Tuesday, May 8, 2012

Structural Unemployment ... Male Workers Dropping Out?

Structural long term unemployment in America has become a huge problem.

It's no longer fair to call what we're experiencing cyclical or business cycle related.

Let me explain.

We all know about the demographics related to the aging of the American worker and the retirement of baby boomers. This is having and will continue to have a negative impact on the labor force participation rate--aka the size of the U.S. work force.

We also know about the problems associated with youth unemployment as well.

Accordingly, when fewer younger people are entering the work force and greater numbers of older people are leaving the work force, the labor force participation rate inevitably shrinks.

Those two factors, combined with today's difficult U.S. economy, are cited by many as the  fundamental reasons that men today represent their lowest percentage of  the total U.S. work force since record keeping began in 1948.

That's pretty bad, of course, but that's not the whole story and perhaps not the most troubling piece either. Baby Boomers and the Shrinking Work Force has much to say about the labor force participation rates. Please pay particular attention to the chart on participation rates for for men age 25-54:

"Among the lowlights of the jobs report for April was the news that the share of adults who are either working or looking for work fell. For men, this measure — called the labor force participation rate — was at its lowest level since 1948, when the government first began keeping track.
I’ve received a number of e-mails from readers asking whether this decline can be attributed to the wave of baby-boomer retirements.
Yes, as America ages, its overall labor force participation rate will fall because older people are less likely to work. But even excluding older Americans, labor force participation rates have still fallen sharply over the last few decades, and especially in the last five years.
This chart shows the share of Americans 25 to 54 years old who are involved in the labor force, either by working or actively looking for work:
Source: Bureau of Labor Statistics
As you can see, this age group is also dropping out of the labor force. The participation rate fell after the 2001 recession, never recovered, and then started another slide that began in the financial crisis. This trend among prime-working-age Americans cannot be explained by baby boomers’ retiring.
You may notice that the labor force participation rate had been climbing from the 1940s through about 1990. That rise reflects the fact that more women entered the labor force as gender roles evolved. Women’s labor force participation rate continued rising through the late 1990s, dropped a couple of percentage points, and then more or less flat-lined.
The main reason the labor force has been declining in the last couple of decades, then, is that men have been dropping out in droves. Here is a chart of labor force participation for workers 25 to 54, but showing men only:
Source: Bureau of Labor Statistics
Where are all these men going, and how are they supporting themselves, if they’re not in the work force? My colleagues David Leonhardt and Louis Uchitelle looked into this question a few years ago."

Summing Up

Setting aside why our economy continues to creep along the bottom, why are more and more men dropping out of the U.S. work force?

Is it perhaps in part because welfare and related entitlement benefits have been extended to the point that many males have simply decided not to seek or accept certain kinds of work? {I realize that's not a popular comment, but that doesn't make it untrue.} 

During this recent economic downturn, many of our unemployed have had up to 99 weeks of unemployment benefits, while others have successfully applied for disability benefits under Social Security. Of course, many other government grants have "helped" to provide financially for those not working as well.

In the meantime, construction employment remains weak and many good manufacturing jobs have disappeared.

Common sense says that lower paying jobs aren't attractive as long as benefits are sufficiently generous to enable those unemployed to stay off the payrolls. And the longer people don't work, the less likely it is that they'll ever return to the work force. In that regard, the percentage of those people who have now been unemployed for at least six months is at record highs.

To repeat, we know the youth employment issue is real. Equally real is that the first wave of baby boomers is beginning to retire in big numbers.

We also understand the increase in female employment the past several decades as more women entered the work force.

But there are too many things that we don't yet understand, especially about the worrisome apparent structural decline in male work force participation for those aged 25-54.

My biggest concern is that we may be too closely emulating the European welfare states and unintentionally incentivizing prime working age men not to seek or accept available employment due to a lack of necessary skills or high enough pay.

If that's the case, our economy may well remain in the doldrums for a long, long time.

Who wants us to be more like Europe?  Not I.

Thanks. Bob.