2015 OASDI Trustees Report

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B. ECONOMIC ASSUMPTIONS AND METHODS
The three alternative sets of economic assumptions reflect a continuation of the gradual recovery from the recession that started in December 2007. The intermediate assumptions reflect the Trustees’ consensus expectation of sustained moderate economic growth and their best estimate for various other economic parameters. The low-cost assumptions represent a more optimistic outlook: a faster recovery, stronger long-term economic growth, and relatively optimistic levels for other parameters. The high-cost assumptions represent a more pessimistic scenario: a slower recovery, weaker long-term economic growth, and relatively pessimistic levels for other parameters.
Actual economic data were available through the third quarter of 2014 at the time the Trustees set the assumptions for this report. The data indicated that economic activity peaked in December 20071 with the level of gross domestic product (GDP) about 1 percent above the estimated long-term sustainable trend level. A severe recession followed, with a low point in the economic cycle reached in the second quarter of 2009 with GDP about 7 percent below the estimated sustainable trend level. The annual growth rate in real GDP has been positive in all years since then, but not as strong as in most past recoveries. The Trustees project that the economy will return to its sustainable trend level of output within the first 10 years of the projection period and remain on that trend thereafter. However, the speed of the return varies by alternative. The economy is projected to return to its sustainable trend level of output by 2022 for the intermediate assumptions, 2020 for the low-cost assumptions, and 2024 for the high-cost assumptions, about 1 year later than in last year’s report for each alternative. Complete cycles have little effect on the long-range estimates of financial status, so the assumptions do not include economic cycles beyond 10 years.
The key economic assumptions underlying the three sets of projections of the future financial status of the OASI and DI Trust Funds are discussed in the remainder of this section.
1. Productivity Assumptions
Total U.S. economy productivity is defined as the ratio of real GDP to hours worked by all workers.2 The rate of change in total-economy productivity is a major determinant in the growth of average earnings. Over the last five complete economic cycles (1966-73, 1973-79, 1979-89, 1989-2000, and 2000-07, measured peak to peak), the annual increases in total productivity averaged 2.27, 1.10, 1.38, 1.79 and 2.15 percent, respectively. For the 41-year period from 1966 to 2007, covering those last five complete economic cycles, the annual increase in total-economy productivity averaged 1.73 percent.
The assumed ultimate annual increases in total-economy productivity are 1.98, 1.68, and 1.38 percent for the low-cost, intermediate, and high-cost assumptions, respectively.3 These rates of increase are unchanged from the 2014 report.
The average annual rate of change in total economy productivity from 2007 (the end of the last complete economic cycle) to 2014 is estimated to be 1.18 percent. For the intermediate assumptions, the annual change in productivity is assumed to be 1.77 percent for 2015, then increase to 1.92 percent for 2016, gradually decline to 1.67 percent for 2022 and 2023, and then rise to its ultimate value of 1.68 percent for 2024 and later. For the low-cost assumptions, the assumed annual change in productivity is 1.94 percent for 2015, then increases to 2.24 percent for 2017, averages 2.03 percent for 2018 through 2022, and reaches its ultimate value of 1.98 percent for 2023. For the high-cost assumptions, the assumed annual change in productivity is 1.08 percent for 2015, 1.34 percent for 2016, then averages 1.68 percent for 2017 through 2022, 1.24 percent for 2023 through 2024, and reaches its ultimate value of 1.38 percent for 2025 and later.
2. Price Inflation Assumptions
Future changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI) will directly affect the OASDI program through the automatic cost-of-living benefit increases. Future changes in the GDP price index (GDP deflator) affect the nominal levels of GDP, wages, self-employment income, average earnings, and taxable payroll.
The annual increases in the CPI averaged 4.61, 8.54, 5.31, 2.96, and 2.65 percent over the economic cycles 1966-73, 1973-79, 1979-89, 1989-2000, and 2000-07, respectively. The annual increases in the GDP deflator averaged 4.60, 7.52, 4.68, 2.20, and 2.50 percent for the same respective economic cycles. For the 41 years from 1966 to 2007, covering the last five complete economic cycles, the annual increases in the CPI and GDP deflator averaged 4.56 and 4.03 percent, respectively. The estimated average annual change from 2007 (the end of the last complete economic cycle) to 2014 is 1.99 percent for the CPI and 1.55 percent for the GDP deflator.
The assumed ultimate annual increases in the CPI are 3.4, 2.7, and 2.0 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These rates of increase are unchanged from the 2014 report. For a given rate of growth in average real earnings, a higher price inflation rate results in faster nominal earnings and revenue growth immediately, while the resulting added growth in benefit levels occurs with a delay, causing an overall improvement in the actuarial balance. Similarly, a lower price inflation rate causes an overall decline in the actuarial balance.
