WP 2011-5 The Political Economy of U.S. Output and Employment 2001–2010

Service industries such as Finance, Insurance, and Real Estate, Education and HealthServices, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, potentially distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower longterm real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive unproductive labor distinction of the classical political economists.