If youth unemployment — and the lack of good entry-level jobs for college grads — was being driven by workplace automation, American productivity (value created per hour worked) would be soaring, rather than stagnating.
A much simpler explanation is that the job market is being strangled by the lack of options for people already in it. There’s a whole generation of workers who can’t afford to retire, thanks to cuts to Social Security, the end of the kind of defined-benefits pension that unions used to negotiate for their members, high levels of debt, and structural incentives to retire later. In 1994, 17% of Americans aged 65-74 were in the workforce; that’s climbed steadily and is projected to hit 30% by 2024.
Governments have a perverse incentive to exacerbate this situation. Statisticians count 401(k) retirement savings as part of your net worth but not defined-benefits pension plans. That means that the nation’s balance-sheet can be cooked by migrating workers from pensions that will provide them with comfortable retirements to woefully inadequate ones that will only pay off for a few very lucky people who manage to beat the stock-market. On paper, you’re “richer” if you have precarious money in the market than if you have a sure-thing pension.
It’s a lose-lose situation: older people can’t afford to have a retirement, and their kids can’t get a decent job.
Sure, the economy is more complex. But when we increase the supply of labor, in the aggregate—by shoving more old people into the workforce—we lower the demand for labor, in the aggregate. That means lower wages (remember supply and demand?). The more we old people work, the more income inequality there is, and the bigger the payday for our CEOs. But the effect of all this extra labor is not only to lower wages. When we get lower wages, we change the mix of jobs. We affect where the rich put their money. If there is a bigger return from investing in low wages, we get more low-wage jobs, and that also limits the future of the young. It’s not just that we old people hold down the wages of the young: our very presence in the labor market has a tendency to push capital into lower-skilled types of work—the very work we give to the young while they wait for us to retire.That’s why in the old days the unions were always trying to get members out of the labor market. In the building trades it had a kind of family logic—let junior take dad’s job as a pipefitter. It almost was “one-to-one” replacement. But there was a bigger reason, too—when early retirement kept the supply of skilled labor in check, it was much easier to push up wages. Of course, it was great for the young. Nor did the old suffer. Remember, there really were big, fat, juicy defined-benefit plans. And in 1965, labor also got Medicare.
Now the safety net is gone. The pensions are gone. And we have been cutting Social Security, by sleight of hand: not by cutting benefits but by raising the “normal” retirement age to sixty-six, then sixty-seven. It’s effectively a cut. Besides, to get a decent benefit—to get, say, $2,500 a month instead of $2,000—you now have to hold off until age seventy. (“That’s a no-brainer,” my accountant said.) Uncle Sam wants you to work until age seventy—that’s the new sixty-five. Do you doubt there’s an active policy? If you do, remember this: the out-of-pocket costs of Medicare are rising. Wasn’t Medicare supposed to be like single-payer? It’s not single-payer anymore.
Exit Planning
[Thomas Geoghegan/The Baffler]