Actual economic data were generally available through the end of 2020 at the time the assumptions for this report were set. The data indicated that economic activity reached a peak in the fourth quarter of 2019.^{1}A precipitous decline in economic activity in March and April of 2020 led to GDP in the second quarter of 2020 being more than 10 percent below the peak in the fourth quarter of 2019. GDP recovered substantially by the fourth quarter of 2020, but was still about 2.4 percent below the level in the fourth quarter of 2019.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 of the growth of average earnings. Over the last six complete economic cycles (1969-73, 1973-79, 1979-90, 1990-2001, 2001‑07, and 2007-19, measured peak to peak), the annual increases in total-economy productivity averaged 2.66, 1.07, 1.41, 1.85, 2.19, and 1.11 percent, respectively. For the period from 1969 to 2019, covering those last six complete economic cycles, the annual increase in total-economy productivity averaged 1.59 percent.The assumed ultimate annual increases in total-economy productivity are 1.93, 1.63, and 1.33 percent for the low-cost, intermediate, and high-cost assumptions, respectively.^{3}These rates of increase are unchanged from the 2020 report.Changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI) directly affect the OASDI program through the automatic cost-of-living benefit increases. Changes in the GDP price index (GDP deflator) affect the nominal levels of GDP, wages, self-employment income, average earnings, and taxable payroll. For a given real rate of growth in average earnings, a higher price inflation rate immediately results in a higher nominal rate of growth in both earnings and revenues, while the resulting added growth in nominal benefit levels occurs with a delay, causing an overall increase (improvement) in the actuarial balance. Similarly, a lower price inflation rate causes an overall decrease in the actuarial balance.The annual increases in the CPI averaged 4.91, 8.54, 5.30, 2.73, 2.63, and 1.73 percent over the economic cycles 1969-73, 1973-79, 1979-90, 1990‑2001, 2001-07, and 2007-19, respectively.^{4}The annual increases in the GDP deflator averaged 5.04, 7.54, 4.61, 2.08, 2.49, and 1.63 percent for the respective economic cycles. For the period from 1969 to 2019, covering the last six complete economic cycles, the annual increases in the CPI and the GDP deflator averaged 3.89 and 3.45 percent, respectively. The annual rate of change for 2020 is 1.21 percent for the CPI and 1.16 percent for the GDP deflator.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.The ratio of total labor 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 six complete economic cycles from 1969 to 2019, this ratio has averaged 0.622. The ratio declined from a recent high of 0.649 for 2001 to 0.602 in 2009, increased to 0.612 in 2012, and was 0.611 in 2019. This ratio increased to 0.628 for 2020 and is assumed to reach 0.631 by 2030. For years after 2030, the relative sizes of different sectors of the economy are assumed to remain about constant,^{5}and therefore the ratio of total labor compensation to GDP remains at about the 2030 level for each set of assumptions.4. Assumed Real Wage Differential

Table V.B1.—Principal Economic Assumptions c1.23 c2.91 c1.21 c2.43 c2.73 c1.52

The annual rate of growth in the size of the labor force decreased from an average of about 2.6 percent during the 1969-73 economic cycle and 2.7 percent during the 1973-79 cycle to 1.7 percent during the 1979-90 cycle, 1.2 percent during the 1990-2001 cycle, 1.1 percent during the 2001‑07 cycle, and 0.5 percent during the 2007-19 cycle. The labor force growth is expected to remain subdued due to a slowing of growth in the working-age population in the future — a consequence of the baby-boom generation reaching retirement ages and succeeding lower-birth-rate cohorts reaching working ages. Under the intermediate assumptions, the labor force is projected to increase by an average of 0.8 percent per year from 2020 to 2030 and 0.4 percent per year from 2030 to 2095.For men age 16 and over, the projected age-adjusted labor force participation rates^{6}for 2095 are 72.6, 72.3, and 71.7 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 2095 are 62.2, 61.9, and 61.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These age-adjusted labor force participation rates for 2095 are higher under all three alternatives than the age-adjusted rates for 2019 of 71.3 percent for men and 59.5 percent for women (based on actual age-specific rates published by the Bureau of Labor Statistics), primarily due to the Trustees’ projected increases in life expectancy.The total civilian unemployment rates are presented in table V.B2. For years through 2030, the table presents total civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2030, the table presents 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 assumed ultimate age-sex-adjusted unemployment rates are 3.5, 4.5, and 5.5 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These values are 0.5 percentage point lower than in the 2020 report, consistent with the Trustees’ belief that unemployment rates will remain below long-term past averages, as mentioned above. The Trustees assume that, as the economy recovers from the recent recession, the unemployment rate will decrease from 8.1 percent for 2020 to the assumed 4.5 percent for 2024 under the intermediate assumptions. Under the low-cost assumptions, the ultimate unemployment rate is reached in 2023. Under the high-cost assumptions, the unemployment rate declines to 6.9 percent in 2021, then rises to a peak of 8.2 percent in 2022, and then gradually decreases to the ultimate unemployment rate in 2029.^{7}The value of real GDP is equal to the product of three components: (1) productivity (i.e., output per hour worked), (2) average weekly total employment,^{8}and (3) average hours worked per week, times 52. Consequently, the growth rate in real GDP is equal to the combined growth rates for productivity, total employment, and average hours worked. For the period from 1969 to 2019, which covers the last six complete economic cycles, the average annual growth in real GDP was 2.7 percent, combining average growth rates of 1.6 percent for productivity, 1.3 percent for total employment, and ‑0.2 percent for average hours worked (1.027 = 1.016 × 1.013 × 0.998). The real GDP for 2020 is 3.5 percent below its 2019 level.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 compounded semiannually, or at redemption if sooner. 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.

Table V.B2.—Additional Economic Factors

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

On a monthly basis, economic activity peaked in February 2020, but the decline in March was sharp enough that the output in the first quarter of 2020 was substantially below the output in the fourth quarter of 2019. See https://www.nber.org/news/business-cycle-dating-committee-announcement-june-8-2020.

The assumed ultimate unemployment rates are age-sex-adjusted rates. For the high-cost assumptions, the age-sex-adjusted unemployment rate in 2029 is 5.5 percent, while the unadjusted rate is 5.4 percent, as shown in table V.B2.

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