U.S. Youth Unemployment Trend: Causes, Implications and Remedies

U.S. YOUTH UNEMPLOYMENT TREND 1

The U.S. Youth Unemployment Trend, Implications and Remedies

Brian Mackey, SPHR

GEI Consultants, Inc.

12-1-2010


Abstract

While the youth unemployment rate in the United States increased sharply with the Great

Recession of 2007, it has actually been on an upward trend since the 1940s, and relatively

unaddressed. The causes are varied, Government policies, a cultural shift in the view of

education, and the current economic climate have exacerbated the trend. Much of the attention

in the current economic crisis has been focused on finding solutions to the current perils of the

baby boom generation, many unemployed and too young to retire yet too old to be rehired. As

poor as the economic climate presently is, the U.S. faces serious issues in the future should youth

unemployment and underemployment continue to rise. Other developed nations have wrestled

with high levels of youth unemployment in the past, and with cooperation between the public

and private sector have had success in changing the trend. However, current policy and culture

in the U.S. may be doing the very opposite. If history is a guide and the upward trend in the U.S.

continues, there will be significant detrimental implications on businesses, their stakeholders,

and society.

Keywords: Gen Y, unemployment, staff development, mentorship, economics, HRD


The U.S. Youth Unemployment Trend, Implications and Remedies

It is understandable that unemployment rates, especially rates of youth unemployment

may not be an immediate issue of concern in strategic human resource planning. Short term

spikes in unemployment may actually be beneficial to transactional human resources activities.

In periods of high unemployment, there are larger pools of accessible human capital and

deflationary pressures on wages; both can be beneficial to a company‟s bottom line. However,

that rational is extremely short sided and overlooks the reality of business in a globalized world.

The Great Recession of 2007 started with an over-speculation of housing prices that crashed

back to reality. Within months, the recession had spread across many sectors of the economy,

public and private, and to entities that originally were insulated from the troubles of the housing

market. Consider the immediate implications to a retail clothing chain that is dependent on sales

to teens as youth unemployment levels double. Consider the long term repercussions to a society

should traditional milestones like marriage and home buying become obsolete, both of which are

directly affected by higher youth unemployment. While it may be tempting to pass the entire

burden and blame on the Government, private institutions must share some of the responsibility

themselves. While in reference to the role of human resources, Ulrich and Brockbank (2005)

stated that a successful “partnership involves crafting strategies based on knowledge of current

and future customers,” especially in consideration of external business realities. It is important

not to divorce the role of human resource in dealing with broad based issues, especially if those

left unaddressed, will create a negative business climate. Therefore, a partnership between

private and public institutions in combating youth unemployment may be the best way to remedy

the problem.


Causes of Youth Unemployment

Youth unemployment rates vary across the world and are affected by different

circumstances, from individual decisions to widely reaching policies and laws. At a personal

level, youths ultimately decide whether or not to seek employment, additional schooling, or

neither. Government policies on child labor laws, retirement mandates, and minimum wages

have all affected youth employment rates in the 20th century with intended and unintended

consequences. On a macro-economic level, the transformation of nations from agricultural to

modern, service based economies has changed the nature of youth employment. It is important

to consider the context of the transition. Few would advocate that Child Labor and Safety laws

enacted in the early 20th century were an inherently poor idea. However, in a modern era, what

are the consequences of an economy that increasingly marginalizes youths from the labor force

while saddling them educational debt as a prerequisite for basic employment? Coleman (1992)

argues that within developed countries, youth are increasingly marginalized in society as a

consequence of development. Worse, with the availability of credit, they are only marginalized

on the production side, not consumption. Coleman details that the transition occurs in three

distinct phases, driven by a downward trend in the social capital inputs to youth (parenting, time)

and an upward trend of required financial inputs.

Figure 1: Coleman’s graph of financial capital and social capital resource inputs into development of human capital
in children and youth.

