retain some
form of CON laws.123 The FTC and Department of Justice Antitrust division
have argued that CON laws should be repealed because they create a barrier
to entry, limiting competition, raising prices and lowering consumer choice.124
A massive new study of insurance payments confirms the theoretical
predictions of consumer advocates.125 Hospitals in monopoly settings charge
15% higher costs, even after controlling for the local cost of labor, the share
of Medicare patients, the number of medical technologies and other factors.
Hospitals in only weakly competitive markets also raise prices by 5% to
6%. Overall, 37% of hospitals are located in at least weakly competitive
local markets, driving up the national costs of hospital care by 6%.126 That
represents $55 billion in wasted medical expenses.127
Lack of competition among hospitals results in
$55 billion in annual waste.
Copyright © 2016 Gallup, Inc. All rights reserved. 89
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Excessive assessments in K–12 education and low pay unrelated to
performance has made the teaching profession inefficient and unattractive.
Teachers, students and parents are becoming increasingly frustrated with
the massive effort directed at testing, much of which is to satisfy purely
administrative requirements created by various levels of government with
limited or no direct value to students. Gallup survey data find that 83% of
teachers and 79% of superintendents believe students spend too much
time on testing.128 Testing and test preparation increasingly restrict teacher
autonomy, driving away top students from entering the profession and making
it increasingly difficult to retain top performers. A survey from the American
Federation of Teachers found that only 15% of teachers report being
enthusiastic about their profession, even though 89% said they started out
their career that way. Many listed standardized testing and pedagogical control
as major sources of stress and dissatisfaction.129
In one urban school district, students take 47 different assessments per
year.130 Students in grades six to 11 spend 55 hours per year on testing, and
their teachers devote an additional 80 hours per year of class time to test
preparation, not including 10 hours of administrative tasks related to the test.131
Another study examined testing in 66 large, urban school districts and
found that the average middle school student is mandated to take at least
10 assessments per year, not counting testing done by his or her teacher
for that specific class.132 In short, this massive amount of testing time — and
preparation for it — is wasted from the students’ perspective in that it detracts
from time spent learning.
In Florida, meanwhile, The New York Times reports that “many schools this
year will dedicate on average 60 to 80 days out of the 180-day school year to
standardized testing. In a few districts, tests were scheduled to be given every
day to at least some students.”133
The rise of testing is driven by the real need to hold poor-performing
schools accountable, but it can also be linked to lobbying efforts on behalf of
the testing industry to expand the number and purpose of tests.134 Just four
large testing companies spent an estimated $20 million on lobbying state and
federal policymakers from 2009 to 2014.
Another possible explanation for declining educational quality is the role of
unions in compressing pay and deterring professionals who would otherwise
be highly paid. Between 1959 and 1987, 33 states adopted laws requiring
states to collectively bargain with their public school teachers.135 Pay became
90 Copyright © 2016 Gallup, Inc. All rights reserved.
No Recovery | An Analysis of Long-Term U.S. Productivity Decline
linked tightly to seniority rather than performance. Over the same period and
through 2000, the relative aptitude — measured by intelligence exams — of
high school graduates entering the teaching profession declined.136 A related
study looks at changes from 1963 to 2000 and finds a large increase in the
percentage of teachers who attended the least selective schools (16% in
1963 to 36% in 2000) and a fall in the percentage of teachers from the most
selective schools (5% to 1%).137 These changes are substantially correlated at
the state level with changes in “pay compression” (a fall in the salaries for high
achievers relative to the salaries of low achievers). Pay compression, this study
concludes, drove out of teaching many of the women most likely to succeed in
other professions and drew into teaching women who benefited from a higher
salary than they would otherwise be able to earn.
