A Discussion on Labor Force Participation: In Conversation with Jason Furman

In conversation with CFR Vice Chairman David M. Rubenstein, Jason Furman, Chairman of the Council of Economic Advisors, discusses the long-term trends in labor force participation and their potential implications for the future of the U.S. economy. In particular, Furman focuses on the drop in labor force participation for men between the ages of 25 and 54 from 98 percent in the 1950s to 88 percent today and explores the possible explanations for such a dramatic decrease, one that is more severe than in nearly all other OECD economies.  Furman also examines how demographic shifts and immigration reform might affect these trends as well as some of the possible remedies for this issue going forward. 

RUBENSTEIN: So Jason Furman is the 28^th chairman of the Council of Economic Advisors. He assumed that position in August of 2013, after being confirmed by the United States Senate for the job. He came to that position after having served as deputy to the NEC from more or less the beginning of the Obama administration, and also as assistant the president for economic policy. He came to that position in the Obama administration following having directed the economic policy part of the transition, and also serving as economic advisor during the campaign for president that Mr. Obama—or President Obama ran.

Prior to the campaign, he was running the Hamilton Project at Brookings Institution. He also had experience in government before that. He also had worked in the Clinton administration. In the Clinton administration he was at the NEC, at the CEA, and also he worked with Joe Stiglitz at the World Bank. He is a graduate of Dalton School in New York, Harvard College, London School of Economics, Ph.D. from Harvard in Economics. And Greg Mankiw was his thesis advisor. He is the author of hundreds of articles—not hundreds—but many, many articles in economic policy, and written two books. And he is a native of New York. And it’s my pleasure to introduce Jason Furman. Thank you. (Applause.)

FURMAN: Thank you, David, for that introduction. Thank you to CFR for organizing this. I was going to spend about 10 minutes talking about our new report about the decline in prime-age male labor force participation, which is an issue that I address in the current issue of Foreign Affairs. Part of what brought me to this is every month I brief the president on the jobs numbers. And every month—not every month—almost every month—I was actually in Germany last week—I get to tell him how great the number of jobs created were, get to tell him how great the decline in the unemployment rate was, and then there’s always the labor force participation rate, which has gone in the other direction.

So we’ve spent a lot of time over the last many years really looking hard at that labor force participation rate. And one of the things we’ve learned is this isn’t just a consequence of the Great Recession or something that’s happened in the recovery from it, but a lot of the trends going on there have happened for a really long time. And you see that most clearly for men, because there you have sort of a fixed story without some of the cultural shifts. And then you see that being paralleled more recently, in the last 15 years or so, for women as well. So you have a handout here. And I’ll take you through some of the findings in our report, in terms of what the facts are and how we interpret those facts.

On that first page you have there, you see that the male labor force participation rate has been declining steadily for 60 years. It was 98 percent in the 1950s. And now it’s down to 88 percent. So if you think about that the share of prime-age men, that’s age 25 to 54, who aren’t working has gone from 2 percent, which is virtually none, up to 12 percent. This isn’t just people who, you know, don’t want—this isn’t people who want a job and are just sitting around doing something else in the meantime. You see the share of the people who say they do not want a job and did not work last year either. So they don’t have a—they’re not in the workforce now, and for the whole of the previous year they didn’t work either has actually gone up.

The most important feature of this is the one you also have on that handout, which is it is primarily a result of people with less education. In the 1960s, and every time we have a chart I show you as much data as we possibly can. We go far as back as the statistics go. For education that’s 1964. It didn’t really matter whether you had a bachelor’s degree or a high school degree, you participated at roughly 98 percent. Since then, participation has drifted down for people with a bachelor’s or higher. It’s really plummeted for people with a high school degree or less.

As you see on the next set of slides, this is an issue that a lot of OECD countries—most OECD countries have faced. But in the United States, it’s been more severe. As you see on that top chart, we have the third-lowest labor force participation rate among the OECD countries. We’re tied with Italy, which is probably not the labor markets that most would aspire to, ahead of Israel, which has very significant cultural differences, in particular certain activities are defined as not working that a lot of men are engaged in there. We’ve also had a larger decline in our labor force participation rate in all but one of the OECD economies since 1990.

Now, the story’s a little more nuanced than that, in that we have a lower structural unemployment rate than other countries, as you see in the second figure. So when you combine the two of those to look at the share that aren’t employed, we’re also towards the bottom of the OECD. Some of the countries below us are probably structurally ahead of the United States, they’re just in deeper recessions or slower recoveries right now. But the picture is also worrying.

So if you go to the next page, you’ll see the economics lecture portion of this talk is three types of explanations. The first type of explanation is an inward shift of the supply curve. And I’ll explain what that could mean in a moment. But the important thing here is that predicts that the quantity of labor would go down, which is correct, but it also predicts that the price would go up—the wages, in this case, of less-skilled workers. That’s obviously not what we’ve seen. Demand-driven says there’s less demand for less-skilled workers. That would predict fewer of them would work, and that their relative wages would fall. That broadly matches the data. And then finally, I’ll come to some institutional explanations, and try to flesh them out for you.

But let’s start on the next page with supply. One of the most obvious candidates for supply explanation is a lot more women are working today than used to be working. And so maybe you’re married to a working woman and you can take a little bit more time to find a job, to stay in school, to care for your children. In theory, that’s possible. But if you look at that red line, despite all these more women working today than in the 1960s, the men who aren’t participating in the workforce don’t seem to be able to find them and marry them. Less than a quarter of those men are married to working women. And that fraction has actually gone down over time. So this explanation goes in the opposite way of what we’re trying to explain.

The next possibility is government programs. The most notable government program that goes to this group is disability insurance. And without doing any economics at all, the problem with placing too much weight on disability insurance as an explanation is the percentage of men on disability insurance has gone up from 1 percent to 3 percent. So that’s a 2 percentage point increase. The decline in the labor force participation rate has been 7 ½ percentage points. So at the very least you’re explaining a little bit less than—at most, I mean, you’re explaining less than a third of the decline.

