Tuesday, July 27, 2010

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.

Rebecca wilder


  1. Teenage wannabe workers are victims of the increase in minimum wage

  2. The US is going to have to drastically increase real-investment to make any kind of a dent in the job markets.  This shovel-ready stuff doesn't target this group at all.   I'm certain the current freight train is going to derail.

  3. This is a lot more serious when you think about all the things kids 16-19 need like auto insurance the cost of which will be a strain for a lot of families now. These kids will definitely not be moving out of the fmaily home any time soon as is already the case with the 20somethings. Talk about the disappearance of the middle class...!

  4. I agree AJ, there are long term consequences to struggling teenage unemployment: economic and welfare implications, alike. Rebecca

  5. <span>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 (aj above you are exactly correct). 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.</span>


  6. On behalf of the "older workers", I'd like to say that we are being squeezed bit by bit and many I know will have to work into their 80's or until they drop - not a happy thought....

  7. aj: "<span>These kids will definitely not be moving out of the fmaily home any time soon as is already the case with the 20somethings." </span>

    Or, aj, with the increasing numbers of Obamavilles popping up, they can always move out of their parents' house and into a tent.