Long term unemployment basically has two major components. One is that older men (and unemployment is primarily a male problem)who need new skills to get a new job, and young men who have never had a job.
The solution to older unemployed men is re-training for jobs that do exist today. We have several examples in The Great Recession Conspiracy of Community Colleges providing exactly that kind of re-training with great success.
The solution to younger unemployed men is simply better schools and teachers. The U.S. has the highest high school drop out rate of any developed country.
The truly disturbing fact is that neither Congress nor the Obama administration has shown the slightest interest in attacking the root causes of long term unemployment. In fact, they both have shown that would rather cut the funding for all programs that would reduce long term unemployment. Combine that fact with the fact that Congress and the Obama administration say they want to reduce taxes on the richest of Americans, and it seems unavoidably true that the two tier economy will soon become a fact of life in the U.S. And those of us who live in the bottom tier, e.g., almost all of us, will not like what is coming.
This week's Economist has an excellent analysis of the problem of unemployment in the U. S. You will learn a lot from reading it.
America's jobless men
Why ever fewer low-skilled American men have jobs
Apr 28th 2011 | PHILADELPHIA | from the print edition
FRANCIS MCCLOSKEY lost his job at the Philadelphia city government’s information hotline in August 2009. Twenty months and more than 1,000 job applications later he is still out of work. He has attended scores of jobs fairs, sought help from job-search coaches and cold-called dozens of companies. This year he has been asked to only three interviews. Soon Mr McCloskey will join the growing ranks of “99ers”, Americans who have drawn jobless benefits for the maximum 99 weeks. His worry is plain: “I’m really drawing a blank on what I’ll do then.”
To William Bradley the labour market looks even bleaker. Despite having a degree in public administration and applying for “more jobs than I can count”, Mr Bradley has had only the odd stint as a telephone surveyor. His problem is that his degree was earned in prison, whence he was recently released. “My criminal record is the primary barrier to getting a job.”
One recent morning both men spent two hours at a weekly “jobs club” organised by the Philadelphia Unemployment Project, an advocacy group. Most who attend are men; most have low or middling skills; several have criminal records. The group helps with computer training, writing résumés and interview techniques. At the weekly meetings tips can be shared (“McDonalds is hiring 1,000 people”) and frustration vented (“If you can’t work, you start feeling less of a man”).
The project is at the sharp end of one of America’s biggest economic problems: the decline in work among men. Of all the big, rich Group of Seven economies, America has the lowest share of “prime age” males in work: just over 80% of those aged between 25 and 54 have a job. In the late 1960s 95% worked.
This collapse of work partly reflects the recession of 2008-09, which drove America’s unemployment rate into double digits. It is still high—9.3% for men—and almost half of the jobless have been out of work for more than six months. But there is another cause, less noticed and of longer standing. To count as unemployed, you have to be looking for work, yet ever more men have simply dropped out of the recorded labour force. Some, it is true, work “off the books”; but many receive disability insurance, are in prison, live on spouses’ or partners’ incomes, or have otherwise given up looking for a job. America has a smaller share of prime-age men in the workforce (ie, in a job or seeking one) than any other G7 economy (see chart 1).
The decline of the working American man has been most marked among the less educated and blacks. If you adjust official data to include men in prison or the armed forces (who are left out of the raw numbers), around 35% of 25- to 54-year-old men with no high-school diploma have no job, up from around 10% in the 1960s. Of those who finished high school but did not go to college, the fraction without work has climbed from below 5% in the 1960s to almost 25% (see chart 2). Among blacks, more than 30% overall and almost 70% of high-school dropouts have no job.
These figures are likely to improve as the economic recovery continues, but probably not by much. The pattern of the past four decades suggests a ratchet effect: the share of poorly educated men in work falls in recessions and fails to recover fully in subsequent expansions. The effect could be especially strong this time.
One reason for this is that less-educated men are disproportionately likely to work on building sites and in factories, where lots of jobs were lost in 2008-09. Another is that the recession fell heavily on poorly educated young people. Teenage employment rates slumped to the lowest on record. Those who enter adulthood without a job or a college place are much less likely to work when they are older. Larry Summers, Barack Obama’s former chief economic adviser, worries that even when “full employment” returns later this decade, on recent trends around 15% of all men, 20% of men who have not been to college, 35% of those who did not finish high school and more than 60% of black male high-school dropouts will probably not be working.
Widespread male worklessness has huge economic, fiscal and social costs. It reduces America’s economic potential. It deepens its budgetary hole, because less tax is raised and more is spent on those out of work. The fraction of prime-age men on disability benefits, for instance, has more than tripled from 1.5% in 1970 to 4.9%. Federal spending on such benefits amounts to $120 billion a year, almost 1% of GDP.
