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.

Iran's Demographic Crisis

With Iran now committing to at least temporarily halt the expansion of its uranium enrichment program, things will really change for a significant number of Iranians who have been trapped by a geopolitical crisis that predated them.  As you will see in this posting, Iran's large population of young people should be the biggest beneficiary of the removal of sanctions over the long term.

When measured in terms of population, Iran with its 79.8 million people, is the 18th most populous nation on earth.  What is most interesting about Iran is the large number of young Iranians, born after 1980.  As shown on this population pyramid, there are a very elevated number of Iranians under the age of 30:

Of the total, 19.8 percent are between the ages of 15 and 24 years and 23.8 percent are between the ages of zero and 14 years.  Over 60 percent of Iran's population is under the age of 30.  There are a total of 34.773 million Iranians under the age of 24.  The median age of the population is 27.8 years with a youth dependency ratio (the percentage of the population that is economically dependent on the support of others) of 33.6 percent.  To help you put these numbers into context, in the United States, 13.7 percent of the population is between the ages of 15 and 24 and 20 percent is between the ages of zero and 14 with a median age of 37.2 years and a youth dependency ratio of 29.4 percent .  This results in a population pyramid that looks like this:

In the case of the United States, you will notice that there is a very slight bulge in the pyramid around age 55; this is thanks to the baby boomers.  You will also notice that there is no major bulge in the lower part of the pyramid, unlike Iran.

Here is a graph that shows the fertility rate for Iran back to 1967:

Notice that until the mid 1980s, an average Iranian woman gave birth to between 6 and 7 children.  It wasn't until the late 1990s that Iran's fertility rate fell to the replacement rate of 2.1.  It is the elevated fertility rate that has led to the current demographic imbalance in the nation.

The current fertility rate varies quite widely across the nation as shown on this map:

The more rural areas in the southeast of the nation still have birth rates that are well in excess of the replacement rate.

Now, let's look at some background economic data for Iran.  Here is a bar graph showing the growth rate of Iran's economy since 2007:

Since the beginning of 2012, Iran's economy has contracted markedly, largely due to the imposition of sanctions.  The resulting increase in the prices for many imported goods and inputs has resulted in an 80 percent depreciation in the value of the Iranian Rial between March 2012 and March 2013 and has created this problem:

Over the past 12 months, Iran's inflation rate hit 36.2 percent, 11.4 percent higher than the previous year.

Now, let's go back to Iran's young population.  With the significant number of young Iranians and an economy that is shrinking, the ability of young Iranians to get ahead economically has been threatened by the imposition of sanctions.  In the three decades since the Iranian Revolution, the following economic problems for Iran's youth have developed:

1.) Unemployment among young Iranians has doubled since 1990 with young people between the ages of 15 and 29 making up 70 percent of the unemployed in the nation.  Roughly one in four males is unable to find a job and around half of women with an advanced education are unable to find employment.  The youth unemployment rate is estimated to be at around 25 percent, more than twice the nation's overall unemployment rate.

2.) The government is able to generate only 300,000 new jobs annually, well short of the one million new jobs that are needed every year to absorb the number of young Iranians entering the workforce.

3.) With a university degree, the average time between graduation and starting work is around three years.

4.) Up to three-quarters of Iranians in their twenties still live with their parents because they cannot afford to live on their own.

The grim outlook for Iran's youth has led to widespread use of narcotics.  Internal statistics show that Iran had 1.2 million hardcore drug addicts with another 130,000 becoming addicted every year.  According to the 2012 United Nations World Drug Report, heroin and opium seizures in Iran accounted for a very significant portion of worldwide seizures as shown on these graphs:

It is Iran's proximity to Afghanistan that explains the significant volumes of opium passing through the nation.  When opium production was halted in Iran in 1979, production shifted first to Pakistan and then to Afghanistan.  Ready availability of both drugs has led to Iran having the world's second-highest prevalence for the use of both heroin and opium after Afghanistan.

