1. U.S. YOUTH UNEMPLOYMENT TREND 1 The U.S. Youth Unemployment Trend, Implications and Remedies Brian Mackey, SPHR GEI Consultants, Inc. 12-1-2010
2. U.S. YOUTH UNEMPLOYMENT TREND 2 Abstract While the youth unemployment rate in the United States increased sharply with the GreatRecession of 2007, it has actually been on an upward trend since the 1940s, and relativelyunaddressed. The causes are varied, Government policies, a cultural shift in the view ofeducation, and the current economic climate have exacerbated the trend. Much of the attentionin the current economic crisis has been focused on finding solutions to the current perils of thebaby boom generation, many unemployed and too young to retire yet too old to be rehired. Aspoor as the economic climate presently is, the U.S. faces serious issues in the future should youthunemployment and underemployment continue to rise. Other developed nations have wrestledwith high levels of youth unemployment in the past, and with cooperation between the publicand private sector have had success in changing the trend. However, current policy and culturein 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
3. U.S. YOUTH UNEMPLOYMENT TREND 3 The U.S. Youth Unemployment Trend, Implications and Remedies It is understandable that unemployment rates, especially rates of youth unemploymentmay not be an immediate issue of concern in strategic human resource planning. Short termspikes in unemployment may actually be beneficial to transactional human resources activities.In periods of high unemployment, there are larger pools of accessible human capital anddeflationary 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 crashedback 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 housingmarket. Consider the immediate implications to a retail clothing chain that is dependent on salesto teens as youth unemployment levels double. Consider the long term repercussions to a societyshould traditional milestones like marriage and home buying become obsolete, both of which aredirectly affected by higher youth unemployment. While it may be tempting to pass the entireburden and blame on the Government, private institutions must share some of the responsibilitythemselves. 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 currentand future customers,” especially in consideration of external business realities. It is importantnot to divorce the role of human resource in dealing with broad based issues, especially if thoseleft unaddressed, will create a negative business climate. Therefore, a partnership betweenprivate and public institutions in combating youth unemployment may be the best way to remedythe problem.
4. U.S. YOUTH UNEMPLOYMENT TREND 4 Causes of Youth Unemployment Youth unemployment rates vary across the world and are affected by differentcircumstances, from individual decisions to widely reaching policies and laws. At a personallevel, youths ultimately decide whether or not to seek employment, additional schooling, orneither. Government policies on child labor laws, retirement mandates, and minimum wageshave all affected youth employment rates in the 20th century with intended and unintendedconsequences. On a macro-economic level, the transformation of nations from agricultural tomodern, service based economies has changed the nature of youth employment. It is importantto consider the context of the transition. Few would advocate that Child Labor and Safety lawsenacted in the early 20th century were an inherently poor idea. However, in a modern era, whatare the consequences of an economy that increasingly marginalizes youths from the labor forcewhile saddling them educational debt as a prerequisite for basic employment? Coleman (1992)argues that within developed countries, youth are increasingly marginalized in society as aconsequence of development. Worse, with the availability of credit, they are only marginalizedon the production side, not consumption. Coleman details that the transition occurs in threedistinct 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
5. U.S. YOUTH UNEMPLOYMENT TREND 5 In the first phase, youth labor is essential; the majority of the households are basicsubsistence farmers and children are necessary for the well-being of the family. While financialinputs are low, social inputs are very high as parents are the sole source of any education. Inphase II, youth are viewed as investments for the family; their present capacity for production isworth far less than their future capacity. This typically occurs in a newly industrialized societywith a growing collective pressure for social change and advancement. Coleman argues that theU.S. underwent this phase post World War II, as the demand for equal opportunity and universalsecondary 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 ispost-industrialized, there are high degrees of affluence but it is compartmentalized, and the stateis transforming into a general welfare state. Families have less capacity for social inputs to theirchildren, and there are increasing requirements of financial resources for children to besuccessful (1992). The average family has seen their place in the overall economy significantlyreduced, family structure has declined, and incentives to develop human capital for the nextgeneration have been greatly reduced. Coleman‟s argument is a broad based theory on how economic changes can influencefamily structure. Of importance to strategic human resources development, is how significantthe 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 itsyouth cannot expect to have a better future than its present.
