Another illustration of the struggling US labor market: teen employment
This recession caused a severe disruption in the labor market for teen employment. The chart below illustrates the unemployment rate alongside the employment-to-population ratio for those aged 16-19 years.
The visual is quite striking: at the peak of the business cycle, December 2007, the difference between the employment-to-population ratio over the unemployment rate was roughly 17.3 percentage points (pps). In June 2010, however, the difference narrowed fully to -0.3 pps.
This is a growing problem for our youngest workers. In April, the OECD issued a press release (featuring related research) calling for government support for “youth” unemployment across the member countries:
The report’s message is that governments need to do much more to help young people. Some have benefitted from broader efforts to help the unemployed. But more policies are needed that target young people, especially those with poor education and skills. These “at-risk” youngsters now account for between three and four out of ten of all young people in the OECD and are at risk of long-term joblessness and reduced earnings.
Back in June, the LA Times argued that young workers in the US, workers aged 16-19, are being displaced by college graduates and other skilled workers; in better times these workers would not take jobs normally filled by teenagers.
The recession has been particularly cruel to those aged 16-19. However, the chart above illustrates that the downward trend is both secular and cyclical, as the employment-to-population ratio has trended down since 2000.
At the turn of the century, the employment to population ratio for teens aged 16-19 years was 45% (average over the year), and just 35% in 2007. There’s a problem here. Workers aged 16-19 generally earn low hourly wages (unless they invented Facebook, of course); and in some cases, even the small monthly sum supports family income. And as the OECD report suggests, often young workers do not qualify for unemployment insurance when displaced.
The Federal Reserve’s latest Survey of Consumer Finance (2004-2007) indicates that much of the mean income growth is accumulating at the top 10% of the income distribution (Table 1). Spanning 2004-2007, the bottom 20% experienced 3.4% income growth, while the top 10% saw near 20% gains. And every bracket in between saw either negative or near-zero income growth.
Here’s the bigger picture: teen income is likely becoming increasingly important to the families at the bottom of the income distribution, while the jobs are becoming increasingly scarce.
Without entry level jobs, aggregate work experience starts to decline, which translates into lower skill overall; and then productivity declines. Bad stuff.
Having built a tree-house, its builders are now pulling up the ladder.
Which is why you build a tree-house in the first place.
The plural of anecdote ain’t data but bear with me.
In my medium size city I noticed something odd about a year ago. The work force at your typical fast food restaurant had changed, fewer and fewer people at the counter were teenagers. Nor were they twenty something college graduates, instead increasingly they were people around my age (53) who clearly were not on their first job. And where every McDonalds used to have a rack of employment applications now there was nothing, why put up a Help Wanted sign to attract some high school kid when you can get some middle age woman still supporting some kids, or just as likely some kids and grandkids both. Same thing at the supermarkets, i was walking into my local safeway and saw a courtesy clerk collecting carts in the parking lot who had to be in her sixties.
Why hire some kid who is working to pay for concert tickets when you can exploit former long-term employees who are now expendable by their former employees? And who you will know will show up.
The gap being currently exploited is not so much educated/skilled vs unskilled, it is instead increasingly the desperate 40-60 somethings vs the teenagers. Because most of us Boomers don’t have the option of moving back with Mom and Pop, because nursing homes don’t allow you to sleep on the couch or in the basement. If this goes on expect a changing face of homelessness, it won’t be just the clearly down and out street drunk or guy that never caught a break in his life to start with, instead it will be a neatly dressed guy, with a not so shabby briefcase and an aging Wi-Fi laptop who somehow has unlimited hours to be sitting around the library or nursing a coffee at Starbucks or sitting quietly in the lobby of some public building that has free Wi-Fi.
The face of poverty is on a track to become a lot whiter and a lot more middle aged even as the absolute burdens are shifted downward on the socio-economic scale (like they always are). The effects will always be more visible at the margin, but the question is whether the center will hold. Because historically middle class white people vote, it will be interesting to see what a couple of million 99’ers do in 2010 or if things don’t improve in 2012. Somehow I am not sure the neo-liberal Rubinista project survives under those circumstances, simply put 9% unemployment and resultant wage suppression cannot become the New Normal, the pressure is going to escape somewhere.
The irony does not escape me that middle class middle aged white people with avowedly liberal leanings only lent lip service when long term unemployment or underemployment was something that occurred mostly to brown people in the inner city or conversely in poor whites inrural areas, for people like us the transition was supposed to be from young post-college renter, to homeowner, to comfortable retirement living. The idea that that whole process could go in retrograde was not even on the radar screen.
Umm, when the minimum wage was raised there were people like me who said that we would see the effects most in the teenage labour market. It would be the untrained, low skill people who would lose out.
Now we’ve had the minimum wage rise and we can see an effect on the teenage labour market. The untrained, low skill people have lost out.
Rather than just shouting “told you so” might I just ask that people ponder upon whether there might be a link between these two things? You know, prediction that min wage rise will lead to rise in teenage unemployment, min wage rises, teenage unemployment rises?
Bruce said: “The idea that that whole process could go in retrograde was not even on the radar screen.” And, those of us raised by depression era or raised during the depression, did understand it. We often wondered what would happen when/if things went seriously retrograde.