We went through some modeling of counterfactual scenarios, because not everyone on disability insurance would have worked, not everybody who’s on disability insurance—you know, it isn’t causal in a number of different respects. And you see those three lines. And the lesson of those three lines is the two counterfactuals look very similar to the actual. And when you try to do a causal analysis the rise in DI explains maybe 0.3 to 0.5 percentage points of this much larger decline. And then other government programs, as you see in the red line there, you’re less likely to get. It’s harder to get TANF. It’s harder to get SNAP. It’s harder to get just about any other government support today. So that also pushes in the opposite direction.

Having ruled out, for the most part, the supply-based explanations, the next page gives you some sense on the demand side. And there’s been a large literature on inequality that’s found that there’s been skill-biased technological change. Technology complements the high-skilled people, leading you to want to hire them and pay them more, and hasn’t done the same for people with less skills. But the process of globalization has created a similar set of pressures. And that could manifest itself both in lower relative wages for people with less education and in less employment prospects for them.

Also we’ve seen, as a result of shifts in demand, big structural changes in the economy. So manufacturing as a share of total employment has fallen since World War II. And that fall, a number of those men appear to have, and you see this in some of the more recent studies around trade and the China shock, haven’t found jobs in other sectors of the economy. Demand, though, I don’t think can fully explain what we’ve seen, because you’ve seen a similar demand shock when it comes to technology and globalization in a wide range of countries—in Europe, Japan, the United States. But it’s in the United States where you’ve seen a larger decline in the labor force participation rate to a lower rate than in other countries.

So I think it’s not just the demand shock, but now that demand shock is mediated by your economic institutions that matters. And if you turn to the next page, page 6, those institutional explanations challenge a certain amount of the longstanding, received, you know, orthodox wisdom around the effective functioning of labor markets.

That first set of indicators shows you the U.S. percentile in the OECD, going for growth indicators in a range of indicators. And you see the United States has the least overall labor market regulation, the least employment protection, relatively low minimum wage, relatively low state intervention. So all the things you’re supposed to do to make your labor market function, according to the traditional view, we do here, and we do it better than other countries.

Where we do relatively badly is nationwide paid leave. We’re the only OECD economy without it. Expenditure on active labor market policies, job search and the like, we spend 0.1 percent of GDP compared to an OECD average of 0.6. Tax on secondary earners, subsidies for child care, all of these types of things that I call the connective tissue that helps make labor markets function seem like an important part, that it’s not just the flexible markets themselves but the ability to have institutions or policies that help people into jobs.

The next page shows another peculiarly American aspect of this problem, and it is the rise in the incarceration rate, which in the United States is substantially higher than any of the OECD countries. In fact, you would have to extend this chart out to show the Seychelles to find a country that has a higher incarceration rate than the United States.

When you’re incarcerated, you are removed from the numerator and the denominator of the labor force participation numbers. They don’t count people in prison. So that actually helps make our number look a little bit better. But when you’re out of prison—and probably about 5 (percent), 6 percent of the prime-age male population was formerly incarcerated—you are less likely to be able to find a job, both because of the skills you lose in prison, the stigma, but also lots of rules and regulations that govern hiring in states across the country.

The final thing, though, I wanted to say is I don’t view any of this as inevitable. I think this is, as the institutional explanations stress, the result of a range of policy choices that we have made, and we can make different choices. Now, our goal, of course, is not a hundred percent of people participating a hundred percent of the time. If a 19-year-old goes to college instead of in the workforce, that’s not a bad thing. And if a 75-year-old retires whereas instead of in the workforce, that’s not a bad thing either.

But at 88 percent of prime-age men, I think we’re very clearly below the point where people are, you know, participating in the way that they should. And that has ramifications not just for economic growth but very severe ones for well-being that go beyond probably just what you would see in standard income statistics.

There’s six different things that are in the administration’s agenda that would help deal with this. Aggregate demand is an important part of it. Some of the connective tissue in labor markets—community colleges, job training, work sharing, and wage insurance. The individual tax system could help, expanding the EITC to childless workers or workers without qualifying children, and also reducing what is effectively a tax penalty on secondary earners.

Creating more flexibility for workers in terms of childcare, family leave, paid sick days are all things that are more often associated with female labor force participation but would help with male as well. There’s a range of things which are much bigger policies than just this issue alone, like education, immigration reform, and criminal justice reform, that would also have very positive impacts for this.

And then finally, the conclusion I would make is this idea that you have to accept large increases in inequality because you don’t want to interfere with labor markets and the way they function is something that I think is basically debunked by this analysis. So you basically lose the excuse to not do anything about inequality because you’re afraid it would mess up your labor market. And in fact, steps like raising the minimum wage or collective bargaining and voice in labor markets could actually raise wages and expand labor supply and raise labor force participation.

This is of course only one of the many economic issues that we’re trying to address, but it does affect some of the big ones in terms of growth, inequality, and just the perception overall about how the economy is doing. And I’m happy to talk about any of that with you and everyone else. (Applause.)

RUBENSTEIN: I have observed over the years when presidents of the United States have press conferences they give a little talk in the beginning, and then the first questions bear no relation to what the president talked about. (Laughter.) So I’m not going to do that. I’ll get to some other questions, but I did want to ask a few things about what you talked about, but we have so many economic issues to cover.

So on this, can you explain something that was a little confusing to me until I did a little research on it, but when the Bureau of Labor Statistics comes out every month and says, here’s our unemployment rate and here is the labor participation rate, they will say, well, we have a 66 percent historical labor participation rate; now it’s 62.3 percent or something. You’re using numbers for the prime-age category, so you have—you’re dealing with the different numbers. Can you explain the difference between the numbers that we often get associated with labor rate participation, the 66 (percent) number—62.3 (percent) versus the 88 (percent) number you’re dealing with, OK?

FURMAN: Yeah. Yeah, I mean, you can divide it by age and you can divide it by gender. And there have been very different dynamics for all of those.

