The Youth Unemployment Crisis

Back in February I asked, “Do you seriously want to raise the minimum wage with this teen unemployment rate?

Reading this article reminded me of that question: “Why Are So Many Young Adults Not Looking for Jobs?

Economists are scratching their heads trying to figure out a puzzle in this recovery: Why are young people not working? People retiring at age 60 or even 55 in a weak economy is easy to understand. But at 25?

The percentage of adult Americans who are working or looking for work now stands at 62.8%, a 36-year low and down more than 3 percentage points since late 2007, according to the Labor Department’s May employment report.

This is fairly well-known. What isn’t so well-known is that a major reason for the decline is that fewer and fewer young people are holding jobs. This exit from the workforce by the young is counter to the conventional wisdom or the Obama administration’s official line.

The White House claims the workforce is contracting because more baby boomers are retiring. There’s some truth to that. About 10,000 boomers retire every day of the workweek, so that’s clearly depressing the labor market. Since 2009, 7 million Americans have reached official retirement age. The problem will get worse in the years to come as nearly 80 million boomers hit age 65.

But the White House story is ultimately false. Despite the decline in the workforce as many reach retirement age, a larger decline is occurring at the other end of the spectrum. “The largest decline in workforce participation has been those under 25.”

The percentage of young Americans earning a paycheck or looking for work has fallen by 4 percentage points over the course of the recovery, and those between 16 and 25 have experienced the largest decline.

Those over 65, by the way, are more likely to be working today than five years ago. This shift has cushioned the blow of young people not working.

So it is precisely because the rate of retirement is not as great as one would expect that we are not noticing the effect of how many young people have failed to enter the workforce.

So what is the reason for this unprecedented drop in the number of younger people working?

The article suggests that the increase in student loans might be part of the answer. Since this makes it cheaper to stay in college, youth are incentivized to go to school rather than find a job. Another contribution comes from Federal minimum wage hikes that occurred in 2007.

Whatever the root cause of the problem, it could lead to further economic and social damage.

Why is this trend so troubling? Studies show that teens who start working at a job at a young age have higher earnings later in life. One study found that those who work as teenagers have earnings that are about 10% higher at age 27 than those who did not work.

“When we hold young Americans out of jobs,” explains Michael Saltsman of the Employment Policies Institute, “that makes it more difficult for them to get higher-paying jobs later.”

Even though the exact causes of the problem are a matter of debate, there is no question that raising the minimum wage up further will cause more teen and young adult joblessness.