As fewer men work, poverty becomes more entrenched. Back in the mid-1960s Daniel Patrick Moynihan raised the alarm about the link between joblessness and the decline of the black American family. He argued that men without work become less attractive as marriage partners and more likely to turn to crime. Male employment rates and marriage rates have fallen since, for both blacks and whites. The proportions of white men without jobs and of white children living with one parent are both roughly where they were for blacks when Moynihan’s report was published.
Despite all this, worklessness among less-educated men does not seem to be a priority for American politicians of either party. This is a pity, not just because the problem is big but also because a close look at its causes suggests reforms that could help to counter the trend.
The main reason why fewer men are working is that sweeping structural changes in rich economies have reduced the demand for all less-skilled workers. Manufacturing has declined as a share of GDP, and productivity growth has enabled factories to produce more with fewer people. Technological advances require higher skills. For the low-skilled, low demand has meant lower wages, both relative and absolute. This in turn reduces the incentive to find a job, especially if disability payments or a working spouse provide an income.
Men have been hit harder than women by these shifts. They are likelier to work in manufacturing; women have been better represented in sectors, such as health care and education, where most job growth has taken place. Women have also done more than men to improve their academic credentials: in most rich countries they are likelier than men to go to university.
Broadly speaking, this is a common story across the rich world: in virtually all OECD countries male employment rates are lower than they were 40 years ago, and the decline in America’s rate since the 1970s is similar to others in the G7. But in America the timing has been different: the fraction of men in work has fallen especially quickly in recent years (see chart 3).
The puzzle is why America’s less-skilled men have been hit harder of late. One possibility is that American capitalism is especially competitive, spurring faster innovation than in other countries and more ruthless cost-cutting in hard times. Thus in the past 15 years low-productivity jobs have been swept away more quickly in America than elsewhere and the recent recession had a far greater impact on employment in America than in Europe.
A second explanation is that American men have let their schooling slide. Those aged between 25 and 34 are less likely to have a degree than 45- to 54-year-olds. As David Autor of MIT points out, they are also less likely to have completed college than their contemporaries in Britain, Denmark, France, Ireland, the Netherlands and Spain. In recent years America’s university graduation rates have slipped from near the top of the world league to the middle. Men are far likelier than women to drop out. Their record at school is bad too. This educational decline has a racial edge. Black and Hispanic boys are far less likely to graduate from high school than white or Asian youths. A smaller fraction starts college and a larger fraction drops out.
Poor educational performance also interacts perniciously with America’s habit of imprisoning large numbers of young black men. Harry Holzer, an economist at the Urban Institute, a think-tank, points out that one black man in three spends some time in prison; for those without a high-school diploma, the rate is two in three. As Mr Bradley’s tale illustrates, once you have been in jail, finding a job becomes far harder. Many employers, notably in health care or education, will not consider ex-offenders. Those that do often require a clean record for several years.
A third reason may lie in the effect of government policies on incentives to work. America has taken the flexibility of its labour market for granted. Some European governments, by contrast, have begun to get their act together, albeit from a far poorer starting point.
Northern European countries, in particular, have loosened labour-market rules and reformed benefit systems that for many years reinforced the decline in demand for less-skilled men. They have also encouraged temporary employment contracts and invested heavily in training and job-search to push people into work. America, meanwhile, has spent much less than the Europeans on training and has done less to reform unemployment or disability benefits. To be sure, its labour market is still far more flexible and efficient than Europe’s, but its advantage has narrowed, at the expense of the least skilled.
Yet in the 1970s America was at the cutting edge of policies to get the hard-to-employ into work. Jimmy Carter’s administration experimented with wage subsidies, ran an array of training schemes and introduced a public employment programme which at its peak provided more than 700,000 jobs. But these policies were tainted by association with “big government”: Ronald Reagan scrapped them, slashed funding and reoriented training towards the private sector. America’s government today spends 60% less, after adjusting for inflation, on “active” labour-market policies than in 1980, and much less as a share of GDP than almost any other rich country.
According to Stefano Scarpetta of the OECD: “The US used to have a set of far-reaching and effective labour-market policies, but it has disinvested over the past two decades.” For most Americans this probably does not matter much: in a largely supple economy, they flow far more smoothly from one job to another as the economic currents change than most Europeans do. But it probably hurts those with fewest skills, who find work hardest to come by in the first place. These people, disproportionately, have been men.
