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Youth Hardest Hit in Obama Economy

Posted By James Sherk On July 12, 2011 @ 3:45 pm In Economics | Comments Disabled

Whom has the recession hurt the most? There is no easy answer to that question—job opportunities have diminished for every ethnic and demographic group [1]. But one of the worst hit groups has attracted little media attention: the youth. Younger Americans overwhelmingly voted for Obama in 2008, but the Obama economy has not treated them well:

  • Unemployment highest for young workers. Younger workers are bearing the worst of the recession. The unemployment rate for those 16–24 years old [2] is 17.3 percent. The unemployment rate for those 25–34 is 9.6 percent; 35–44: 7.8 percent; 45–54: 7.3 percent; 55 and older: 7.0 percent. The youth are having less success finding work in this economy than any other age group.
  • Historically high unemployment. This youth unemployment is historically high. The teenage unemployment rate [3] (24.5 percent) is the highest since the government began keeping track of it in the late 1940s. The youth unemployment rate (17.3 percent) is the second-highest in the post-war period. Youth unemployment has been above 17 percent for over two years, the longest such stretch in the post-war period. This is a worse economy for the young than under Jimmy Carter. At the end of the Carter presidency in 1980, the youth unemployment rate was only 13.9 percent.
  • College graduates v. college dropouts. The more education individuals have, the less likely they are to be unemployed. The unemployment rate for college graduates is typically half the overall unemployment rate. The difference between dropping out of college and graduating from college is very large. College graduates have an unemployment rate (4.4 percent) four percentage points lower than college dropouts or those with associate’s degrees (8.4 percent). This is similar to the differences between high school dropouts (14.1 percent) and high school graduates (10.7 percent). Those with less education are experiencing the worst of the down economy.
  • Historically low labor force participation. Fewer youth are even trying to work. Typically between 45 and 55 percent of teenagers participate in the labor force by either having or looking for a job. Between 1978 and 2007, the average youth labor force participation rate was 65.8 percent. Now just 34 percent of teenagers are participating in the labor force, and the youth participation rate is at just 54.5 percent, the lowest since the mid-1960s.
  • Recovery bypassing youth. The layoffs that occurred at the start of the recession have subsided. Workers with a job are now less likely to lose it than before the recession began. However, new hiring remains stuck [4] at fourth quarter 2008 levels. Unemployment remains high because of low hiring, not high layoffs. There are simply fewer new jobs to find. This disproportionately hurts young workers entering the labor force after finishing their education.
  • Job creation not enough to reduce unemployment. The economy is not creating enough jobs to bring the youth unemployment rate down. If employers continue to hire at the rate they did in the first half of 2011, unemployment will remain permanently around 9 percent [5]. The youth—without experience in the job market—will remain last in line for new positions that open up.
  • Potential trend line. The weakness of the labor market recovery endangers the recovery from the recession. It is hoped that the economy will strengthen, because some of the headwinds the economy has faced have recently abated. These include the disruption due to the tsunami in Japan and high commodity and fuel prices. However, there are few signs that the labor market is heading for a quick recovery. Without job creation, the U.S. economy is going to remain sluggish for a long time come. Without economic growth, the fiscal crisis of the United States is magnified.
  • Reduced opportunities to gain skills. Youth unemployment does more than deny younger Americans the opportunity to earn income today. It deprives them of the opportunities to develop workplace skills that make them more valuable to employers in the future. Economic analysis has found that work experience is an important factor in lifetime earnings. By not being able to find work today, many youths will have lower lifetime earnings [6]. Today’s tough job market makes it difficult for young workers to gain the experience that will help them get ahead in the future.
  • Long term consequences. Those workers who do find jobs in this recession are also more likely to wind up in jobs they are less suited for; they take the best job they can find. Unfortunately, this permanently affects their careers. A study of college graduates [7] before, during, and after the 1981–82 recession—the last recession as deep as the current downturn—found that workers who graduated during the recession had lower earnings 15 years later and were less likely to work in desirable occupations.
  • Crushing tax burden. Added to the long-term difficulties of the recession will come another burden on young Americans: paying for the baby boomers’ retirement. To balance the budget without reducing spending [8], federal taxes would have to almost double by 2050. The bottom tax rate would rise from 10 percent to 19 percent, the 25 percent tax bracket would rise to 47 percent, and the top tax rate increase to 66 percent. Business taxes would rise from 35 percent to 66 percent. State and local taxes would add to this burden.

The economy has not changed for the better for younger workers. These challenges have given rise to a new group called Generation Opportunity [9], an organization working toward solutions on economic challenges, such as a lack of job opportunities.

Paul T. Conway, former chief of staff for the U.S. Department of Labor under Secretary Elaine Chao, spoke at yesterday’s Bloggers Briefing about the latest unemployment numbers. In response to the challenges facing young Americans, Conway said:

America’s young adults have the optimism, creativity, talent, and initiative to help put the country back on the right track. Amazingly, they have been told to simply be patient and continue to pay the devastating personal costs of federal policies that penalize job creators and fail opportunity seekers.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/07/12/youth-hardest-hit-in-obama-economy/

URLs in this post:

[1] for every ethnic and demographic group: http://www.richmondfed.org/publications/research/annual_report/2010/pdf/article.pdf

[2] unemployment rate for those 16–24 years old: http://www.bls.gov/cps/

[3] teenage unemployment rate: http://www.bls.gov/news.release/pdf/empsit.pdf

[4] remains stuck: http://www.bls.gov/jlt/

[5] remain permanently around 9 percent: http://www.heritage.org/Research/Reports/2011/07/Heritage-Employment-Report-June-Jobs-Wilt-in-Heat

[6] lower lifetime earnings: http://jhr.uwpress.org/content/XLI/2/259.abstract

[7] A study of college graduates: http://ideas.repec.org/a/eee/labeco/v17y2010i2p303-316.html

[8] To balance the budget without reducing spending: http://www.cbo.gov/ftpdocs/92xx/doc9216/05-19-LongtermBudget_Letter-to-Ryan.pdf

[9] Generation Opportunity: http://generationopportunity.org/

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