Social Capital

Resource
Inputs to
Children

Financial
Capital

Time


In the first phase, youth labor is essential; the majority of the households are basic

subsistence farmers and children are necessary for the well-being of the family. While financial

inputs are low, social inputs are very high as parents are the sole source of any education. In

phase II, youth are viewed as investments for the family; their present capacity for production is

worth far less than their future capacity. This typically occurs in a newly industrialized society

with a growing collective pressure for social change and advancement. Coleman argues that the

U.S. underwent this phase post World War II, as the demand for equal opportunity and universal

secondary education became commonplace. In the third phrase, youth, in an economic construct,

start to become irrelevant. The makeup of society is radically changed from the first phase, it is

post-industrialized, there are high degrees of affluence but it is compartmentalized, and the state

is transforming into a general welfare state. Families have less capacity for social inputs to their

children, and there are increasing requirements of financial resources for children to be

successful (1992). The average family has seen their place in the overall economy significantly

reduced, family structure has declined, and incentives to develop human capital for the next

generation have been greatly reduced.

Coleman‟s argument is a broad based theory on how economic changes can influence

family structure. Of importance to strategic human resources development, is how significant

the development of human capital begins at the family level. There will always be outliers,

persons coming from families with little financial resources going on to achieve great things.

However, outliers are statistical anomalies; a society that invests little in social capital to its

youth cannot expect to have a better future than its present.


Youth Unemployment in the United States

Throughout the 20st century, youth unemployment (YU) has been a relative non-issue in

the U.S., keeping close parity with the general unemployment rate. During recessions, adult and

youth unemployment rates have increased proportionally between the two, and then retreated to

acceptable levels as economic growth returned. In times of stagnant growth, government lead

intervention has historically been aimed on providing stability and opportunity for older workers.

From 1948 through 2006, the unadjusted YU rate has had an annual average of approximately

11.5% (Bureau of Labor Statistics), a level that would likely result in serious socioeconomic and

political consequences if it was the rate in the general workforce. Why youth unemployment has

mostly been a non issue depends on ideology. At the societal level, the majority of youths do not

have families of their own to support, or mortgages to pay. Most have a family or support

structure to fall back on, so a temporary period of unemployment does not have as severe of

implications as a person in their 40s losing a job. Throughout the 20th century, advances in labor

laws, worker rights and equality have provided better working conditions and opportunities for

workers across all races. Furthermore, towards the end of the 20th century, more and more

youths pursued higher education rather than direct employment.

There has also been difficulty in calculating the actual size of the youth labor force. How

do you determine an accurate number of the unemployed youths when factoring in those who

choose to remain unemployed, or of those who attend school? Different historical surveys, and

more importantly the methods used, have been proven to show some degree of respondent bias

and variation in data. (Freeman & Medoff 1982) Other studies have found that the

unemployment rate was disproportionately affected by a percentage of workers, mostly confined

in the construction and manufacturing sectors, choosing to be unemployed between jobs. In


minority communities, high youth unemployment rates are affected by available participants

choosing to opt out. (Black, Kolesnikova & Stanley, 2010) The youth unemployment rate had a

significant spike in the early 1980s, but could be attributed to the demographics of the United

States at the time; the majority of the population was between the ages of 16-25. The exact

measurement of the real, youth unemployment rate can easily be challenged; any good

statistician can manipulate data to tell a particular story. However, the effects of high levels of

youth unemployment are much more concrete.

When attempting to forecast the long term implications of a current youth unemployment

rate between 10-18%, U.S. history is not the best guide. Official record keeping did not start

until 1948, but the last time the United States faced such a daunting level of youth

unemployment was during the Great Depression, and in the early 1980s. (www.bls.gov, 2010)

The long term psychological and socioeconomic implications of high rates of YU in the 1930s

would have manifested in the 1940s, but did not because of the start of World War II. An

unemployed male teenager in the height of the great depression would have likely enlisted or

been drafted, as the entire workforce of the US was mobilized to back the war effort. Therein

lies the complexity of the current crisis, the historical framework is a bit incomplete.


The U.S. economy has significantly evolved since the 1940s, changing from a net

exporter of goods to a net importer. Over the past 40 years much of the manufacturing base has

been eroded, and the majority of the U.S. economy today is driven by business services, personal

consumption and government spending. Today, there is the greatest disparity in wealth in the

United States since the Great Depression, and a record number of Americans require social

safety nets like food stamps. It is conceivable that Coleman‟s third phase may be present day

America.

