Opioid Addicts And Convicts: Goldman Unveils The Scourge Of America's Labor Force

While the June employment report had its pros (payrolls) and cons (wages), one number attracted attention: the increase in the labor force participation rate, which rose from 62.7 to 62.9, as more people returned to the labor force, in the process sending the number of unemployed workers higher by half a million.

That said, the move was modest, and as Goldman writes in a Q&A note looking at the participation rate, month-to-month changes in the participation rate are quite noisy, with the standard deviation at 0.14pp over the last 10 years.

the participation rate simply moved up in June near the top end of the 62.3%-63.0% range that has prevailed since early 2014. Over this period, the cyclical participation tailwinds have offset the impact of the structural headwinds, of which a ¼pp trend decline due to aging is the most important contributor.

Whatever the reason behind the monthly increase, a more troubling trend is the ongoing secular decline in the participation rate, especially in the context of other developed economies, where despite economic difficulties, the number of people who end up in the labor force has been rising, a stark contrast with the US. Here is GOldman's view on what is going on here:

Q: The prime-age participation rate is still well below pre-crisis levels. How unusual is the US performance over the last decade from an international perspective?

A: Pretty unusual, especially for prime-age women. The female prime-age participation is still 0.4pp below the 2007Q1 level in the US while it has actually risen in all the other large advanced economies in our sample and by 4.3pp on average (Exhibit 2, left panel).[1] It appears that the social trend of rising female participation in the US came to an end in the 1990s but is probably still ongoing elsewhere (see here for an analysis of the rise in German female participation). As a result, the US female prime-age participation rate is now 4.5pp below the weighted ex-US average and only trailed by Italy’s. Our forecast incorporates a continued moderate cyclical increase in female prime-age participation in 2018H2 and 2019.

Despite a recent pick-up, the male prime-age participation rate has fallen 2.2pp since 2007Q1 in the US vs. only 1.0pp on average in the other DMs (Exhibit 2, right panel). The US male prime-age participation rate is now more than 3pp below the weighted average and nearly 7pp below the Japanese rate.


Of course, regular readers are familiar with this phenomenon which we have covered for the better part of the past decade. But what remains elusive is the answer to the question why is this taking place?

According to Goldman the answer is two-fold: junkies and prisoners, or as Goldman puts it, "the US opioid and incarceration issues ... each explain roughly one-sixth of the US prime-age male participation underperformance, or one-third combined", or in other words, a third of the US participation problem is the result of increasingly more males becoming opioid addicts and ending up in prison as a result, or independently.

Here is Goldman's full discussion on this troubling issue, which as much as the FBI would like, can not be blamed on Putin or Russia.

Q: What drives the long-run decline in US prime-age participation?

A: Both global as well as US-specific demand and supply factors. Global demand-based factors, especially the impact of technology and trade on less-educated workers, have arguably played an important role. Global supply factors, including increases in family income (from work or transfers), have likely also lowered labor supply across many DMs.

But the US stands out along three other supply dimensions. First, higher rates of painkiller use, including opioids, and middle-age mortality suggest that more severe health and drug-related problems have contributed to lower US participation (Exhibit 3, left panel). Second, the US incarcerates a much larger share of its population, and people with criminal records face severe challenges in re-entering the workforce (Exhibit 3, right panel). Third, while exposure to trade and technology was likely similar to other developed economies, a weaker US policy response—namely, less supportive retraining and job-search assistance—might have made the impact on participation more costly.

Q: The US prime-age male participation rate is now more than 3pp below the average in other DMs. How important are the US opioid and incarceration issues quantitatively in explaining the US gap?

A: Quite important, but not sufficient on their own. Our literature review implies that the two issues each explain roughly one-sixth of the US prime-age male participation underperformance, or one-third combined.

Using estimates of the causal impact of incarceration on employment from Mueller-Smith, we estimate that around 0.5pp of the 3pp US prime-age male gap results from the relatively high share of the population with a felony record.

Using the estimated cross-county relationship between opioid prescription rates and prime age participation rates from Krueger and the assumption that two-thirds of the regional variation in prescription rates reflects local medical supply factors rather than labor market conditions, we estimate that the relatively high US opioid use rate also drives roughly 0.5pp of the 3pp US male prime-age gap.