From this posting, we can see that Iran's tens of millions of young adults are facing immense economic hurdles.  The removal of at least some sanctions by the nations involved in negotiating the reduction in Iran's nuclear program should help the nation's economy improve.  With a very significant number of young Iranians competing for jobs and one million new young job seekers every year, any improvement in Iran's economy can only better their lot in life as jobs are created and price pressures drop.

In closing, what I always find interesting about the imposition of international sanctions on a reviled regime is that it is almost always the innocent who suffer the most. 

Egypt - Inequality of Opportunity

Egypt has experienced the longest period of unrest during the Arab Spring of any nation, save perhaps Syria.  Looking back to January 25th, 2011, the "Day of Anger" was set as a day of protest against abuses by the nation's police force.  The demonstrations and anger spread across the nation until the "March of the Millions" on February 1, 2011 when it is reported that up to 2 million people assembled in central Cairo.  The resulting pushback saw more than 300 people killed in the resulting violence.  Finally, on February 11, 2011, President Mubarak stepped down.  Since that time, with brief respite, anger in the streets of Cairo in particular remains.  Why?

One of the root causes of dissent in Egypt is related to the nation's economy.  Let's look at some background information first.  As shown on this chart, Egypt has had a very high birth rate up until the last 10 years:

With the replacement rate being 2.1 children per woman, the number of young adults in Egypt as a proportion of the population is staggering, resulting in a population pyramid that has a conspicuously large base as shown here:

In 2008, only 60.3 percent of married Egyptian women used any form of contraception and of these, 2.7 percent used traditional methods.  By way of comparison, the fertility rate in the United States in 2011 was 1.89 children per woman and hit the replacement rate of 2.1 way back in 1971.

The massive number of young Egyptians results in one major problem; a lack of economic opportunity.

Here are Egypt's most recent unemployment statistics for the first quarter of 2013:

Total Unemployment Rate: 13.2 percent

Labour Force Participation Rate: 48.2 percent

Number of Unemployed: 3.6 million (up by 1.2 million from Q1 2010)

Unemployment Rate for 20 to 24 year olds: 42.3 percent

Unemployment Rate for 25 to 29 year olds: 24.3 percent

Of the total unemployed Egyptians, 70.7 percent are educated with 30.1 percent having university degrees.  

A World Bank study looked at Egypt's inequality of opportunity.  Despite the fact that Egypt has only moderate income inequality as measured by its Gini Coefficient (30.8 percent in 2008 compared to 0.49 in the United States), the opportunities available to Egyptians vary greatly and are impacted by circumstances that are well beyond their control as shown on this graph:

Keeping in mind that the higher the number, the more inequality in opportunity, you can quickly see that there is a great deal of inequality in the ability of young Egyptian men and women between the ages of 15 and 29 years to transition into the work force. 

The work force opportunities for the least and most advantaged Egyptian youth also vary greatly as shown on these two graphs:

Disadvantaged Egyptian youth are more likely to leave school earlier; by the age of 20, less than 10 percent remain in school.  In contrast, of the more advantaged Egyptian youth, 50 percent are still in school by the age of 20.  Again, when it comes to transitioning between schooling and working, 50 percent of disadvantaged Egyptians find themselves unemployed for an average of 12 years  after schooling whereas the period of joblessness for their more advantaged peers is only 8 years.

The study also shows that over 80 percent of the inequality in opportunity for young Egyptian males can be attributed to family background; parental education level and occupation play a huge role in determining the job opportunities open to their sons.  In the case of young Egyptian females, family background is even more of a determinant in the workforce opportunities available.

With a huge cohort of young Egyptians between the ages of 15 and 24, estimated to be over 21 percent of the population in 2005, the situation is unlikely to improve over the coming decade.  Egypt's economy has been stagnant since the end of the Great Recession when measured in real per capita terms and the recent uprising has done nothing to improve the situation.  In any case, for the foreseeable future, any new Egyptian government is likely to find that their ability to rule is constrained by a very unhappy young, unemployed demographic.