Consequences of high levels of Youth Unemployment

High levels of youth employment can have profound effects on the psychology of the

individual and larger societal implications. Numerous studies have found a positive correlation

between high levels of youth unemployment and increasing instances of crime, especially violent

crime in schools (Freeman & Medoff, 1982). While overall today, crime rates are lower than the

80s, bullying in schools has become a prevalent issue. Other correlations have established that

higher levels of youth unemployment effects marriage trends, delays in the age of first childbirth,

and increases in births to unmarried women. (Danzinger & Rouse, 2009) On an individual

economic level, Freeman and Wise (1982) found that while initial wage rates have almost no

effect on later wages, early unemployment can have sizable negative effects on later wage rates.

Furthermore, entering the labor force during a period of economic downturn has been attributed

to lower earnings, increases in career instability, and negative individual beliefs. (Wachter, 2009)

Psychosocial consequences of youth unemployment (YU) have only recently been studied.

Furnham (1992) argues that work provides a certain level of core purposes, from structure of

time, an experience of autonomy and a sense of purpose, a sources of status and density, and


activity. In the period of young adulthood, traditionally considered 18-25, youths have a very

strong commitment to work. Furnham argues this as a cultivation of parental pressure, need for

identity etc. When repeated efforts to find work are unsuccessful, self esteem, increased

anxieties are just a few of the immediate short term consequences. On the long term, youths can

have stifled creativity, reduced potential for better wages. A recent NY Times article reported on

the general shift in the behaviors and attitudes of youth today, specifically, why it is taking so

long for them to grow up. (Heing, 2010)

Japan provides an excellent reference points to the perils of a disenfranchised and

underemployed generation in an industrialized society. The rise of the NEETS (not in education,

employment or training) in Japan started in the bubble economy of the late 1980s. Children from

wealthy families opted out of traditional, “demanding” working arrangements to pursue personal

interests and alternative careers. When the Japanese bubble economy eventually popped in the

early 90s, deflation set in and the numbers of unemployed, disenfranchised youths expanded.

The 1990s were considered the lost decade for Japan, a period of flat economic growth and

stagnant wages. Unlike the original NEETS, the larger population of unemployed youth now

contains many who want but cannot find traditional, stable employment. Looking at Japan‟s

current unemployment of 5.1%, one would not immediately assume there to be a problem. In

response to the loss decade of the 1990s, corporations were able to repeal labor and wage laws

and reduce the influence of unions. (Hayashi & Prescott, 2000) While the unemployment rate

dropped underemployment among Japanese youth greatly increased. Many work part time or

short term contract assignments as companies are extremely hesitant to hire new employees. The

economic consequences to Japan are severe, the labor ministry estimating a loss of $1.4 Trillion

in lost tax and pension revenue by 2015. (Parry, 2006) Although being one of the most


technological advanced nations in the world, Japan has one of the highest suicide rates. Youth

who obtain positions are often afraid to seek better employment and are at risk of burnout. The

aversion to risk and lack of ambitious youth will undermine Japan‟s national competitiveness in

the long run. (Minami, 2010)

Implications of youth employment on the U.S. economy

For human resource professionals, consequences of a society with high level of youth

unemployment (YU) will be seen from small, transactional HR activities to the highest levels of

corporate strategic planning. Consider the immediate impact of the Great Recession of 2007 on

the job market. The BLS reported fact that for every job opening, there are six applicants. (As a

H.R. professional responsible for recruitment, I can attest that number is arguably much larger.)

The number of long term unemployed has never been higher. Positions that traditionally did not

require college degrees, i.e. administrative assistants, suddenly see competition from a wider

variety of well educated applicants. On the short term, it is the less educated who lose, crowded

out for the job market as over qualified candidates pursue lower level positions. On the long

term, a company now has an over-educated, over-qualified worker in that role.