The Federal Reserve Board’s monetary policy changed in the 1980s toward more vigilance in preventing high inflation. Consistent with the Board’s continued emphasis on containing inflation, as indicated by their current target for the GDP deflator,4 the Trustees lowered the assumed ultimate annual rate of increase in the CPI for the intermediate case from 4.0 percent for the 1996 report to 2.8 percent for the 2004 through 2013 reports, and to 2.7 percent for the 2014 and 2015 reports.
For the intermediate assumptions, the assumed annual change in the CPI is 0.20 percent for 2015, 2.97 percent for 2016, 2.76 percent for 2017, and reaches the ultimate growth rate of 2.70 percent for 2018 and later. For the low-cost assumptions, the assumed annual change in the CPI is 0.34 percent for 2015, increases to 3.44 percent for 2017, and drops to its ultimate annual growth rate of 3.40 percent for 2018 and later. For the high-cost assumptions, the assumed annual rate of change in the CPI is 0.11 percent for 2015 and increases to 2.57 percent for 2016 before dropping to the ultimate annual change of 2.00 percent for 2018 and later. The projections for the first two years are influenced by the changes in the price of oil.
The annual increase in the GDP deflator differs from the annual increase in the CPI because the two indices are constructed using different computational methods and coverage. The difference between the rate of change in the CPI and the rate of change in the GDP deflator is called the price differential in this report. For the 41 years from 1966 to 2007, covering the last five complete economic cycles, the average annual price differential was 0.54 percentage point. From 2007 (the end of the last complete economic cycle) to 2014, the average annual price differential is estimated to be 0.45 percentage point.
The assumed ultimate price differential is 0.3, 0.4, and 0.5 percentage point for the low-cost, intermediate, and high-cost alternatives, respectively. Varying the ultimate projected price differential across alternatives recognizes the historical variation in this measure. Accordingly, the assumed ultimate annual increase in the GDP deflator is 3.1 (3.4 less 0.3), 2.3 (2.7 less 0.4), and 1.5 (2.0 less 0.5) percent for the low-cost, intermediate, and high-cost alternatives, respectively. The ultimate price differentials for the three alternatives are unchanged from the 2014 report.
The price differential was 1.6 percentage points for 2011, 0.30 percentage point for 2012, -0.12 percentage point for 2013, and is estimated to be -0.04 percentage point for 2014 and assumed to be ‑0.80 for 2015. The negative price differential since 2011 primarily reflects a general decline in oil prices in recent years. Changes in oil prices affect the CPI much more than the GDP deflator because oil represents a much larger share of U.S. consumption than of U.S. production. For 2017 and later, oil prices are assumed to grow at a relatively stable rate. For the intermediate assumptions, the assumed price differential is 0.60 percentage point for 2016 and 0.40 percentage point for 2017 and later.
3. Average Earnings Assumptions
The average level of nominal earnings in OASDI covered employment for each year has a direct effect on the size of the taxable payroll and on the future level of average benefits. In addition, under the automatic adjustment provisions in the law, growth in the average wage in the U.S. economy directly affects certain parameters used in the OASDI benefit formulas as well as the contribution and benefit base, the exempt amounts under the retirement earnings test, the amount of earnings required for a quarter of coverage, and in certain circumstances, the automatic cost-of-living benefit increases.
Projected growth rates in average covered earnings and average wages are derived from projections of the most inclusive measure, average U.S. earnings. Average U.S. earnings is defined as the ratio of the sum of total U.S. wage and salary disbursements and net proprietors’ income to the sum of total U.S. civilian employment and armed forces. The growth rate in average U.S. earnings for any period is equal to the combined growth rates for total U.S. economy productivity, average hours worked, the ratio of earnings to total compensation (which includes fringe benefits), the ratio of total compensation to GDP, and the GDP deflator.
The average annual change in average hours worked was -0.27 percent over the last five complete economic cycles covering the period from 1966 to 2007. The annual change in average hours worked averaged -0.71, -0.56, 0.00, 0.16, and ‑0.63 percent over the economic cycles 1966-73, 1973-79, 1979-89, 1989‑2000, and 2000‑07, respectively. From 2007 (the end of the last complete economic cycle) to 2014, the average annual change in average hours worked is estimated to be -0.08 percent.
The ultimate annual rates of change for average hours worked are assumed to be 0.05, -0.05, and -0.15 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These ultimate annual rates of change for average hours worked are unchanged from the 2014 report.
The average annual change in the ratio of earnings to total compensation was ‑0.20 percent from 1966 to 2007. Most of this decrease was due to the relative increase in the cost of employer-sponsored group health insurance for wage workers. Assuming that the level of total employee compensation is not affected by the amount of employer-sponsored group health insurance, any increase or decrease in employer-sponsored group health insurance leads to a commensurate decrease or increase in other components of employee compensation, including wages. Projections of future ratios of earnings to total compensation follow this principle. The Trustees assume that the total amount of future employer-sponsored group health insurance will increase more slowly than in the past due to provisions of the Affordable Care Act of 2010, as described in the 2010 report. Data from the Bureau of Economic Analysis (BEA) indicate that the other significant component of non-wage employee compensation is employer contributions to retirement plans. The other component is assumed to grow faster than employee compensation in the future as life expectancy and potential time in retirement increase.
