Thursday, August 7, 2014

Young America - Out of Work and Out of Luck

The Great Recession officially ended in June 2009 but you'd never know it.  Economic growth has been lukewarm at best and the official U-3 unemployment rate, even though it has dropped from its peak of 10 percent in October 2009, is still higher, save for a one month spike to 6.3 percent in June 2003, than what it was after the 2001 recession as you can see on this graph:

The situation for young adults is even more dire as shown on this graph:

....and this graph:

The unemployment rate in July 2014 for workers under the age of 25 was 11.3 percent, nearly double the overall U-3 unemployment rate of 6.2 percent.  While one might assume that with job prospects being poor, young Americans are heading to higher education in droves, such is not the case; since 2012, college enrolment rates have actually dropped slightly as shown here:

This means that there has been a rather large increase in the share of high school and college-age students and graduates that are sitting idly on the sidelines, presumably by the weak economy and pitiful job prospects.  The statistics show that young Americans are not "sheltering" in post-secondary institutions in an attempt to "wait out" the economic malaise that has existed since 2008.

A paper by the Economic Policy Institute suggests that there are currently nearly a million missing workers under the age of 25 as shown on this graph:

These "missing workers" are potential workers who are neither employed nor actively looking for work and fall outside of the Bureau of Labor Statistics' official definition of "the unemployed".  The high number of missing workers is a result of poor job market opportunities; between 2007 and 2010, there were as many as 1.6 million missing workers.  If these missing workers were included in the labor market, the unemployment rate of workers under the age of 25 would be 18.1 percent rather than the current rate of 14.5 percent.

Even young college graduates aren't having an easy time of it.  There unemployment rate is 8.5 percent compared to only 5.5 percent in 2007 and their underemployment rate is 16.8 percent compared to 9.6 percent in 2007.  Even worse, for young high school graduates, the unemployment rate is 22.9 percent compared to 15.9 percent in 2007 and their underemployment rate is an astronomical 41.5 percent compared to "only" 26.8 percent in 2007.  Here's what the real unemployment rate (in dark blue) looks like for Americans under the age of 25 if missing workers are included:

Even worse, the unemployment rate of young, black high school graduates is 34.7 percent, compared to 23.2 percent for Hispanic youth and 19.4 percent for white youth.  The unemployment rate for young, black college graduates is 13.1 percent, compared to 8 percent for Hispanic graduates and 7.8 percent for white graduates.

The increase in the number of unemployed and underemployed college graduates since 2007 tells us that the current crisis in youth unemployment is not because young adults are lacking education, rather, it tells us that the weak demand for goods and services has created a situation where employers don't feel the need to hire entry-level employees.

Not only are unemployment and underemployment a problem for young Americans, research suggests that they face additional pressures including:

1.) Lower wages - since 2000, the inflation-adjusted wages of young high school graduates have dropped 10.8 percent and those of young college graduates have dropped 7.7 percent.  Here is a graph showing what has happened to real hourly wages for young workers by education level and gender since the late 1980s:

2.) Lack of Employer-provided health care and pensions - only 6.6 percent of high school graduates get workplace health insurance, down from 23.5 percent in 1989 and only 30.9 percent of college graduates get workplace health insurance, down from 60.7 percent in 1989.

3.) Long-term downward pressure on earning for the next 10 to 15 years.

One of the biggest problems is that the cost of post-secondary tuition has risen at rates far exceeding the rate of income growth.  This means that more students are having to take out loans to cover the cost of their college education; by 2010, the amount of student debt averaged $26,682, triple the amount owing in 1989.  Among households headed by adults 35 years of age and younger, 40 percent held outstanding student debt in 2010.  Between 2004 and 2012, the number of student borrowers increased by 70 percent and the average debt owing also increased by 70 percent.

In conclusion, America's young workers are facing a very difficult time.  While unemployment among those that are 25 years old and younger has dropped over the past two or three years, the employment situation is hardly healthy.  While the authors suggest that increasing aggregate demand is key to putting more of America, including its younger members, back to work, governments at all levels are hobbled by unsustainably high debt levels.  In conjunction with the sovereign debt problem, the actions of the nation's central bankers have proven to be quite ineffective when it comes to putting America back to work.


  1. This is a strong post, PJ. One often reads about the dire job prospects of North America's youth (or Canada in my case). The reasons often cited are based entirely on macro conditions. Where emphasis also needs to be placed is on the micro so as to glean a more objective picture.
    One only need to observe the composition of any western univeristy to understand my position. At my university, currently around 80-90% of the master/PhD (within applied/health science/mathematics fields) candidates are foreign born. Moreover, there is a disproportionate representation of Asian/Middle Eastern, Canadian born graduates in professional fields of study. It is pretty clear that employment prospects for these individuals will be more robust than the average highschool graduate.
    Further to my initial point, my partner who happens to be an educator at the primary school level (grade 8) asks her class at the start of each year as to who has memorized their multiplication tables. I am always appalled, but no longer surprised, that between 60-80% no not know their tables. When one compounds this with the leftist educational mandate of focussing on building up childrens egos rather than educating them on how to be productive citizens, it is no wonder our youth are losing ground in the international employment race. Teachers are no longer allowed to mark in "red" pen so as to not injure the feelings of students. Additionally, a "zero" percent cannot be given, even if a blank paper is submitted so as to protect their self-worth. Children can no longer be held back a grade and, one school has done away with academic awards so as to not "marginalize" the less academically inclined. When one combines this with an entitlement culture that has no notion of self sacrifice and ambition, it is difficult to put their future job prospects into serious focus.
    In the end, regardless of the macro conditions that you cite, if the bulk of western students have no personal initiative to be diligent and work hard in academics, their job prospects will be limited.

  2. Thanks for your comments. I have spent many years as a volunteer in an elementary school classroom and am always amazed at how few Grade 6 students can reliably multiply two single digit numbers together and come up with the correct answer. Somewhere and somehow curriculum needs to be changed so that students learn the basics. Otherwise, those of us who live in North America will find that our future is mediocre at best, even though we millions of university graduates.