Young American men are not working. Well, a smaller share of them are It works, anyway. In April, about 86% of prime-age men – those between 25 and 54 – were employed, a significant decline from the 1950s and 1960s, when the figure was often closer of 95%. And 52% of men aged 16 to 24 were working, compared to well over 60% several decades ago.
There are many explanations for what could be happening – perhaps it has to do with recessions, disabilities, or salaries not being high enough to attract them. There are an equally robust number of proposed solutions to this conundrum: upskilling and reskilling are compelling solutions. men to move into fields traditionally considered reserved for women, prompting employers to be more realistic about requiring college degrees.
Let us add to this another possible explanation: the unemployment insurance system. How layoffs are handled can actually impact whether men are hired in the first place.
First, some basics. When a worker is laid off or laid off, they typically qualify for unemployment insurance, a program designed to help people stay afloat financially while they search for their next job. After applying and getting approval, which can be painful, unemployed workers receive a check each week. The checks do not replace all their salaries; the amount is usually less than half of what they previously earned. It’s something that helps them out so they can pay their bills, keep food on the table, etc., and it’s good for the economy because it puts a damper on everything when people suddenly can’t do those things. things.
It’s a pretty simple idea, but the way we pay for unemployment insurance is pretty shaky. Each company pays a tax on the money intended to pay unemployment insurance; the tax bill is paid by the employer, not the employee, unlike Social Security, which is paid by both. (Employers contribute a certain percentage to unemployment insurance from each paycheck, and those with more employees end up contributing more. It’s a bit like the employer’s share of Social Security. ) But instead of it being a flat tax (the company gives X percentage each month), the rate can increase through a system called “experience pricing.” The experiment in question is the extent to which the employer has laid off workers in the past: more layoffs mean a higher tax rate. The idea is that the more workers the company laid off, the more people it pushed into the unemployment insurance system, and so it would have to pay more unemployment taxes.
If you are taxed for laid-off employees, you will be much more hesitant to hire.
The idea behind this is understandable (even though most countries don’t offer unemployment insurance this way). If you want to discourage companies from laying people off willy-nilly, you penalize those who do it. But in practice this had unintended consequences. A new article by Matt Darling, senior employment policy analyst at the Niskanen Center, a center-right think tank, argues that the experience rating system has made some employers reluctant to hire workers they fear will doesn’t work… and that young men, in particular, are the ones who suffer the harm.
“If you have to pay taxes for laid-off employees, you’re going to be a lot more hesitant to hire,” Darling told me. “It’s not the only factor, but I think it’s an important factor.”
The experience rating system was not widespread nationally until the federal government in the mid-1980s required states to adopt the program. Darling examined what happened when it was imposed on Washington state, which resisted implementing the program until 1985. He compared it to Oregon, which had already implemented a pricing system based on experience. Unemployment rates for young, entry-level workers moved in sync before Washington’s experience rating was implemented. When it was implemented, workers in Washington began to see rising unemployment. Darling found that after Washington introduced the experience rate, the unemployment rate for workers ages 15 to 25—primarily entry-level workers—increased by 2.5 percentage points. The effect was almost entirely attributable to young men: unemployment increased by 2.7 percentage points for young men but by only 0.1 percentage point for young women.
“It kind of relates to a lot of things that people think about,” Darling said. “Why is the employment rate of men generally decreasing?”
The prospect of higher unemployment taxes may cause employers to avoid people they perceive as at-risk workers or choose to hire contractors. In more harmful situations, they might try to discourage workers from applying for unemployment or make their employees so unhappy that they quit and are therefore ineligible for unemployment insurance benefits. So why should young men bear the brunt?
Men tend to outnumber women in economically vulnerable sectors, such as manufacturing and construction. During recessions, these sectors are often hit hardest, meaning their jobs are among the first to disappear. (The pandemic recession was the exception.) Companies in these industries can also be very sensitive to their experience ratings; they don’t want to raise their taxes even further.
Employers might also view young men as riskier to recruit. Rightly or wrongly, there is a stereotype that young men are more unstable, more immature and less responsible than their female counterparts. Darling notes that men drop out of college at higher rates than women and argues that the same behavioral differences that fuel this trend could also mean that companies view them as being at higher risk of layoff.
There are some ideas for policy solutions to fix experience rating and user interface. Darling’s preference is to remove experience pricing and just choose a simple tax rate.
Implementing either of these solutions would be complicated, as there is rarely much political will to act on unemployment insurance. People realize how screwed up the system is when times are bad (see: the Great Recession, the pandemic), but once things return to normal, everyone kind of forgets. Regardless of Congress’s appetite for action, there is no real group of people who consider themselves “unemployed.” Lawmakers on Capitol Hill and in state legislatures don’t like to talk about taxes unless they’re cutting them.
As for why so many young men don’t work, it’s a real puzzle. There is no silver bullet to recessions, incarceration rates, wages, or any of the many other factors driving this change. But maybe a step in the right direction would be to at least talk about it. And, if you’re a business owner, maybe take a risk with that young man walking through your door instead of worrying about what it might cost you if you decide to fire him.
Emilie Stewart is a senior correspondent at Business Insider, writing about business and economics.