Youth Unemployment
Policy Paper
Dec. 8, 2010
During the last three years, youth employment has taken a large hit, absorbing a significant portion of job losses. One in four unemployed persons is under the age of 25 and nearly one in five young workers is unemployed.1 The rate of joblessness among individuals aged 16-24 is at its highest level on record.2
The Recession
Young workers, aged 16-24, are an important part of the American labor force, accounting for 14% of all individuals in the labor market.3 At the same time, they are also the most vulnerable workers during weak economies and recessions. Since the start of the recession, youth unemployment has increased by 7.5 percentage points while unemployment for the rest of the labor force has only increased by 4.7 percentage points. The overall unemployment rate, an aggregate of the two, has increased by 5.1 percentage points.
During this same period, the number of employed youth has declined by 12.2 percent, compared to only a 3.9 percent decline for the rest of the working population.4 This is the result of increased layoffs and the number of young workers who appear to be leaving the labor market. While the employment-to-population ratio of young people has been steadily decreasing for the past decade, this decrease has become more dramatic since the beginning of the Great Recession and far outpaces the drop in the employment-to-population ratio of the remainder of the workforce.
The fact that youth have been hardest hit by the recession is not surprising. Since the recession began, both the number of job openings and the number of people voluntarily leaving their jobs have declined dramatically.5 In this tight labor market, young workers are less competitive and are often the first to be laid off because they tend to work in temporary positions, are among the newest hired, and are heavily concentrated in job sectors that are most vulnerable to economic fluctuations.6
Underemployment and Long-Term Unemployment
Entering the job market during a recession can lead to reduced earnings for up to 15 years, and many workers may never entirely recover.7 Among college graduates, one study has found that individuals entering the labor market during severe recessions earn 17.5 percent less than their peers who enter the labor force during better market conditions, an effect that can plague workers for over 17 years.8 This is the uncertain future faced by the millions of young people who have entered the job market since the beginning of the Great Recession and represents billions of dollars in lost salaries and potential consumption.
While the future of those youth who find employment during the Recession appears precarious, many youth are faced with an even more severe problem. Perhaps the most alarming aspect of youth employment data is that young workers represent not only a larger proportion of the unemployed population, but also a larger proportion of those who suffer from long-term unemployment. As shown in Figure 3, while young workers make up only 14% of the labor force, they represent 25% of the unemployed and 20% of the long-term unemployed. The remaining two age subsets in the labor force, workers aged 25-54 years and 55+, are both underrepresented in these unemployment categories. Long-term unemployment can have long-lasting and often permanent consequences for the individual’s career in terms of productivity, earnings and skill retention.9 Young workers, both those who are fortunate enough to find jobs and those who are not, face a difficult road of underemployment and low wages in the years ahead.
Existing Programs are Failing to Address the Problem
The federal government continues to allocate money to programs specifically targeting the problem, with the expressed aim of improving employment prospects for young workers. However, these programs have had, at best, limited effectiveness. Programs like JOBSTART and the Job Training and Partnership Act appear to be largely ineffective in lowering unemployment or providing higher earnings for youth participants.10
Job Corps, the leading program designed specifically to improve youth employment by providing training and benefits for 60,000 disadvantaged youth aged 16-24, costs the federal government $24,000 per participant and yet seems to have little effect on long-term job placement or earnings.11 While individuals who complete the program have higher medium-term job prospects, within as little as five years the difference in wages and employment between individuals who completed the program and those who did not becomes increasingly non-existent.12 The figure below further illustrates the limited effectiveness of Job Corps in placing participants in jobs during the short-term, with only small advantages between years two and four.
Policy Solutions
As seen in Figure 1, unemployment numbers for young workers follow the trend of the general job market. It makes sense, then, to focus on overall job creation in order to bring down youth unemployment.
However, simply returning to an employment situation similar to pre-recession levels would leave youth unemployment rates hovering around 10%. In the long-term, then, policies must be created that target young workers specifically. For example, a continued investment in educational access for young people is something that has been encouraged by the policy community for years. It is widely known that there exists a strong negative correlation between educational attainment and unemployment.13 Further, engaging larger numbers of young people in vocational training or higher education removes individuals from the labor market, bringing unemployment numbers down. Any durable solution for the youth unemployment problem must at least address high school graduation rates and access to higher learning or vocational training.
Conclusion
Youth unemployment is a continuing and escalating problem for the American labor market. Traditional approaches to bringing down unemployment numbers among youth have failed to adequately address the problem, while important policy initiatives such as increasing access to education seem to be addressing the problem too slowly. As such, it is time for the policy community to turn to new, innovative ideas to tackle the problem of youth unemployment.
Notes
1Bureau of Labor Statistics. Household Data, A-9 Unemployed persons by age, sex and marital status, seasonally adjusted.
2US Congress Joint Economic Committee, Unemployment Among Young Workers, May 2010
3Bureau of Labor Statistics. A-13 Employment status of the civilian noninstitutional population by age, sex and race
4Bureau of Labor Statistics. Employment Level 16-24, Employment Level 25 years & over; Author’s calculations
5Department of Labor. Job Openings and Labor Turnover Survey. October 7, 2010.
6Stefano Scarpetta, Anne Sonnet and Thomas Manfredi, “Rising Youth Unemployment During the Crisis: How to Prevent Negative Long-Term Consequences on a Generation?” OECD Social, Employment and Migration Papers, No. 106, April 14, 2010 available at http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT000028DE/$FILE/JT03281808.PDF and
US Congress Joint Economic Committee, Unemployment Among Young Workers, May 2010; Bureau of Labor Statistics, Household Data, Employed persons by occupation, sex and age.
7Oreopoulos, von Wachter, and Heisz (2008); Till von Wachter Testimony to the Joint Economic Committee, May 26, 2010.
8Lisa B. Kahn. The Long-Term Market Consequences of Graduating from College in a Bad Economy. 2009.
9Stefano Scarpetta, Anne Sonnet and Thomas Manfredi, “Rising Youth Unemployment During the Crisis: How to Prevent Negative Long-Term Consequences on a Generation?” OECD Social, Employment and
Migration Papers, No. 106, April 14, 2010 . Available Online
http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT000028DE/$FILE/JT03281808.PDF
10James Heckman, Robert Lalonde, and Jeffrey Smith, “The Economics and Econometrics of Active Labor Market Programs.” Handbook of Labor Economics, First Edition, (Amsterdam: Elsevier, 1999), Vol. 3, Chap. 31, p. 2056
11ExpectMore.gov. Program Assessment of Job Corps. Available Online <http://www.whitehouse.gov/omb/expectmore/summary/10002372.2007.html>
12Peter Schochet, John Burghardt, and Sheena McConnell, “Does Job Corps Work? Impact Findings from the National Job Corps Study,” American Economic Review, American Economic Association, Vol. 98, No. 5 (December 2008), pp. 1864-1886.
13Bureau of Labor Statistics. Occupation Outlook Quarterly. More Education: Higher Earnings, Lower Unemployment. 1999. http://www.bls.gov/opub/ooq/1999/Fall/oochart.pdf