The average annual rate of change in the ratio of wages to employee compensation from 2025 to 2089 is assumed to be about 0.01, ‑0.09, and ‑0.19 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These assumed rates are 0.04 percentage point higher (less negative) than those assumed in the 2014 report. The change is due to new data that indicate slower growth in employer-sponsored health insurance, and the assumption that this slower growth will continue. Under the intermediate assumptions, the ratio of wages to employee compensation is assumed to decline from 0.807 for 2014 to 0.758 for 2089. The assumed ultimate annual rate of this decline, now 0.09 percent, compares with 0.13 percent assumed for the 2014 report, and 0.20 percent assumed for the 2009 report, prior to enactment of the Affordable Care Act of 2010. The ratio of earnings to compensation includes self-employment income both in the numerator and in the denominator. As a result, the rate of decline in earnings to compensation (which, under the intermediate assumptions, averages 0.08 percent from 2025 to 2089) is less than the rate of decline in wages to employee compensation.
The ratio of total compensation (i.e., employee compensation and net proprietors’ income) to GDP varies over the economic cycle and with changes in the relative sizes of different sectors of the economy. Over the last five economic cycles from 1966 to 2007, this ratio has averaged 0.627. The ratio declined from 0.648 for 2001 to 0.607 for 2013. This ratio is assumed to rise as the economy recovers, reaching a level of 0.631 for 2024. For years after 2024, relative sizes of different sectors of the economy are assumed to remain constant, and therefore the ratio of total compensation to GDP remains at the 2024 level for each alternative.
The projected average annual growth rate in average nominal U.S. earnings from 2025 to 2089 is about 3.88 percent for the intermediate alternative. This growth rate reflects the average annual growth rate of approximately ‑0.08 percent for the ratio of earnings to total compensation, and also reflects the assumed ultimate annual growth rates of 1.68, -0.05, and 2.30 percent for productivity, average hours worked, and the GDP deflator, respectively. Similarly, the projected average annual growth rate in average nominal U.S. earnings is 5.20 percent for the low-cost assumptions and 2.58 percent for the high-cost assumptions.
Over long periods, the average annual growth rate in the average wage in OASDI covered employment (henceforth the “average covered wage”) is expected to be very close to the average annual growth rate in average U.S. earnings. Specifically, the assumed average annual growth rates in the average covered wage from 2025 to 2089 are 5.20, 3.87, and 2.55 percent for the low-cost, intermediate, and high-cost assumptions, respectively. The annual rate of change in the average covered wage was 3.24 percent for 2014. For the intermediate assumptions, as the economy recovers, the annual rate of change in the average covered wage is projected to average 4.45 percent from 2014 to 2024. Thereafter, the assumed average annual rate of change in the average covered wage is 3.87 percent.
4. Assumed Real-Wage Differential
For these reports, the real increase in the average covered wage has traditionally been expressed in the form of a real-wage differential — the annual percentage change in the average covered wage minus the annual percentage change in the CPI. For the 41-year period including 1967 through 2007, covering the last five complete economic cycles, the real-wage differential averaged 0.89 percentage point, the result of averages of 1.47, 0.01, 0.46, 1.57, and 0.60 percentage points over the economic cycles 1966-73, 1973-79, 1979-89, 1989-2000, and 2000‑07, respectively.
For the years 2025‑89, the assumed annual real-wage differentials for OASDI covered employment average 1.80, 1.17, and 0.55 percentage points for the low-cost, intermediate, and high-cost assumptions, respectively. The real-wage differential is higher than the assumed values from last year’s report by about 0.04 percentage point for each alternative.
The estimated real-wage differential averaged 0.03 percentage point for 2008 through 2014 (the years since the last complete economic cycle ending in a peak). For the intermediate assumptions, the real-wage differential increases from 1.75 percentage points for 2014 to 3.18 percentage points for 2015, an improvement that reflects the economic recovery. Thereafter, the real-wage differential gradually declines to an average of 1.17 percentage points for 2025-89. For the low-cost assumptions, the real-wage differential is 3.79 percentage points for 2015, and gradually declines to its long-run average of 1.80 percentage points for 2025-89. For the high-cost assumptions, the real-wage differential is 1.86 percentage points for 2015, averages 1.49 percentage points for 2016 through 2020, 1.00 percentage point for 2021 through 2025, and 0.55 percentage point for 2025-89.
Annual percentage change1 in—
Real-
wage
differ-
ential 2
Economic cycles:3
2014 5

