Troubled economic times breed jobs plans. In good times, no one puts forward comprehensive proposals to invigorate the economy. But we live in bad times, so we have lots of plans: Herman Cain’s fun-sounding 9-9-9 plan, Romney’s 59-point MBA-class-syllabus plan, the Huntsman-Wall Street Journal editors plan, President Obama’s “Pass This Newest Stimulus Bill!” plan, and other plans from pundits, congressional candidates, and more — all indicators of a stressed economy.
What if we could wave a wand and immediately enact the best elements of the best plans? Would America bounce back? At one level, the answer is undoubtedly “yes.” Growth-oriented tax rates, entitlement reform, regulatory relief, and real health-care reform would lead to increased investment and new jobs. At another level, though, the answer is “maybe not.”
Why? Because we seem to be going through a “crisis of aspiration” in America that was underway before the recession. This crisis has sources that are deeper than any jobs plan can address — at least in the near term.
A crisis of aspiration is not merely a crisis of ambition to pursue the American Dream, though it certainly includes that. It is also a crisis rooted in demographic realities and policy failures that make aspiring to a better life harder than it used to be, and not even worth the effort for some people. Jobs plans can help, but we need something more like a cultural renewal to reverse the trends that threaten America’s role as the world’s number-one “aspiration nation.”
How can we tell whether we are in a crisis of aspiration? Consider the following:
Job creation by new enterprises, which drive job growth in America, has been dropping over the past decade. The entrepreneurial backbone of the American economy has been weakening since before the recession. A recent Kauffman Foundation analysis shows that annual job creation by new companies has dropped by more than 45 percent since 2000. And new firms have been starting with fewer employees and staying smaller than in the past. Increasing productivity through technology has something to do with this, but it also seems clear that the environment for hiring new workers has been getting worse for a while. Policy changes can help with some of this, especially to the extent that new firms are stressed by rising health-care costs and regulatory burdens.
The rate of new-business creation in America has grown fragile. Not only are new businesses creating fewer jobs, there are fewer of them in the first place. New-firm formation started plummeting in 2006 and has fallen 27 percent since then as the recession took its toll. New businesses create most net new jobs, so we won’t return to healthy growth levels until we see a rebound in new-firm formation. Policy innovation can help here, too, but the following points are more policy-resistant.
The percentage of working-age Americans who are employed has been dropping for more than a decade. By 2007, the ratio of working-age Americans who were not gainfully employed was higher than the ratio in Europe. Europe! The ratio among Europeans has been improving steadily since the mid-1990s amidst labor-market reforms, but dropping in America since 2000. In fact, to get back to 2000 levels, we would need to gain 18 million jobs. In the 1990s we used to talk about instilling the virtue of work among welfare moms. Now more welfare moms are working, but lots of other people are not.
Young men, in particular, are less productive. For reasons no one fully understands, young men in America are about as low on ambition as they have ever been. Kay Hymowitz of the Manhattan Institute has documented a trend of prolonged adolescence among men in their 20s, marked by poorer employment prospects than women and a rapid rise in the percentage who delay marriage. Bill Bennett notes that 18- to 34-year-old men now spend more time playing video games than 12- to 17-year-olds — a sad picture of declining productivity. But the problem runs deeper. According to Ron Haskins of the Brookings Institution, the decline in the percentage of gainfully employed working-age people discussed above is driven especially by a decades-long drop in male employment. Unlike the case with welfare reform, there are fewer policy levers we can pull to alter work incentives among men.