Historically the U.S. has enjoyed a level of personal economic determination, the

American dream to pursue a career of one‟s choosing. A worker would accept a position at a

lower wage provided it was a better opportunity for future prospects, be it financial, experience,

or both. If the position did not have those benefits, a worker would likely leave. The period of

young adulthood is the best time for those decisions; pursing different types of employment,

while accepting certain levels of risk for potential long term rewards. It circulates back to why

YU was often historically over- looked. Without a mortgage or family to support, a youth


unemployed for a short period of time would be generally unfazed, and therefore was not a main

concern of society. However it is 2010, not 1946. The U.S. economy is facing a permanent

structural shift, in arguably the worst financial situation of its existence, as a generation with

unprecedented levels of educationally acquired debt attempts to enter the workforce. Unlike

previous periods of high YU, i.e. 1970s, and 80s, this time it is not confined to just certain

subsets of the population, it has spread into the college-educated labor market. Even more

concerning, is the growing levels of YU in specialized fields, like engineering and nursing.

While their unemployment rates are much lower than those with a just basic education, a

specialized education limits alternative career options. The U.S. may soon face similar

conditions in Japan, a generation adverse to risk and hesitant to spend. All would have

significant consequences to the U.S. economy when considering how much of it is dependent on

consumption. Entitlement programs, where the majority of tax revenue goes to fund, are based

on the assumption that revenue will always increase with an ever expanding economy.

Stagnation in future revenue alone could result in insolvency, and likely unrest.

Effects of National Policy

Reducing the levels of youth unemployment and underemployment will require efforts

from the private and public sector. The public sector, particularly government positions on

education and training have the largest influence. Europe provides many contrasting examples

of what nations should and should not do when dealing with youth unemployment. Italy has

been plagued with high unemployment through most of the late 20th century, although a large

number of participants are employed in an underground economy. In the 1990s, Italian policy

makers and unions pushed a “Young-in-Old-out” approach, specifically advocating generous


pension systems and early retirement. The assumption was older workers would have more

incentive to leave the labor force, thus creating more job opportunities for younger workers. The

opposite actually occurred; the incentives were counterproductive to the business cycle and as

older workers left the work force, youth unemployment increased. (Brugiavini & Peracchi,

2008) Spain is another EU country with a heavy union influence that promotes long term

contracts, job protection and policies that unintentionally discourage new hiring. During the

global construction boom, Spain developed a culture of work focused on short term, temporary

assignments. When plentiful, they provided a variety of opportunities for younger, less skilled

and workers. When then recession struck, competition for these positions increased among

younger, highly educated workers, crowding out the former. The situation in Spain today is dire;

the youth unemployment rate is estimated around 40% and shows no signs of abating.

(Schwartz, 2009)

The German government has had success reducing youth unemployment, amid a global

recession and acting as the primary funder of National bailouts in the EU. The education system

is focused on providing opportunity past secondary education in lieu of college. There is a high

emphasis on the importance of apprenticeships, and the belief that they are the key to integrating

the labor market. Additionally, resources are focused on bringing drop-outs back into the

vocational education system. While Germany does have a strong union presence, there is no

minimum wage. Many economists believe that increases in the minimum wage actually crowd

less skilled workers out of the job market. Lastly, German educational and training systems are

tied into labor policies and a broad based, global strategy for maximum employment. The end

result is a variety of different career paths for younger workers, and older generations that are


willing and ready to leave the labor market to allow access to positions for their younger

counterparts. (Gross, 1998)

The U.S. economy is much more dynamic that that of the European Union, yet it has

often tried to emulate social policies found in Europe. Unfortunately in recent years, it has been

adopting policies that mirror nations like Spain and Italy rather than that of Germany. The

unionization of many branches of the Federal workforce has resulted in a bloated government

payroll that has difficulty shedding unproductive employees. Minimum wage laws were

originally designed to prevent exploitation of workers; however they often end up reducing the

number of job opportunities. (Neumark & Wascher, 1995) Diversity programs like affirmative

action may discourage new hiring as organizations fear potential litigation. Organizations may

find themselves in litigation against non-minority workers who sue for reverse discrimination. In

the case of the New Haven Twenty, a group of White and Hispanic fighter fighters successfully

sued the City of New Haven because their promotion was blocked after enough minorities did

not score high enough on a competency test. These type of programs may have been constructed

with the best intentions in mind, but often have unintended consequences. In times of high

unemployment, government policies need to be aligned with creating incentives to hiring and

reducing obstacles in terminating unproductive workers.

