Why American men aren’t working since worst economic crisis
THE NATIONAL unemployment rate has fallen by more than half since the country emerged from the worst economic crisis since the Great Depression. It peaked at 10 per cent in 2010 and stood at just 4.7 per cent last month.
That’s mostly good news: Private employers have added more than 14 million jobs. About two million people have been out of a job for six months or longer, far too many but only about a quarter of the number of long-term unemployed people seven years ago. By almost every measure, the labour market has made incredible progress.
But there’s one statistic that has been vexing economists. The size of the nation’s workforce – known as the labour force participation rate – continues to fall. Since the start of the downturn, the percentage of that population that has a job or is looking for one has dropped more than three percentage points, to 62.6 per cent, a level not seen since the 1970s.
The problem is particularly pronounced among men between the ages of 25 and 54, traditionally considered the prime working years. Their participation rate has been declining for decades, but the drop- off accelerated during the recession. The high mark was 98 per cent in 1954, and it now stands at 88 per cent. A new analysis from the White House’s Council of Economic Advisers, slated for release last Monday, found that the United States now has the third-lowest participation rate for “primeage men” among the world’s developed countries.
In other words, Greece, Slovenia and Turkey have a larger share of men in their workforces than the United States does. The United States beats only Italy and Israel.
The CEA’s analysis looks at several common theories behind why so many American men have dropped out of the job market.
Legions of women have joined the workforce since the 1950s, when about one-third of them had a job or were looking for one. Women’s participation rate topped 50 per cent in the late 1970s and peaked at about 60 per cent in the early 2000s. Perhaps fewer men are working because their wives are bringing home the bacon instead.
But the share of women in the workforce also has decreased significantly since the recession. And the CEA found that less than a quarter of prime-age men have a working spouse – and that number has actually declined over the past 50 years.
Economists have posited that Social Security Disability Insurance could be incentivising men to enroll in government assistance rather than look for work. The number of disability insurance recipients has risen by two per cent since the late 1960s, not enough to account for the much greater drop in the male workforce. The CEA estimates that the increase in disability insurance explains only about half a percentage point of the decline in the male participation rate.
Instead, the CEA concludes that the problem is one of education and the erosion of demand for low- skilled workers. More than 90 per cent of college- educated men are in the workforce, compared with 83 per cent of those with a high school diploma or less. It’s a theme seen time and again in our increasingly globalised and high-tech economy: Bluecollar jobs that were once the cornerstone of the middle class get outsourced or replaced by automation.
There’s a ripple effect, too. When a manufacturing plant shuts down, for example, the laid- off employees may wind up in lower- skilled jobs, displacing those workers and potentially forcing them out of the labour market.
The lower the wage, the more likely workers are to pass up the job altogether. The CEA looked at state-level data and found that among the bottom 10 percent of wage earners, a US$ 1,000 increase in annual income boosted the participation rate by 0.16 per cent for prime-age men.
“When the returns to work for those at the bottom of the wage distribution are particularly low, more prime-age men choose not to participate in the labour force,” the report states.
The report also explores one more unorthodox explanation: The high number of men who have been incarcerated. The CEA notes that the US prison population has grown significantly since 1990 and is far above that of any other developed country.
People in prison are not counted as part of the population for the purposes of labour market statistics. At first blush, that would actually boost the participation rate: A smaller population means the share in the workforce is larger. But in reality, there are immense and well- documented barriers to the job market for workers once they leave prison. And the gloomy prospects of the formerly incarcerated outweigh the statistical benefit of having a large prison population. — WPBloomberg