So if you look at women, their labor force participation rate rose from when the data started in 1948 through about 2000, then peaked and started falling. If you look at younger people, people below the age of 25, you’ve seen their labor force participation rates falling but you also see more of them in college, so the share that are either working or in school has stayed the same. You look at older people, people over 55, and there has been a set of shifts in terms of the types of jobs people have, the type of health they have, and rules around Social Security. So their labor force participation has been rising.

So there’s so many different stories going on based on different institutions and cultures. That’s why here we chose to focus on men between the age of 25 and 54.

RUBENSTEIN: OK, so between 25 and 54 is what your category is, but when the Bureau of Labor Statistics comes out they use the—they use everybody in the workforce, is that right? And is that the better—

FURMAN: That’s their headline, although if you page through their thing, they do it. And the word “prime-age men” was not the word I came up with.

RUBENSTEIN: OK.

FURMAN: So for anyone who is not included in that age bracket—

RUBENSTEIN: All right, so—(laughter)—

FURMAN: —you should address your complaints to them, not to me.

RUBENSTEIN: All right. OK, so—no, I’ve already passed that concern over the years when I got past that age. (Laughter.)

So let me ask you about the issue of why this is such a bad thing, because the theory would be that if you don’t have to work and you’re doing well—and maybe our economy is so wealthy that people just don’t feel a need to work. They have inherited money, they’ve made enough money. So why is it clear that having a lower participation rate is a bad thing?

FURMAN: I think it depends on who it is and what their circumstances are. So if we looked at a chart and we saw college-educated men who are married to working women are the ones who are not participating, you know, I’d be a bit jealous—(laughter)—but say that could be a perfectly great thing, and I’m certainly not going to necessarily worry about it as an economic policy and am not going to judge the choices people make.

When you see it’s people with a high school degree or less, you see it’s people who are disproportionately in poverty, you look at the time use—you don’t see them spending more time, you know, helping with children, helping around the house—and then you look at the studies of what, you know, prolonged unemployment or non-employment does to people psychologically and in terms of their ability to find future employment, I think at that point it becomes a worry.

RUBENSTEIN: So in your article in the Foreign Affairs journal that the Council publishes—you have an article about this, and in that article you do talk about the licensing restrictions that we often have to get jobs in the United States. You might elaborate on why that’s a bit of a problem.

FURMAN: Yeah. We used to have about 5 percent of jobs in this country you need a license for. And I don’t think any of us have a problem with doctors, for example, needing a license. Now it’s up to 25 percent. And while I respect people who would choose to go to a florist or interior decorator that’s licensed, you know, I might be willing to take my chances when it comes to those professions.

This makes it harder for people to get jobs. It makes it harder for them to move from state to state. And it especially hurts a few groups, one of them formerly incarcerated but also military families and immigrants, and it makes the overall labor market less fluid. And when there’s less people moving around, moving between jobs, leaving jobs, finding jobs, it means if you’re unlucky enough to lose a job in a recession, it’s going to be harder for you to cycle back into a new one, and so recessions could potentially have more long-term impacts on the labor market too.

RUBENSTEIN: OK. Now, in your article you also talk about France, not normally cited as a great model for economic capitalism. But why are so many men and women in France employed, relative to the United States, in your view?

FURMAN: You know, I was asking two of the top labor economists in France that question a few weeks ago and they were somewhat puzzled to find out that they came out ahead of the United States. And I want to be completely clear: I do not think, you know, that we should be adopting French labor market rules, and take everything they do in France and apply it here. What I do think, though, is that when it comes to the function of labor markets, we need to be less sure that we already know the answer and a little bit more humble about, you know, our system, some of its shortcomings, and need for change.

RUBENSTEIN: Now, the trend you’ve talked about, is it a trend that has been going on for quite some time, and it’s not something that any administration—yours in the remaining six months you have or even the next administration—can have a dramatic effect on? Or do you think somebody can have a dramatic effect in one, two, or three years in changing these numbers?

FURMAN: You know, certainly a lot of the ideas we’re talking of here are obviously ideas for the future, and the president in his last State of the Union said he was talking about not just this year. I think it would all add up and make a difference over time. But I think, frankly, a lot of economic policy, whether you’re talking about productivity growth, inequality, or participation, is about a few tenths here, a few tenths there, and then they accumulate over time, and eventually it does make a big difference.

RUBENSTEIN: All right, so if I could shift to another subject for a moment, some people think that the vote in England this week will be a very significant economic event for the world. What is your view on the impact of a so-called vote to exit the EU would be, on our economy and the British and the—and the European economy?

FURMAN: All right, so just about every institution that I’m aware of, with the possible exception of the Council of Economic Advisors, has done some estimate of the economic impact of Brexit. And the thing that they all have in common is a minus sign in front of them. You know, you can see minus-1, minus-2, minus-8 percent on growth. You see a range of things.

Part of why you don’t know the answer as to just how bad it would be for the economy is you don’t know what sort of deal they would be able to negotiate. But just classic trade theory gives you already a few percentage points in terms of extra barriers, less ability to locate people and businesses where they should.

The thing that’s scary, though, isn’t the classical trade theory, which plays out over a longer period of time. It’s just look how much markets are moving right now already on little bits of news and polls. Imagine, you know, what the potential impact of an actual event could be on capital flows, exchange rates, and spilling out periphery, et cetera. So I think this is a(n), you know, unnecessary risk for the global economy.

RUBENSTEIN: You think we could have had a more favorable impact on the vote if we had said pull out, and then the British in response to that would say—(laughter)—we don’t want to listen to the Yankees, we’ll do the opposite? (Laughter.) That strategy wasn’t considered?

FURMAN: I will—I will leave that for our international political strategists.

RUBENSTEIN: OK. So, since the Obama administration’s been in office, you’ve been dealing with the effects of the recession and recovering from that. The recession technically ended in June of 2009. Typically, we have recessions every seven years in the United States, since World War II, on average; obviously, some years you go longer than that, or some periods. But seven years from June of 2009 is June of 2016, which happens to be this month. So do you think we escape the seven-year jinx and we can go for quite a while longer before we get into a recession? You don’t see anything on the horizon that will give us a recession?