Relatedly, teachers are paid considerably less than other comparable
professionals, and this pay gap is especially high in the United States.138 Relative
teacher pay is particularly low during early and middle phases of the career and
rises somewhat for veteran teachers. For women with a bachelor’s or master’s
degree working full time between the ages of 35 to 39, pre-kindergarten and
kindergarten teachers are the lowest-paying professional occupation, with
median salaries of just $30,000 in 2014. That salary is much lower than women
with similar education levels working in administrative jobs, social support
occupations, sales, and art and design occupations. The comparable median
salary for teachers aged 35 to 39 in elementary and secondary schools is
$48,000 and $50,000, respectively. Those pay levels are equivalent to 86 cents
and 89 cents for every dollar earned by the median comparable woman in all
professional occupations. Salaries for women in this age group and with this
education are much higher in healthcare and engineering occupations, where
median pay is $63,000 and $80,000, respectively.
As shown in the graph on page 91, teacher pay is low for those aged 30
to 44 but rises closer to the median after age 45. For female teachers 50 and
older, teacher pay is higher than pay for those in art, design and entertainment
occupations, but it is still well below those in healthcare and other high-paying
occupations. For teachers in pre-K or kindergarten, pay remains extremely low
throughout their careers. The pay gap is even worse for male elementary or
secondary teachers aged 35 to 39, who earn 68 cents for every dollar earned
by comparable men in other occupations with the same level of education. The
gap never shrinks closer than 81 cents for every dollar, which is the pay gap for
male secondary teachers aged 60 to 64.
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RATIO OF MEDIAN TEACHER PAY TO MEDIAN PAY FOR ALL FULL-TIME
WORKING WOMEN BY AGE AND SELECTED OCCUPATIONS
0.3
0.6
0.9
1.2
1.5
21 64
Pre-K and kindergarten Elementary school Secondary school
Healthcare Art, design, entertainment
0.72
0.78
1.17
0.92
0.83
1.10
1.07
1.03
0.58
Source: Analysis of IPUMS-USA
Between the ages of 40 and 44, female
elementary and secondary teachers earn 83 cents
for every dollar earned by women in comparable
occupations, and pre-K and kindergarten teachers
earn just 52 cents.
International evidence suggests that making the teaching profession
more attractive to top students would substantially boost U.S. test scores.139
Teachers in high-scoring countries like Finland, Singapore and South Korea
are recruited primarily from the top third of their academic cohort, whereas
this is true for only a minority of U.S. teachers.140 One study estimates that if
U.S. teachers scored as highly on cognitive exams as teachers in Finland, U.S.
students would gain 0.55 standard deviations in math proficiency.141
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The weak pay and increased scrutiny facing teachers has also coincided
with declining productivity of the school system generally. In 1980, there were
18.7 students per teacher in U.S. elementary and secondary schools, and
this ratio fell to 16 by 2012.142 This reduction in classroom size represents
falling productivity because test scores did not increase. Over the same
period, however, non-teachers in the school system saw an even larger drop
in productivity. The number of students for every district-level administrator —
who does not interact with students — fell from 519 in 1980 to 365 in 2012.
Principals and assistant principals managed 382 students in 1980 but only
294 in 2012. Likely, the rise of complex, multi-jurisdictional accountability
regulations — at local, state, and federal levels — has contributed to this fall in
bureaucratic productivity.
In summary, the teaching profession has become an increasingly
unattractive career choice, and this has likely occurred because salaries start
off very low, remain somewhat low and do not rise based on merit. Excessive
testing requirements by state and district governments have also undermined
the autonomy and efficacy of teachers and likely exacerbated the declining
bureaucratic efficiency of school districts. There is no evidence that unions are
inherently harmful to students, as the top-performing nations all have teachers’
unions, and tests administered at the beginning and end of the year are
important in evaluating student and teaching performance and holding schools
publicly accountable. The needed reforms do not require radical changes, so
much as a willingness to start fresh on testing and pay policies with a shared
understanding of basic principles.
Most higher-education subsidies go to schools with the
lowest-performing outcomes.
Much of the growth in student borrowing has come from attendance at
for-profit and two-year colleges, as well as non-selective four-year schools.143
Unfortunately, students who attend these institutions tend to graduate less
frequently, earn lower salaries after attendance and are more likely to default on
their loans. As of 2014, two-thirds of aggregate federal student loan debt aided
students at these institutions, leaving only one-third for selective four-year
colleges and graduate degree programs.144 This share has been rising over the
last few decades. To the extent that this trend has empowered students from
low-income families whose parents have not gone to college, these trends are
positive for the country, but many of these students have not been empowered
by their educational experience, as evidenced by a variety of outcomes data.
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In fact, the institutions with the highest default rates on student loans are
receiving the largest increase in federal lending and now account for onethird
of all loans . At the poor-performing schools, many students — 13% in
2012 — have not made even one monthly payment on their loans in two years.
There are roughly 200 schools in this group. The default rate at these bottomquintile
institutions is six times higher (in 2012) than the default rate at the top
quintile of institutions. The federal lending program is thus subsidizing highereducational
experiences that are leading to very poor labor market outcomes.
From 1997 to 2012, the share of federal loans
going to schools with the highest default rates
went from 15% to 32%.
Part of the problem is that federal aid programs do not automatically
discriminate across schools. Recently, a few schools with very poor track
records have been cut off from receiving further federal subsidies, but a more
systematic approach would require risk-sharing.145 That is, schools would have
to pay a portion of the defaulted loan amount. To avoid punishing schools that
take the most at-risk students, however, the amount a school repays should
be reduced by expected default rates using statistical models that consider
student characteristics at the time of admission.
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ESTIMATED SHARE OF STUDENT LOANS GOING TO TOP- AND
BOTTOM-QUINTILE INSTITUTIONS AS RANKED BY TWO-YEAR DEFAULT
RATES FROM 1997 TO 2012
10
15
20
25
35
1997 2012
% Lowest quintile % Highest quintile
15
14
30
32
12
Source: Analysis of Department of Education’s College Scorecard database; to estimate total debt by
institution, the number of borrowers was multiplied by median debt amount (debt_mdn) since the
mean was not reported; schools were ranked by the two-year default rate and grouped into quintiles
Higher education has become bloated with highly paid non-teaching staff.
Two major reasons why college costs have soared are that a larger number of
staff now support each student, and the type of staff who supports students
has shifted toward higher-paying occupations.
In 1988, there were 4.3 full-time equivalent students for every college
employee — full and part time. By 2012, this fell to 3.1. Looking at it another
way, it now takes 31 staff to serve every 100 students when it used to take
only 23. If these changes reflected a greater investment in faculty, it may
have increased student outcomes and proven to be a worthwhile investment.
Unfortunately, that is not the case.
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STAFF PER FULL-TIME EQUIVALENT STUDENT IN HIGHER EDUCATION
FROM 1988 TO 2012
20
25
30
35
1988 2012
% All institutions % Four-year matched set
26
23
33
31
Source: Analysis of IPEDS matched-set data from the Delta Cost Project; all institutions with missing
staff or missing full-time equivalent student data were dropped for a given year; “all institutions”
includes every school in the IPEDS database with non-missing data; the matched set requires that
the school report data on three measures — fall full-time equivalent (FTE) student enrollment,
instructional expenditures and student completions — for every year in the panel time period, which is
1987 to 2013
40
From 1988 to 2012, there has been a massive reallocation of university and
college employment away from lower-paying support occupations — including
clerical workers and maintenance workers — toward high-paying professional
jobs in healthcare, computer and information management, and business and
finance. These jobs have gained even relative to teaching staff.146 The executive
and professional share of total employment went from 22% of all workers to
37%. As of 2006, there are now more managers and professionals in higher
education than there are instructors.
Thus, when combined with the overall fall in efficiency — as measured
by the number of students per employee — this trend has led to spiraling
price escalation as each student has to pay for a larger number of highly
paid workers than in the past. Ironically, this trend has not coincided with an
increase in faculty pay, which has increased very slowly over the period.147
These data imply that many colleges face weak competitive pressure on price.