1
For rows with a single year listed, the value is the annual percentage change from the prior year. For rows with a range of years listed, the value is the compound average annual percentage change.

2
For rows with a single year listed, the value is the annual percentage change in the average annual wage in covered employment less the annual percentage change in the Consumer Price Index. For rows with a range of years listed, the value is the average of annual values of the differential. Values are rounded after all computations.

3
Economic cycles are shown from peak to peak, except for the last cycle, which is not yet complete.

4
Greater than -0.005 and less than 0.005 percent.

5
Historical data are not available for the full year. Estimated values vary slightly by alternative and are shown for the intermediate assumptions.

5. Labor Force and Unemployment Projections
The model used by the Office of the Chief Actuary at the Social Security Administration for this report projects the civilian labor force by age, sex, marital status, and presence of children. Projections of the labor force participation rates reflect disability prevalence, educational attainment, the average level of Social Security retirement benefits, the state of the economy, and the change in life expectancy. The projections also include a “cohort effect,” which reflects a trend upward in female participation rates across cohorts born through 1948.
The annual rate of growth in the size of the labor force decreased from an average of about 2.4 percent during the 1966-73 economic cycle and 2.7 percent during the 1973-79 cycle to 1.7 percent during the 1979-89 cycle, 1.3 percent during the 1989-2000 cycle, and 1.0 percent during the 2000-07 cycle. Further slowing of labor force growth will follow from a substantial slowing of growth in the working age population in the future — a consequence of the baby-boom generation approaching retirement and succeeding lower-birth-rate cohorts reaching working age. Under the intermediate assumptions, the labor force is projected to increase by an average of 1.0 percent per year from 2014 to 2024 and 0.5 percent per year over the remainder of the 75‑year projection period.
The projected labor force participation rates are derived from a model reflecting the historically based structural relationship that uses demographic and economic assumptions specific to each alternative. More optimistic economic assumptions in the low-cost alternative are consistent with higher labor force participation rates, but demographic assumptions in the low-cost alternative (such as slower improvement in longevity) are consistent with lower labor force participation rates. These relationships with various basic assumptions move the labor force participation rates in opposite directions. Therefore, the projected labor force participation rates do not vary substantially across alternatives.
Historically, labor force participation rates reflect trends in demographics and pensions. Between the mid‑1960s and the mid‑1980s, labor force participation rates at ages 50 and over declined for males but were fairly stable for females. During this period, the baby-boom generation reached working age and more women entered the labor force. This increasing supply of labor allowed employers to offer attractive early retirement options. Between the mid‑1980s and the mid‑1990s, participation rates at ages 55 and older roughly stabilized for males and increased for females. Since the mid‑1990s, however, participation rates for both sexes at ages 50 and over have generally risen.
Many economic and demographic factors, including longevity, health, disability prevalence, the business cycle, incentives for retirement in Social Security and private pensions, education, and marriage patterns, will influence future labor force participation rates. The Office of the Chief Actuary models some of these factors directly. To model the effects of other factors related to increases in life expectancy, projected participation rates are adjusted upward for mid-career and older ages to reflect projected increases in life expectancy. For the intermediate projections, this adjustment increases the total labor force by 2.9 percent for 2089.
For men age 16 and over, the projected age-adjusted labor force participation rate5 for 2089 is 73.5, 73.4, and 73.3 percent for the low-cost, intermediate, and high-cost assumptions, respectively. For women age 16 and over, the projected age-adjusted labor force participation rates for 2089 are 61.6, 61.0, and 60.0 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These rates are higher than the actual age-adjusted 2013 levels published by the Bureau of Labor Statistics of 70.4 percent for men and 57.7 percent for women, primarily due to the assumed increase in life expectancy. In the first ten years, the assumed labor force participation rates also increase as the economic recovery draws more people into the labor force. Increasing disability prevalence rates offset these increases somewhat in the intermediate and high-cost assumptions, but a decrease in disability prevalence further contributes to increases in labor force participation in the low-cost assumptions.
The unemployment rates presented in table V.B2 are in the most commonly cited form, the civilian rate. For years through 2024, the table presents total civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2024, the table presents unemployment rates as age-sex-adjusted rates, using the age-sex distribution of the 2011 civilian labor force. Age-sex-adjusted rates allow for more meaningful comparisons across longer time periods. The age-sex adjusted unemployment rate is about 0.1 percentage point lower than the unadjusted rate for 2025.