6. U.S. YOUTH UNEMPLOYMENT TREND 6 Youth Unemployment in the United States Throughout the 20st century, youth unemployment (YU) has been a relative non-issue inthe U.S., keeping close parity with the general unemployment rate. During recessions, adult andyouth unemployment rates have increased proportionally between the two, and then retreated toacceptable levels as economic growth returned. In times of stagnant growth, government leadintervention 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 approximately11.5% (Bureau of Labor Statistics), a level that would likely result in serious socioeconomic andpolitical consequences if it was the rate in the general workforce. Why youth unemployment hasmostly been a non issue depends on ideology. At the societal level, the majority of youths do nothave families of their own to support, or mortgages to pay. Most have a family or supportstructure to fall back on, so a temporary period of unemployment does not have as severe ofimplications as a person in their 40s losing a job. Throughout the 20th century, advances in laborlaws, worker rights and equality have provided better working conditions and opportunities forworkers across all races. Furthermore, towards the end of the 20th century, more and moreyouths pursued higher education rather than direct employment. There has also been difficulty in calculating the actual size of the youth labor force. Howdo you determine an accurate number of the unemployed youths when factoring in those whochoose to remain unemployed, or of those who attend school? Different historical surveys, andmore importantly the methods used, have been proven to show some degree of respondent biasand variation in data. (Freeman & Medoff 1982) Other studies have found that theunemployment rate was disproportionately affected by a percentage of workers, mostly confinedin the construction and manufacturing sectors, choosing to be unemployed between jobs. In
7. U.S. YOUTH UNEMPLOYMENT TREND 7minority communities, high youth unemployment rates are affected by available participantschoosing to opt out. (Black, Kolesnikova & Stanley, 2010) The youth unemployment rate had asignificant spike in the early 1980s, but could be attributed to the demographics of the UnitedStates at the time; the majority of the population was between the ages of 16-25. The exactmeasurement of the real, youth unemployment rate can easily be challenged; any goodstatistician can manipulate data to tell a particular story. However, the effects of high levels ofyouth unemployment are much more concrete. When attempting to forecast the long term implications of a current youth unemploymentrate between 10-18%, U.S. history is not the best guide. Official record keeping did not startuntil 1948, but the last time the United States faced such a daunting level of youthunemployment 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 1930swould have manifested in the 1940s, but did not because of the start of World War II. Anunemployed male teenager in the height of the great depression would have likely enlisted orbeen drafted, as the entire workforce of the US was mobilized to back the war effort. Thereinlies the complexity of the current crisis, the historical framework is a bit incomplete.
8. U.S. YOUTH UNEMPLOYMENT TREND 8 The U.S. economy has significantly evolved since the 1940s, changing from a netexporter of goods to a net importer. Over the past 40 years much of the manufacturing base hasbeen eroded, and the majority of the U.S. economy today is driven by business services, personalconsumption and government spending. Today, there is the greatest disparity in wealth in theUnited States since the Great Depression, and a record number of Americans require socialsafety nets like food stamps. It is conceivable that Coleman‟s third phase may be present dayAmerica. Consequences of high levels of Youth Unemployment High levels of youth employment can have profound effects on the psychology of theindividual and larger societal implications. Numerous studies have found a positive correlationbetween high levels of youth unemployment and increasing instances of crime, especially violentcrime in schools (Freeman & Medoff, 1982). While overall today, crime rates are lower than the80s, bullying in schools has become a prevalent issue. Other correlations have established thathigher 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 individualeconomic level, Freeman and Wise (1982) found that while initial wage rates have almost noeffect 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 attributedto 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 oftime, an experience of autonomy and a sense of purpose, a sources of status and density, and
9. U.S. YOUTH UNEMPLOYMENT TREND 9activity. In the period of young adulthood, traditionally considered 18-25, youths have a verystrong commitment to work. Furnham argues this as a cultivation of parental pressure, need foridentity etc. When repeated efforts to find work are unsuccessful, self esteem, increasedanxieties are just a few of the immediate short term consequences. On the long term, youths canhave stifled creativity, reduced potential for better wages. A recent NY Times article reported onthe general shift in the behaviors and attitudes of youth today, specifically, why it is taking solong for them to grow up. (Heing, 2010) Japan provides an excellent reference points to the perils of a disenfranchised andunderemployed 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 fromwealthy families opted out of traditional, “demanding” working arrangements to pursue personalinterests and alternative careers. When the Japanese bubble economy eventually popped in theearly 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 andstagnant wages. Unlike the original NEETS, the larger population of unemployed youth nowcontains many who want but cannot find traditional, stable employment. Looking at Japan‟scurrent unemployment of 5.1%, one would not immediately assume there to be a problem. Inresponse to the loss decade of the 1990s, corporations were able to repeal labor and wage lawsand reduce the influence of unions. (Hayashi & Prescott, 2000) While the unemployment ratedropped underemployment among Japanese youth greatly increased. Many work part time orshort term contract assignments as companies are extremely hesitant to hire new employees. Theeconomic consequences to Japan are severe, the labor ministry estimating a loss of $1.4 Trillionin lost tax and pension revenue by 2015. (Parry, 2006) Although being one of the most