Q: The incarceration and prescription opioid rates have declined modestly in recent years. Does this imply that the drag from these issues on labor force participation has peaked?

Probably not, because the labor market effects likely operate with important lags. While the incarceration rate peaked 10 years ago, it will likely take many years before we see a corresponding decrease in the number of former prisoners, mostly because prisoners tend to be young, with a median age in the mid-30s.

Prescription opioid rates have also declined modestly since 2012 according to CDC data. However, CDC data also show a shift to heroin and other illegal opioids and a continued rise in the number of drug-related deaths (Exhibit 4, right panel).

While a discussion of whether the phenomenon of the depressed participation rate due to a voluntary exit from the labor force, whether through incarceration or developing an addiction is far beyond the scope of this article, it brings up an ominous point: all those mostly young workers who exit the labor force and become institutionalized wards of the state in some capacity, effectively relinquish any hope for a viable, lucrative and satisfying career. This is also perhaps the primary reason behind the chronic US productivity problem, which has prevented the US economy from growing at capacity, and resulted in stagnant wages for the past decade.

Which reminds us of another perversion of the welfare state where an incentive quirk pushes more people to end up in a lower income - and productivity - bracket instead of motivating them to strive for proper middle class status: recall that as we described in "When Work Is Punished: The Tragedy Of America's Welfare State", the net take home between wages and welfare for most minimum wage Americans is as high as that of an ordinary household making $69,000.

This means, that once many Americans fall into the comfortable "welfare trap" that encourages lower wages, it holds back many otherwise ambitious workers from pursuing more productive work that results in higher wages. A similar trap is sprung on those Americans who, for one reason or another, end up in jail or as drug addicts, in both cases preventing them from returning as productive members of society.

Unfortunately, until there is an honest discussion about either the perverse motivations of the US welfare state, or what it is that forces so many Americans to resort to behavior that lands them in prison, or become addicted - and by an honest discussion we do not mean blaming Putin - the US participation problem will only get worse.

Comments

Yellow_Snow Cryptopithicus Homme Thu, 07/12/2018 - 11:44 Permalink

What does Amerika really look like ???

+ Google  images of any major city...  ugly - tents, drug addicts, garbage everywhere, potholes, graffiti, ghettos, even poop on the streets

+ 95 million Amerikans are not working...

+ Surging welfare recipients, SNAP, Section 8, disability (SSDI)

+ Surging inflation...  Food, housing, healthcare, education, labor (electricians, home repairs)

+ Surging obesity (and all the medical complications, like diabeties)

+ Decaying Malls and shopping centers...  Empty stores - even Walmarts (1 register open)

+ All infrastructure is falling apart - bridges, roads, trains, buses, sewers, grid, etc

          See  nuclear-industry-faces-collapse

+ Abandoned manufacturing plants, ports, and warehouses

+ People are agitated and angry (suicides, depression, crime, road rage, protests)

+ Law and order hanging by a thread - police stretched to limits

+ Between 1.5 - 2.4 million inmates  behind bars in federal, state, and county prisons

+ All while the .1%'ers are getting exponentially richer...

EQUALS THIRD WORLD  !!!  That's the hard Reality...

BUT WE HAVE THE GREATEST MILITARY  !!!

In reply to by Cryptopithicus Homme

toady powow Thu, 07/12/2018 - 12:49 Permalink

The war on drugs strikes again.

The financial-pharmacutical complex figured out (bribed) there way into trillions selling heroin derivatives to the general public  (the street dealers are SO jealous!), and the general public is paying for it with addiction, (can't pass a piss test, can't get a job), prison , as well as with there own money/insurance claims.

It's win-win for them, lose-lose for everyone else.

And, of course, it's all perfectly legal.

In reply to by powow

swmnguy toady Thu, 07/12/2018 - 14:49 Permalink

Don't forget the huge and growing Prison/Industrial complex.  This includes all the cops, jailers, prison guards, lawyers, prosecutors, judges, bailiffs, clerical staff, counselors, social workers, etc., who all depend on a huge population in prison, on probation, or otherwise tethered to "The System."

