A headline 4.5 percent unemployment rate shouts “prosperity,” but few believe it. That’s because too many able-bodied Americans opt out of work. Over 20 million prime working-age Americans wake up each morning, smell the coffee, and then sit down again till lunch. Although sofa-dwelling Millennials may help Xbox and PlayStation sales, the nation suffers. The Labor Participation Rate has dropped down to levels not seen since the 1970s, and a record 9 million collect disability.
White-collar workers increasingly claim disability, even if they are more likely to hurt themselves swiveling in a Herman Miller Aeron chair than handling a band saw. President Trump and Congress can reform Social Security to encourage more work, which would boost the economy and bolster retirement programs.
Work forges self-pride, discipline and stability, not to mention a paycheck. Individuals who begin working early in their lives are less likely to line up for taxpayer support later. But government institutions can undermine jobs. The Affordable Care Act, for example, prods firms to cut per-employee hours. In addition, the Social Security system dissuades young people and old people from working. We must address both sides of the demographic barbell — the green and the grizzled.
“Young worker” is becoming an oxymoron. Nearly 40 percent of 16-24 year olds report that they do not want a job, a one-third jump since 2000. The labor participation rate among teenage males has sunk from over 55 percent in the late-1980s to about 33 percent today, while the rate among 20-24 year olds has dropped by almost 15 percent.
Even summer jobs look less enticing. In 1994 two-thirds of teens workedduring the summer. By 2007 (before the Great Recession) less than half participated. This radical shift is not just focused on white teens, rich teens, black teens, high-school drop-out teens or college-attending teens. All teenage groups have basically gone on strike.
For every Mark Zuckerberg in his dorm room, thousands of young men in hoodies are sitting on a sofa in their mom’s basement, bravely chasing avatars in World of Warcraft.
I must admit that cooking hot dogs on the boardwalk or stacking yogurt cartons at the supermarket hardly count as academic exploits. And it is true that many teens are committed instead to summer school, camps, and sports.
Nonetheless, work teaches young people to show up on time, and it warns them that they better develop new skills, lest they spend their careers grilling hot dogs in the hot sun or stacking yogurt in a chilly dairy department aisle. If a teen has not done any work before age 18, he finds it much harder to understand how and why to put in a hard day’s work at 25 or 30 years of age. Studies at Northeastern University find that low-income high-schoolers who work (especially black and Hispanic) are more likely to graduate and that female teens who work are less likely to get pregnant than their peers.
How do we address this?
A New Plan for Young Workers: Double Future Social Security Payouts
I recommend that when a 16-24 year old pays into Social Security, those taxes should be credited at double the current payout rate when that person retires. For example, a 20-year old who earns $15,000 in 2017 and pays $1,590 in payroll taxes (the combined 10.6 percent employee/employer rate would be credited at retirement as if she had earned $30,000 in that year.
This proposal would raise revenues by drawing more young people into the workforce. While it is true that the budgetary impact would eventually shift negative when they retire, that would not hit for another 45 years. And by then Social Security’s cost as a proportion of GDP will have plateaued. Therefore, this proposal raises revenues during the worst periods of projected insolvency and would not begin losing revenues until a more stable era.
Extending the Working Life: Cut Payroll Taxes for Seniors
Now let’s go to the other end of the barbell, the older folks. The Urban Institute calculates that after age 70, the implicit tax rate on work jumps to 50 percent. We should enact policies that keep seniors working, which would lighten the Social Security load for younger people. During the “birth dearth” of the 1970s-1980s, the number of school children fell by 14 percent. As a result, each retiring baby boomer now leans on just 2.8 workers.
We should eliminate payroll taxes for seniors, not based simply on age, but on the number of years in the workforce. After 45 years, for example, an individual would be deemed “paid in full” and could continue to work without facing any penalty or payroll taxes. Too many energetic seniors are moving to “active” retirement communities too soon. Jimmy Buffett just launched a string of Margaritaville retirement villages. While it’s always “5 o’clock somewhere,” some of these seniors might prefer a little more time on the job before lounging on a beach blanket.
Currently, Social Security mangles incentives for work. It’s time to straighten them out, at least a little. What’s worse for a nation? When millions of individuals who are able to work decide not to? Or when those who would like to work are told by bureaucrats to stay home and wait for a check that’s in the mail?
Todd G. Buchholz has served as a White House director of economic policy, managing director of the Tiger hedge fund, and is the author of “The Price of Prosperity” (HarperCollins, 2016). Follow him on Twitter @EconTodd.