Naked Capitalism has a good post replying to a Wall Street Journal article. Unfortunately, the article is behind a paywall, but just reading the quotes and commentary on Naked Capitalism is interesting. He raises a very good point at towards the end of his post.
Lambert raised a question that the commentariat might be able to help answer: what happens to men in this fix? I told him that he shouldn’t be surprised, there’s money only to research things that show things are really swell, and not ferret out the many manifestations of distress and dislocation.The article makes clear that at least some of the men are on trajectories that can’t be sustained, borrowing and selling assets yet starting to fall behind on payments. Clearly (again as the article indicates) some wind up living with relatives. And even with budget cuts, we do have enough in the way of social safety nets to forestall the establishment of Obamavilles. But I wonder how many people are living in cars, or couch-surfing (meaning one step away from being homeless), or (as one reader found out over the summer) renting rooms in trailer camps.What is really puzzling is that so many of these men have given up looking for work entirely. I mean, I understand that finding work is costly and likely poorly rewarded in today's economy, but if their situation was so desperate would they not redouble their efforts anyway? Nor do I find the explanation that they are simply languishing on the welfare rolls to be particularly plausible either. Even at the best of times, the welfare system in America is not particularly generous, and it has been cutback pretty severely recently, so relying on it does not seem like a particularly attractive option for many. This is not to say that these men are not claiming any welfare, just that I do not think the welfare system would adequately explain why they are not looking for work. That they are being supported by family or spouses seems somewhat more plausible as an explanation, but why would their families and partners be so forthcoming with support for sons and husbands who are economically inactive? This question brings me to what my instinct says is the most likely explanation, that many of these men probably are working in the informal economy and will continue to do so for as long as the formal economy languishes.
I will prefer to use the term 'informal economy' when discussing this trend since I dislike the authoritarian moralizing implicit in terms like the 'shadow,' 'black,' 'underground,' or 'illegal' economy. I would take the informal economy to mean any and all economically productive activities in which monetized transactions are not reported to the state. This can include activities where money changes hands but is not reported (i.e. cash in hand work) or transactions where no money changes hands (volunteer work, reciprocal mutual aid networks, household production).
For one, there is evidence that the informal sector has expanded since the recession, and since such an expansion would probably be impossible without an increase in participation, it seems a likely candidate for where many of these men have taken their labor. Secondly, political and regulatory uncertainty has been rampant recently, from the debt-ceiling standoff, to the implementation of Dodd-Frank, to the Obamacare debacle. All of this is probably making businesses in the formal sector slow down investment and hiring. The informal sector, which is effectively unregulated, is basically immune to this effect and may even benefit from it. Finally, the Naked Capitalism post suggested that one reason that men may be hesitant to take jobs in the formal sector is that such jobs may not be worth it because of the costs of moving, commuting, or surrendering government benefits. While informal sector work is, perhaps, just as likely to require commuting or moving, it would not require relinquishing benefits. Add to this that there is no taxation of value created in the informal sector, and the appeal of dropping out of the formal labor market starts to make sense.