US labour market - it's a culture thing

John Kerry is right. The Bush years have seen changes in the job market. The disappearance of manufacturing jobs. The departure of entire back offices to Asia.

Then there is that soulful measure, labour force participation. This statistic comes from a US government survey that periodically asks people aged 16 and over if they have a job or are trying to get one. A "no" to both questions suggests despair and today a greater proportion of citizens are replying with that double "no" than in 2000.

There is also a downward trend in labour force participation among youth. In March, only 42.9 per cent of the 16-19-year old group had a job or were looking for one. This is the lowest rate since 1965. Small wonder the Democratic presidential candidate pounds the theme of hopelessness.

The most interesting thing about these figures is not what they tell us about Mr Kerry's prospects but what they say about longer-term policy, or the culture of work. The youth labour figure, for example, opens a window on a now obscure decade, the 1970s, and reminds us of how different it was from the current one.

No one knows exactly why youth in the 1970s were more willing to work. The standard argument is that such willingness reflected good economic and social news. Increasing wages were making work a relatively attractive proposition. Furthermore, the age-old difference between what the "college man" earned as opposed to the mere high school graduate was narrowing. By 1979, according to government data, the average university graduate earned 1.38 times what the average high school graduate did - a historically narrow gap.

The country seemed to be entering a liberating era in which education mattered less. The mood came out in the refrain of the 1972 hit song by Alice Cooper: "School's out for summer/ School's out forever/ School's been blown to pieces." In 1976 a scholarly corollary to School's Out was published: The Overeducated American, by economist Richard Freeman. Mr Freeman posited that there would come a time when geeks and snobs must learn practical skills. This was a period when school seemed passé. Summer school? It was for remedial kids. At Yale University, students even started their own bartending-and-carpentry school, known as "Yale Tech".

One can also argue that the higher labour force participation of the 1970s was a negative sign. After all, those nominally high wages were not real; a good share represented inflation. Youth took jobs for what sounded like a lot of money only to find that they could buy far less than expected. The interest rates that were eventually set to correct 1970s inflation made homes too expensive for the same workers.

As for the anti-school culture, it too reflected problems. High capital-gains taxes in the 1970s blocked the flow of venture capital - and so, innovation. Even when people had good ideas, they could not sell them. An innovator who cannot sell his ideas creates less wealth than one who can. He is therefore worth less - that narrow earning differential - and he is often dismissed as a pottering eccentric.

Today, a smaller share of America's youth choose to count themselves part of the labour force. Again some reasons for this are unknown. Three in 10 young people not enrolled in school are neither working nor trying to work. A number are stretched out right now on the couch at "Hotel Mom", looking at nothing. Why? Anyone's guess.

Still, as Tim Kane of the Heritage Foundation notes, there is a positive explanation for youth behaviour overall: young people work less because they are in school. The geek ruled before the Nasdaq crashed, and he still rules.

The figures bear this out. In the spring, 84 per cent of 16-19 year olds were enrolled in high schools and colleges, compared with 74 per cent for the same group two decades ago. Joseph Meisenheimer at the Bureau of Labour Statistics crunched numbers on a "no school" month, July, and found that 38 per cent of young people were choosing to inhabit that old ghetto, summer school - quadruple the old rate.

Certainly, striving is not always a choice - foreign competition threatens US workers. But Americans are also striving because striving once again yields rewards. Tech stocks may have crashed, but it is still possible to use knowledge to make money in the US.

This last is true in part because both Democrats (Bill Clinton) and Republicans (George W. Bush) introduced capital gains rates cuts. The wage differential tells the story: by the start of this decade, the average university graduate was earning 1.74 times what a high school graduate earned, a wider gap than in the 1970s. Males who went on to graduate school were earning double what their non-college peers were making.

A subtle acknowledgement of such changes came recently when the US retailer Staples launched television advertisements featuring Alice Cooper himself. In the clip, the former rebel shops for school supplies and amends his old message. Sure, "school's out", he tells a child, but merely "for summer".

In short, the labour market is not only a political football but also a sociological mystery. Some of its movements may be explained by long-term policy shifts. Some can be explained by cultural change. And some - those 16-year-olds lying on the couch - cannot be explained at all. Not by George W. Bush, John Kerry nor even Alice Cooper.

© Copyright 2004 Financial Times

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