August 7, 2018

The July jobs report came out Friday, but I generally don’t pay much attention to the monthly jobs total since it’s subject to such great revision in future months, especially when the data comes out so early in the month (8:30 am on August 3 in this case). How do you expect government bean counters to measure the entirety of the employment picture just two days after the close of the month being examined?

As always, I prefer to look at long-term trends. The steady addition of decent-paying jobs is correlated with national wealth and stock market profits, as this chart of total payrolls vs. the Russell 3000 shows:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary

Digging beneath the numbers, there are two misconceptions I would like to begin with, before tackling the 800-pound gorilla in the labor market pool – the disappearing Prime-Working-Age Male.

Myth #1: “Wages are stagnant.” This one bothers me because it discourages people from seeking work. It burdens young people with the myth that only “dead-end hamburger-flipping jobs at minimum wage” are available, and that there is no escape from a dismal fast-food joint – the traditional entry-level job.

In truth, inflation-adjusted average hourly earnings have been rising steadily for the last 25 years (see the blue line, below), from $15 to nearly $20 per hour. The blue line accounts for about 80% of all workers, and it is up 29% from 1995 to 2018. Wages have risen 10% for all workers since those data started being kept in 2006 (red line, below). This is inflation-adjusted, so it can’t be described as “wage stagnation.”

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary

Myth #2: Youth are trapped in dead-end jobs. The Atlanta Fed compiles a “Wage Growth Tracker” by age group (called “age cohorts”). Youth in the 16-24 age bracket (the blue line in the chart below) have always seen their wages grow faster than any other group. From February 2013 to November 2016, wage inflation for the 16-24 group grew from 3.5% to a peak of 8.4% before settling down to a still-high 7.1% in April 2018. By comparison, wages are only growing 3.4% for the prime working-age 25-54 cohorts (and 3.2% overall) and 2.0% for Baby Boomers over age 55 – the most rapidly growing slice of workers. (The percentage of workers over age 55 has increased from 13% in 2000 to an astounding 23.3% today.)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary

Even those without a high school diploma have an excellent chance of being employed. According to Friday’s jobs report, a record 19 of 20 in the Labor Force without a diploma are currently employed.

Entry-level jobs are important, as they teach youth basic job skills of showing up on time, following instructions, and serving customer’s requests in a friendly manner. Those skills can be transferred up the line into management positions at the same company or at a more prestigious corporation later in life.

But when looking at the aggregate data, the giant question is: Where have the able-bodied males gone?

Where Have all the PWAMs (Prime Working Age Males) Gone?

“The progressive detachment of ever-larger numbers of adult men from the reality and routines of regular paid labor poses a self-evident threat to our nation’s future prosperity. It can only result in lower living standards, greater economic disparities, and slower economic growth than we might otherwise expect.”

– Nicholas Eberstadt, “Men Without Work,” The American Enterprise Institute, January 30, 2018

Unfortunately, a lot of Prime Working-Age Males (PWAMs) have dropped out of the job market. They are Not in the Labor Force (NILF) for a variety of reasons, causing the Labor Force Participation Rate (LFPR) to remain at 63% or less for the last four years, down from a peak of 67% in the late 1990s.

Isolating the PWAM population, the percent dropping out of the labor force has doubled from 6% in the supposedly depressed 1970s – the era of “stagflation” and “Take this Job and Shove it!” – to 12% in the booming 2010s. Why would 12% of a generation of virile young males drop out of the labor force?

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary

This is the question asked (and answered) by Nicolas Eberstadt’s 2016 book “Men Without Work: America’s Invisible Crisis.” It’s hard to put a statistical button on the cause, but Ed Yardeni put it into a sort of “rap song rhyme” last week. Unfortunately, the answer involves a destructive lifecycle spiral:

Disabled, ill, & popping pills
Lacking incentive, lacking skills
Doing time, catching cheap thrills

Taken in order, disability claims have skyrocketed. Didem Tüzemen, an economist at the Federal Reserve Bank of Kansas City, in a February paper titled “Why Are Prime-Age Men Vanishing from the Labor Force?” analyzed the Current Population Survey (CPS) over the last 20 years (1996 to 2016) and she found that nearly half (48.3%) of the PWAM-NILFs in 2016 said that they were disabled or ill. In a similar 2017 paper (“Where Have All the Workers Gone? An Inquiry into the Decline of the US Labor Force Participation Rate”), Alan Krueger, a Princeton University and NBER economist, cited findings that nearly half of all prime-working-age NILFs “take pain medication on a daily basis, and in nearly two-thirds of these cases they take prescription pain medication,” contributing to the opioid overuse epidemic.

Incentive is drained by support systems. Another 2017 paper titled “Declining Prime-Age Male Labor Force Participation, Why Demand- and Health-Based Explanations Are Inadequate” by Scott Winship of George Mason University, used an after-tax income measure adjusted for inflation to show that 76% of PWAM-NILFs have managed to avoid poverty since the income of the average Social Security Disability Insurance (SSDI) recipient about matches the after-tax income of a full-time worker earning minimum wage. Plus, the SSDI recipient gets Medicare benefits due to their “increase in self-reported disability.”

Wasting time: There was a 67% rise in the nonparticipation rate of younger PWAMs (aged 25-34) from 1996 to 2016. One third were in training or school, one third had a criminal record, according to Winship. Few were taking care of children, so what were they doing? Studies show they devoted about eight hours a day to “socializing, relaxing, and leisure,” like video games. They also gamble, use drugs, and watch TV a lot. Eberstadt says they “have relinquished what we ordinarily think of as adult responsibilities.”

The Fed’s latest (July) Beige Book says there are plenty of jobs available but there is a nationwide labor shortage “across a wide range of occupations,” due to a lack of qualified workers and, in some cases, a lack of willing workers. Last Wednesday, The Wall Street Journal (in “Youths Shrug at Construction Jobs”) quantified the labor shortage of construction workers, which means “fewer homes are built, pushing prices up for perhaps years to come.” They cited a study by BuildZoom chief economist Issi Rome, which says the U.S. had 11.7 million construction workers in 2005, but in 2016, with 28 million more folks to house, construction workers fell 13% to 10.2 million. Employers are desperately in need of warm bodies. The May Beige Book said employers were willing to “relax drug testing standards and restrictions on hiring felons to alleviate labor shortages.” Importing willing immigrants would also work, but we’ve got to find a way to open America to those willing to work on good jobs – now going begging.

 

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. *All content of “Growth Mail” represents the opinion of Gary Alexander*

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