U.S. in the World Economy during the

1990s

U.S. in the World Economy during the

1990s

-2

0

2

4

6

1990 1991 1992 1993 1994 1995 1996

France

United States

Italy

Japan

United Kingdom

GDP growth (annual %)

GOOD NEWS

0

2

4

6

8

10

12

141

98

8

19

90

19

92

19

94

19

96

US

France

Italy

Unemployment Rates, 1988-97

INFLATION

STOCK PRICES--DOW JONES AVERAGE

BAD NEWS

Real wages

Distribution of economic well-being

-0.5

0

0.5

1

1.5

2

2.5

3

1960-69 1969-73 1973-81 1981-90 1990-96

Multifactor productivity Output per employee

Two measures of productivity growth, non-farm business

Increasing Earnings and Income Inequality

Gottschalk and Smeeding. 1997. Cross-national

comparisons … Journal of Economic Literature

Basic Earnings Distribution Concepts

P10 P20 P80 P90P50

(median)

0

50

100

150

200

250

P10 P90 (P90/P10)* 10

Australia

Canada

Finland

Germany

Israel

Netrherlands

Sweden

U.K.

U.S.

Earnings Distributions, All Male Workers, Percentiles of Median and Decile Ratios

Earnings Distributions, All Female Workers, Percentiles of Median and Decile Ratios

0

50

100

150

200

250

P10 P90 (P90/P10)*10

Australia

Canada

Finland

Germany

Israel

Netherlands

Sweden

U.K.

U.S.

0

50

100

150

200

Low earnings(P10) High Earnings (P90)

Netherlands

Germany

Australia

U.K.

Sweden

Canada

U.S.

Percent of U.S. median earnings earned by workers at the 10th and 90th percentile marks.

Changes in Male Earnings Inequality Over the 1980s.

0

20

40

60

80

100

U.S

.

Aus

tral

ia-b

Can

ada-

a

Finl

and-

a

Fran

ce-a

Ger

man

y

Italy

Net

herla

n

Sw

eden

-a

U.K

.-a

Relative to the U.S. trend

Explanations for Improved Performance• Lester Thurow, USA Today

piece• U.S. strengths match up well

with strengths needed to do well in 1990s– can open up the new and close

down the old rapidly

Richard Lester. 1998. The Productive Edge.

SPRINGBOARD

Trends in Manufacturing productivity growth

0

1

2

3

4

1960-69 1969-73 1973-81 1981-90 1990-96

Nonfarm business Manufacturing

Average annual productivity growth during business cycles

Lester’s methodologyCase studies of:

• Auto industry• electric steel production• semiconductors• electric power• wireless communications

Projected and Actual U.S. and Japanese Market Shares of Global Semiconductor Industry, 1982-2000.

SEMICONDUCTORS

INTEL--A ‘best practice’ firm

• Annual sales equal 1/3 of entire U.S. semiconductor industry

• Earns highest profits by being first to market with new products

• uses those profits to outspend competitors to build the next generation of fabs.– 1991-96: spent $13B in capital

additions

Bases for recovery• Vertical disintegration gives

advantages in:– speed of conversion of new designs

into products– flexibility to identify and respond to

new market opportunities.

• Shift from COMMODITY to CUSTOMIZED chips– American firms bet on the right

horse

Key features of the competitive climate of

these industries• Blurring of distinction between

manufacturing and services• rising volatility in the external

environment linked to:– rapid technological change– globalization– deregulation

• forces constant reassessment of:

Lessons taught by successful firms

• Organizational transformation from vertical to horizontal structures

• commitment to upgrading skills • closer relations with suppliers and

customers• global perspective• willingness to listen to an “inner

voice”