FURMAN: I think the economic evidence is that recession’s a little bit like what an economist would call a Poisson process, of each year there is a certain probability that a recession happens, and that probability doesn’t go up over time and doesn’t go down over time. And another way of putting that is expansions don’t die of old age. So I still—so I think that, as a general economic matter, is the way I think about it.

And then specifically, when I look at our economy now, I think we are really far towards our recovery. We’re much further than most of the other economies that were affected by the recession. But we’re still not all the way there yet. I still see slack in our labor market. I still see more potential.

RUBENSTEIN: Since World War II, when we’ve had recoveries from the recessions, we’ve typically grown in the recovery period of time 3 percent and 4 percent per annum. In the Obama administration, we’ve never had a year of 3 percent GDP growth. Do you think the days of 3 percent or more economic growth are behind us because our economy’s so big and we just can’t grow at 3 and 4 percent anymore? Or are there other reasons for that lower growth?

FURMAN: I think the biggest difference is just demographics—that if you look at, again, this prime age population, 25 to 54, in the 1980s—and I’m doing this from memory and might have this wrong—I think it was growing at about 1 ½ percent per year. Now that age group is contracting and, you know, the age group that’s growing is the people who are going into retirement. So I think the biggest headwind for our growth has been demographic. And that’s partly why this labor force participation issue is so important, because the response to demography can be to just accept slower growth, which is what they appear to be doing in Japan; it can be to try to encourage more people to have children, which they’re doing in France; or it can be to try to get a larger fraction of your population working or bring new people in. And that’s why I think those steps are so important.

RUBENSTEIN: So if Janet Yellen were to say to you, you know, I’m not sure what to do with interest rates the remainder of the year, I need to know where the economy’s going, what is your view on the economy and what do you think I should do about interest rates, what would you tell her?

FURMAN: I would tell her that I respect her independence and—(laughter)—she has an outstanding staff.

RUBENSTEIN: OK. This year you would project economic growth for the United States to be roughly 1 ½ percent, or something like that?

FURMAN: Our last forecast was completed in November of last year, published in February in this year. And even if I could remember it, I’d claim to have forgotten it because the number would be considerably higher than that. But I still think above 2 percent for this year.

RUBENSTEIN: Above 2 percent?

FURMAN: Yeah.

RUBENSTEIN: OK. And what do you think—

FURMAN: The second quarter, as you know is tracking, you know, north of 2 ½ percent in a range of tracking indexes.

RUBENSTEIN: OK. What do you think, by the end of this administration, the unemployment rate will be?

FURMAN: A lot lower than it was when it began. (Laughter.)

RUBENSTEIN: OK. All right. But do you think the unemployment rate is as relevant as it used to be? Because it measures people who looked for jobs in the last 30 days, as opposed to the labor force participation rate and other things. So when it goes below 5 percent, is it as important an indicator as it once was, in your view?

FURMAN: I think if there’s only one labor market indicator you’re looking at, I think you’re much better off looking at the unemployment rate because it really attempts to scale by people who want jobs and can’t find them. Once you look at things like employment-population ratio or labor force participation, you need to make sure you’re getting straight in your head all these issues we’ve been talking about of longer-term trends and cultural shifts and shifting age structure and a whole bunch of things. I think if you do that well, that brings you another, richer perspective. But if you do it badly, it can mislead you.

RUBENSTEIN: Now, you’ve worked for President Clinton and President Obama. Who understands economic matters better? (Laughter.)

FURMAN: You should ask Gene Sperling. (Laughter.)

RUBENSTEIN: OK. All right. So, with respect to the administration, you’ve got six months to go. Are there many economic policies that you think you can pursue and adopt and get implemented before the administration’s over? Is there any—what would you say your highest economic priorities are now?

FURMAN: One thing we can certainly pass is the Trans-Pacific Partnership. And that’s very important economically, very important broader than that.

There is a range of other issues—whether it’s Zika, opioids, Puerto Rico—that are important economically going through Congress.

There’s global economic management. We were just in China a few weeks ago engaging with them on the big issues around exchange rate, capacity, intellectual property, the BIT. So there’s a range of international economic relationships to put forward.

But one thing that we’re trying to do at the Council of Economic Advisors, in addition to helping out with all of that, is things like this report that we’re discussing today, that I don’t expect to be the basis for legislative action, you know, tomorrow or the next day, but I do hope change what is possible in the future.

RUBENSTEIN: So tell us, when you’re the chairman of the Council of Economic Advisors, your job is to advise the president on economic matters. So, does he call you up and say, how is the economy doing today? Or how do you actually get information to him? And does he like to hear more about it, or does he read more about it, or how do you communicate with him?

FURMAN: We send him a lot of memos. Every major piece of data—and “major” is defined quite broadly—we get a day in advance. We write up a one-page memo with our analysis. That goes to him. And, in our experience, he really reads those.

We do a lot of one-off memos on topics. So labor force participation, for example, we a few years ago did a memo that—you know, on a range of issues there.

But we also meet with him, both short meetings to brief him on the jobs number or the GDP number, longer meetings that could either be update on the global economy or on a particular policy issue. And in my experience, he’s a great reader and a great discusser. So, you know, the best is, you know, get him a memo in advance and then have a meeting, and the meeting isn’t plodding through a bunch of facts really slowly but jumping straight to discussing, you know, what the implications are and what you can do about it.

RUBENSTEIN: So suppose he says something that’s wrong. Do you say, well, Mr. President, you might not understand that completely? Or, you know, what’s the best way to phrase it to—

FURMAN: You know, fortunately that’s just never happened. (Laughter.)

RUBENSTEIN: Never happened, never happened, ah. OK.

So if the next president of the United States, whoever he or she might be, were to call you up and say you’ve been in the White House, actually, for eight years now; you know the economy pretty well; tell me what I should worry about right away, at the beginning of my administration—what should I do to jumpstart the economy or get the economy in pretty good shape—what would you recommend to either party to do?