One reason for that is that many students select their local institutions. Across
all public four-year colleges, 81% of students, as of 2013, live in the same
state, a number which has changed little since 2000.148
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SHARE OF WORKERS IN HIGHER EDUCATION BY FUNCTION
FROM 1988 TO 2012
20
40
50
1988 2012
% Faculty % Executives and professionals % Lower-paying occupations
41
30
37
22
33
30
37
Source: Analysis of IPEDS data from the Delta Cost Project; all institutions with missing staff or
missing full-time equivalent student data were dropped for a given year; “all institutions” includes
every school in the IPEDS database with non-missing data; executives and professionals include
executives, managers, as well as computer workers, engineers, library staff, finance and human
resource staff, coaches, trainers and healthcare professionals
Lack of public support for higher education does not explain why costs
have increased.
An alternative explanation for the rising cost of education is a lack of
government investment. State disinvestment has shifted costs to students and
away from taxpayers, but federal support for higher education has made up for
the state decrease at four-year public colleges.
Many analysts of higher education have noted that tuition makes up a
larger share of total revenue at public colleges and universities now than
in previous years, as state subsidies have been scaled back.149 Even if the
expense of college had otherwise not changed, this shift in spending would
be registered in higher-education inflation metrics, which only count payments
from consumers, not taxpayers. But state cutbacks and lack of public support
explain very little of the rise in college tuition.
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First, total revenue per student, adjusted for inflation, has increased
substantially across all sectors of higher education. If public funding cutbacks
explained the entire rise in tuition, then there should have been no change in
revenue per student. Public four-year colleges saw a 37% increase in revenue
per student from 1987 to 2013, amounting to a $9,000 increase in annual
revenue per student, or $36,000 over four years. Over this period, net tuition
(which subtracts aid that comes from the colleges themselves) increased by
164%, amounting to $5,821 per year.
To understand the public role in these changes, consider that states
reduced total grants and appropriations to students by $2,300 per student
over the period. That would explain 40% of the increase in tuition, but the
federal government increased support to public colleges by almost exactly the
same amount, offsetting the drop in state support. The public funding of higher
education has shifted away from local and state taxpayers to federal taxpayers,
but tuition could have remained at 1987 levels if schools held their costs down
to levels of inflation.
A second important piece of evidence needed to understand inflated
college costs is that private and for-profit colleges have also raised tuition. If
waning state subsidies explained higher-education inflation, then inflation for
non-public colleges should have been minimal. It has not been. Average net
tuition has increased by 92% and 60% at private for-profit and not-for-profit
four-year colleges, respectively.
Finally, the trends for two-year and lower colleges have been similar.
Revenue per student is up, along with tuition. Government funding per student
at public two-year colleges has actually increased, though not nearly enough to
offset the price increase.
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GROWTH IN REVENUE AND NET TUITION PER STUDENT FROM
1987 TO 2013, INFLATION ADJUSTED
Growth in
revenue
per student
Growth in
net tuition
per student
Change in share
of revenue from
government
sources
Change in
government
funding
per student
Four-year and higher colleges
Private for-profit 53% 92% -11% -$1,541
Private non-profit 64% 60% -6% $270
Public 37% 164% -15% $59
Two-year and lower colleges
Private for-profit 63% 89% -14% -$1,625
Private non-profit 6% 62% -5% -$868
Public 25% 131% 0% $1,956
Analysis of IPEDS 1987 to 2013 matched-set data from the Delta Cost Project for panel of institutions
with non-missing data each year for full-time equivalent student enrollment, instructional expenditures
and student completions; dollars figures are converted to 2013 dollars using Consumer Price Index
provided by Delta Cost Project database; variables used are fte_count, nettuition01 and total03_revenue,
federal10, state09 and iclevel to determine four- vs. two-year schools; net tuition is defined as tuition
revenue less total institutional student aid
Local land-use regulations explain why housing markets are
so dysfunctional.
