Why Working-Age Men Are Disappearing From The Workforce

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 6, 2016

1. August Unemployment Report Fell Well Short of Expectations

2. Fed Likely to Hold Off on Rate Hike Until December Meeting

3. Millions of Working-Age Males Have Left the Workforce – Why?

4. America’s “Unworking” Men – A Trend Long in the Making

5. America’s Idle Army: How Has This Happened to US Males?

6. Conclusions From Eberstadt’s Book “Men Without Work”

Overview

Working-age males are disappearing from the US workforce at an alarming rate. Men age 25 to 54 now have a lower labor force participation rate than they did in 1940, as the Great Depression was winding down. Millions of men in this age group have virtually no work skills and no way to get them.

One in six men age 25-54 today have no job and most have given up looking for work, which means they are no longer counted as unemployed. At current trends, one in five – or 20% of working-age males — will be out of the labor force in less than a generation. African-American men are twice as likely to be in this condition as either whites or Latinos.

Today we will look into this troubling trend and attempt to discern what is driving American men out of the workforce at an increasing pace. The questions are many, such as how these non-working men support themselves and their families for those that are married, how many receive government disability benefits and how many are out of the workforce because they are incarcerated, among others.

Before we get to that discussion, let’s review last Friday’s disappointing unemployment report for August. Because new jobs in August were well below expectations, many now believe the Fed will hold off on a rate hike until at least its December policy meeting. We’ll discuss all that and more as we go along today.

August Unemployment Report Fell Well Short of Expectations

The pace of hiring in the US slowed sharply in August after huge gains earlier in the summer. The Labor Department’s Bureau of Labor Statistics (BLS) reported that the official unemployment rate remained steady at 4.9% for August, whereas the pre-report consensus was for a dip to 4.8%.

Working-Age Men

The BLS reported that only 151,000 new jobs were created last month, well below the pre-report consensus of 180,000. That compares to revised gains of 275,000 new jobs in July and 271,000 in June.

The BLS noted, following the revisions to June and July, that new jobs have averaged 232,000 over the last three months, despite the lower than expected 151,000 in August. Of course, that leaves out the paltry 24,000 jobs created in May.

As I wrote in my Blog last week, the August jobs report is the least reliable of any month of the year, and since 2009 it has almost always been revised higher in subsequent reports.

The first revision to Friday’s August jobs number will not be until Friday, October 7, well after the Fed’s next policy meeting on September 20-21. I’ll have more to say on the Fed’s likely next move below.

Elsewhere in Friday’s jobs report we found that average hourly earnings rose only 0.1% from July to $25.73, less than the 0.2% pre-report forecast. For the last 12 months, hourly wages increased by 2.4% versus the consensus of 2.5%.

Finally, the Labor Force Participation Rate held steady at 62.8%, remaining at a level not seen since the mid-1970s. The number of people working part-time because they can’t find full-time jobs also remained unchanged in August, as did the number of long-term unemployed.

While the August jobs report was disappointing, it was not terrible and the new jobs number will likely be revised higher next month. But that won’t happen until after the Fed’s next policy meeting.

Fed Likely to Hold Off on Rate Hike Until December Meeting

As I wrote in my Blog last Thursday, there was widespread agreement that the Fed would decide whether or not to raise rates on September 21 based on Friday’s jobs report. Most Fedwatchers agreed that a jobs number of 220,000 or above would push the FOMC to raise the Fed Funds rate by a quarter-point at the September meeting.

On the other hand, there was also broad agreement that a new jobs number below 180,000 would give the Fed pause and hold off on a rate hike until the December 13-14 meeting. At only 151,000 new jobs last month, there is now a broad consensus that the Fed will delay any rate hike until at least the December meeting.

FYI, there is a Fed policy committee meeting on November 1-2 but hardly anyone believes the Fed will act so close to the election on November 8. Plus, Janet Yellen is not scheduled to hold a press conference after the November meeting, another sign that not much will happen then.

Stocks and bonds rallied immediately after Friday’s jobs report was released, on the thinking that there won’t be a rate hike in September. At the same time, the Fed Funds futures market moved the odds of a September rate hike down to only 20% while the odds of a December rate hike increased to 55%.

And finally, there was one other important economic report out last Thursday that the Fed also didn’t like. The key ISM manufacturing index unexpectedly plummeted in August to 49.4, down sharply from 52.6 in July and from the pre-report consensus of 52.2. A reading below 50.0 in the ISM index suggests that the economy is contracting. This was a very negative report.

Now let’s move on to our main topic for today.

Millions of Working-Age Males Have Left the Workforce – Why?

With the official unemployment rate below 5% for several months, many economists and policymakers at the Fed argue that the US economy is approaching what is called “full employment.” Most agree that full employment is somewhere around 4.5%.

Yet while economists and the Fed fret over full employment, a new book by one of America’s leading demographers warns that in fact we are in the midst of a full-blown unemployment crisis that he says is “hidden.” The book entitled “Men Without Work” is written by Nicholas Eberstadt of the American Enterprise Institute.

