Henry C.K. Liu
June 13, 1999 NYT
Trickle-Down Prosperity: How Low
the Boom Can Go
By MICHAEL M. WEINSTEIN
or the last eight years, the nation's economic boom,
which has made so many Americans rich and
self-confident, has been noteworthy for those it has left out:
the people at the bottom of the ladder. Suddenly, that's
changed. Unemployment rates among blacks and Hispanic
people, though still high compared with that for whites, are
at or near record lows. Joblessness among high school
dropouts has fallen to about half the rate in 1992. And wages
for the lowest paid are rising faster than inflation for the first
time in decades.
That's important because the last generation produced an
underclass of people so poor, discouraged and alienated that
they were thought to exist almost outside the general
economy. The conventional wisdom has been that the
country could get richer or poorer, and the number of jobs
could rise or fall, but a large swath of the poor would be left
out.
Until recently that wisdom
held true, but now prosperity
is trickling down to the
underclass. Imagine that the
economy continues to
flourish. The question then
becomes how far down the
ladder economic benefits will
reach. Economists aren't
sure, but they are gathering
statistical tidbits, tossing in
some educated hunches and
producing some interesting
predictions, however tentative.
Start with the nation's stunning 4.2 percent unemployment
rate, which is lower than at any time since the late 1960's,
when the economy was artificially buoyed by Government
spending on the Vietnam War.
Perhaps overall unemployment cannot fall much more, no
matter how tight the labor market becomes. The number of
workers who are temporarily unemployed appears to have
been squeezed to a minimum. And many of the long-term
unemployed -- those who persistently look for work but
can't find it -- will remain unattractive to employers no
matter how big the boom.
But there is another category of people, including single
mothers and young black men with few skills and little
education, who appear willing to seize the new opportunities
that a robust economy is creating.
Even under the best economic conditions, there are people
who are temporarily out of work. At any moment, some
workers quit their jobs. Others get fired. Students and
spouses leave school and home to find their first jobs. All
these people need time to find attractive jobs. Economists
call this frictional unemployment and say it is a necessary
feature of labor markets and nothing to fret about.
In the super-charged economy of the 1960's, about 2 percent
of the labor force was unemployed for fewer than five
weeks. Today the percentage is about the same. So perhaps
the time between jobs for qualified workers has contracted
as much as it can, suggesting that further economic growth
will produce little additional employment.
Prof. Robert Hall of Stanford University, after studying
business cycles and current unemployment data, has
concluded that, "Anyone who wants a job and is plausibly
attractive to employers can find a job within a half-dozen
weeks of searching." This may sound cavalier, given the fact
that about five million people say they can't find suitable
work. But economists across the political spectrum share
Professor Hall's view.
Then there are the long-term unemployed -- those who can't
get hired even in the tightest labor markets. These people
may be poorly educated, or have spotty work records or a
history of crime. They may live in urban areas too far from
suburban jobs for which they might qualify.
It is unclear how many of the long-term unemployed would
find work if the economy continues to prosper. In the late
1960's, about 0.2 percent of the work force was unemployed
for six months or more. Today the figure is three times
higher. This suggests that a healthy economy alone may be
incapable of reducing long-term unemployment to the levels
achieved in the 1960's. This group might need other kinds of
help like Government-provided training or subsidized jobs,
though the record of such programs is hardly inspiring.
But if statistics for the temporary and long-term unemployed
suggest that joblessness may have been driven as low as it
can go, another jobless category appears to hold promise: the
non-employed. This group includes all the unemployed plus
those who don't bother looking for work and thus aren't
counted among the jobless. These people may choose not to
work, or may be physically or mentally incapable of holding
jobs. Or they may be discouraged from seeking work
because employers constantly reject their applications or
because they are offered inadequate wages.
Among men aged 25 to 55, the non-employment rate is
about 11 percent, compared with about 6 percent during the
1960's. Since there is no strong evidence that the rate of
physical and mental disability has risen, it's worth asking
whether the extra 5 percentage points -- several million
people -- can be helped by a growing economy.
Robert H. Topel and Kevin Murphy of the University of
Chicago think so. They say that most of those who dropped
out of the labor force since the 1960's were low-skilled
workers who gave up looking for jobs because of
plummeting wages. Among men without a college education,
wages have fallen about 25 percent over the past 25 years
after accounting for inflation. But for the last two years
wages for these workers have risen by 2 percent or 3 percent
after inflation. Further economic expansion could bring a
continued rise in pay and an attractive alternative for millions
who have left the work force.
Other economists are more skeptical. A recent study by
Richard B. Freeman of Harvard University and William M.
Rodgers 3d of the College of William and Mary found that
even in areas of the country with very tight labor markets,
overall non-employment rates barely budged throughout the
1990's. That might suggest that relatively few non-working
Americans would be drawn to work by an expanding
economy.
And Gary Burtless of the Brookings Institution notes that
income and other types of support for non-working people,
like disability insurance payments, are much higher now than
in the 1960's.
But the Freeman-Rodgers study cites one group that has
made significant gains in tight labor markets: young black
men without a college education, whose non-employment
rate fell from 48 percent to 36 percent between 1992 and
1998. Though adult men barely registered gains in
employment or earnings in the regions with tight labor
markets, the earnings of young men -- including blacks
without a college education -- rose by about 10 percent.
"The implication is that a long extended boom can go a long
way to resolving the African-American youth employment
problem," the report said.
Mr. Burtless points to another disadvantaged group that has
been helped by the robust economy: single mothers, whose
non-employment rate fell from 43 percent to 31 percent
from 1992 to 1998. Mr. Burtless says that sharp
improvement is due in part to welfare reform but also to a
healthy economy.
Here's one encouraging reading of the tea leaves, even if it's
unlikely that overall unemployment will dip much further:
Those groups in the worst economic shape -- unskilled
young black men and single mothers -- respond well to tight
labor markets and would benefit from future economic
prosperity.
And economists note that as more young black men and
single mothers are absorbed into the labor force, they will
gain work experience that will prove attractive to future
employers and help them weather the next recession.
The strong economy has started to do for these groups what
Government training programs have not accomplished:
provide substantially higher earnings and employment. And if
the economic boom continues for a few years, there is a
chance it will do wonders for the disadvantaged workers
who need help the most.