FURMAN: You can always worry. You know, we were talking about Brexit before, so I’m worried about, you know, that this week. You know, you can worry about the 2^nd quarter GDP numbers. You can worry about the next jobs number, all of that. But I think it’s really important to not just let those urgent matters swamp your attention, and focus on some things that are really important. And I think the three biggest drivers of middle class incomes, which is our goal in economic policy—middle class and people trying to get into the middle class—are productivity growth, inequality, and participation. So this report is about one of those three. But focus on, you know, what you can do to add two-tenths of percent per year to our productivity growth rate, and that’ll take care of a lot of other problems over time.

RUBENSTEIN: And income inequality, on that subject, do you believe that there is a growing gap in income equality? Do you think it’s a result of the recession just creating this greater income equality, and afterwards the effects were such that the wealthy got wealthier and the poor got poorer? What was the reason that the income inequality got to be so great?

FURMAN: That’s a long topic. Income inequality is a lot higher now than it was in the 1970s. So it’s a longer-term thing, not quite as long term as the participation, but it’s a longer-term thing. It’s big enough that I think there’s space for a lot of explanation. Some people have, like, this is my one explanation. They get really mad at anyone who has another. I’m much more ecumenical and think, you know, we can accommodate them all. So technology is certainly one factor. A slowdown in educational attainment is another factor. Globalization has put pressure on it. The decline of labor unions. The decline of the minimum wage. Potentially some reduced competition in the economy. I think all of those have combined together to cause it.

RUBENSTEIN: OK. Is deflation a problem that you worry about very much now?

FURMAN: I’m not, frankly, that worried about it right now in the United States. We see our inflation rate moving up, not to a point that worries me, but not in a deflationary direction at all. It’s very different, of course, in Japan and the euro zone, where I think it’s a much greater concern.

RUBENSTEIN: And in China, you said you were there recently, what is your view of the likely growth rate in China this year?

FURMAN: Whatever they want. (Laughter.) No—

RUBENSTEIN: Well, Alan Greenspan used to say that the advantage of dealing with Chinese numbers is you know them before the end of the month. But your view is—

FURMAN: No, you know, they have a big set of economic challenges in terms of adjustment they’re trying to make to a consumer-oriented economy, a service oriented economy. They have a lot of resources to help meet those challenges. But you know, they’re going to need to negotiate them and then, you know, that’s all against a backdrop of it’s harder to grow when you’re closer to the frontier. And it’s harder to grow when your demography is as unfavorable as the Chinese demography is. So some of the advantages they’ve had over the last decades they’re not going to have. So they’re going to need—you know, figure out, you know, more innovation, more consumer-driven, more services.

RUBENSTEIN: What about Japan’s demography? Are you more worried about theirs?

FURMAN: Oh, now, theirs is, I mean, so worrying you might give up worrying. But they’ve—but, you know, one thing Japan’s done well, actually, is they’ve done a concerted effort to increase women’s participation in the workforce. And that’s been reasonably successful. And for prime-age women, they’re basically tied with the United States now, after being way behind us.

RUBENSTEIN: So you’re trained to be a professional economist, you are. So if you could have dinner with any person who’s ever been an economist, and just have chance to spend dinner with that person, who would you want to spend dinner with, other than the people you work for?

FURMAN: Oh, all right, good. I was about to name one of them, but that would be embarrassing to say. So I think John Maynard Keynes, just his breadth. I mean, you could spend a bunch of time talking about economics, and then you could switch to a range of other topics.

RUBENSTEIN: OK.

FURMAN: He was an investor too—successful too.

RUBENSTEIN: He was. Well, he lost money—

FURMAN: Successful, unsuccessful, successful, unsuccessful.

RUBENSTEIN: Yeah. He had his ups and downs. But OK. All right. (Laughter.) So let’s have some questions. OK. Just please right here. Identify yourself, your affiliation, and have a simple question. (Laughter.)

Q: Thank you very much. It was a great discussion. That’s a compliment to you, David, as well, Jason.

RUBENSTEIN: All right. Thank you.

Q: And my name is Paula Stern. And I’m affiliated with The Stern Group, Incorporated.

And my—

RUBENSTEIN: And a refugee of the Carter administration.

Q: Carter, and then Reagan designated me chairman. So I’m bipartisan. And we all are, as CFR is very definitely.

My question—this was so wonderful, as was the last CEA report, particularly on inequality and social immobility. Thank you very much for all your service. My question, since David asked so many wonderful ones, is about the—your policies, particularly the one regarding providing workers more ability to use unemployment insurance to integrate into a new job. Now, this relates to the TPP as well, and the trade adjustment assistance, which over the years has had many proposals, all of which have—(laughs)—either not been properly funded or have not been put into place.

Do we need a whole new program for this economy for what I guess I would consider the gig economy, where everybody is kind of coming in and going out and there’s lots of churn, and certainly the need to prepare? Is there a program there that you would put as a priority?

FURMAN: Mmm hmm. So I think the—I think that’s a great question. We’re doing one at time, right?

RUBENSTEIN: One at a time.

FURMAN: OK, great.

RUBENSTEIN: How come you didn’t say any of my questions were great? But, geez, OK. (Laughter.) That must have been a really good question.

FURMAN: And what you’re asking is very much the motivation for a lot of the unemployment insurance reforms we’re talking about. If you look at the fraction of people who aren’t—who are unemployed, but are getting, are eligible for unemployment insurance, it’s much lower today than it was in the past, in part because of those economic developments you said. So one thing is to make it, for example, if you work part time, or if you have a shorter work history, or things like that, that you’re more eligible for unemployment insurance.

And the particular line you called that there was something where we’d like to have states to have more flexibility to do innovative things with their unemployment insurance including not just you get it when you don’t have a job, but let’s say you get an apprenticeship that might lead to a job, maybe you carry some of that money with you. That will be an incentive for the employer to hire you, an incentive for you to go onto and get you back into the workforce. And we’ve seen that successfully in some states. And that has to be done, you know, carefully. There’s a lot of different twists and turns in it. But it’s something we think, you know, is a sensible thing to incorporate within the existing program.

RUBENSTEIN: OK. Back here. Stand up and please identify yourself. And a mic.

Q: Thank you. Adam Taylor with the World Bank Group.