It was the police association and prison guards union who destroyed California's penal system and state budget with their backing of "Three Strikes" and other draconian laws, at a time when their livelihoods were threatened by falling crime rates.

And today, in a time of historically low levels of violent crime, it's the same people using fear-based training to make police more violent (Google "Dave Grossman" if you want to read some scary shit).  Grossman has a "Killology Research Group," which provides training to police across the US.  He teaches, among other things, that cops who kill have better sex immediately afterward.

Monsters like this aren't going to let go of their spot at the trough.  The goal of far too many in America is to create a huge permanent underclass of people who have no rights.  This goes hand-in-hand with refusal to punish those who get rich employing illegal immigrants, who also become fodder in the prison profit machine.

It's the rest of us who have to pay for these predators to live high on the hog, of course. 

In reply to by toady

MoralsAreEssential Rapunzal Thu, 07/12/2018 - 12:10 Permalink

Spot On comment.  Americans did not buy into socialism readily.  We had to be forced into it through selling it as a "guilt" due to racism and then encouraging out of wedlock kids, promiscuity, using drugs if you were cool, and the importation of millions of 3rd world immigrants who expect the government to provide a minimum standard of life for them.  This has all been funded by the Marxist socialists and their schemes for equality of poverty for the Plebs of the world and "noble" expensive leisurely lives for the Bloodlines and other Elites with their "house servants" the bureaucrats living well with perks for selling out their values.  While our incarceration levels are simply part of the "plot" to undermine our once decent society where positive values were sought, the introduction of "Bad Girls" as a role model, romanticizing Bad Boys, drug use by the upper classes, Ivy Leagues without consequences as peddled by USG interests and pandering to ghetto behavior under the rubric of "respect" for different "cultures."  Frankly, overt slavery is not a life I would want for myself or anyone I cared about.  Death is preferable instead of being "modeled" into a Bot of agreeable servitude to a bunch of psychopaths in governments and power positions.  Give Me Liberty Or Give Me Death.

In reply to by Rapunzal

Retired Guy MoralsAreEssential Thu, 07/12/2018 - 13:05 Permalink

The producers are called lots of silly names like racist by people who appear to hate them. The producers pay for the hater's food and reproduction. Why?

If you are a producer why not change sides? Locally I see plenty of people who have. They goof around on the dole. It isn't fair. It is amazing it has lasted and expanded this long.

If you stop supporting the FSA lots of problems will go away like the drug cult, antifa, excess immigration and Hillary voters. Sure there will be riots but that won't last long without free food to fuel it.

In reply to by MoralsAreEssential

Malleus Maleficarum Cryptopithicus Homme Thu, 07/12/2018 - 15:54 Permalink

That's more "poor me, the convicted felon" sob-story liberal propaganda. Chances are, if you're in jail...you deserve to be there! Besides, prospective employers have a right to know if you're a safety risk so just remember this piece of wisdom before you consider committing a crime: God forgives; corporations DO NOT! 

This isn't brain surgery, folks. If you can't do the time, don't do the damned crime! It comes down to pulling yourself up by the bootstraps. If you want to be a criminal, that's fine. The world needs all types, so aim to be the very best criminal you can be! Al Capone never whined about "being treated unfairly." He shut his mouth, did his time and accepted the reality that he was, in fact, a professional criminal! He then identified an explosively growing market, eliminated the competition and gave the people what they wanted! Old Al aimed for the stars and ended up a multi-millionaire, eventually running Chicago and leaving his mark to this day via ' The Outfit.'

And as for second chances? There are good jobs out there for convicts, and don't let anyone tell you otherwise! Drive a truck or be a janitor. How about companies like Kohls and FedEx? They're two among a growing list of "felony friendly" employers*.

Some argue that the criminal justice system is "out of control." Judging by the number of people incarcerated and on felony parole or probation,  I'd say the criminal justice system is very much in control! And since no one likes criminals, scumbags, junkies and degenerates running the show, isn't that the way we prefer it? 

*These employers only guarantee a review of your application if you answer affirmatively to the "are you a convicted felon?" question. Violent offenders, Sex Offenders and Drug Traffickers need not apply.

