To Be Young and Unemployed

Millions of workers are struggling with joblessness, economic inequality has been rising over the past thirty years, and large swaths of America are still feeling the consequences of the Great Recession. However, economic challenges are not shared equally. Certain socio-demographic groups are hit particularly hard, while others remain largely insulated from the difficulties of economic hardship. This discrepancy is particularly evident with regard to young workers.

While every point throughout a worker’s career trajectory is important, the labor market experiences—earnings, benefits, skill development, and job security—of young workers are of particular significance. Early labor market experiences play a central role in shaping earnings and career trajectories—thus, they can have lasting consequences for economic security and patterns of earnings inequality over the life course. As Annette Bernhardt and her colleagues succinctly put it: “the majority of lifetime wage growth occurs during a worker’s first ten years in the labor market. To understand how inequality is generated, we need to focus on this formative period during which trajectories of upward mobility are effectively set.”

Research on young workers who enter the labor market during times of economic decline makes this point clear. Using rich longitudinal data, Lisa Kahn has examined the employment outcomes of young white male workers who entered the labor market before, during, and after the recession of the early 1980’s. She found that the young workers who entered the labor market in the midst of the recession had lower wages than those workers who did not enter during the recession, even fifteen years later.4More so than for older workers, how young workers fare in the labor market has consequences for their economic well-being for decades into the future.

The Labor Market Position Of Young Worker

What does the distribution of young workers look like across the economy? Do young workers tend to be clustered in particular industries? In 2009, young workers (ages sixteen to twenty-four) made up 13 percent of all employees in the U.S. However, they made up 34 percent of the employees in the leisure and hospitality industry and 20 percent of employees in the wholesale and retail trade industry, indicating a clear over-representation of young workers in these sectors of the economy. At the same time, only 5 percent of workers in the government sector and 7 percent of workers in manufacturing were between the ages of sixteen and twenty-four. Importantly, these numbers indicate an under-representation of young workers in sectors of the economy that historically have had higher wages.

In addition to where they are located in the economy, a key outcome for young workers is whether or not they are employed at all. Figure 1 presents the unemployment rate for young workers (sixteen to twenty-four), prime-aged workers (twenty-five to fifty-four), and older workers (five-five and older) over time.6 There are two main points to take away from this graph. First, the unemployment rate for young workers is about twice that of prime-aged workers. And, second, in times of economic recession (the shaded areas on the graph), the unemployment rate for young workers remains about twice that of prime-aged workers. This means that the unemployment rate increases more intensely for young workers, in raw terms, during times of economic recession. For example, if the unemployment rates during times of economic growth are 6 percent and 12 percent for prime-aged and young workers, respectively, then they may increase to 12 percent and 24 percent in times of economic recession. Thus, the unemployment rate would have increased by six percentage points for prime-aged workers, but by an incredible twelve percentage points for young workers.

Cross-sectional data also demonstrate the over-representation of young workers in the ranks of the unemployed. In 2010, for example, young workers (ages sixteen to twenty-four) made up 14 percent of the labor force, but represented 25 percent of the unemployed and 20 percent of the long-term unemployed (being without work for more than twenty-six weeks). Young workers also experience underemployment, measured as involuntary part-time work, at higher rates than older workers. While 7.2 percent of workers between the ages of thirty and forty-nine were underemployed in August 2010, 16.6 percent of workers between the ages the of eighteen and twenty-nine were underemployed at that time—that is, working part time but wanting to work full time.

Focusing only on aggregate data, however, conceals the high level of variation that exists in the employment and unemployment rates for different socio-demographic groups. Sheldon Danziger and David Ratner have examined employment rates—calculated as the percentage of people working at any time during the year—for young (ages twenty-five to thirty-four) high-school-educated workers broken down by race, ethnicity, and gender. As Figure 2 indicates, they found that, in 2007, the employment rate for non-Hispanic white men who graduated from high school was 90.6 percent. For non-Hispanic black men in the same age and education group, the employment rate was nearly twenty percentage points lower at 72.7 percent. Hispanic men, however, had a similar employment rate to non-Hispanic white men at 91.8 percent. The patterns are quite dif- ferent among women. In 2007, the employment rates were 73.8 percent for young non-Hispanic white women, 75.5 percent for young non- Hispanic black women, and 66.5 percent for young Hispanic women.9 Interestingly, while the employment rate for young black men is significantly lower than it is for young white men, black women were slightly more likely to be employed than their white counterparts.

While race and gender heterogeneity in unemployment can be seen during times of economic prosperity, such as 2007, the Great Recession also had differential consequences across demographic groups. For example, Andrew Sum and his colleagues have explored changes in the employment rates for young men (ages twenty-five to twenty-nine) between 2000 and 2009, in the midst of the recession. While the employment rate declined for all groups, young black and Hispanic men were hit the hardest. The employment rate declined by 17.7 and thirteen percentage points for black and Hispanic men, respectively, over this period, while the decline in the employment rate for white men was 9.5 percentage points.