We are just starting to know by the programs under attack.
Tim, I have posted here several times that the dominant factor in the recent rise in teen unemployment was the recession and the rise in the minimum wage played a very minor role. For example, from 2007 to 2009– when the minimum wage rose — teen employment at the minimum wage more than doubled and all the increase in teen unemployment was of teens earning more than the minimum wage. Even in 2009 over 80% of employed teens were earnings more than the minimum wage.
Care to support your claim that the recent increase in teen unemployment was caused by the minimum wage rather than the recession with some data?
Tim, do you time lag much?
The older folk now manning the counters at fast food restaurants are not particularly more skilled in the relevant skills than the teens they are replacing, it is not like the managers are looking for people that much better at pulling fries out when the dinger goes off or asking “Do you want fries with that?”
Give me a time correlation between increases in federal minimum wage and the demographic changes I am (by anecdote) reporting and get back to me. Did the changes in the latter really start to bite before the current increase in unemployment rates? Are you seriously proposing to explain all of this by a 70 cent an hour increase over a year ago?
Come on Tim.
Plus if the argument is that increases in minimum wage increase employment among heads or co-heads of households (perhaps because it allows them to actually make rent and buy food on that wage) while decreasing marginal employment among 16-19 year olds then I say bring it on!
I mean do we really want a return to 19th century industrial policy that deliberately designed factory machinery so that adult male hands could not operate in it thus requiring the employment of young women and children at lower wages?
However it is likley that the older folks have better willingness to show up on time and the like having aquired that discipline thru other work. So beyond direct job skills there are life skills that age does provide.
You are exactly correct, spencer. And I believe that you came by my blog once or twice saying the same thing. When the median duration of unemployment is setting records month after month (currently 25.5 weeks, http://research.stlouisfed.org/fred2/series/UEMPMED?cid=12), the demand for labor fell off the map due to an uncertain economic outlook and contraction in production. It’s not due to cost effects that would be prevalent during a tight labor market. The recession did this.
Furthermore, perhaps I wasn’t clear in the article, there’s something a bit more menacing going on here. It’s structural, too. I plan to post a second article, but over time, other workers are crowding out teenage workers. Immigrants and older workers come to mind.
My point is, that this market has been structurally week for some time, and it’s showing up at the bottom of the ranks. Not good.
Bruce & Rebecca,
Well secondly Bruce’s comment about anedotes arn’t data…
In my part of the DFW metroplex down here in Texas, I’m not seeing any change in the demographics. My (17 year old) kid and all his friends can work almost as many hours as they want. All do at least 20-30/week at minimum wage. I know one that’s cranking close to 50 with three jobs (all part time, all min or close to min wage). My kid does 30 hours/week if you count his volunteer hours at the hospital. Still plenty of time for running around and he makes good money (for a 17 year old). Lots of them have stepped up to ‘shift supervisors” type positions (50 cents more /hour but they are responsible for the cash register and open/closings). Looks good on the leadership part of a college application. Anyone truely bi-lingual (English/Spanish) has no problem finding work.
All the super-markets are out looking for people. So are the fast food places and even some of the mom & pop retail (my 14 year-old daughter was asked if she wanted a job at one place she was shopping at, until they found out here age…). Things may become more competitive once the colleges
But we are still going strong down here. From the BLS (Real data):
Texas Unemployment rate is 8.2%, grew 14K jobs (leading the US) in June and grew 110K year to year. Compare California which Lost 186K jobs year to year.
I get the sense that unemployment in the metroplex here is even lower. Lots of high tech jobs available and construction, though weaker than a few years ago is still moving along. Great place to live and work and contrary to the MSM crap you hear, the schools are great (much better than Fairfax County, VA). Housing is affordable (you can buy a house for under $100K in the best school district in the metroplex). So come on down, we have a job for you!
Anyway raising the min wage just gives my kids and his friends a raise….
Islam will change
Right, back in the days where every meal at a fast food joint included an employment application as a placemat, no one could get away with paying minimum wage.
And if there were no minimum wage now, what difference would it make? The middle aged men cashiering at the local grocery store would just be that much more desperate. The store isn’t hiring more workers, either.
Texas will change, too, when the oil bust happens.
Thanks but no thanks to Texas. Texans, you know.
Buffpilot — The BLS just reported that the unemployment rate in Dallas-Fort Worth-Arlington area was
8.5% in June compared to a 9.6% rate nationwide and a 8.1% rate in Boston-Cambridge. So at least this time you do not have bumper stickers advising Texans to drive fast and freeze a yankee.
I didn’t see that. Good catch. But Dallas is probably dragging the rest down. It has a lot of problem compared to the rest of the metroplex.
And I’ll take DFW over Boston every day of the week…way to cold and way to expensive.
(plus I’m a yankee – just don’t tell the neighbors…)
Islam will change
We already had an oil bust in Texas 1985-1992. See the S&L crisis which was centered in Dallas and a 50% house price decline in Houston. Where I live now building was going great guns in mid 1986 and stopped abrubtly as the banks failed (every bank in Texas was taken over or failed). Interestingly (and I suspect true in other states the rural areas have lower unemployment than the cities). Midland was a ghost town at the time.
Out in the hill country of Tx the unemployment rate is 6% (of course its a county of only 40k)