Economics

Youth Unemployment Is Down, but Are Young People Actually Working?

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Last summer, President Donald Trump was jumping with joy at news that the unemployment rate for workers between the ages of 16 and 24 had reached a worth-tweeting-about 50-year low.

At the time of the president's Twitter post, youth unemployment had dropped to 9.2 percent. It was later revised to 8.6 percent, then dipped to 8.1 percent in November—a rate unseen since February 1969. It currently stands at 8.9 percent.

These numbers are a helpful indicator of America's improving labor-market conditions, signaling that younger Americans looking for a job are having an easier time finding one. The United States has seen an overall decline in the youth unemployment rate from its Great Recession height of 19.2 percent in December 2010.

But this happy figure doesn't tell us everything we need to know. The unemployment rate is a narrow measure that counts only those who are actively looking for work. One way to get a broader view of the health of the labor market is to look at the labor force participation rate of younger Americans.

That number tells an interesting, and at times puzzling, story. After a surge from the '60s to the end of the '70s, the share of young adults who are in the labor force—the percentage, that is, who are either working or looking for work—has been declining. Labor force participation for people aged 16–24 fell from 69.1 percent in 1979 to 54.1 percent in 2014. It has since gone back up a little to 55 percent.

The numbers are even lower if you only look at teens: According to the Federal Reserve Bank of St. Louis, labor-force participation for people under the age of 20 peaked at 59.3 percent in 1978 and then started dropping precipitously around 2001 to reach a low of 32.5 percent in 2014. It stands at 35 percent today.

There are many reasons behind this trend. The first is that young people are staying in school longer. According to a February 2015 article at Vox, "More than 16 million people in the US—about 8 percent of the population—now have a master's, a 43 percent increase since 2002." This also means more teenagers spend their summers beefing up their college applications by doing internships, mission trips, math camps, and other classes, rather than working.

Another factor exacerbating this trend is the increase in minimum wages at the state and local level. A long trail of research shows that these policies reduce employers' incentive to hire relatively low-skilled workers—including, of course, inexperienced teenagers. One consequence is that work is being done by a smaller number of more highly skilled employees—and by robots, since a high minimum wage pushes companies to shift toward automation.

Importantly, research also shows that minimum-wage diktats hinder low-skilled workers' employment opportunities going forward by making it hard for them to get their foot in the door of a job in the first place. This is especially true for teens from minority groups. As my Mercatus Center colleague Michael Farren noted in a 2016 article at Inside Sources, a wage floor "sacrifices the future to try to save the present."

We should care that more teens aren't working (or even trying to). "Normalizing the idea of work for teenagers and young adults is important," Farren says, "because it strengthens their future attachment to the labor force. These early jobs build the habits and human capital that lead to long-term payoffs in better jobs and higher paychecks." By contrast, normalizing the idea of not working hinders attachment to the labor force as an adult.

Politicians who want to "do something" about youth unemployment often assume the answer is to subsidize teens' work. Back in 2012, President Barack Obama asked for "$1.5 billion for high-impact summer jobs and year-round employment for low-income youth." Congress declined to provide the funding, and rightly so: Throwing money at the situation is not only unsustainable; it also leaves underlying problems with the labor market unaddressed. If lawmakers really want to make a difference, rejecting destructive minimum wage hikes should be their top priority.

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  1. Anecdotally, there’s also the problem of the youngsters being lazy shits so addicted to their electronics that as long as Mom keeps supplying the Doritos and Mountain Dew they have no need to leave their rooms. The most bizarre aspect of this I’ve seen is 16-year olds that won’t even bother getting their driver’s license because all their friends are online so they have no use for driving.

    1. You know you’re officially old when you roll out the whole “those damn kids” line of thinking whenever the conversation is about youth.

      What nonsense.

    2. That’s more an issue of moral character in accepting a freeloader lifestyle from their parents who gladly subsidize them.

    3. I met a woman from Europe who flew with her millennial son to the USA. He was on his phone the entire time. He discovered a girl from his class was on the same plane.
      They texted each other the whole flight but neither got up to meet the other.
      Oh and he was on his phone the entire time the mother and I were conversing.

      1. Did you, you know, the mother?

      2. The horror

  2. There is another down side to the minimum wage. I have some nephews who got menial entry level jobs working at gas stations and grocery stores. They earned all this money for essentially sitting behind a counter or bagging groceries- colorado has a minimum wage of $11/hr. While that isn’t GREAT pay, it was enough for them to regularly choose work over school. When you are 19-20, and especially if you are not paying rent, that is a lot of pocket change for a kid.

    In multiple cases, I have seen kids sucked away from college into the grocery store route, up the ranks there. While I am glad that they are getting a “living wage” the problem is the upside. They can quickly earn a decent single person/couple’s living, but that tops out at store manager. If they want to go higher they are going to need a college degree, which this job makes more difficult.

    Don’t get me wrong, I am glad these kids are working, but pricing signals are leading to all sorts of bad behavior. When they can pay rent with some room mates and still have money to party, but college is ridiculously more expensive, the incentive is to be stuck in this “living wage” job forever.

    1. Is it worth it for employers to pay $11 for one kid who is not experienced or $5.50 for two kids?

      The market should decide, not government.

      Kids at 18 who are going to college, don’t need a “living wage”. They need a job that provides them extra money based on what the market will bare. Minimum wages tend to make those entry level jobs unavailable because that minimum wage is too high to have some kid sit behind a register.

