Young men in America aren’t working. Well, a small percentage of them are. teeth Either way, they’re working: About 86% of prime-age men (ages 25 to 54) were employed as of April, down from a figure that was often close to 95% in the 1950s and 1960s, and 52% of men ages 16 to 24 were employed, up from well over 60% a few decades ago.
There are many explanations for what’s happening — perhaps it has to do with the recession, or disability, or wages not being high enough to attract men. The proposed solutions to this conundrum are just as strong: upskilling or reskilling, pushing men into fields historically considered women’s work, getting employers to be more realistic about requiring a college degree.
Another possible explanation is the unemployment insurance system: how it handles layoffs can affect whether you get hired in the first place.
First, the basics. When workers are laid off or laid off, they are usually covered by unemployment insurance, which is meant to keep them from falling into financial difficulties while they search for their next job. After a bit of a hassle to apply and get approved, unemployed people get a check every week. The check doesn’t replace their full wages, it’s usually less than half the amount they were getting before. It’s a good thing for the economy, because it’s meant to help people get by, like pay bills and pay for food, and when people suddenly can’t do those things, it puts a strain on everything.
This is a pretty simple idea, but the way unemployment insurance is paid is pretty odd. Every business pays a tax into a pool of money that goes towards paying unemployment insurance. The tax is paid by the employer, not the employee. This is different from Social Security, which both pay. (Employers pay a percentage into unemployment insurance with each paycheck, and the more employees they have, the more they pay. It’s like the employer’s share of Social Security.) But this isn’t a flat tax (business pays X percent every month), the tax rate can go up through a system called an “experience rating.” The experience in question is how many times an employer has fired employees in the past. The more times they’ve fired people, the higher the tax rate. The idea is that the more employees a company has fired, the more unemployment tax it should pay because it encouraged employees to take advantage of the unemployment insurance system.
If you had to pay a tax if you fired an employee, you would be more hesitant to hire.
The thinking is understandable (even though most countries don’t implement UI this way): if you want to stop companies from indiscriminately firing employees, you penalize them for doing so. But in practice, it has unintended consequences. A new paper by Matt Darling, senior employment policy analyst at the center-right think tank Niskanen Center, argues that experience-rating systems make some employers hesitant to hire workers they worry won’t work out. Younger men are especially affected.
“If you can fire an employee and still be taxed, it makes you very hesitant to hire,” Darling said. “It’s not the only factor, but I think it’s an important factor.”
Experience rating systems did not catch on nationwide until the mid-1980s, when the federal government mandated states adopt them. Darling studied what happened when Washington state was forced to adopt them; Washington held off on adopting them until 1985. He compared this to Oregon, which had already adopted experience rating. Before Washington adopted experience rating, the unemployment rates of young entry-level workers in each state moved in sync. Once experience rating was implemented, the unemployment rate of Washington workers began to rise. Darling found that after Washington adopted experience rating, the unemployment rate of workers ages 15 to 25, essentially entry-level workers, rose by 2.5 percentage points. This effect was almost entirely driven by young men, whose unemployment rate rose by 2.7 percentage points, while that of young women rose by only 0.1 percentage points.
“This relates to a lot of things people have been thinking about,” Darling said: “Why are male employment rates declining across the board?”
Higher unemployment taxes may lead employers to avoid workers they see as high risk, hire contractors, or, worse, try to prevent workers from applying for unemployment insurance or make employees unhappy, so they quit and lose eligibility for unemployment benefits. So why are young men on the receiving end of this?
Men tend to outnumber women in economically vulnerable industries like manufacturing and construction, which are often the hardest hit and first to lose jobs during recessions (with the exception of the pandemic recession). Companies in these industries may be especially sensitive to experience ratings because they don’t want to incur additional taxes.
Employers may see younger men as riskier to hire. Fair or not, young men are stereotyped as being more moody, immature, and less responsible than women. Darling points out that men are more likely to drop out of college than women, and argues that the behavioral differences that drive this trend could lead companies to view men as a higher risk of dismissal.
There are a few ideas for policy solutions to fix experience points and UI: Darling’s preference is to remove experience points and opt for a simple tax rate.
Implementing any of these solutions will be complicated, because there is little political will to act on unemployment insurance. When the economy is bad (like the Great Recession or the pandemic), people realize how screwed up the system is, but once things get back to normal, everyone forgets about it. Whatever willingness there was to act in Congress, it disappears. There is really no support base for people who identify as “unemployed.” Federal and state lawmakers don’t like to talk about taxes unless they’re lowering them.
It’s hard to understand why so many young men are not working. There’s no quick fix to the recession or incarceration rates or wages or the many other factors that are driving change. But at least talking about it might be a step in the right direction. And if you’re a business owner, why not take a risk and hire a young man who comes into your company, instead of worrying about what you’ll lose if you decide to fire him?
Emily Stewart He’s a senior correspondent for Business Insider, writing about business and economics.
