I Don’t Believe This Story About Prime Age Working Men In The US

That the people who have done this research are far better economists than I’ll ever be – partly because I’m not an economist of course – is true. I strongly suspect they’re much brighter too. But still, I’m afraid that I don’t believe this story about the number of men who have dropped out of the workforce in the US in recent generations.

If we change the statement to “dropped out of the formal workforce” then yes, fine. But that is a different thing.

From Tyler Cowen:

At the same time, the labor-force participation rates of men without a college education have steadily declined. While wage and participation trends are often linked for this population, we have argued that this connection cannot solely be the result of an inward labor demand shift across a stable and elastic labor supply curve.

To strip that out from jargon, lossa guys can’t be bothered to go to work today.

The paper itself is here. And I don’t believe this part of it:

During the last 50 years, labor market outcomes for men without a college
education in the United States worsened considerably. Between 1973
and 2015, real hourly earnings for the typical 25–54 year-old man with
only a high school degree declined by 18.2 percent….

I think that’s s composition effect. The people today who have only high school aren’t the same as the people back then. Well, obviously, tempus fugit and all that. But we’ve got this to contend with:

College enrollment rates

This isn’t accurate but it’s an indicator of the problem I mean. We used to have 30% going to college, 70% not. Now it’s more like 50/50. Which means that some 20% of the population has gone from not going to college to going to college.

We also know that we’ve not moved 20% of the population into jobs that used to require a college degree. Instead, we’ve moved down the requirement to have a college degree.

Yes, this is from the UK and not directly relevant but the analogy holds. Used to be that you didn’t need a degree to enter the professions – law and accountancy. The route was to leave school then do articles. That is, more like an apprenticeship than anything else. Doing a degree first was considered rather odd in fact. Now near all enter those professions after a degree. OK. But what’s happened is that we’ve changed which job requires a degree, right?

There was a report a few years back, Cato maybe, which looked at exactly this for the US. We haven’t bumped – well, not all – of those 20% up into jobs that used to require a degree. We’ve lowered the bar for jobs which do require a degree.

Now, an assumption. Those jobs which now require a degree are the higher paid of those jobs which used not to require a degree. Reasonable enough although I’d not like to have to prove it.

At which point we can indeed say that pay for those without a degree has fallen over the decades. But it’s not very interesting. Because we’ve also moved an entire 20% of the population from not having a degree to having one in the age cohort. And that bottom 20% of the degree taking classes are going to be doing the same jobs as the top 20% of the non-degree taking classes used to.

That is, we took all the well paid jobs – to exaggerate – out of the non-degree class and put them into the needs degree class. You could have a rough stab at testing this if you have wages – this being another problem in that they’re measuring wages, not compensation – by decile. Have wages from 50 to 70% in the distribution risen? What’s the effect of recasting our no college wage number if we use that old 70% of the population and the bottom 70% of the distribution?

The other bit I don’t believe is this.

Labor force participation

Yes, I know it’s from the CPS, that it”s self reported labour income. But, well, no. Because this:

The personal exemption amount in 1894 was $4,000 ($109,277 in 2016 dollars). The income tax enacted in 1894 was declared unconstitutional in 1895. The income tax law in its modern form—which began in the year 1913—included a provision for a personal exemption amount of $3,000 ($71,764 in 2016 dollars), or $4,000 for married couples. ($95,686 in 2016 dollars) Over time the amount of the exemption has increased and decreased depending on political policy and the need for tax revenue. Since the Depression, the exemption has increased steadily, but not enough to keep up with inflation.

Fiscal drag. The income tax bites at ever lower levels of income. Social Security is from $ one I think, but rates have increased. The tax wedge on low incomes has risen. Therefore more people are exiting the formal economy to work in the informal.

That is, our measures of labour participation are of those in the formal economy, not those in the labour force.

I simply don’t believe the starting information, thus don’t the structure built on it.

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Rhoda Klapp

The jobs for non-graduates are largely taken by people who come from countries where going to college was not an option. Including everybody in ‘construction’ (general building to us) and allied trades.