What makes America great?
The standard answers point to qualities that the United States is said to have in greater abundance than its peers in Europe and Japan. There are the innovations that pour out of Silicon Valley companies and elite universities, the flexibility of a work force relatively unconstrained by union rules, the dynamism of entrepreneurs less hamstrung by an oversize welfare state and of a more mobile population willing to move to where the cutting-edge jobs are mushrooming.
In short, the standard innovation theory of American exceptionalism is all about qualities that make each worker more productive. Today, nearly all the economic discussion about how to make America great again focuses on ways — like cutting red tape and taxes — to revive flagging productivity growth.
Though this discussion remains critically important, it plays down a big shift in the story. The underlying growth potential of any economy is shaped not only by productivity, or output per worker, but also by the number of workers entering the labor force. The growth of the labor force is in turn determined mainly by the number of native-born and immigrant working-age people. Over the last two decades, the United States’ advantage in productivity growth has narrowed sharply, while its population advantages, compared with both Europe and Japan, have essentially held steady.
