Video Killed the Radio Star

Can changes in technology help to explain the labor market for lower-skilled workers since the early 2000s? Many economists think the answer is yes. There is a large literature showing that technological advances have contributed to a sharp decline in manufacturing employment. Since 2000, the US economy has lost more than 8 million manufacturing jobs, despite manufacturing output going up.

US manufacturers have switched from labor-intensive production to capital-intensive production. Instead of hiring a worker for the assembly line, manufacturers now use machines to do the work. The new technology results in firms reducing their demand for lower-skilled labor. Lower-skilled workers are the ones being displaced by the increasing technology.

I am convinced that declining labor demand is part of the story for why employment rates for lower-skilled workers have fallen so sharply and persistently during the last 15 years. I am also confident that changing technology has played a role in this decline.

However, in my current research, I have been thinking about the role of technology on labor supply. This line of inquiry has received less attention from academics. Individuals make decisions about whether to work or not. Most people—including you . . . and me—do not like working for free. (I like to stress that point when talking in front of the deans.) That is why we have to pay people a wage to get them to work. When making our work decisions, we compare the benefit of work—the wage—against the cost of working. What is the cost of working? We give up leisure. The more attractive our leisure time, the less we’ll want to work, holding wages fixed.

Is it possible that technology has changed the value of leisure? I think the answer is a definite yes, and let me give you an example of how I am experiencing this firsthand. I have a 12-year-old son at home, and we ration video games for him. He is allowed a couple of hours of video-game time on the weekend, when homework is done. However, if it were up to him, I have no doubt he would play video games 23-and-a-half hours per day. He told me so. If we didn’t ration video games, I am not sure he would ever eat. I am positive he wouldn’t shower.

Certain technologies—such as video games and social media and the internet—have increased the value of leisure time. Not only do people report them as being more fun than watching TV or going to the movies, they also say they’re more interactive. When my son plays video games, he often does so with his friends who are sitting in their living rooms, in their homes, avoiding their showers to the extent possible.

Are my son and his friends outliers? Many parents here probably recognize this behavior. But let me give you a little bit more data. As much as we have talked about the decline in employment rates for lower-skilled individuals aged 21–55, it’s even larger for younger, low-skilled men. For low-skilled men in their 20s, employment rates have fallen by about 10 percentage points over the last 15 years—from 82 percent in 2000 to only 72 percent in 2015. This decline is staggering. You might think it’s matched by a rise in school attendance for this age group. That is not the case.

The following may be the most shocking number I give you today: in 2015, 22 percent of lower-skilled men aged 21–30 had not worked at all during the prior 12 months. Think about that for a second. Every time I see it, that number blows my mind. In 2000, the fraction of young, lower-skilled men that didn’t work at all during the prior year was a little under 10 percent. Men in their 20s historically are a group with a strong attachment to the labor force. The decline in employment rates for low-skilled men in their 20s was larger than it was for all other sex, age, and skill groups during this same time period.

You may have a few questions in the back of your mind. If they are not working, where do these young, low-skilled men live? Our basements! According to recent data, 51 percent of lower-skilled men in their 20s live with a parent or close relative. That number was only 35 percent in 2000. In 2014, 70 percent of lower-skilled men in their 20s without a job lived with a parent or close relative.

If they are not working, how do these young men eat? We—the parents and relatives—feed them. When they are in our basements, they come up for food from time to time and raid our refrigerators. I have no information on whether or not they are showering.

Are these young, nonworking, lower-skilled men who are living in their parents’ basements married? You may be surprised to hear this: they are not. The age of marriage is increasing for this group. In summary, these younger, lower-skilled men are now less likely to work, less likely to marry, and more likely to live with parents or close relatives.

