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”