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Why the Portion of Americans with Jobs Keeps Shrinking

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Why the Portion of Americans with Jobs Keeps Shrinking

Dallas Morning News July 12, 2017
EconomicsEmployment
Urban PolicyTax & Budget

Editor's note: This piece was adapted from the special issue of City Journal, “The Shape of Work to Come

From 1945 to 1968, only 5 percent of men between 25 and 54, prime-age males, were out of work. But during the 1970s, something changed.

The mild recession of 1969-70 produced a drop in the employment rate of this group, from 95 percent to 92.5 percent, and there was no rebound. The 1973-74 downturn dragged the employment rate below 90 percent, and after the 1979-82 slump, it would stay there throughout most of the 1980s. The recessions at the beginning and end of the 1990s caused further deterioration in the rate. Economic recovery failed to restore the earlier employment ratio in both instances.

The greatest fall, though, occurred in the Great Recession. In 2011, more than one in five prime-age men were out of work, a figure comparable with the Great Depression. But while employment came back after the Depression, it hasn't today. The unemployment rate may be low, but many people have quit the labor force entirely and don't show up in that number. As of December 2016, 15.2 percent of prime-age men were jobless — a figure worse than at any point between World War II and the Great Recession, except during the depths of the early 1980s recession.

The trend in the female employment ratio is more complicated because of the postwar rise in the number of women in the formal labor market. In 1955, 37 percent of prime-age women worked. By 2000, that number had increased to 75 percent, a historical high. Since then, the number has come down: it stood at 71.7 percent at the end of 2016.

Why, since 1970, has each new downturn added to the ranks of the permanently unemployed? Social science has not fully answered this question, but the best guess involves a combination of a generous social safety net, deindustrialization and social change.

Both President Franklin Roosevelt and President Lyndon Johnson aggressively advanced a stronger safety net for American workers, and other administrations largely supported these efforts. The New Deal gave us Social Security and unemployment insurance. National disability insurance debuted in 1956 and was made far more accessible to people with hard-to-diagnose conditions, like back pain, in 1984. The War on Poverty delivered Medicaid and food stamps. Richard Nixon gave us housing vouchers. During the Great Recession, the federal government temporarily doubled the maximum eligibility time for receiving unemployment insurance.

These various programs make joblessness more bearable, at least materially. They also reduce the incentives to find work.

Consider disability insurance. Industrial work is hard, and plenty of workers experience back pain. Before 1984, however, that pain didn't mean a disability check for American workers. After 1984, though, millions went on the disability rolls. And since disability payments vanish if the disabled person starts earning more than $1,170 per month, the disabled tend to staydisabled. The economists David Autor and Mark Duggan found that the share of adults aged 25 to 64 receiving disability insurance increased from 2.2 percent in 1985 to 4.1 percent 20 years later.

Other social-welfare programs operate in a similar way. Unemployment insurance stops completely when someone gets a job, which may explain why economist Bruce Meyer found that the unemployed tend to find jobs just as their insurance payments run out. Elementary economics tells us that paying people to be or stay jobless will increase joblessness.

Yet these programs didn't immediately generate a crisis of joblessness in America. Manufacturing workers weren't going to leave their well-paying union jobs in 1967 because of food stamps. But over the next half-century, things changed dramatically. As hundreds of studies have documented, wages for the best-educated and most-successful Americans have risen, while those for the least-educated and least-successful Americans have stagnated.

These developments result from tectonic movements in the economy. Globalization and technological change have steadily eroded the demand for American brawn. In 1966, American factories employed millions of industrial workers, making products that were shipped to far poorer places. As technology spread, the world's lower-wage countries started manufacturing. Asia's economic tigers initially thrived because of low labor costs, but these increasingly educated countries eventually achieved technological parity with — and sometimes became superior to —many American industries.

Manufacturing's share of total American output has fallen from 25 percent in 1968 to 12 percent today. The number of manufacturing workers has shrunk from 19.5 million in 1979 to 12.2 million, which represents 8.8 percent of nonfarm employment.

We're not moving toward an entirely mechanized economy. Between 1980 and 2000, U.S. service-sector employment rose by 73 percent — a whopping 37 million new jobs. There remains commercial value in a friendly face and the charm of human interaction. But for millions of men, working in the service sector wasn't a good option.

Increasing the benefits received by nonemployed persons may make their lives easier in a material sense but won't help reattach them to the labor force. It won't give them the sense of pride that comes from economic independence. It won't give them the reassuring social interactions that come from workplace relationships. When societies sacrifice employment for a notion of income equality, they make the wrong choice.

