Employment of men in their prime working years has fallen over the past five decades, particularly among men without college educations. This decline has alarmed policymakers. Noting that the prime working years are typically a worker’s most productive, the Council of Economic Advisers in 2016 suggested that declines in employment may be dragging down economic output and diminishing family well-being. Accordingly, there have been calls for increasing investment in education and expanding tax credits for working with the hope of attracting more men to the workplace. Considering that any policy response to employment’s downward slide should be informed by the reasons underlying it, we want to ask: What accounts for this downward trend?
Standard microeconomic theory says that people work if their earnings from employment are sufficiently high relative to whatever income is available to them if they’re not working. Accordingly, the natural place to search for an explanation for the fall in employment is to explore whether the payoff from working has fallen relative to the payoff from not working. The usual suspects fall into one of two categories: factors that have suppressed wages among workers with no college degrees, and factors that have increased the income available to those out of work. One example of a force depressing earnings is labor-saving technology, which has reduced the demand for noncollege-educated workers. The second category of factors includes, for instance, expansions in eligibility for federal benefit programs, such as disability insurance benefits.
Standard theory thus expounds a simple narrative for the decline in male employment: The reason men today are working less than earlier generations did must be that the wages they can earn are now lower relative to other income sources, including government benefits and spousal earnings. If the theory is correct, we should observe that these other income sources replace, or make up for, an increasing share of men’s forgone earnings.
This article appeared in the Fourth Quarter 2017 edition of Economic Insights. Download and read the full issue.View the Full Article