The U.S. achieved a 2.0% average annual growth rate of real GDP per capita between 1891 and 2007. A new research paper from Northwestern University professor Robert J. Gordon predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3% per annum for labor productivity in the total economy, 0.9% for output per capita, 0.4% for real income per capita of the bottom 99% of the income distribution, and 0.2% for the real disposable income of that group. The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial.
Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99% of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades.