The Astonishing Collapse of Work In America

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Three overarching facts illuminate the strange and troubling economic paradoxes for America from the terrible 2008 crash and its aftermath.

--First: for U.S. financial and equity markets, there has already basically been a full recovery from the Great Recession. Key indicators of performance for these markets-the Dow30, S&P500, Russell 2000, NASDAQ, etc--are all at higher nominal levels today than they were five years ago. Even after controlling for inflation, these indicators are ahead of where they were in early 2008. For wealth holders in these markets, the nightmare is over-at least for now

--The story for the real economy-where tangible goods and services are actually created---is not nearly so happy, however. According to official estimates, inflation-adjusted GDP today (1Q2013) is roughly 3 percent above the pre-crash peak from late 2007. But since our national population has grown by about 5 percent over those same years, this means real per capita output in America is still distinctly below its level six years ago. And on its current track, this means it will be another year or more before per capita output fully returns to its pre-recession levels, to say nothing of registering any long-term growth. For our macro-economy, in short, we are looking at something now approaching a "lost decade."

--Then there is the labor market. There is no way to sugarcoat it: the situation here is basically a disaster, a crisis far worse than most commentators and policymakers seem to recognize, and with no clear prospects for appreciable improvement over the near-term horizon. Simply put, work in America has in large measure collapsed-and a recovery worthy of the name is nowhere in sight.

Some readers will surely doubt my assertion that U.S. labor markets are in such parlous straits. If things are so bad, they may reasonably ask, why isn't there greater public alarm? Part of the reason, I would submit, is that we as a country do a very bad job of measuring joblessness. Mis-measuring the scale of the problem has significantly contributed to our present unwarranted complacency.

The official yardstick almost always used in assessing joblessness in America is the civilian unemployment rate, which tracks the overall percentage of workers and job-seekers without work. This may sound like a reasonable way to gauge joblessness, and the official unemployment rate does indeed have its uses. But as a practical matter this statistical tool seriously disguises and understates the magnitude of the ongoing jobs crisis.

According to the conventional unemployment rate, 7.6 percent of the country's civilian labor force was out of work last month (June 2013). While this is hardly a ‘good' number, these official figures suggest the jobs market is on a slow but steady rebound, gradually improving since early 2010, when the national rate was nearly 10%. According to those same numbers, current levels of joblessness are bad but by no means unprecedented: the official unemployment rate, after all, was above 7.6 percent at times in the 1970s, the 1980s, and (briefly) even in the 1990s.

While the unemployment rate may be fine for some tasks (such as estimating how many people will be looking for unemployment benefits) it is utterly incapable of gauging how many should be, or could be, looking for work in the first place. A more basic and intuitively meaningful sense of how the jobs market is performing in this respect comes from the employment-to-population ratio (or simply the "employment ratio") for adult men and women.

When we look at these numbers, we get a very different picture of labor market conditions in America. By these numbers, there has been no "recovery" whatever in the jobs market since the Great Recession. Quite the contrary: the employment ratio today appears to be stuck at the same awful level recorded in early 2010-the worst level for more than a generation.

Today just under 12 million men and women are officially classified as unemployed, roughly twice as many as in early 2000. But if our national employment ratio today were as high as in early 2000, when this measure reached its zenith, about 15 million more Americans would be working today. And remember: over 10 million of today's men and women with jobs are working fewer hours than they want to-well over twice as many as in early 2000. When we look at the jobs problem this way, we see it is vastly bigger than the official unemployment rate implies.

And bad as all of this sounds, the true situation is if possible even worse-for the civilian employment ratio conflate trends for men and women. Broadly speaking, paid employment has been on the rise for women ever since Washington started keeping detailed numbers on the phenomenon back in the late 1940s-a reflection, and in turn a driver, of the big changes in the status of women underway in the postwar era. When we look at the employment ratio for men alone over the postwar era, we witness a radical, almost gut-wrenching drop.

By these figures, the male employment ratio reached its peak in the early 1950s-and then commenced an almost relentless descent. Today's level is the lowest thus far-but this decline of work for men has been unfolding for decades, indeed generations. Over the past 60 years, the employment ratio for adult men has plummeted by about 20 percentage points. Which is to say: if America's male employment ratios were back at their Eisenhower-era levels, well over 20 million more men would be at work today. At the moment, roughly 76 million men are counted as working.

How is this collapse of work to be explained? In purely arithmetic terms, the great bulk of the change is due to an exodus out of the labor force-that is to say, to a massive long-term rise in the number of adult men who are neither working nor seeking work. Over the past 60 years, the labor force participation rate for adult men has fallen by about 16 percentage points. In 1953, about 14 percent of adult men were out of the labor force-around one in seven. Today 30 percent are neither working nor seeking work-nearly one in three.

Of course population aging has something to do with this gradual but cumulatively immense male flight out of the workforce. But we should not exaggerate this effect. In the early 1950s, senior citizens 65 and older accounted for almost 12 percent of adult men, as against 16 percent today. Aging on this scale cannot explain most of the 16 percentage point shift out of the workforce that has been registered by adult men over these decades. Indeed, it cannot even explain all that much of it.

The plain fact is that men in what are generally regarded as conventional working ages have been increasingly opting out of the workforce altogether. This arresting fact is brought home in Figure 4, which tracks employment ratios and labor force participation ratios for men 25 to 54-prime years of working life.

In the early 1950s, practically all men in this age group were either working or looking for work-fewer than 3 men out of every 100 were out of the labor force. By contrast, over 11 out of every 100 men of prime working age are completely out of the labor force today-one in nine, fully four times the fraction back in the early postwar era. This flight from work at prime working ages accounts for the vast majority of the 13 percentage point drop in employment ratios reported for this key demographic group over the past sixty years (i.e., 1953-2013)

So what exactly has been going on with work in modern America? Or more specifically: what is wrong with work in modern America? Why is there so much less of it now?

From an economic perspective, it seems safe to say that both demand and supply factors are at play in this disheartening dynamic. On the demand side, it seems fairly clear that our contemporary economy is just not generating jobs and work as robustly as it did in the past---even the relatively recent past. This can be seen as a "structural" problem. Of course, it is the problem that self-described Keynesians always fix upon. It is part of the overall picture-but just part. For on the supply side, it is apparent that there has been a major behavioral change in America, wherein a growing proportion of working-age Americans are checking out of paid labor altogether. Suffice it to say that not working at all is neither unthinkable nor unaffordable these days, even for adults in the prime of life. This too is a problem-a huge problem, one that has been gathering for decades, and one must unlikely to be undone by recourse to standard-issue Keynesian tools.

America's leadership has not yet paid serious attention to the collapse of work in modern America. This is an egregious oversight. Our long-term social, political, and economic health all depend upon redressing this critical flaw in our country today.

Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute. He is the author of A Nation of Takers: America's Entitlement Epidemic (2012), and The Great Society At Fifty: The Triumph And The Tragedy, to be released next week.  

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