Stocks Roar, Male Employment Tanks

Stocks continue to rise. The Dow yesterday reached 12,763, its highest close since May 20, 2008. The S&P 500's at 1,364, and the NASDAQ at 2,874.

The FOX Index is plus 1,000 for the first time in its nearly 3-year history, closing yesterday at +1,249 (chart). The Index defines “healthy” as 15,800, a total formed from adding a Dow of 12,000, an S&P 500 of 1,300, and a NASDAQ of 2,500. The Index has been “healthy” since this January, and now totals 17,049. Analysts attribute recent gains to strong corporate earnings in January-March, and Federal Reserve assurances it will keep interest rates low.

Still, against the overall weakness of our economy, the stock market’s good health looks increasingly out of place. The Financial Times (U.K.), after noting that U.S. GDP growth in the first quarter ran at an annual rate of only 1.8%, wrote:

At this stage of a recovery, growth often rebounds by between 4% and 5%. Expansion of less than 2% will not create enough jobs to keep up with population growth and cut the US unemployment rate of 8.8%.

In line with the Financial Times’ concern, first time unemployment claims rose this week to 429,000, well above the pre-report estimate of 392,000. Thursday’s report marks the third week in a row new unemployment claims have exceeded 400,000, a level economists consider too high to sustain job growth.

Bad GDP and unemployment claim numbers add urgency to ongoing concerns about U.S. long-term unemployment, especially among youth and men. The Economist has just completed a detailed look at U.S. male unemployment, offering these disturbing facts:

➢ Of the Group of 7 (G7) economies (U.S., Japan, Germany, Britain, France, Italy, Canada), America has the lowest share of “prime age” males in work: just over 80% of those aged between 25 and 54 have a job. In the late 1960s, 95% worked.

➢ The 2008-09 recession drove the American unemployment rate into double digits, and the rate for men is still very high—9.3%. Almost half the jobless have been out of work for more than six months.

➢ Many men have simply dropped out of the labor force. America has a smaller share of prime-age men in the workforce (i.e., in a job or seeking one) than any other G7 economy.

➢ Of 25- to 54-year-old men with no high-school diploma, 35% have no job, up from 10% in the 1960s. Of those who finished high school but didn’t go to college, the share without work is up from below 5% in the 1960s to 25% today. More than 30% of blacks overall, and almost 70% of black high-school dropouts, have no job.

➢ Less-educated men used to work in construction and manufacturing, where lots of jobs were lost in 2008-09. Teenage employment rates are currently the lowest on record, and those who enter adulthood without a job or college are much less likely to work when they are older.

➢ Two big groups among the long-term jobless are “older dislocateds”, less-educated workers who have lost long-lasting jobs, mainly in manufacturing, and “younger never-fully-connecteds”, high-school dropouts never really in the workforce.

➢ Economist Larry Summers worries that even when “full employment” returns, around 15% of all men, 20% of men who have not been to college, 35% of those who did not finish high school and more than 60% of black male high-school dropouts will probably not be working.

The Economist has found that low-skilled, low demand jobs offering lower wages reduce worker incentive to work. Many qualify instead for disability payments, or they let a working spouse provide income. The share of prime-age men on disability has gone from 1.5% in 1970 to 4.9%. Federal spending on disability benefits is now $120 billion a year, almost 1% of GDP.

Men face additional disincentives to work. They lose out on the Earned Income Tax Credit (EITC), a program designed to subsidize low-income work. The maximum EITC payout for a childless person is less than $500 a year, while families (usually headed by a female) with one child get six times as much, those with two children, more than ten times.

And men disproportionally suffer from child-support programs that take money directly from paychecks. Deductions can amount to 65% or more of wages. Some states even levy an extra charge to cover the mother’s welfare payments, and force men to accrue child-support obligations when they are in prison, leaving them owing thousands when they get out.

Still, we know the main problem men face stems from lack of education. Technological advances require higher skills. Yet American men have let their schooling slide. Those aged between 25 and 34 are less likely to have a degree than 45- to 54-year-olds. In recent years America’s university graduation rates have slipped from near the top of the world league to the middle, with men leading the drop. Furthermore, black and Hispanic boys are far less likely than whites or Asians to graduate from high school, start college, or get a college degree.

The Economist advocates intervention to encourage at-risk high-school students to graduate, to foster contacts with future employers, and to help those who go to college to stay there.