Several decades ago, regular American guys could get by with a decent job with a decent wage on just a high school diploma.
But things are very different today.
In a hefty report on the long-term decline in prime-age male labour-force participation, the White House’s Council of Economic Advisers shared a chart showing the ratio of high school graduate wages to college graduate wages from 1975 to 2014.
Rather than making almost as much as their college-educated peers as they did 40 years ago, workers with only a high school diploma today make only about half as much on average.
As you can see below, the ratio dipped significantly since the 1970s. The relative wages of full-time, year-round workers with only a high school diploma fell from nearly 85% of the amount earned by those with at least a college degree to slightly above 55%.
There’s also been a huge dip in prime-age male labour force participation in the same time frame. The fraction of men aged 25-65 who are working or actively seeking work has steadily dropped over the years, which you can see below. (Note that this chart goes from 1948 to 2014, going back further than the above chart.)
Putting those two trends together, we see an unusual situation where we have both lower wages and less labour supply. This is contrary to economics 101, which tells us that if there are fewer people available to do a job, they can theoretically command a higher salary, even in lower- and middle-skilled professions.
And, so, that brings us to demand. The CEA noted that the demand for low- and middle-skilled workers has declined in recent decades:
“A number of studies have identified declining labour market opportunities for low-skilled workers and related stagnant real wage growth as the most likely explanation for the decline of prime-age male labour force participation, at least for the period in the mid-to-late 1970s and 1980s (Juhn, et. al. 1991; Juhn and Potter 2006). More recently, economists have suggested that a relative decline in labour demand for occupations that are middle-skilled or middle-paying may have begun contributing to the decline in the participation in the 1990s (Aaronson et al. 2014). As demand for these middle-skilled workers has fallen, they may have displaced lower-skilled workers from their lower-skilled jobs (Beaudry, Green, and Sand 2016), leading some lower-skilled workers to leave the labour force. Aaronson et al. (2014) find that, since 1985, participation rates for less-educated adults fell further in States with greater declines in middle-skilled employment shares.”
It’s notable that there’s no one catalyst for the decline in lower-skilled and middle-skilled labour. Still, there is some empirical evidence suggesting that globalization has at least partially contributed to this phenomenon recently. Plus, technological advances are likely to have contributed too.
And it’s also worth noting that male education levels have stagnated relative to those of women in the US. This, in turn, makes women more competitive applicants for a variety of jobs — especially those in the services sector.
“These forces have, among other things, eliminated the large numbers of American manufacturing jobs over a number of decades … leaving many people — mostly men — unable to find new ones,” the CEA report noted.
But here’s where the real doozy kicks in. Again, from the CEA (emphasis ours):
“In addition to reducing wages, abrupt demand shifts for less-skilled workers create inconsistencies between workers’ expectations of the types of jobs they have traditionally had access to (and that were closely associated with their identity) and the realities of the jobs currently available to less-educated workers — for example, the decline in available jobs in manufacturing. This mismatch between what workers seek and what the job market offers may lead them to leave the labour force through a separate channel from real wage declines (Babcock et al. 2012). Foote and Ryan (2015) support this, showing that these middle-skill workers who become unemployed rarely reenter employment in either low- or high-skill jobs. Relatedly, the authors find that the drop in the labour force participation rate for men over the past several decades may be explained by a decline in job opportunities for middle-skill workers and their reluctance to take jobs in other industries and skill classes.”
So, not only are men losing jobs amid demand shifts, but they are not getting back into the labour force.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.