CBO’s current projections of real earnings per worker are slightly lower than last year’s, mainly because updates to wage and salary data indicate that earnings as a share of GDP were, on average, lower over the past decade than previously reported. As a result, CBO reduced its projection of wages and salaries over the next three decades.
In CBO’s current projections, earnings as a share of compensation are lower than previously projected. The projection is lower largely because an excise tax on high-premium health insurance, which was scheduled to take effect in 2022, was repealed. Had that tax not been repealed, some employers and workers would have been expected to choose insurance plans with smaller premiums to avoid paying the tax. Those shifts would have generally increased taxable wages, increasing earnings as a share of compensation.
CBO also projects that the distribution of earnings will differ from last year’s projection. The share of earnings for the top 10 percent of earners in 2049 is projected to be 45.5 percent, or 1.5 percentage points lower than the projection from last year. That projection changed because data for recent years show a smaller-than-expected share of earnings accruing to high-wage earners, and CBO expects that trend to continue. Those recent data also caused CBO to increase its projection of the share of covered earnings on which Social Security payroll taxes are paid.
Capital Accumulation and Productivity
In addition to the rate of labor force participation, labor force growth, and other labor market outcomes, two other factors directly affect CBO’s projections of output. One is the accumulation of capital—structures and equipment, land, intellectual property such as computer software, and residential housing. That accumulated stock of capital contributes a stream of services to production. The second factor is the growth of TFP—real output per unit of combined labor and capital services in the various sectors of the economy. In CBO’s projections, most TFP growth occurs in the nonfarm business sector, which accounts for about three-quarters of economic activity.