10. U.S. YOUTH UNEMPLOYMENT TREND 10technological advanced nations in the world, Japan has one of the highest suicide rates. Youthwho obtain positions are often afraid to seek better employment and are at risk of burnout. Theaversion to risk and lack of ambitious youth will undermine Japan‟s national competitiveness inthe 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 youthunemployment (YU) will be seen from small, transactional HR activities to the highest levels ofcorporate strategic planning. Consider the immediate impact of the Great Recession of 2007 onthe job market. The BLS reported fact that for every job opening, there are six applicants. (As aH.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 notrequire college degrees, i.e. administrative assistants, suddenly see competition from a widervariety of well educated applicants. On the short term, it is the less educated who lose, crowdedout for the job market as over qualified candidates pursue lower level positions. On the longterm, 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, theAmerican dream to pursue a career of one‟s choosing. A worker would accept a position at alower 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 ofyoung 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 whyYU was often historically over- looked. Without a mortgage or family to support, a youth
11. U.S. YOUTH UNEMPLOYMENT TREND 11unemployed for a short period of time would be generally unfazed, and therefore was not a mainconcern of society. However it is 2010, not 1946. The U.S. economy is facing a permanentstructural shift, in arguably the worst financial situation of its existence, as a generation withunprecedented levels of educationally acquired debt attempts to enter the workforce. Unlikeprevious periods of high YU, i.e. 1970s, and 80s, this time it is not confined to just certainsubsets of the population, it has spread into the college-educated labor market. Even moreconcerning, 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, aspecialized education limits alternative career options. The U.S. may soon face similarconditions in Japan, a generation adverse to risk and hesitant to spend. All would havesignificant consequences to the U.S. economy when considering how much of it is dependent onconsumption. Entitlement programs, where the majority of tax revenue goes to fund, are basedon 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 effortsfrom the private and public sector. The public sector, particularly government positions oneducation and training have the largest influence. Europe provides many contrasting examplesof what nations should and should not do when dealing with youth unemployment. Italy hasbeen plagued with high unemployment through most of the late 20th century, although a largenumber of participants are employed in an underground economy. In the 1990s, Italian policymakers and unions pushed a “Young-in-Old-out” approach, specifically advocating generous
12. U.S. YOUTH UNEMPLOYMENT TREND 12pension systems and early retirement. The assumption was older workers would have moreincentive to leave the labor force, thus creating more job opportunities for younger workers. Theopposite actually occurred; the incentives were counterproductive to the business cycle and asolder workers left the work force, youth unemployment increased. (Brugiavini & Peracchi,2008) Spain is another EU country with a heavy union influence that promotes long termcontracts, job protection and policies that unintentionally discourage new hiring. During theglobal construction boom, Spain developed a culture of work focused on short term, temporaryassignments. When plentiful, they provided a variety of opportunities for younger, less skilledand workers. When then recession struck, competition for these positions increased amongyounger, 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 globalrecession and acting as the primary funder of National bailouts in the EU. The education systemis focused on providing opportunity past secondary education in lieu of college. There is a highemphasis on the importance of apprenticeships, and the belief that they are the key to integratingthe labor market. Additionally, resources are focused on bringing drop-outs back into thevocational education system. While Germany does have a strong union presence, there is nominimum wage. Many economists believe that increases in the minimum wage actually crowdless skilled workers out of the job market. Lastly, German educational and training systems aretied into labor policies and a broad based, global strategy for maximum employment. The endresult is a variety of different career paths for younger workers, and older generations that are
13. U.S. YOUTH UNEMPLOYMENT TREND 13willing and ready to leave the labor market to allow access to positions for their youngercounterparts. (Gross, 1998) The U.S. economy is much more dynamic that that of the European Union, yet it hasoften tried to emulate social policies found in Europe. Unfortunately in recent years, it has beenadopting policies that mirror nations like Spain and Italy rather than that of Germany. Theunionization of many branches of the Federal workforce has resulted in a bloated governmentpayroll that has difficulty shedding unproductive employees. Minimum wage laws wereoriginally designed to prevent exploitation of workers; however they often end up reducing thenumber of job opportunities. (Neumark & Wascher, 1995) Diversity programs like affirmativeaction may discourage new hiring as organizations fear potential litigation. Organizations mayfind themselves in litigation against non-minority workers who sue for reverse discrimination. Inthe case of the New Haven Twenty, a group of White and Hispanic fighter fighters successfullysued the City of New Haven because their promotion was blocked after enough minorities didnot score high enough on a competency test. These type of programs may have been constructedwith the best intentions in mind, but often have unintended consequences. In times of highunemployment, government policies need to be aligned with creating incentives to hiring andreducing obstacles in terminating unproductive workers. The U.S government‟s recent takeover of the student loan program may be the largestexample of good intentions with negative consequences. Originally constructed as a means toallow more students access to college and to prevent predatory lending, the program has directlyinflated the cost of a college degree. Worse, student loans require no collateral, nor anysignificant 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.