      1. This goes to show that Minimum Wage has an upside cost, as well as a downside cost. The latter is of course un-employment- fewer people will be hired at that age. But the former is the fact that fewer people will want to get off of a “Living Wage” if it is enough to get by. The living wage incentivizes anyone working that job to stay in that job, even if it is a low value job. And if it truly is a low value job (i.e. the marginal return on its labor for the business), then it is always in danger of being automated away or otherwise lost.

        Proponents of the living wage are encouraging people to stay vulnerable as the price for being temporarily comfortable.

        1. Good points.

          Entry level jobs are supposed to be just that. Starter jobs to learn to be on time, how to do basic job requirements, and mainly motivate you to move up to better jobs that pay more.

        2. Living Wage as minimum wage is an economic impossibility.

          The living wage will always be higher than the minimum.

        3. all jobs are in danger of being automated away or lost.

    2. I’d say you are looking at exactly the wrong signals. There are a TON of employers who only hire college degrees now because of the sort of job market signalling stuff that Michael Spence won a Nobel for. They have no jobs whatsoever (beyond summer stuff for kids whose dads are in the exec suite) for anyone under 22. It is almost always just pure bullshit cuz in fact they’ve got plenty of crappy jobs that don’t really require even a single course beyond HS.

      What that means is that kids do not have much opportunity now to actually see what jobs people with degrees do or what degrees lead to interesting work. That signalling means the workplace itself has become segregated by degree/education – workplaces with crappy jobs that go nowhere and workplaces that are invisible and where the door doesn’t open until after the kid spends money/years on a degree

      1. Yeah, it’s totes unfair that I had to work all those crappy, go nowhere jobs before I got a degree. Those engineering companies should have just opened their doors to me and given me a corner office, qualifications be damned!

        1. there are no corner offices. it’s all cubicles, or worse, open work table areas.

        2. It’s not about having a good job. It’s about being able to work at somewhere other than McD’s. I had a whole bunch of crappy jobs – but probably half of them were in places where most people who were working there had careers there and I was clearly the grunt at the bottom. And yes two of those jobs were at engineering firms – one where I was operating the diazo/large format; the other where I was collating/distributing/proofreading RFP’s. It was very easy to talk to others there and find out what they did – and that very capability/interest in asking questions was EXACTLY what many of those companies used as a way of selecting/screening entry-level kids who might become more than that.

          Those sorts of companies simply do not hire true entry-level anymore. They outsource it to India – or they’ve turned those jobs into contracted services – or automated them – or they only hire online with keyword screening – or they only recruit on college campuses. Individually, those decisions may make sense to monkeys with an MBA and a spreadsheet. But when every company does that, it essentially creates an entire country where there is no more entry-level.

      2. The above is indeed the problem. Or rather, it’s the crappy, inefficient solution that exists to the problem.

    3. What Overt thinks is a bad trend, bad incentive, I think is a good one. We need less incentives for higher education. The sooner that bubble pops, the better. Why do so many “higher” jobs require (or practically require) a college degree? Because college grads are so abundant!

      Sure, there’ll always be some careers that will entail a sizable bolus of concentrated formal education years. But that shouldn’t apply to so many.

  3. Counting 16-17 year olds in the 18-24 count is stupid.

    16-17 year olds should be in school and do not necessarily take jobs as they are not even adults yet. All it does is drag down 18-24 year old numbers who either go to college only, go to college and get jobs, or get jobs only because they are adults.

    1. I think a good balance is “Everyone in our family works, but we take great vacations together.”

      The idea is to ensure kids develop a work ethic, but that they do not settle for a menial job that merely pays the bills. They should understand that their job is not just to get them through day to day life, but to help them live affluently in their older years.

    2. 16-17 year olds that work part time establish a work record that shows whether they can learn to show up for work on time and follow instructions – any decent job requires at least these qualifications, so the kids that worked after school have a head start on the others. They learn to manage their money. And unless they are utterly stupid, they learn that they’ll need education and skills, or else they’ll be stuck in crappy jobs forever.

  4. I am wondering if the easy availability of student loans has some impact on this: it may be easier for students to get a loan than to get a part-time job, and therefore, aren’t even looking and don’t count in the numbers of the “unemployed.” I doubt the impact would be huge, but I suspect it’s there.

    1. Its also the fact that the availability of loans has driven tuition up to the point that a part time job can’t come close to paying for college anymore, so whats the point of working?

      1. That is true, too, in many areas.

  5. There are several reasons that youth participation rate started on the decline in the 1980s and up until now. Starting the 1970s especially the democrats when they were in power in congress and had the presidency they push more and more entitlements. With these entitlements there was less of a reason to work. Couple that with our social media we have today which protects the young people from have to meet people keeping these young people their comfort zone. Couple that with the idea that the young people think their time is more valuable than what employers are willing to pay for it then young people no longer see a reason to work.
    I think that would change if any person that is receiving UNEARNED entitlements that person would have to spend at least 4 to six hours a day working at made work or if no made work is available then spend the same amount of time sitting on their butts in a chair in a large room sufficient to house all who qualify just sitting there. Each person would be given a morning and afternoon bathroom break and a lunch break if there over the noon hour. They would have to do this to receive the money given them by the government. If they missed an hour or a day without authorization they would be deducted that amount from what they receive. I think then there would be a lot more people who would be back in the job market looking for working and going to work.

    1. plus, video games got a lot better and the internet started

  6. […] The numbers are even lower if you only look at teens: According to the Federal Reserve Bank of St. Louis, labor-force participation for people under the age of 20 peaked at 59.3 percent in 1978 and then started dropping precipitously around 2001 to reach a low of 32.5 percent in 2014. It stands at 35 percent today. Read More > at Reason […]

  7. I think an additional reason the labor participation rate droped is because in the late 60’s and early 70’s a lot people in that age range were forcibly employed by the US military.

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