Diana G. Carew writes,
Of the 17 million Americans age 16-24 not enrolled in school or working full-time in July 2013, 5.6 million were working part-time, 3.2 million were unemployed – a 17.1 percent unemployment rate – and another 8.4 million were not in the labor force altogether.
Together, these charts suggest the problem facing young Americans is structural. If worsening labor market conditions were a temporary effect of the recession, we would have expected to see improvement with the recovery. Instead, young Americans appear stuck in their post-recessionary state.
Pointer from Tyler Cowen.
Why is the gap between the reservation wage and marginal revenue product so much higher among young people than among others?
Some possibilities:
1. The trend in the Thete lifestyle is to work only sporadically, counting on support from relatives and the government.
2. The minimum wage is much more binding than we thought.
3. Downward wage stickiness is much more prevalent among people who are new to the labor market than among middle-aged workers. (I admit I am being sarcastic here)
That analysis it too coarse. What fraction are women raising children with or without support of a spouse? What fraction are effectively unemployable in their local markets due to both lack of skills and being “too Theta” to show up?
It is always hard to distinguish “unemployed because reservation wage is too high” from “unemployed because utterly useless to any employer”
Perhaps it was a bad idea to raise the minimum wage 40% during the worst recession in memory?
That BLS page is full of interesting insights if you parse the data a little bit.
For instance, consider:
Total Enrolled and Not Enrolled “Civilian non-institutional population” for Blacks:
16-19: 2,566,000
20-24: 3,432.000
That’s a 25% collapse in fertility only five years comparing the periods 1989-94 with 1994-99! Now, I know welfare reform and PRWORA were in late ’96, but is that really what the US Black population pyramid looks like?
And that’s not even counting a few hundred thousand net difference in institutionalized individuals in prison or the military which is more common in the 20-24 age cohort than 16-19.
Oops. Ok, I feel dumb. Obviously there are only 4 years between 16-19 and 5 between 20-24. That accounts for 20% of the drop.
Plus, according to the census data, there was indeed a baby-boomlet (‘echo’?). Births peaked at 752K in 1992 and have since receded and stabilized for the last ten years at about 600K, which accounts for the rest.
4. Mooching off your family is more possible and more socially acceptable at a young age, raising the youth reservation wage. In effect this does lead to a lot of wage stickiness — lower your wages too much and prospective employees will say “screw it” and stay home all day playing madden.
This may be a story that works more for middle and upper class youths.
It is also a very similar story to 1, except it puts more of a “kids be lazy” spin on it as opposed to “kids be an emerging underclass I read about in a science fiction novel.” It also implies that after a sufficient amount of recovery kids will start working again, which the thetes story does not.
Reservation wage is really only meaningful at full employment.
1 Would be free lance and opportunity seeking, the work style of the future.
2 The minimum wage is completely binding for those with no experience in an environment with no jobs. Work at home may be more valuable than many cruddy minimum wage job.
3 Maybe they are all unpaid interns.