Part of my new research is documenting how these lower-skilled men who have left the labor force spend their nonworking time. Using time diaries put out by the Bureau of Labor Statistics, I can do this. On average, lower-skilled men in their 20s increased “leisure time” by about four hours per week between the early 2000s and 2015. All of us face the same time endowment, so if leisure time is increasing, something else is decreasing. The decline in time spent working facilitated the increase in leisure time for lower-skilled men. The way I measure leisure time is pretty broad; it includes participating in hobbies and hanging out with friends, exercising and watching TV, sleeping, playing games, reading, and so on.

Of that four-hours-per-week increase in leisure, three of those hours were spent playing video games! The average young, lower-skilled, nonemployed man in 2014 spent about two hours per day on video games. That is the average. Twenty-five percent reported playing at least three hours per day. About 10 percent reported playing for six hours per day. The life of these nonworking, lower-skilled young men looks like what my son wishes his life was like now: not in school, not at work, and lots of video games.

How do we know technology is causing the decline in employment for these young men? As of now, I don’t know for sure. But there are suggestive signs in the data that these young, low-skilled men are making some choice to stay home. If we go to surveys that track subjective well-being—surveys that ask people to assess their overall level of happiness—lower-skilled young men in 2014 reported being much happier on average than did lower-skilled men in the early 2000s. This increase in happiness is despite their employment rate falling by 10 percentage points and the increased propensity to be living in their parents’ basement.

These video games and technology innovations—iPhones, Facebook, and Instagram—are both cheap in relative terms, and fun. These technological innovations, therefore, have made leisure time more enjoyable. This acts like an increase in an individual’s reservation wage. For lower-skilled workers, with low market wages, it is now more attractive to take leisure. However, for higher-skilled workers, even though the value of leisure has increased, our wages are still high enough that we continue to work.

To summarize, technology for lower-skilled workers has both reduced labor demand and potentially reduced their labor supply by increasing their reservation wage.

At some level, I have made it appear that the declining employment rate for younger, lower-skilled workers is in part the result of this group enjoying their leisure time more. I think that may be true in the short run. But I am concerned about how this will play out in the long run. There is some evidence that these young, lower-skilled men who are happy in their 20s become much less happy in their 30s and 40s. They haven’t accumulated on-the-job skills because they spent their 20s idle. Many eventually get married and have kids. When this happens, living in their parents’ basements is no longer a viable option. Playing video games does not put food on their tables. It’s a bad combination: low labor demand plus the accumulated effects of low labor supply makes economic conditions for these aging workers pretty bleak.

These labor-market outcomes affect many facets of society. They affect the take-up rates of government transfer programs. They may explain voting patterns for certain candidates in recent periods. There is rising evidence that lower-skilled workers in their 30s and 40s are increasing their drug use. We have also seen increased suicide rates for lower-skilled workers in middle age. The effects of changing technology on the labor markets of lower-skilled workers will likely have repercussions within the US economy for years to come.

Ten to 20 years down the road, you will be leaders within the business community. As such, you will also be leaders within your relevant civic communities. And for many of you, your wealth—through your bribes, or “lobbying” as we tend to call it—will give you a tremendous amount of influence over policy makers. And when you exert that influence, you will tend to view the world through the lens of your circumstances and your experiences.

When you do so, I want you to remember that you are rare relative to the typical American. Only a little over 30 percent of people your age ever get a bachelor’s degree. Less than 10 percent get a master’s degree or more. Very few of those get it from prestigious institutions such as the University of Chicago. As we have talked about, your labor-market experiences on average will be dramatically different from those of the bulk of the American population. Technology and other economic forces have affected others differently from you. Keeping that in mind will allow you to have a broader perspective on the world that you are trying to influence, and hopefully it will improve your decision-making.

The program lists the title of my talk as “Video killed the radio star.” Some of you may be familiar with that reference. For those who are not, Google it. Consider it my graduation gift to you. As you will see, it is directly related to what I have been talking about today.

I will conclude my talk the same way I conclude my course, by quoting from the pages of Spider-Man: “With great power comes great responsibility.” Use your power well.

Erik Hurst is the V. Duane Rath Professor of Economics at Chicago Booth.