14. U.S. YOUTH UNEMPLOYMENT TREND 14Many financial experts consider student loans the next bubble to pop. (Morrissey, 2009) Withthe 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, privateuniversities, 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; abetter educated society can only improve. That argument overlooks the implications to ageneration settled with more personal debt than has ever been recorded, while entering the worstjob market in fifty years. Additionally, new workers are not eligible for safety net program likeunemployment insurance and can only defer loans for a brief period of time. Remedies and the role of Strategic HRDIt is tempting to dismiss the problems of youth unemployment (YU) and underemployment asissues outside of the realm of HRD. This would be a valid point provided there was a guaranteethat 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+ millionjobs lost in the middle class economy. (Stockton, 2010) Worse, the majority of the job gainshave been in low paying, part time service industries. Source: cnbc.com
15. U.S. YOUTH UNEMPLOYMENT TREND 15 As a consequence, youth unemployment will likely remain high for an extended periodinto the future. While college graduates have fared better than their less educated peers, therewill be increased competition in finding entry level jobs as they compete with older, moreexperienced workers. The current YU rate of workers aged 16-24 is over 22% and shows nosign of abating. From an HRD prospective, this brings about many challenges. While labor costs arecurrently experiencing deflationary pressures, costs and efforts to fill positions are likely tocontinue 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 babyboomer that has seen their house and retirement portfolio decline in value and now likely has todelay retirement. Government deficits and outstanding debt will eventually require increases intaxes 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 tomentor, 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 ofAmerican NEETS. (Edwards & Hertel-Fernandez) In fact, it may have already begun. Thenumber of non-employed and non-enrolled youth is approaching the highest levels since the1980s, but now youths are not the majority demographic for the population.
16. U.S. YOUTH UNEMPLOYMENT TREND 16This fear of chronic unemployment will have negative consequences among workers as theybecome more adverse to risk, especially in regards to employment. Organizations could findthemselves comprised of workers whose main interest is in preserving employment rather thandoing the job well, or creating new innovations or processes. Some companies have seen arecovery in profits; most have international exposure and growth outside the U.S. Others haveachieved this by utilizing the increased productivity from the fewer workers. This cannot lastforever, and companies risk losing talented staff to competitors if they try to squeeze too muchout of them. Companies that will thrive in the future will be cognizant of the changingenvironment, but can also help to improve the overall situation, especially in regards to youthunemployment. Expansions of internship programs can help to sharpen unemployed youth‟sskills and keep them relevant in the workforce. Government policies should be adopted thatreward companies that employ disadvantaged and less skilled workers, without mandating it.
17. U.S. YOUTH UNEMPLOYMENT TREND 17 Conclusions Youth unemployment will be a serious issue in the United States should the economicrecovery continue at its current pace. Solutions will have to come from both the public andprivate sector. The U.S. government needs to adopt a policy position that understands thecompetitive nature of the globalized world and the changing economic conditions. Regulationson businesses that inhibit new hiring and protect unproductive employees from termination needto be repealed. Education reforms should encourage students to pursue alternative avenues ofemployment in lieu of college by expanding vocational training and apprenticeships. Businesseswill need to adapt to changing external and internal pressures. Externally, businesses may findthemselves in a period of less demand for goods and services and will have to adapt to changingcustomer attitudes. Internally, they should strive to develop paths to employment by expandinginternship and co-op opportunities. Programs like these will be beneficial in the development ofhuman capital for internal use, but will also have a positive effect on the preservation of asocially balanced society.
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