Government policies affect workless men in different ways. Mr Holzer reckons there are two big groups among the long-term jobless: “older dislocateds”, less-educated workers who have lost long-lasting jobs, mainly in manufacturing; and “younger never-fully-connecteds”, high-school dropouts who have never had much attachment to the workforce.
Policies have created perverse incentives for both groups. The older dislocateds often try hard to be declared officially disabled, even though it can take up to three years and cost several thousand dollars in legal fees, not least because this brings access to Medicare, a government health-insurance scheme. (Many low-wage jobs do not come with health insurance.) But this is also a one-way street to permanent detachment from the workforce. In recent years the government has tried to encourage disability recipients to return to work, for instance by promising that they can stay on Medicare for several years. This scheme, says Larry Katz of Harvard University, has been “utterly ineffective”.
For the younger group, one cause of discouragement is the earned-income tax credit (EITC), America’s main anti-poverty tool, which tops up poorer people’s pay and thus rewards work. It is skewed towards those with children. The maximum EITC top-up for a childless person is less than $500 a year. Families with one child get more than six times as much; those with two, more than ten times. Single, low-skilled men therefore face a lower effective real wage than low-skilled women with children and have less incentive to work.
Child-support rules also discourage poorly skilled men from working. Many are absent fathers, whose child-support payments are often deducted directly from their pay. Some states levy an extra charge to cover welfare payments to the mother. In a dozen states men continue to accrue child-support obligations if they are in prison, from which they can emerge owing thousands of dollars. Deductions can amount to 65% or more of their wages.
All this suggests that policymakers could do a lot more to sharpen men’s work incentives. Some progress is being made: Vicki Turetsky, head of the Office of Child Support Enforcement in Mr Obama’s administration, is trying to base absentee fathers’ payments on their ability to pay rather than a standard schedule. Some ideas have been proposed but not taken up: for example, politicians from both parties have at times suggested expanding EITC to single workers. But politicians are ignoring much of the problem. Congressmen have fought bitterly over whether to extend unemployment benefits, with Republicans arguing that it would blunt incentives to work, yet no one has paid attention to the costly rise in disability rolls.
There is no shortage of ideas. Mr Autor and Mark Duggan of the University of Maryland propose emulating the Dutch, who have made disability insurance less of a one-way street by putting employers on the hook for the first few years’ payments. Other academics want to overhaul unemployment insurance to top up the pay of those who take low-wage jobs.
Better incentives might encourage low-skilled men to return to the labour market. But without better education or training they are likely to be stuck on its bottom rungs. That raises the question of whether America should spend more on helping them to climb. Studies by the OECD suggest that adult retraining yields gains in future income and employment, even for “older dislocateds”. It also seems that training works best when (as now) the overall labour market is weak. And industry-specific training with lots of input from employers seems to be more effective than a general upgrading of skills.
Improving skills would be costly. Putting only 10% of America’s jobless men through a two-year community-college course, say, would mean doubling expenditure on training. Budget constraints are pushing Congress in the opposite direction: trade-adjustment assistance, a long-standing scheme to help those deemed to have lost their jobs to globalisation, expired recently. Republicans are keen to make further cuts in training schemes.
For younger men, different strategies are needed, to connect them to the labour market in the first place. Robert Ivry of MDRC, a research body that evaluates policies intended to help poorer Americans, believes that intervention is needed at several stages: to encourage at-risk high-school students to graduate, to foster contacts with future employers and to encourage those who go to college to stay there. He points to the success of Career Academies, organisations in high schools that build connections between pupils and local employers. An MDRC study has found that these academies have raised employment rates and earnings for some of the young men most at risk. However, such schemes are in danger of being pared as government spending is squeezed.
Another approach is to boost the demand for the hard-to-employ. Some favour trade barriers to protect jobs, especially in manufacturing. That would be a mistake, but more sensible policies may be available. In a faint echo of the 1970s Congress introduced a wage-subsidy scheme last year. Mr Obama’s stimulus package created around 250,000 subsidised temporary jobs for welfare recipients. The wage-subsidy scheme, though, was too modest to be meaningful and the stimulus package has expired. Some states have been bolder. Georgia allows unemployed people to work up to 24 hours a week for six weeks with a new employer and still draw jobless benefits. The employer gets a look at a potential employee; the worker gets valuable training even if the job doesn’t last.
Signs of the timesSuch policies will not magically reverse the plight of America’s less-educated men, but they might help. It is a shame that American policymakers have barely considered the problem. Both Democrats and Republicans seem convinced that as the economy strengthens the labour market will heal itself. But although unemployment will continue to fall as the economy recovers, millions of American men will be left behind.
from the print edition | Briefings2
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