So thank you. Great overview. I’m curious what happens when you separate your data by race. You mentioned gender. But there are pronounced disparities in the unemployment rate between black, white, Hispanic, et cetera. I’m curious if they’re as pronounced in the male, prime labor participation rate. And if so, does the more general approach of policy prescriptions that you outline, is that enough? Or does it require much more targeted prescriptions in order to accelerate the participation rate in order to catch up?

FURMAN: All right. So thanks for that question. We do have a chart which shows the prime-age male labor force participation by race in the report. And I think there were copies of the report floating around. The basic thing that you see, which you probably wouldn’t be surprised, is that for black men their labor force participation rate has fallen a bit more than it has for white men, and is a decent amount lower. Hispanics, interestingly, it’s been the opposite. It’s risen a little bit or been more stable. And so Hispanic labor force participation for prime-age men is now a tiny bit higher than it is for white men. That’s also part of a broader fact that immigrants are more likely to participate than non-immigrants, which is one of, you know, the many economic benefits of immigration reform.

In terms of the implications of that for policy, certainly it says things like My Brother’s Keeper are—you know, that are more targeted are very important. But I wouldn’t lose the bigger, macro issue either. If you look at the Great Recession, the biggest impact on unemployment was on—you know, was on African-Americans. The unemployment rate went up from the mid 9s, I think, to about 16, which is—which is terrible. If you look at the recovery, the unemployment rate for African-Americans actually fell more quickly than the overall unemployment rate. So there is a first to be fired, but also a, you know, are benefitted by a broader economic recovery and aggregate demand. So I wouldn’t lose sight of the aggregate policies at all.

RUBENSTEIN: OK. Right here.

Q: Good afternoon. Nicole Lamb-Hale, from Albright Stonebridge Group.

What’s the impact of the shared economy or the sharing economy on U.S. economic outlook?

FURMAN: It’s a—you have a better question than I have an answer, which is we don’t have really great data to track that sector of the economy. Right now, it doesn’t seem actually that large relative to GDP, as it is relative to, you know, news coverage and discussion of it, or our own felt experience with it. My expectation is that for the most part it represents, you know, a set of innovations and new sets of innovations are what you need for productivity growth. And that will help our economy.

Overall, it’s created some challenges as well if part of what’s going on is regulatory arbitrage and a way of, you know, unleveling the playing field. But even some of that is good if you take, you know, a city that has fewer medallions—taxi medallions today than it did in 1945 and give people another way to travel around that circumvents, you know, a captured system like that. That breaks down a barrier to growth. But I don’t have any quantification.

RUBENSTEIN: By the way, on companies like Uber and smartphones, all the other technological devices we now use and services, why has that not produced greater productivity in our economy? We don’t see great productivity growth. Why is that?

FURMAN: I think some of it is it just isn’t that large a fraction of what we do. So we spend I think something like 15 times more a year on air travel than we do on taxi and livery service. So we’re all really excited about, you know, our Uber, but it, itself, within the transportation sector, is just a small fraction of it, which itself is a smaller fraction of everything else. And that’s just true.

If you just add up GDP, GDP is building houses, educating people, treating people in health care. There are a bunch of big sectors like that and all the exciting stuff in Silicon Valley is still a relatively small part of it overall.

RUBENSTEIN: And back here? Get the mic right there.

Q: (Inaudible.)

RUBENSTEIN: And speak up.

Q: My question has to do with the things you just mentioned. Do you think we’re in the middle of a tech bubble?

FURMAN: You should ask the markets person here that question. (Laughter.) (Inaudible)—a markets person.

RUBENSTEIN: Right here.

Q: Do you think we’re in a tech bubble?

FURMAN: I think policymakers have done a notoriously poor job trying to identify bubbles. And part of our goal in policy is a broader one of strengthening the fundamentals of the economy. I think there’s a lot of really exciting things going on in tech.

You know, as to the valuation of any particular sector, I would completely defer to you, David.

RUBENSTEIN: I think that there are a fair number of so-called unicorns that are not going to be going public at the valuation they currently exist at. And I cannot possibly—what I think happened, honestly, is that it used to be the case in the technology world that if you were building up a company you went—you took it public. And when you took it public, that’s when the founders could get some profits and the investors get profits.

When Facebook came along, for the first time ever, in a meaningful way, people were able to invest in the company significantly, buy founders out and early investors out, and provide liquidity without having to go public. And those people that went in at $20 billion and $30 billion—and Goldman had around a $50 billion valuation—they still made staggering amounts of money.

So when that happened people said, I can invest in these companies pre-IPO. I don’t have to wait for an IPO to cash out, and I’m happy to have very high valuations, because eventually they’re all going to be like Facebook. And I think that produced a phenomenon where everybody raced into these technology companies. And while there are only a few Ubers—which clearly are very unique companies—I don’t think they’re all going to be Ubers or Facebooks.

So I do think that you’re going to see some of the air going out of some of these companies, as I think you’ve already seen, but there will be some truly transformative companies like Uber. Now, Uber’s latest valuation is $62 billion. So if you just went into the latest round at $62 billion, to double your money you’ve got to have $120 billion valuation.

And, you know, that’s a high valuation. There aren’t that many companies in the world with that kind of valuation. But I do think that there are going to be some people disappointed in these technology companies but some people will make some money.

That’s probably a longer answer than you wanted and maybe not as satisfying.

FURMAN: Which one will you bid? (Laughter.)

RUBENSTEIN: Well, I generally think professional investors just have a hard time going into these companies with these very high valuations. We probably would rather miss on the upside than be looking like an idiot and going down. So I think you’re not seeing a lot of professional investors, pension funds, and others going into these high valuations, but there are individual investors that make a lot of money out of Facebook and some other pre-IPO deals. And, you know, so there’s some people taking bets on them.

But a lot of money that’s coming in now is foreign money. A lot of people around the world observed that Facebook did very well, and they don’t have an equivalent of Facebook in their own country. So a lot of the money that’s coming in now is foreign money. It’s sovereign wealth fund money, foreign pension fund money, and high net-worth money coming in to, I think, build up the valuations of some of these companies.

