The Declining Labor Market Prospects of Less-Educated Men

The Declining Labor Market Prospects of Less-Educated Men. Ariel Binder, John Bound. Journal of Economic Perspectives, Volume 33, Number 2, Spring 2019, Pages 163–190. https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.33.2.163

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,1 while real hourly earnings for college-educated men increased substantially. Over the same period, labor-force participation by men without a college education plummeted. In the late 1960s, nearly all 25–54 year-old men with only a high school degree participated in the labor force; by 2015, such men participated at a rate of 85.3 percent.

In this article, we examine secular change in the US labor market since the 1960s. We have two distinct but related objectives. First, we assemble an overview of developments in the wage structure, focusing on the dramatic rise in the college wage premium. Second, we examine possible explanations for the decline in labor-force participation among less-educated men. One hypothesis has been that declining labor market activity is connected with declining wages in this population. While such a connection indicates a reduction in labor demand, we point out that the canonical neoclassical framework, which emphasizes a labor demand curve shifting inward across a stable labor supply curve, does not reasonably account for this development. This is because wages have not declined consistently over the sample period, while labor-force participation has. Moreover, the uncompensated elasticity of labor supply necessary to align wage changes with participation changes, during periods when both were declining, is implausibly large.

We then examine two oft-discussed developments outside of the labor market: rising access to Social Security Disability Insurance (DI), and the growing share of less-educated men with a prison record. Rising DI program participation can account for a nontrivial share of declining labor-force participation among men aged 45–54, but appears largely irrelevant to declining participation in the 25–44 year-old group. Additionally, we document that most nonparticipating men support themselves primarily on the income of other family members, with a distinct minority depending primarily on their own disability benefits. The literature has not progressed far enough to admit a reasonable quantification of the impact of rising exposure to prison on the labor-force participation rate, but recent estimates suggest that sizable effects are possible. We flag this as an important area for further research.

The existing literature, in our view, has not satisfactorily explained the decline in less-educated male labor-force participation. This leads us to develop a new explana-tion. As others have documented, family structure in the United States has changed dramatically since the 1960s, featuring a tremendous decline in the share of less-educated men forming and maintaining stable marriages. We additionally show an increase in the share of less-educated men living with their parents or other relatives. Providing for a new family plausibly provides a man with incentives to engage in labor market activity: conversely, a reduction in the prospects of forming and maintaining a stable family removes an important labor supply incentive. At the same time, the possibility of drawing income support from existing relatives creates a feasible labor-force exit. We suspect that changing family structure shifts male labor supply incentives inde-pendently of labor market conditions, and that, in addition, changing family structure may moderate the effect of a male labor demand shock on labor-force participation. Because male earning potential is an important determinant of new marriage formation, a persistent labor demand shock that reduces male earning potential could impact male labor-force participation through its effects on the marriage market.

Much prior research has addressed US labor market trends over the last half century, including several recent reviews of male employment (Moffitt 2012; Council of Economic Advisors 2016; Abraham and Kearney 2018). Our aim is not to review the literature, but rather to point out where we think consensus has developed and where we think important questions remain unanswered. In the synthesis that emerges, the phenomenon of declining prime-age male labor-force participation is not coherently explained by a series of causal factors acting separately. A more reasonable interpreta-tion, we argue, involves complex feedbacks between labor demand, family structure, and other factors that have disproportionately affected less-educated men.

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Conclusion
During the last 50 years, the earnings of prime-age men in the United States have stagnated and dispersed across the education distribution. 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. The uncompensated labor supply elasticities implied by the twin declines of wages and participation during the 1970s, 1980s, and 2000s appear too large to be plausible. Moreover, labor-force participation continued to decrease in the 1990s while wages were rising. While the increasing availability of disability benefits and the increase in the fraction of the population with prior incarceration exposure may help explain some of the participation decline, we doubt either factor can explain the bulk of the decline.

We have argued that more plausible explanations for the observed patterns involve feedbacks from male labor demand shocks, which often involve substantial job displacement, to worker adjustment frictions and to family structure. Marriage rates, and corresponding male labor supply incentives, have also fallen for reasons other than changing labor demand. Moreover, we have noted interactions between labor demand and disability benefit take-up, and between mass incarceration and family structure. These factors have all converged to reduce the feasibility and desirability of stable employment, leading affected men—who may not often be eligible for disability or other benefits—to participate sporadically in the labor market and depend primarily on family members for income support.