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Key Workforce Challenges: Younger Workers Damaged by Recession
by Nick Beleiciks, Jessica Nelson
Published Sep-16-2013

 
Unemployment among youths is always higher than it is among the older population. The unemployment rate of Oregonians ages 16 to 19 averaged close to 19 percent in the 10 years leading up to the Great Recession. The rate was more than 10 percent for Oregonians ages 20 to 24 during that period, while the overall unemployment rate was about 6 percent.

The recession sent youth unemployment rates to record highs and rates still remain at troubling levels. Nearly one out of four teenagers in Oregon who would like a job is not able to find one. After years of decline, the labor force participation among teenagers reached the lowest point on record in 2012. The unemployment rate among 20 to 24 year olds is one and a half times the overall unemployment rate and their participation is also near record lows.

All age groups were damaged to some extent by the recession, but the effects on young workers could have much longer-term consequences. The workforce problems facing younger workers today may follow them well into the future through lower lifetime earnings. Getting younger workers to work, and establishing the experience and income that first jobs provide, is one of the key workforce challenges facing Oregon.

Graph 1
Unemployment rates high for younger workers Oregon
Not Working Now the Norm for Teens
 
The labor force participation rate of young adults ages 20 to 24 fell steadily during and after the recession. This is sometimes attributed to increased enrollment in college by young adults as there were fewer job opportunities during the recession. The drop in the percent of teenagers was more structural and reflects a decade-long trend. The share of Oregonians ages 16 to 19 who are working or looking for work reached a historic low of 37 percent in 2012 (Graph 2). Teenagers' participation rate is well below the 63 percent labor force participation rate of the total population over 16 years old.

Similar to how unemployment rates are always higher for younger workers, teen labor force participation rates are always lower. In fact, lower participation rates among teen workers is dampening the overall labor force participation level.

Having a part-time or summer job used to be the normal situation for many teenagers. The labor force participation rates of prior generations of teenagers averaged around 59 percent of the population from 1978 to 2000, much higher than they are today. Falling participation rates can't be blamed entirely on the recent recession. Teen labor force participation rates in Oregon and across the nation started falling dramatically in 2001, but never rebounded as they had after past recessions - so teen participation was already low when Oregon entered the Great Recession. These days the majority of teens are not working or even looking for a job.

Research at the national level by Christopher Smith of the Federal Reserve Board released in late 2011 attempts to explain the decline in youth employment. According to Smith, the evidence shows that, "Both demand for teen labor and the supply of teen labor play an important role in explaining why fewer teens work than ever before."

Graph 2
Oregon teen participation rate at historic lows
There are Fewer Job Opportunities for Teens
 
According to Smith's research, the supply of adults available to work jobs traditionally held by teens increased in recent years. These adult workers are coming from many places - including older workers staying in the labor force; immigrant workers; and fewer middle-skill opportunities for adults, leaving many adults to work the low-skilled jobs they used to transition out of more rapidly. Smith refers to this as a "crowd out" of teens by adults. He concludes that the availability of adult workers explains at least half and up to two-thirds of the decline in teen employment that can't be explained by the recession.

In Oregon, summer teen employment fell during the Great Recession. In 2009 through 2012, new hires in the third quarter (summer) that were ages 14 to 18 numbered fewer than 30,000 each summer, whereas third quarter teen hires were closer to 50,000 each summer in 2005 through 2007 (Graph 3). Even that level of hiring was lower than in the 1990s, so once again the recession accelerated a trend that was already taking place in the teen labor market.

Not only has the number of teen workers hired during the recession fallen, the share of new hires between the ages of 14 and 18 also fell, supporting the theory that more jobs were going to adult workers. Fourteen percent of all new hires in Oregon during the summer of 2007 were teens, which is about the historical average. By 2010, just 10 percent of summer hires were teens, the lowest on record.

Graph 3
Oregon teen hiring halved in recession
Recent Graduates Face Tough Job Market
 
Does it matter that fewer young people are working now than in the past? There are certainly some pros to not working as a teenager:

  • There's more time to study.
  • There's more time for physical fitness activities like soccer, roller derby, or skateboarding.
  • There's more time for volunteering and contributing to the local community.
  • There's more time for other activities that enrich us as humans, such as arts, music, religion, or politics.

On the other hand, the cons of not working include missed opportunities for experience. For example:

  • Working helps prepare teenagers for self-sufficiency later in life.
  • Working provides early development of work ethics.
  • Working provides the opportunity to try out different jobs and work situations.
  • Working provides teens with income that can be saved for future needs (college, buying a car, etc.).