The core problem with the housing market is that it is not allowed to function as
a market at all. In a healthy market, an increase in demand for a product leads
to a greater supply and prices stay the same. In housing markets, demand
increases as new households are formed, which results from natural population
growth and immigration. The problem is that new supply is massively restricted,
leading to inflation.
The development of new housing units is restricted by a massive layer
of local regulations called zoning that block new housing from being built
and being built where people most want to live. Zoning forces artificially
low housing densities in many desirable locations and often blocks new
development of any density. Regulations often outlaw apartment buildings,
condos and even single-family attached townhouses from the most expensive
neighborhoods. The vast majority of local governments surveyed (84%) report
that they require minimum lot sizes that are designed to limit density.150 A
large academic literature shows that more restrictive zoning laws drive up
housing costs.151
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Local zoning boards and planning agencies have almost complete discretion
over what gets built where, and they are under intense political pressure
from homeowners’ associations and other groups to block development in
high-priced, low-density areas for cultural and economic reasons. Culturally,
homeowners clamor to preserve what they regard as the “character” of their
communities, by which they mean things like traffic, the race and social status
of their neighbors, and environmental amenities like green space and scenic
views. Additionally, homeowners have strong economic interests in restricting
the supply of housing in their neighborhood for two reasons: having more
people, especially people with young children, requires a higher tax rate
on property, and even more fundamentally, greater housing supply in their
neighborhood lowers the value of their unit relative to the prevailing scarcity.
Thus, even as housing prices increased, U.S. population density actually fell
from 2000 to 2010 for metropolitan area residents as newer housing units
were pushed further out into the distant suburbs.152
There is no comprehensive database of zoning laws, and so it is difficult to
measure, but historical documents, surveys of local governments, court records
and news accounts all suggest that zoning has become more widespread
and restrictive since it was first enacted in the 1920s by local governments,
and there is strong evidence that it increases housing prices.153 It has been
ubiquitous among urban and suburban governments for decades, and even
if zoning had not increased in severity, its limitations on new development
would drive up housing costs in the face of increased demand from population
growth and rising incomes.
Take Palo Alto, California, for example, in the heart of Silicon Valley. In
2014, the median home in the city was valued at over $1 million, making it
among the most expensive places in the United States, if not the world.154
Demand for housing is extraordinary in large part because Palo Alto is in the
middle of a global hub for innovation and entrepreneurship, greatly increasing
demand to live there and increasing the purchasing power of tech executives
and employees. But high demand does not require sky-high prices in other
markets. Demand for smartphones has soared, for example, but prices have
not, because governments do not impose artificial limits on the number of units
manufacturers are allowed to make available.155
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Housing developers could make a fortune by converting underutilized land
in Palo Alto into high-density residential buildings, but zoning won’t allow it.
Only 27% of Palo Alto’s land area is even zoned for residential use. The bulk
(59%) is protected natural space. Already, this regulation cuts deeply into the
potential supply of housing. The problem is much worse, however. Just 3.5%
of the city’s land is zoned to permit multi-family housing, which would include
apartments and condos. Most residential space, 23% of total land, is zoned
for detached single-family housing.156 Overall, the city allows more land to
be used for industrial purposes (7.4%) than for multi-family housing. In 2014,
the city granted a single building permit for multi-family housing: one building
with four units.157 Partly as a result, a huge percentage — almost half — of the
city’s total workforce lives outside the city, making Palo Alto one of the places
with the largest ratio of non-resident commuters to resident workers in the
United States.158
Just 3.5% of Palo Alto's land is zoned
multi-family housing, which would include
apartments and condos.
