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Would America Have Fewer Missing Workers if It Were More Like France?

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The New York Times

What if the very thing that is often viewed as one of the United States’ sources of dynamism — flexible labor markets — is the driving force behind the economy’s greatest weakness: millions of people who are neither working nor looking for a job?

A job candidate’s résumé sat on a table as he interviewed for a job during a recruiting event in Atlanta in March.

That is a provocative idea that Obama administration economists explore in a new report looking at one of the crucial flaws in what on the surface is a healthy job market. Even as the unemployment rate has fallen to 4.7 percent — low by historical standards — millions of working-age Americans have pulled out of the labor market entirely. They neither work nor count as unemployed.

These missing workers are predominately less educated men, and their numbers have been mounting for decades. The White House Council of Economic Advisers calculates that in 1964, 97 percent of men with a high school degree or less in the so-called prime-age working years of 25 to 54 were working or seeking work. That is now down to 83 percent.

In the United States, there is less standing in the way between an employer who wants to hire someone and a person who wants to work than in most Western European countries or Japan.

Many economists have traditionally viewed this as positive. Yes, it means that workers are more vulnerable to being fired when the economy slumps, and many jobs come with fewer benefits like paid vacation and sick leave. But that should help the economy adapt to a changing world more quickly and ultimately lead to higher incomes. A mainstay of American and British economic commentary is preaching to the likes of France and Italy that they need more flexible labor markets.

In theory, this flexibility should create more opportunities for anyone who wants work to find it, in contrast with European countries where companies are more reluctant to add jobs because regulations and union rules make it costly to fire people or sometimes even change their jobs.

Yet a higher proportion of working-age men are in the labor force in many of these countries with inflexible labor market policies. In the United States, 12 percent of 25- to 54-year-old men were neither working nor looking for work in 2014. That number was 7 percent in Spain and France, and 4 percent in Japan. And that’s despite a more generous social safety net in those countries that would, you might think, make it easier to drop out of the work force.

More American Men Are Out of the Work Force

Italy and the United States have the highest proportion of prime-age men neither working nor looking for work among large advanced democracies.

In other words, whatever the costs and downsides of European-style labor markets, they don’t seem to inhibit the number of prime-age men who work. They may even make less educated men more likely to remain part of the work force.

In other words, whatever the costs and downsides of European-style labor markets, they don’t seem to inhibit the number of prime-age men who work. They may even make less educated men more likely to remain part of the work force.

Perhaps men without much education are more likely to seek work when positions offer job security and when regulations and unions push wages higher than they would be on a more open market. And perhaps that effect counteracts the economic negatives of these policies in terms of fewer jobs and less dynamic businesses.

“One traditional defense of American-style labor market arrangements is that though they may result in more inequality, the labor market will function better as a result,” the White House economists write. But the international comparisons “suggest that a successful labor market requires, at the very least, more than just flexibility but also policies or institutions that help connect workers with jobs or facilitate their taking jobs through subsidized child care or flexible workplaces.”

The data, they add, “suggests that the American labor market has room to improve when it comes to creating conditions for meaningful employment.”

What would those be? The Obama administration emphasizes policies to increase “connective tissue” in the job market. Those include improving community college and job training programs. The report also advocates improved unemployment insurance, and wage insurance programs that would provide income to people whose pay gets cut.

The economists also note some other factors that could explain the United States’ poor showing, particularly astronomical incarceration numbers. The male population in the United States includes many more former prisoners than in other advanced democracies, and they are disproportionately likely to be out of the labor force.

“The analysis in this report has shown that simply making labor markets more ‘flexible’ is, at least, not sufficient for effective functioning and that making labor markets more ‘supportive’ is essential,” the report said.

The White House study is part of a broader conversation that is only beginning about the failures of the American economy to create opportunities and good-paying jobs for less educated people, especially men. And it’s not just about economics. The absence of those opportunities has coincided with rising rates of depression, opioid abuse, early death and a range of social dysfunctions among this same demographic group of less educated, working-age men.

There is no guarantee that a more European-style labor market would solve America’s missing male worker problem, let alone solve those much bigger problems. But the international comparisons suggest less flexible labor markets might have some advantages.

read more at The New York Times