The total civilian unemployment rate reflects the projected levels of unemployment for various age-sex groups of the population. Each group’s unemployment rate is projected in relation to changes in the economic cycle, as measured by the ratio of actual to potential GDP.6 For each alternative, the total civilian unemployment rate moves toward the ultimate assumed rate as the economy moves toward the long-range sustainable growth path.
The ultimate assumed age-sex-adjusted unemployment rates are 4.5, 5.5, and 6.5 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These values are unchanged from the 2014 report. The decline in the overall rate from 6.2 for 2014 to 5.3 for 2016 under intermediate assumptions reflects a rapid increase in employment with a relatively small change in labor force participation. Improvements in labor market conditions will eventually draw more nonparticipants back into the labor force and unemployment will reach the ultimate rate in 2022 under the intermediate assumptions. Under low-cost assumptions the ultimate unemployment rate is also reached in 2022. Under the high-cost assumptions, unemployment will reach the ultimate rate in 2024.
6. Gross Domestic Product Projections
The value of real GDP equals the product of three components: (1) average weekly total employment,7 (2) productivity, and (3) average hours worked per week. Consequently, the growth rate in real GDP is approximately equal to the sum of the growth rates for total employment, productivity, and average hours worked. For the period from 1966 to 2007, which covers the last five complete economic cycles, the average growth rate in real GDP was 3.1 percent. This average growth rate approximately equals the sum of the average growth rates of 1.6, 1.7, and ‑0.3 percent for total employment, productivity, and average hours worked, respectively. As a result of the 2007-09 recession, the real GDP in 2013 was only 5.6 percent above the 2007 level. The estimated real GDP growth from 2013 to 2014 is 2.3 percent.
For the intermediate assumptions, the average annual growth in real GDP is 2.8 percent from 2014 to 2024, the approximate sum of component growth rates of 1.0 percent for total employment, 1.8 percent for productivity, and 0.0 percent for average hours worked. The projected average annual growth in real GDP of 2.8 percent for this period is 0.5 percentage point higher than the underlying sustainable trend rate of 2.3 percent. This 0.5 percentage point above-trend component reflects a relatively rapid increase in employment as the economy recovers. After 2024, the assumptions do not explicitly reflect economic cycles. The projected annual growth rate in real GDP combines the projected growth rates for total employment, total U.S. economy productivity, and average hours worked. After 2024, the annual growth in real GDP averages 2.1 percent, based on the projected average annual growth rate of 0.5 percent for total employment and the assumed ultimate growth rates of 1.7 percent for productivity and -0.05 percent for average hours worked. The assumed growth rate of real GDP is slower than the past average growth rate mainly because the working-age population is expected to grow slower than in the past.
For the low-cost assumptions, the annual growth in real GDP averages 3.4 percent over the decade ending in 2024. The relatively faster growth is due mostly to higher assumed rates of growth for employment and worker productivity. For the high-cost assumptions, the annual growth in real GDP averages 2.1 percent for the decade ending in 2024.
7. Interest Rates
Table V.B2 presents average annual nominal and real interest rates for newly issued trust fund securities. The nominal rate is the average of the nominal interest rates for special U.S. Government obligations issuable to the trust funds in each of the 12 months of the year. Interest for these securities is generally compounded semiannually. The real interest rate is defined as the annual yield rate for investments in these securities divided by the annual rate of growth in the CPI for the first year after issuance. The real rate shown for each year reflects the actual realized (historical) or expected (future) real yield on securities issuable in the prior year.
To develop a reasonable range of assumed ultimate future real interest rates for the three alternatives, the Office of the Chief Actuary examined historical experience for the last five complete economic cycles. For the 41-year period from 1966 to 2007, the real interest rate averaged 2.8 percent per year. The real interest rates averaged 1.3, -1.0, 5.2, 4.0, and 2.2 percent per year over the economic cycles 1966-73, 1973-79, 1979-89, 1989-2000, and 2000-07, respectively. The assumed ultimate real interest rates are 3.4 percent, 2.9 percent, and 2.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These rates are unchanged from the 2014 report.
The actual average annual nominal interest rate was approximately 1.9 percent for 2013, which means that securities newly issued in 2013 would yield 1.9 percent if held one year. Estimated average prices rose from 2013 to 2014 by approximately 1.5 percent. The annual real interest rate for 2014 is 0.4 percent, the approximate difference between the nominal interest rate and the rate of price increase. For the 10-year short-range projection period, projected nominal interest rates depend on changes in the economic cycle and in the CPI. When combined with the ultimate CPI assumptions of 3.4, 2.7, and 2.0 percent, the assumed ultimate real interest rates yield ultimate nominal interest rates of 6.8 percent for the low-cost assumptions, 5.6 percent for the intermediate assumptions, and 4.4 percent for the high-cost assumptions. These nominal rates for newly issued trust fund securities reach their ultimate levels by the end of the short-range period.
Average annual
unemployment rate 1
Annual percentage change2 in—
Labor
force 3
Total
employment 4
Real
GDP 5
Nominal 6
Real 7
Economic cycles:9
201410