The U.S government‟s recent takeover of the student loan program may be the largest

example of good intentions with negative consequences. Originally constructed as a means to

allow more students access to college and to prevent predatory lending, the program has directly

inflated the cost of a college degree. Worse, student loans require no collateral, nor any

significant criteria for evaluating what is an appropriate level of financing to be approved.

Student loans are un-divorceable with bankruptcy, have surpassed U.S. credit card debt as a sum.


Many financial experts consider student loans the next bubble to pop. (Morrissey, 2009) With

the proliferation of government guaranteed loans, access to college has never been easier,

however so has the ease of obtaining massive debt. It has created a market of for-profit, private

universities, some of which are accused of fraudulent marketing and recruitment practices.

Advocates for higher education will argue that wider access to college is an absolute blessing; a

better educated society can only improve. That argument overlooks the implications to a

generation settled with more personal debt than has ever been recorded, while entering the worst

job market in fifty years. Additionally, new workers are not eligible for safety net program like

unemployment insurance and can only defer loans for a brief period of time.

Remedies and the role of Strategic HRD

It is tempting to dismiss the problems of youth unemployment (YU) and underemployment as

issues outside of the realm of HRD. This would be a valid point provided there was a guarantee

that the period of high YU would remain relatively short. The present day reality of the U.S.

economy would argue the opposite. The U.S. has only gained 2% of the estimated 7+ million

jobs lost in the middle class economy. (Stockton, 2010) Worse, the majority of the job gains

have been in low paying, part time service industries.

Source: cnbc.com


As a consequence, youth unemployment will likely remain high for an extended period

into the future. While college graduates have fared better than their less educated peers, there

will be increased competition in finding entry level jobs as they compete with older, more

experienced workers. The current YU rate of workers aged 16-24 is over 22% and shows no

sign of abating.

From an HRD prospective, this brings about many challenges. While labor costs are

currently experiencing deflationary pressures, costs and efforts to fill positions are likely to

continue to increase, especially on lower-level positions. From a staff development prospective,

challenges will arise with motivation and moral across all levels. For example, a typical baby

boomer that has seen their house and retirement portfolio decline in value and now likely has to

delay retirement. Government deficits and outstanding debt will eventually require increases in

taxes and a reduction in services and entitlement programs. Considering the dismal job market,

and general belief of age-discrimination in hiring, what motivation do older works have to

mentor, less prepare a succession plan for a young worker? The biggest concern is that the U.S.

has the potential to have its own Japanese style lost decade, with a growing population of

American NEETS. (Edwards & Hertel-Fernandez) In fact, it may have already begun. The

number of non-employed and non-enrolled youth is approaching the highest levels since the

1980s, but now youths are not the majority demographic for the population.


This fear of chronic unemployment will have negative consequences among workers as they

become more adverse to risk, especially in regards to employment. Organizations could find

themselves comprised of workers whose main interest is in preserving employment rather than

doing the job well, or creating new innovations or processes. Some companies have seen a

recovery in profits; most have international exposure and growth outside the U.S. Others have

achieved this by utilizing the increased productivity from the fewer workers. This cannot last

forever, and companies risk losing talented staff to competitors if they try to squeeze too much

out of them. Companies that will thrive in the future will be cognizant of the changing

environment, but can also help to improve the overall situation, especially in regards to youth

unemployment. Expansions of internship programs can help to sharpen unemployed youth‟s

skills and keep them relevant in the workforce. Government policies should be adopted that

reward companies that employ disadvantaged and less skilled workers, without mandating it.


Conclusions

Youth unemployment will be a serious issue in the United States should the economic

recovery continue at its current pace. Solutions will have to come from both the public and

private sector. The U.S. government needs to adopt a policy position that understands the

competitive nature of the globalized world and the changing economic conditions. Regulations

on businesses that inhibit new hiring and protect unproductive employees from termination need

to be repealed. Education reforms should encourage students to pursue alternative avenues of

employment in lieu of college by expanding vocational training and apprenticeships. Businesses

will need to adapt to changing external and internal pressures. Externally, businesses may find

themselves in a period of less demand for goods and services and will have to adapt to changing

customer attitudes. Internally, they should strive to develop paths to employment by expanding

internship and co-op opportunities. Programs like these will be beneficial in the development of

human capital for internal use, but will also have a positive effect on the preservation of a

socially balanced society.


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