In reply to by Cryptopithicus Homme

pods Stuck on Zero Thu, 07/12/2018 - 11:34 Permalink

Goldman just wishes they could get every cow producing milk again.  Maybe when people see opportunities for some other than the moneyed class things will change.

At this point I am not sure who is better off, an opium addict or the brain dead worker bee who is up to his eyeballs in debt, stressed to the gills, and sees every light pole on the way to work as a way out.

pods

In reply to by Stuck on Zero

Offthebeach Stuck on Zero Thu, 07/12/2018 - 11:35 Permalink

Not work, scroung by, sleep late, go fishing, PlayStation to 3AM,  near free heath care, have no savings nor property. 

Work, no sleep, one week in 4 for transportarion, shitty boss, shitty co-"workers", living in a truck cab away from home 3 weeks in 4, and hand over 2 weeks in four in SSI, Obanation non-Care, and have no savings nor own property...

 

Hummm.

 

Soft, deep labor strike, anyone?

( Were( elites ) gonna be fine.  Meet Pedro and Mo, as in Mohammed .  They're HB critical )

In reply to by Stuck on Zero

Angry White Guy Stuck on Zero Thu, 07/12/2018 - 12:39 Permalink

Not to mention our biological urge to procreate is to be looked upon as predatory and toxic.

They've almost outlawed being a man.  Most certainly are taking steps to outlaw masculine behavior, that's for sure.

Being a white guy in this country - not much to look forward to or left to enjoy, really.

I'm trying to figure out how to GTFO of here actually.

In reply to by Stuck on Zero

Indelible Scars Mittens is a god Thu, 07/12/2018 - 11:17 Permalink

Jesus Christ. Do you have ANY idea who your base is? Easily the most stupid and unenlightened people in the US. Then there are virtue signalers like you. That's it. The people that really matter and make this country work lean right so you had best get used to it or pack your bags. The O'bummer era was a failure and got the good people of this country woke. It's over for you, find a tall bridge.

In reply to by Mittens is a god

MonsterSchmuck Thu, 07/12/2018 - 11:12 Permalink

Goldman facilitated the political and then financial raping of US manufacturing. Whores shipped it to Mexico then China and anywhere else these bastards could use child or slave-like labor. 

Young men with no prospects often turn to crime, drugs, alcohol, in depression. 

GunnerySgtHartman MonsterSchmuck Thu, 07/12/2018 - 11:36 Permalink

Young men with no prospects often turn to crime, drugs, alcohol, in depression.

I agree about Goldman and the Wall Street bankers wanting manufacturing pushed offshore.  However, young men DO have prospects - they just have to put forth the effort.  Get yourself trained; college degrees are not necessary.  Expecting to get a job that pays a wage capable of supporting a family with only a high school diploma is ridiculous.  Move to where the work is.  Make yourself valuable to an employer.  There is no excuse for turning to crime, drugs, or alcohol unless someone thinks everything should be handed to them.  Sometimes life is difficult, but you pick yourself up off the floor and move forward.  And yes, this comes from someone who has been in this very boat.

In reply to by MonsterSchmuck

GunnerySgtHartman Solosides Thu, 07/12/2018 - 12:56 Permalink

And now the norm is multiple people with bachelors degrees competing for the same barista job.

In addition to the previously-mentioned H1B issue (one that I want to see Trump slam the door on) and illegal immigration issue, they have to get a degree in a high-demand field.  A young friend of mine graduated in May with a bachelor's degree in civil engineering; he walked off the platform at graduation straight into a job with an architectural/engineering firm.  Meanwhile, his girlfriend, with a degree in education (she wants to be a schoolteacher) has no job whatsoever and no hope of getting one for the next 12 months due in part to the way school systems do their hiring.  Degrees such as those in history, gender/homosexual studies, and so forth will put you in a barista position.  Gotta get a degree in a field that counts.

That being said, there are many good-paying jobs in the trades if people are willing to get trained.

High-school diplomas mean virtually nothing these days.  High schools regularly turn out students who can't read, write, or do basic mathematics - look at all of the incoming college freshmen taking remedial courses just so they can later take freshman-level college courses!

In reply to by Solosides