Put simply, some 8-10 million working-age (25-54) US males have disappeared from the workforce and many, if not most, have given up looking for work. According to Mr. Eberstadt, nearly one out of six working-age men have no job and are no longer looking for one. In less than a generation, he says, it will be one out of five (20%) if something doesn’t change.

This portends an entire generation of men with only a tenuous connection to the discipline and rewards of work, and will have an enormous impact on future generations of young men. This is not exclusively a problem of the lower income classes. The number of higher income male workers is shrinking as well.

Today, for example, women make up 57% of all college graduates, meaning that men in the current generation will be enormously under-represented in the well-paying professions that require a college degree.

It is ironic that we just celebrated Labor Day which honors the contributions workers have made to the strength and prosperity of the country. Yet we rarely hear about the collapse, over two generations, in work for American men in the traditional prime of their working life.

America’s “Unworking” Men – A Trend Long in the Making

The first thing we have to recognize in order to understand this crisis is that it has been a long time in the making. Over the past 50 years, the share of American men age 20 and older without paid work has risen from 19% to 32%. Over the same period, the unemployment rate for working-age (25-54) men jumped from 6% to 16% according to Fed data.

Working-Age Men

Working-Age Men

Most surprisingly, the bulk of the postwar surge in dropouts involved voluntary departure from the labor force as opposed to termination. Mr. Eberstadt explains it this way:

“Until roughly the outbreak of World War II, working-age American men fell into basically two categories: either holding a paid job or unemployed. There was no ‘third way’ for able-bodied males. Today there is one: neither working nor seeking work—that is, men who are outside the labor force altogether.

Unlike in the past, the U.S. is now evidently rich enough to carry them, after a fashion. The no-work life hardly consigns these men to destitution. This is at least somewhat true throughout the affluent West, but the U.S. has led the pack.

Not even in dysfunctional Greece or ‘lost generation’ Japan has the male flight from work proceeded with such alacrity. The paradox is that Americans — those who do have jobs — are still among the rich world’s hardest-working people. No other developed society puts in such long hours, and at the same time supports such a large share of younger men neither holding jobs nor seeking them.

Who are America’s new cadre of prime-age male unworkers? They tend to be: 1) less educated; 2) never married; 3) native born; and 4) African-American. But those categories intersect in interesting ways. Black married men are more likely to be in the workforce than unmarried whites. Immigrants are more likely to be working or job-hunting than native-born Americans, regardless of ethnicity. [Emphasis added.]

What do unworking men do with their free time? Sadly, not much that’s constructive. About a tenth are students trying to improve their circumstances. But the overwhelming majority are what the British call NEET: ‘neither employed nor in education or training.’

Time-use surveys suggest they are almost entirely idle—helping out around the house less than unemployed men; caring for others less than employed women; volunteering and engaging in religious activities less than working men and women or unemployed men. For the NEETs, ‘socializing, relaxing and leisure’ is a full-time occupation, accounting for 3,000 hours a year, much of this time in front of television or computer screens.”

America’s Idle Army: How Has This Happened to US Males?

Clearly big changes in the US economy, including the decline of manufacturing and two severe recessions since 2000, have played a role in the dropout rate in this century. But something else is at work, too: the male flight from work has been increasing over the past two generations, irrespective of economic conditions or recessions, according to Eberstadt.

Another factor has been the explosion in our prison population over the years. Yet it is important to understand that the apprx. 1.4 million working-age males who are incarcerated are NOT counted as unemployed.

It is a fact that there are many barriers to work for America’s many male ex-prisoners and felons not currently behind bars. Eberstadt and others estimate that male ex-prisoners account for one out of eight adult males in the working-age population. In many states, these men (and women) are legally barred from a significant number of jobs.

Conclusions From Eberstadt’s Book Men Without Work

“What we might call ‘sociological’ factors are evident, not least the tremendous rise in unworking men who draw from government disability and means-tested benefit programs. There are also the barriers to work for America’s huge pool of male ex-prisoners and felons not behind bars. Regardless of its cause, this new normal is a threat to America’s national interests.

Declining labor-force participation and falling work rates have contributed to slower economic growth and widening gaps in income and wealth. Slower growth in turn reduces tax revenue and increases budgetary pressures, producing higher deficits and national debt. Unworking men have increased poverty in the US, not least among the great many children whose fathers are without jobs.

There are the social effects, too. The male retreat from the labor force has exacerbated family breakdown, promoted welfare dependence and recast ‘disability’ into a viable alternative lifestyle. Among these men the death of work seems to mean also the death of civic engagement, community participation and voluntary association.

In short, the American male’s postwar flight from work is a grave social ill. Strangely, nearly everyone—the news media, major political parties, intellectuals, business leaders, policy makers—has managed to overlook it. The urgency of the moment is to bring this invisible crisis out of the shadows.

Imagine how different America would be today if another roughly 10 million men held paying jobs. It is imperative for the future health of the country to make a determined and sustained effort to bring these detached men back into the workplace, into their families, into civil society.”

The bottom line: We’re becoming more and more like Europe where able-bodied men just stop working. I’ll have more to say on this serious problem in the weeks and months ahead.

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Wishing you a great end of summer,

Gary D. Halbert

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