Politicians, when they do focus on long-term unemployment, too often advance poorly targeted solutions, such as faster growth, more infrastructure investment, and less trade. More robust GDP growth is always a worthy aim, but it seems unlikely to get the chronically jobless back to work. The booms of the 1990s and early 2000s never came close to restoring the high employment rates last seen in the 1970s. Between 1976 and 2015, Nevada's GDP grew the most and Michigan's GDP grew the least among American states. Yet the two states had almost identical rises in the share of jobless prime-age men.

Infrastructure spending similarly seems poorly targeted to ease the problem. Contemporary infrastructure projects rely on skilled workers, typically with wages exceeding $25 per hour; most of today's jobless lack such skills. Further, the current employment in highway, street and bridge construction in the U.S. is only 316,000. Even if this number rose by 50 percent, it would still mean only a small reduction in the millions of jobless Americans.

Finally, while it's possible that the rise of American joblessness would have been slower if the U.S. had weaker trade ties to lower-wage countries like Mexico and China, American manufacturers have already adapted to a globalized world by mechanizing and outsourcing. We have little reason to be confident that restrictions on trade would bring the old jobs back. Trade wars would have an economic price, too. American exporters would cut back hiring. The cost of imported manufactured goods would rise, and U.S. consumers would pay more, in exchange for — at best —uncertain employment gains.

Joblessness is not foreordained, because entrepreneurs can always dream up new ways of making labor productive. Ten years ago, millions of Americans wanted inexpensive car service. Uber showed how underemployed workers could earn something providing that service.

Prosperous, time-short Americans are desperate for a host of other services — they want not only drivers but also cooks for their dinners and nurses for their elderly parents and much more. There is no shortage of demand for the right kinds of labor, and entrepreneurial insight could multiply the number of new tasks that could be performed by the currently out-of-work. Yet over the last 30 years, entrepreneurial talent has focused far more on delivering new tools for the skilled than on employment for the unlucky. Whereas Henry Ford employed hundreds of thousands of Americans without college degrees, Mark Zuckerberg primarily hires highly educated programmers.

What could change this dynamic? The first step is to improve Americans' skills. The jobless rate is about 8 percent for prime-age men with a college degree or more but more than 22 percent for men with only a high school diploma or less. We have levers that can improve educational outcomes, like the very best early-childhood programs and charter schools. Such innovations should be expanded and made better through competition and evaluation.

We should also improve the way that we do vocational education. The most ambitious students avoid getting tracked onto a vocational path, and they — and their parents — want schools that focus on college readiness. Consequently, less fortunate or struggling students often get segregated into these vocational centers.

A more effective approach might be to keep students in college-readiness-oriented schools and experiment with out-of-school vocational training. Kids could be taught after school, on weekends and during the summer by programs specializing in particular occupations. Adopting this structure would mean that anyone could potentially compete to run the programs — trade unions, private providers, nonprofits — increasing the chances that some programs will excel.

Older workers present the toughest training problem. The extensive literature on retraining adults for new jobs has few success stories. We must keep trying; here, too, the more experimentation, the better.

Along with helping workers learn new skills, we should lower the regulatory barriers to entrepreneurship. It's a sad fact that America tends to regulate the entrepreneurship of the poor much more stringently than it does that of the rich. You can begin an internet company in Silicon Valley with little regulatory oversight; you need more than 10 permits to open a grocery store in the Bronx.

One-stop permitting would be a good step, especially in poorer areas. If new businesses had only a single regulatory office to satisfy, the obstacles to entrepreneurship would be less daunting.

Occupational licensing is another area crying out for reform. The University of Minnesota's Morris Kleiner has found that the share of American workers who need an occupational license has increased from 5 percent in the 1950s to 29 percent in 2008. States now credential interior designers, tree trimmers and even florists. In many cases, these requirements are merely means for protecting incumbents from competition. When we license basic service jobs, we make it tougher for the jobless to find something new to do.

American entrepreneurs can solve our joblessness crisis only if the U.S. stops incentivizing joblessness. Consolidating social policies would be a crucial step. Struggling families now receive food stamps, housing vouchers, Temporary Aid to Needy Families and other assistance, all of which punish work. If the various programs were combined into a single cash benefit, that benefit could be designed so that the tax on earnings never went above 30 percent. Unemployment insurance could be structured so that payments were no longer contingent upon staying completely out of work.

The rise in joblessness is not inexorable. But to solve this crisis, we must educate, reform social services, empower entrepreneurs and even subsidize employment. That is an ambitious but necessary agenda for ending the war on work before it consumes another generation of Americans.

This piece originally appeared at Dallas Morning News

______________________

Edward L. Glaeser is the Glimp professor of economics at Harvard University, a senior fellow at the Manhattan Institute, and contributing editor at City Journal. This piece was adapted from the City Journal special issue, "The Shape of Work to Come"

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