In absence of statutory data, a rough proxy measure for the stringency of
zoning laws is the percentage of housing units that are single-family detached,
which is the lowest-density form of development. When confronted with higher
demand, this percentage should fall as developers build at higher densities, but
because of zoning, demand growth — measured by job or GDP growth in the
metropolitan area or commuting zone — predicts an increase in the share of
single-family detached units at the county level.
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
Across all U.S. counties, there is a strong and significant relationship
between land use and price growth. Counties with a high percentage of
single-family detached housing units in 1990 experienced more rapid housing
cost inflation from 1990 to 2014. This relationship remains statistically
significant after controlling for employment growth or GDP growth in the larger
commuting zone, as well initial population density or region of the country.
Areas with a higher share of single-family detached housing in 1990 also
saw lower growth in the total number of housing units from 1990 to 2014,
even controlling for initial rent. Moreover, comparing counties within the
same commuting zone, those with a higher percentage of single-family units
experienced more rapid housing cost inflation and lower supply growth.159
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
Targeted bipartisan policy interventions can
reverse economic deterioration.
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
10. Reviving Growth Will
Require a New Strategy
FOR DECADES, PARTISAN DEBATES HAVE battled over broad philosophical issues
such as openness to trade and the government’s role in taxing, subsidizing or
mandating various economic outcomes. The major debates over economic policy
have mostly focused on the size of the federal government, marginal tax rates and
interest rate policies of the Federal Reserve Bank.
These issues are important for economic growth, but changes in the level of
taxation and government spending do not account for the long-term slowdown
described in this report because the burden on businesses and taxpayers
has generally decreased. Likewise, the Federal Reserve Bank’s policies, while
widely regarded as useful in averting a longer recession, have not solved the
more fundamental problems of sluggish economic growth. Both imports and
exports have increased as a share of GDP in recent decades. The consensus
among economists, however, is that the adverse effects of trade on particular
workers and communities are offset by broader and much larger gains to
consumers and businesses through lower prices, greater access to goods and
services, and more competitive, innovative markets.
As part of a strategy to revitalize growth, leaders need to reconsider ways
to make markets work better. It is widely accepted that market competition
generally leads to lower prices for consumers and higher-quality products,
as the Obama administration’s Council of Economic Advisers has recently
argued.160 In many cases, however, unnecessary laws and regulations
are obstructing mutually beneficial transactions from happening, such as
developing new homes, efficiently collecting revenue for healthcare services,
opening a new hospital, receiving affordable healthcare from a nurse
practitioner or dental hygienist and using federal student loans to learn new
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No Recovery | An Analysis of Long-Term U.S. Productivity Decline
skills from an effective but unaccredited provider. In other cases, it is the labor
market that is broken, as in elementary and secondary education where rules
make the pay and practice of teaching unattractive.
The goal of regulatory reform should not be to discard the rules governing
economic transactions but to ensure those rules accomplish their goals —
such as preventing fraud or pollution and maintaining safety — in the most
effective manner without unduly inhibiting entrepreneurship and commerce.
For example, rules can be written in such a manner as to streamline or even
automate compliance with information that is already gathered during the
course of business.
In upcoming articles, Gallup will lay out potential policy solutions based on
the analysis in this paper. Several practical bipartisan actions could significantly
boost the productivity of the healthcare, education and housing sectors to
return the U.S. to a higher economic growth trajectory. Problems in these three
sectors present considerable and distinct challenges to achieving higher living
standards, but the focus on them is not intended to imply that fixing these
sectors will solve all of the nation’s economic challenges. A comprehensive
discussion of all of the ways to achieve higher economic growth is beyond the
scope of this research effort.
What’s clear is that current strategies — dialing taxes up or down,
injecting stimulus, lowering interest rates and enacting or repealing highprofile
regulations — have not brought about long-term economic growth over
the past three or four decades. Leaders worldwide are confronting intense
dissatisfaction with the low-growth status quo. Reversing the drop in longterm
growth requires a new strategy that grapples with the details of decline to
understand the causes and propose real remedies.
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