Much has been said by older workers about the "soft" skills they learned while working that first job as a teenager: team work, customer service, being at work where and when you are supposed to be. Soft skills will no doubt remain essential in tomorrow's workforce and young people need to learn these skills today, either on the job or through other activities.

Since the decline in youth employment is caused by less need for teen workers and not just by voluntary decisions of today's youth, Smith notes that "it is probably appropriate to be at least somewhat concerned about the current levels of youth non-employment, especially for the non-college going segments of the population."

At the same time, the importance of educational attainment has increased over time. Competition to get into colleges, emphasizing well-rounded students, may encourage young people to pursue extracurricular activities that don't pay, but that will help them get into college.

So whether the choice not to work is detrimental probably depends on what teens are doing with the time past generations spent working. Spending too much time playing video games isn't likely to be helpful for their later success on the job. But if they're studying more or doing other things that will help their chances of going to college, it benefits them in the future as formal education is an increasingly important step toward higher earnings in adulthood.

Some Teens are Studying More
 
Despite the ready availability of video games on every smart phone, that doesn't appear to be what teenagers are doing with all the hours that past generations spent working. In fact, Smith's research shows that "the fraction idle has not been rising despite a decline in employment rates; instead, there is evidently substitution (on an annual average basis) towards schooling." The fraction of teens only in school increased from about 50 percent in 1985 to more than 70 percent in 2010.

Smith finds ample evidence that teens spend more time on academic activities than in the past, especially during the summer months, and especially among young women. This may be due to stricter graduation requirements and increased competition for college acceptance. Another potential explanation is increasing household income per child. With higher median household incomes and fewer children per household, it may be that teens are getting enough "transfers" from parents to avoid the labor market. Just how much transfers affect youth employment will require more research.

The record-low employment among teens could be a blessing in disguise if they focus more time on academics which will lead to better employment prospects down the road. Unfortunately, recent college graduates as a group have also been damaged by the recession, leaving them fewer job opportunities and possibly lower lifetime earnings.

Recent Graduates Face Tough Job Market
 
Looking for your first job after college is a daunting challenge even in the best economic times. For those graduating in the last few years, it has verged on a nightmare. According to a study from Rutgers University last year, which looked at a national sample of college graduates, only 56 percent of those who graduated in 2010 had held at least one job by spring 2011. The median starting salaries for 2009 and 2010 graduates dropped about $3,000 compared with starting salaries for those graduating in 2006 to 2008.

The study had other interesting insights:

  • Almost one-quarter of the 2006 to 2010 college graduates lived with their parents.
  • Four-fifths were working in some fashion, but only 53 percent were employed full time.
  • Many - 30 percent - had jobs that were not very closely related, or not at all related to their academic work.
  • More than one-quarter said their first job was "just a job to get by" (as opposed to a career or stepping stone).
  • More than half (56%) believe their generation will have less financial success than the previous generation.

Recessions Hurt Lifetime Earnings of Recent Graduates
 
High unemployment among recent college graduates can have a lasting impact on their careers. A 2009 study by Lisa Kahn at the Yale School of Management which looked at graduates during the 1980s found that, "the labor market consequences of graduating from college in a bad economy are large, negative and persistent." Each percentage point increase in the unemployment rate corresponds to 6 to 8 percent less earnings in their first year of employment, compared with those who graduated during better times.

The damage isn't limited to lower earnings while they are young. According to recent research from the National Bureau of Economic Research, a graduate's first job strongly impacts long-term employment prospects. Poor labor market conditions have larger and more persistent effects on those who have just graduated and entered the labor market than on young workers who are already working.

During recessions, the quality of jobs available deteriorates temporarily. Gradually, workers find new jobs according to their skill as the economy improves and more jobs become available - jobs like the graduates would likely have gotten right away if they'd graduated in a stronger economy.

This resorting process is gradual and is according to skill. Workers with more in-demand skills will be reallocated more quickly. The type of college education matters in a recent graduate's experience of recession. Those that majored in fields such as engineering or chemistry will likely be able to close the wage gap more quickly.

The full effects of the Great Recession on recent college graduates and other young workers will unravel over the years and the full damage done to the career paths of today's young workers remains to be seen. There are some signs that the job prospects of new graduates may finally be looking up. However, earnings prospects may take longer to improve. Nationally, average wages for college graduates continued to decline in 2011, even while wages rose for the general population.