Yes, right here.

Q: Odeh Aburdene, the Capital Group.

Jason, in 2008-2009 David was very negative on European banks. He told me to short them—the Credit Suisse and Deutsch Bank. These banks continue to have problems. If you look at their price today, they’re way down. What is the outlook for these huge European banks in view of the economic slowdown in Europe?

FURMAN: Look, I think if you’re listing the things people are worried about in the global economy, the European banks and certainly the banks in certain countries in Europe are unfortunately on that list in a way that U.S. banks aren’t. And that’s a reflection of we very early, you know, did a stress test and did an honest accounting of what the capital needs were in our banks. We put a lot of public effort and complementary private effort into recapitalizing the banks, and now they have, you know, not just more capital but also financial situations that people are reasonably trusting of.

Europe has gotten a decent amount better in that regard. They eventually, after a few attempts, got their stress tests basically right. They have seen more capital. It’s more on, you know, some of the issues on the asset side of some of their balance sheets. But, you know, I think it does remain a concern and something that they need to focus on.

RUBENSTEIN: Great.

Yes, back here?

Q: Great. Tom Bollyky from the Council on Foreign Relations.

Thank you for the great conversation. You brought up the Trans-Pacific Partnership and trade. And the Council of Economic Advisers has put out—or in the past—reports including a full-throated defense of how the U.S. has done under previous trade agreements, including NAFTA.

One of the things that was striking about that is it’s different from the way the TPP has been sold by the administration as a whole, which starts with the premise typically that the way the U.S. has done under recent trade agreements including NAFTA has been problematic, but that that those problems are addressed in the TPP and that’s the reason why we should move forward.

Why hasn’t the more full-throated defense of how the U.S. has done in previous trade agreements, including NAFTA, been part of the selling job? Can we move forward TPP while disavowing NAFTA and previous U.S. trade agreements?

FURMAN: So we haven’t done anything that is explicitly an analysis of any given previous trade agreement, including NAFTA. What we’ve talked about is the overall large benefits of trade in general and of expanding trade: how tariffs have come down over time, how the benefits are, in terms of producers and export jobs, paying more, but also the very progressive benefits on the consumption side as well.

So I think making that broader case on trade is important, but I also think it’s really important that TPP—no one in Congress will have an up or down vote on trade or globalization. That’s not the thing that anyone is being asked to vote on. They’re being asked to vote on a specific agreement with a specific text and specific provisions. I think it’s very important to keep the focus on that.

And so whatever your views about all these bigger, broader issues—you know, what do you think about whether Malaysia should have stricter labor laws than it has now? What do you think about whether Vietnam should have rules about state-owned enterprises that they don’t have now? What do you think about, you know, Brunei needs to have, you know, an open internet, that Singapore will be party to an agreement—a side agreement on currency?

You know, that’s the questions that people are going to need to vote on and need to make their decision on. And there, you know, in every one of the respects I just cited, this agreement, you know, moves forward from any of the previous ones. So regardless of your views on them, this is a way to have a more level playing field. And that’s the argument we’ve been trying to make.

RUBENSTEIN: They should have considered for TPP an acronym that would sound better, like YES, Y-E-S, or GOOD, G-O-O-D—(laugher)—something that, when you say it, it sounds really good. “TPP” doesn’t have—doesn’t, you know, go off your tongue that easy. (Laughter.)

OK, yes, right here.

Q: Hi. Nelson Cunningham, McLarty Associates.

Thanks for coming and doing this, Jason. On page 6, the institutional explanations with the OECD numbers, the numbers all sort of roughly made sense to me except for the very top one, which is “Barriers to Entrepreneurship.” And the U.S. had a number of 62, which seems to suggest in the world, or at least in the OECD world, that it’s sort of in the middle ranks of countries in terms of entrepreneurship, which is certainly not how I think of the U.S. compared to the other OECD countries.

FURMAN: Yep.

Q: Can you explain that number to us?

FURMAN: You know, I was puzzled by that too and have meant to look into it more and don’t actually know the answer, so—but I’ll get back to you.

RUBENSTEIN: OK, back here.

Q: Thank you. Rich Miller with Bloomberg. Thanks very much for the presentation.

You alluded to this before, but I wondered if you could expand on the role of immigration in—both legal and illegal—in the fall in participation rate, especially among the lesser-educated.

FURMAN: Mmm hmm. Immigration has, you know, mostly likely helped the labor force participation rate. There’s two aspects of it. One is, people tend to come to this country more in their working years. You don’t get a lot of 80-year old immigrants. And you don’t get a whole lot of, you know, children coming here on their own either. So the group of people you get is more demographically favorable. And then they’re people who are—you know, tend to be working really hard to be successful and incorporate themselves into the U.S. economy, and as a result tend to participate at a higher rate than people that were born here.

So I think it has been something that’s helped it. And if we had comprehensive, common-sense immigration reform, it would continue to help it going forward, both in terms of the age of the people you’re bringing, or propensity to immigrate, but also the positive spillovers that immigration has for other workers in the economy, for their wages, and for growth overall.

Q: But what would you think about the argument that some would make, is that when you have more immigration the immigrants are willing to work at lower prices or lower salaries, so therefore it’s a disincentive for, let’s say, native-born Americans who don’t want to work at these lower prices, therefore they just say I’ll stay at home. What do you think of that argument?

FURMAN: There’s been—a lot of people have taken a look at large influxes of immigrants, whether it was from Cuba during the Mariel boatlift, Algerians to France, Russian Jews to Israel—you tend to see very little impact of wages of people in the countries, that those large influxes of immigration come to. And that’s because a lot of what immigrants are doing actually complement the things that native workers are doing. I think it’s also important that when you look at something like common sense immigration reform, that’s not even what we’re talking about. Most of what we’re talking about is taking the 11 million people who are here, who are not documented, and giving them a path to participate in the workforce and to become citizens. And that means they’ll have more labor rules applied to them, if anything will be less able to bargain wages down.

RUBENSTEIN: And when I introduced you, I didn’t mention that your freshman year roommate was Matt Damon. Is that true?