Along with unemployment and employment rates, earnings and benefits are equally important in evaluating how young workers are faring in the labor market. While the median earnings of older workers have risen modestly since 1980, the median earnings of young workers have actually declined over the same period. This point is quite striking and demonstrates the distinct experiences that different groups of workers have in the “new economy.” While some groups of workers—largely prime-aged individuals with high levels of skill—have experienced increases in their earnings, others—such as young workers—have actually experienced declining real wages. Figure 3 presents the inflation-adjusted median earnings (in 2010 dollars) for male and female high school graduates between 1980 and 2010. While earnings decreased for both men and women, the decline was much sharper for young men—decreasing from just over $41,229 in 1980 to $31,000 in 2010. Given the importance of early career earnings in determining one’s compensation later in life, the decline in real earnings for these young workers over the past three decades is of particular concern.

There is also significant variation in wages by race and ethnicity, particularly in the low-wage labor market. A recent study examined the percentage of young workers (twenty-five to thirty-four) in low-paying jobs, broken down by demographic group. The researchers found that while 8.2 percent of young non-Hispanic white men earned less than $9 per hour in 2007, 15.2 percent of young non-Hispanic black men and 22.6 percent of young Hispanic men fell into this earnings category. While a higher proportion of women in all racial and ethnic groups were in low-paying jobs, compared to men, a similar racial and ethnic pattern of differentiation emerges for women. In 2007, 14.7 percent of young non-Hispanic white women earned less than $9 per hour, compared to 22.3 percent and 30.6 percent of young non-Hispanic black and young Hispanic women, respectively.

In addition to wages, people in the United States often rely on their jobs to meet other critical needs, especially health insurance. An analysis of Current Population Survey data, presented in Figure 4, shows that the young are less likely to have health insurance than are older individuals. And, most importantly, the percentage of the population without insurance has been increasing over time. While 22 percent of individuals between eighteen and twenty- four were without health insurance in 1987, that percentage rose to 30 percent in 2009. While 22 percent of individuals between eighteen and twenty- four were without health insurance in 1987, that percentage rose to 30 percent in 2009. For slightly older individuals (twenty-five to thirty-four), the percentage of those with no insurance rose from 16 percent to 28 percent over the same period.

Changing Institutions

The economic landscape in the U.S. has changed dramatically over the past forty years. Previous research has documented the ways that the increase in the size of the service economy relative to the manufacturing economy, the decline in private sector unionization rates, the falling real value of the minimum wage, and increasing global economic integration have greatly affected the labor market status of workers in the United States. While these major shifts have impacted workers across age groups, geographic regions, genders, and races, what social and economic forces are specifically implicated in impacting the labor market position of young workers in the ways discussed earlier? While the answer is multi-faceted and complex, three institutional changes likely play an important role in shaping the labor market outcomes of young workers: the rise in temporary employment; increasing incarceration rates; and the decline in union density.

Temporary Employment

While multiple forms of flexible employment relations—including part-time work, temporary employment, and seasonal and contract work—have increased over the past several decades, the rise in temporary work has likely had an especially important impact on young workers. Between 1979 and the late 1990s, the Temporary Help Services (THS) sector grew at an annual rate of more than 11 percent, which was more than five times more rapid than the growth in non-farm employ- ment.16 As Figure 5 demonstrates, there were approximately 443,900 workers in the THS industry in 1979, compared to 3,887,000 in 2000. As a percentage of non-farm employment, workers in the THS sector grew from 0.58 percent to nearly 3 percent over the same period. Since the late 1990s, it appears that the rate of temporary employment has remained relatively stable, but at levels that are much higher than they were in the 1970s.

Research has identified multiple causes of the rise in temporary employment. Global economic integration has increased competition for U.S. firms, creating incentives for companies to outsource work to lower-wage countries and implement more flexible employment relations for their U.S. employees. Legal changes in the U.S., such as changes to the common law doctrine of employment at will that made it more difficult for employers to terminate their employees, have also paved the way for employers to alter their relationships with employees and increase their use of temporary labor.

How has this rise in temporary employment affected young workers? In 2005, the most recent year for which reliable estimates exist, almost half (49.1 percent) of temporary help agency workers were under the age of thirty-five. However, only 35.1 percent of employed individuals were under thirty-five years old, indicating a clear over-representation of young workers in temporary help agency employment. And a number of studies have shown that temporary work is associated with low wages, less access to employer-provided health and retirement benefits, lower accumulation of assets, and increased lengths of unemployment. Moreover, for men, a history of temporary employment has also been linked to long-term wage penalties. Thus, for young workers who end up in temporary positions there are real implications for their social and economic security and well-being, over both the short and long term.