1
The Office of the Chief Actuary adjusts the civilian unemployment rates for 2025 and later to the age-sex distribution of the civilian labor force in 2011. For years through 2024, the values are the total rates without adjustment for the changing age-sex distribution.

2
For rows with a single year listed, the value is the annual percentage change from the prior year. For rows with a range of years listed, the value is the compounded average annual percentage change.

3
The U.S. civilian labor force.

4
Total U.S. military and civilian employment.

5
The value of the total output of goods and services in 2009 dollars.

6
The average of the nominal interest rates, which compound semiannually, for special public-debt obligations issuable to the trust funds in each of the 12 months of the year.

7
The realized or expected annual real yield for each year on securities issuable in the prior year.

8
Greater than -0.05 and less than 0.05 percent.

9
Economic cycles are shown from peak to peak, except for the last cycle, which is not yet complete.

10
Historical data are not available for the full year. Estimated values vary slightly by alternative and are shown for the intermediate assumptions.


1
See www.nber.org/cycles/cyclesmain.html.

2
Historical levels of real GDP are from the Bureau of Economic Analysis’ National Income and Product Accounts. Historical total hours worked is an unpublished series provided by the Bureau of Labor Statistics that includes all U.S. Armed Forces and civilian employment.

3
These assumptions are consistent with ultimate annual increases in private non-farm business productivity of 2.42, 2.06, and 1.69 percent. Compared to total-economy productivity, private non-farm business productivity is a more widely known concept that excludes the farm, government, non-profit institution, and private household sectors.

4
The Federal Open Market Committee (FOMC) targets a rate of 2 percent for the price index for Personal Consumption Expenditures, which is substantially the same as the GDP deflator. See
www.federalreserve.gov/newsevents/press/monetary/20150128a.htm.

5
The Office of the Chief Actuary adjusts the labor force participation rates to the 2011 age distribution of the civilian noninstitutional U.S. population.

6
Potential GDP is the level of GDP assuming the economy is operating at the underlying sustainable trend rate of growth.

7
Total employment is the sum of the U.S. Armed Forces and total civilian employment, which depends on the total civilian labor force and unemployment rate.


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