Inflation is currently America’s most pressing economic concern, but I believe that our disappearing workers pose a greater long-term challenge.
Almost four million fewer Americans are working now than in February 2020 despite record job openings. Yet the decline in work participation predates COVID-19 and is explored in a new Congressional Joint Economic Committee (JEC) report, “Reconnecting Americans to the Benefits of Work.”
The starkest decline has been among men between the ages of 25 and 54. In 1955, nearly 98% of prime working age men were employed or seeking work; by 2020 this stood at 88%. These age ranges should exclude impacts from increased college attendance or earlier retirement. As the report notes, this “represents a tremendous loss of economic potential.”
The reasons for the decline matter because we may not have a problem here. If the AWOL men want to be homemakers or retire early, not working makes them better off. Statistics show, however, that only about 15% of disconnected men fit these categories.
Economists explain market activity using supply and demand. We can distinguish the demand and supply side explanations for work disconnection. Employers are the demanders of labor, so demand factors include declining wages, the elimination of jobs through automation and international trade, and an education and skills mismatch. With a demand problem, businesses no longer want to hire the men who have dropped out.
Although demand side explanations have received much attention, the JEC argues that they are not the main drivers. Wages adjusted for inflation were higher in 2019 than 1973. Wages fell between 1973 and 1994 but the work exodus has continued with rising real wages. Jobs have been lost due to automation and trade, but other jobs have been created as a result. Jobs with better pay and benefits than 50 years ago still exist for lower skilled workers.
The disconnected men offer evidence against demand side explanations: “Three out of four disconnected men say they do not want a job.” Work participation declines have been concentrated among the less well educated (especially those with no high school degree), the native-born as opposed to immigrants, and individuals on disability (the SSI and SSDI programs).
The formerly incarcerated account for about one-third of disconnected men. I fully support imprisoning persons for criminal acts, but not every felony should result in a life sentence. Gainful employment enormously affects recidivism, the likelihood of former prisoners committing additional crimes. Failing to employ ex-cons costs society their productive labor and the ensuing crime.
The JEC blames government programs for disconnecting Americans from work. Policies create two impediments: artificial barriers to people working legally, and public assistance making work less attractive.
The enormous work disincentives of safety net programs are well documented. Decreased assistance reduces take home pay just like high income tax rates. The marginal tax rate, the amount of tax paid on the next $1,000 one earns, affects decisions to work more hours or pursue a raise. The top federal income tax rate is currently 37%; the effective tax rate for low-income Americans can exceed 100%.
The report details legal and regulatory barriers to work. Occupational licensing and zoning receive particular attention. Licensing sets minimum criteria for people to work in a profession. Acquiring costly training or a college degree burdens low-income Americans. Zoning frequently restricts home-based businesses, which comprise a majority of all businesses with no employees.
Perhaps the report’s most powerful takeaway concerns the many benefits of work. Work is the best anti-poverty program. Few workers make the minimum wage for long because businesses will train and promote dependable, reliable employees. Work has psychological benefits, like earned accomplishment, a sense of control over life, and greater happiness; not working produces depression. Working men have more social connections and are more eligible marriage partners.
America’s AWOL workers should concern us all. We do not understand all the forces involved, but I think government should do no harm here. Given the economic and psychological value of work, politicians who care about well-being should eliminate government-created barriers to work.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
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