Trickling Down works?

Henry C.K. Liu hliu at mindspring.com
Sun Jun 13 07:19:17 PDT 1999


4.2% unemployed is still close to 5 million workers and their families.

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.



More information about the lbo-talk mailing list