FURMAN: I was grateful for that omission, but it is true.

RUBENSTEIN: And what was he like? (Laughter.) Did you know he was going to be famous—

FURMAN: He was—I think in literally the first conversation we had in front of Matthews in Harvard Yard he told me I was really lucky to have him as a roommate, because he was almost certain to become a movie star. And that wouldn’t mean—he didn’t mean in the sense that years later you could have this in my thing, the more practical that he’d be leaving our room in the middle of the year and it would be too late to replace him, so I would have the whole thing to myself. But it took him a little bit longer than he had projected.

RUBENSTEIN: OK. All right. Is he inviting you to any movie openings, or he doesn’t invite you to any movie openings?

FURMAN: We see each other from time to time.

RUBENSTEIN: OK. Right here, Lloyd.

Q: Lloyd Hand, King & Spalding.

I happened to be in the audience, because our granddaughter graduated from MIT, when Matt Damon made the commencement address. He was terrific. He had a particular poignant comment—

FURMAN: Did he get introduced as my former roommate? (Laughter.) They thought maybe he had enough—

Q: He may have missed that part. But for this particular audience, for which the word nerd is an understood, he said: Before people care about what you know, they want to know about whether you care. I thought that was a pretty good point. He made a terrific speech. It was a good mixture.

My question, you sort of demurred when David asked you earlier about what policy prescriptions you may have for future leaders. I have a related question.

FURMAN: I just didn’t want to take, like, a couple hours and it deserved a more succinct answer than I was capable—

Q: Of course, that would depend upon which person you were advising. But my question is this, as you—and you may want to take your chairman’s hat off to be able to answer this. But are there any particular issues, factors, concerns that you’ve learned expressed from the electorate—not DNR, but just that surprise you and that provide maybe some lessons learned?

FURMAN: You know, I just—I mean, I don’t know that I’m surprised by it, but there’s a decent amount of economic discontent, as we all know, and as we see affecting things. The combination of the tax changes we’ve done in this administration, both cutting taxes at the bottom, raising them at the top, and the Affordable Care Act are the biggest, you know, progressive change—or among the biggest progressive policy changes we’ve had in decades. So they’ve really done a lot. The economy’s in, you know, much better shape than it was in eight years ago. But you still have a lot of discontent.

And I think some of that is wages aren’t growing as quickly as you’d like them to grow. But some of it is this issue we’re discussing here today, when 60 years ago 2 percent of men weren’t in the workforce and now it’s 12 percent of men. That’s a lot of people. And so it can be for your typical person things are just fine, but you have a very large group for whom it is very far from fine. You know, I think that’s screaming out for attention and screaming out for us to do something about it.

RUBENSTEIN: Yes, right here.

Q: The question—

RUBENSTEIN: We have—take a—

Q: Just one theory on the entrepreneurship. We had the lowest level of people starting businesses I think in the last 60 years. And some of the explanation—my name’s Kathleen Kennedy Townsend.

And some of the explanation is that a lot of students are—have so much student debt that they can’t access money that they would have accessed to start businesses. That’s one of the challenges on entrepreneurship that we’ve looked at. What I was going to ask you about is that union membership and how you can help with that. Because I think this is related to both income, on one hand, and also social solidarity. As you know, the group that you’re working with is also committing suicide at larger rates than they ever had before, comparable to the AIDS epidemic in the 1980s. And part of—as union—being part of a union raises your happiness levels, which I’m sure you’ve seen the numbers on that. So the extent that you can up unions’ membership, you get two—you got a twofer. People are happier, and, two, they can get better benefits. So I’d love you to talk about that.

FURMAN: Yeah. So I agree with that on substance. And the CEA put out an issue brief on unions and voice—worker voice in the economy more broadly about six months ago that, you know, brought together a lot of the evidence in that area. But a lot of what you do there isn’t rocket science. It’s changing a bunch of detailed rules about how people signed up. Certainly in the first two years of this administration, the Employee Free Choice Act was before Congress. It’s something that, you know, couldn’t get 60 votes in the Senate so it didn’t make it to the president’s desk. Since then we’ve tried to take steps like the NLRB, and making sure that that’s there and that that’s protected, and that that’s protecting people’s ability to organize.

RUBENSTEIN: OK. We have time for one more question. Carla, our co-chairman on the Council, will have the last question.

Q: Thank you, David. Carla Hills, Hills & Company, international consultants.

I thought your presentation on the labor participation was outstanding. And we’re having greater manufacturing output with fewer workers. But we also have a recording of job shortages—serious job shortages, which don’t need a doctorate or a college degree. They need training. Is there any discussion going on about how to get folks that have been dislodged from manufacturing and are not screwing wheels on autos, but who could come and fix my computer and connect things, but they don’t need a doctorate to do it? And is there any talk about giving a stipend, the way that Latin American countries have enlarged their middle class, by giving a stipend to you, a family, to send your family to school. But you don’t get that stipend unless you turn in the attendance record to show that they did go to school. And it’s working. Could we do something like that?

FURMAN: Mmm hmm. So I think that’s exactly the types of questions we need to asking, because as I was trying to show, just having a free market can be a great thing in many respects, but it’s not going to, by itself, help us in the way that we fully want institutions to help make the labor market function. When it comes to training, most of the dollars there are spent by—privately, not by the government. So part of what you want to do is work with employers, get employers together with community colleges, having community colleges train people for places where there is demand rather than, you know, sending their workers out hoping—you know, the students out hoping that they have some skill that somebody else would want. So that type of demand-driven training.

The vice president headed up an effort for the president and has done a number of these things. And we’ve tried to, you know, integrate them in where we’re using existing federal dollars today, as well as convene and work with others to better coordinate. In terms of some of the bigger ideas you cited, I think that’s intriguing and, you know, we’re thinking about.

RUBENSTEIN: OK. So to keep the Council’s happiness index high, I’m going to end on time, 1:30. I want to thank you, Jason, for the great job you did today, and for the great job you’re doing for our country in the role as chairman of the Council of Economic Advisors. Thank you very much.

FURMAN: Thank you. (Applause.)

(END)