Mass Incarceration of temporary help

The incarceration rate in the United States has skyrocketed since 1975, after decades of relative stability. Sociologist Bruce Western has found that: “After more than a quarter of a century of growth, the scale of incarceration exceeded its historic average by a factor of nearly five.” The impact of mass incarceration has not been evenly distributed across the population, with young, less educated black men being the most heavily impacted. By the turn of the twentieth century, more than 40 percent of young black male high school dropouts were in prison or jail, compared to roughly 10 percent for similar whites.

Importantly, large numbers of individuals (approximately 650,000) incarcerated in state and federal prisons are released every year, and they return to their families and communities. Researchers estimate that, each year, 91 percent of released prisoners are male, 44 percent are black, and 17 percent are Hispanic. Additionally, half of all released prisoners are thirty-three years old or younger. These data indicate that young people, men, and African- Americans are over-represented in the pool of individuals re-entering society from jail and prison.

Not surprisingly, having a criminal record can be a significant barrier to gaining employment. Survey research has found that many employers are reluctant to hire individuals with a criminal conviction. And experimental audit research has corroborated this finding. Research in this area has found that, all else being equal, a criminal record reduced the callback rate for job applicants from 34 percent to 17 percent for young white men and from 14 percent to 5 percent for young black men. Some researchers have argued that the large over-representation of young black men in the criminal justice system means that some employers penalize all young black men, assuming there is a higher likelihood that this population has a criminal record. As this line of research suggests, the criminal justice system has taken on an increasingly important role in shaping the employment opportunities for young men, and particularly young black men, over the past three decades.

Unionization

The rate of unionization in the United States has declined dramatically over the past several decades. Between 1983 and 2007, the percentage of all workers who were union members fell by approximately 40 percent (from 20.1 percent to 12.1 percent). Importantly, the decline was particularly sharp for young workers. Among young workers (ages eighteen to twenty-nine), 16 percent were in a union in 1983, but that percentage had fallen by nearly 50 percent by 2007, when 8.2 percent of young workers were in a union. Driven by a set of economic, demographic, political, and legal changes, this profound institutional shift in the U.S. labor market has had important consequences for workers’ earnings and benefits, as well as their job security, and for overall patterns of economic inequality.

Unionized jobs are generally associated with higher wages and better employer-provided benefits, such as health insurance and retirement benefits. For young workers, union membership is associated with significant wage and benefits premiums. Drawing on data from the Current Population Survey, John Schmitt finds that young workers (ages eighteen to twenty-nine) who are union members, on average, earn $4 more per hour, are twenty-seven percentage points more likely to have health insurance, and are thirty-three percentage points more likely to have a pension, compared to young workers who are not union members. These findings partially reflect selection effects whereby the types of workers that are union members, and the occupations and industries with union coverage, are different from those without union membership and coverage. However, after adjusting for these differences, there are still significant and meaningful gaps between the wages and benefits of young workers who are and who are not in unions.

While there are strong benefits for young unionized workers, the apparent increase in concessions during recent collective bargaining agreements—regarding newly hired workers—risks creating a “two-tier” wage system in certain industries, such as manufacturing.38 Insofar as younger workers are more likely to be recent hires, these contracts may limit the wage and benefits premiums for young workers. It will be important over the coming years for researchers to explore in more depth the consequences of changing contract and collective bargaining dynamics for wages and benefits, particularly for young workers.

Policy Implications

The data presented here suggest that young workers are particularly vulnerable in the labor market, the challenges of young workers are not shared equally across demographic groups, and the standing of young workers appears to be declining over time. This is a matter of public importance given the role of early labor market experiences in shaping workers’ lifelong economic security and earnings trajectories. What does all of this mean for young workers and the economy more broadly?

There are no simple answers and changing the trends that have been developing will surely require some time. However, a review of three institutional shifts—the rise in temporary work, mass incarceration, and the decline in unionization rates—suggests that policy interventions in these areas may be able to improve the labor market status of young workers. Building clearer pathways from temporary jobs to high-paying, full-time permanent jobs could assist in limiting the negative consequences of temporary work for young workers. There would also likely be benefits to changing the policing and sentenc- ing policies that have promoted the expansion of a racialized and gendered incarceration system. At the same time, investing in re-entry policies that focus on skill development and job placement could assist in reducing the stigma faced by formerly incarcerated individuals, particularly young black men, in the labor market. Finally, ensuring strong and broad workplace representation for young workers through creative and innovative organizing could play an important role in curbing the negative effects of union decline. Regardless of the exact remedy, it is clear that greater attention—from policymakers at all levels—to the economic security of young workers is essential to a vital economic future.

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