Question

Unemployment is an indication of the health of the economy. Unemployment means that there is a portion of the productive population (labor force) that is not producing and unable to earn income for consumption and/or for investment. The more unemployed workers there are, the less output the economy will be able to produce. High unemployment also means that there are less wages available in the hands of people to consume, which reduces the incentive or need for suppliers to produce at full capacity (lower GDP). Moreover, unemployment means that there are more workers available for work in the labor market (high supply) than jobs (demand). Higher unemployment leads to a reduction in the price of labor (wages).

Now let's examine the unemployment in the United Sates.

1. review the following to learn about the relationship between age, race, gender, and unemployment.
   • Discuss the differences in unemployment rates by gender, age, educational attainment, and so forth, and provide possible explanation for the variations in unemployment over time and the variation in unemployment by age, gender, educational attainment, and race.
   • What interests or surprises you?

Answer 1

Unemployment among young people begins when they are eligible to work. According to the International Labor Office (ILO), young people are increasingly having trouble when looking for their first job (ILO 2011). The sharp increase in youth unemployment and underemployment is rooted in long-standing structural obstacles that prevent many youngsters in both OECD countries and emerging economies from making a successful transition from school to work. Not all young people face the same difficulties in gaining access to productive and rewarding jobs, and the extent of these difficulties varies across countries. Nevertheless, in all countries, there is a core group of young people facing various combinations of high and persistent unemployment, poor quality jobs when they do find work and a high risk of social exclusion (Keese et al. 2013). The rate of youth unemployment is much higher than that of adults in most countries of the world (ILO 2011; Keese et al. 2013; O’Higgins 1997; Morsy 2012). Official youth unemployment rates in the early decade of the 2010s ranged from under 10% in Germany to around 50% in Spain . Unemployment among young people begins when they are eligible to work. According to the International Labor Office (ILO), young people are increasingly having trouble when looking for their first job (ILO 2011). The sharp increase in youth unemployment and underemployment is rooted in long-standing structural obstacles that prevent many youngsters in both OECD countries and emerging economies from making a successful transition from school to work. Not all young people face the same difficulties in gaining access to productive and rewarding jobs, and the extent of these difficulties varies across countries. Nevertheless, in all countries, there is a core group of young people facing various combinations of high and persistent unemployment, poor quality jobs when they do find work and a high risk of social exclusion (Keese et al. 2013). The rate of youth unemployment is much higher than that of adults in most countries of the world (ILO 2011; Keese et al. 2013; O’Higgins 1997; Morsy 2012). Official youth unemployment rates in the early decade of the 2010s ranged from under 10% in Germany to around 50% in Spain.

We would like to argue that one of the most important determinants of youth unemployment is the economy’s rate of growth. When the aggregate level of economic activity and the level of adult employment are high, youth employment is also high.1 Quantitatively, the employment of young people appears to be one of the most sensitive variables in the labor market, rising substantially during boom periods and falling substantially during less active periods (Freeman and Wise 1982; Bell and Blanchflower 2011; Dietrich and Möller 2016). Several explanations have been offered for this phenomenon. First, youth unemployment might be caused by insufficient skills of young workers. Another reason is a fall in aggregate demand, which leads to a decline in the demand for labor in general. Young workers are affected more strongly than older workers by such changes in aggregate demand (O’Higgins 2001). Thus, our first research question is whether young adults are more vulnerable to economic shocks compared to their older counterparts.

Older workers’ unemployment is mainly characterized by difficulties in finding a new job for those who have lost their jobs (Axelrad et al. et al. 2013). This fact seems counter-intuitive because older workers have the experience and accumulated knowledge that the younger working population lacks. The losses to society and the individuals are substantial because life expectancy is increasing, the retirement age is rising in many countries, and people are generally in good health (Axelrad et al. 2013; Vodopivec and Dolenc 2008).

The difficulty that adults have in reintegrating into the labor market after losing their jobs is more severe than that of the younger unemployed. Studies show that as workers get older, the duration of their unemployment lengthens and the chances of finding a job decline (Böheim et al. 2011; De Coen et al. 2010). Therefore, our second research question is whether older workers’ unemployment stems from their age.

In this paper, we argue that the unemployment rates of young people and older workers are often misinterpreted. Even if the data show that unemployment rates are higher among young people, such statistics do not necessarily imply that it is harder for them to find a job compared to older individuals. We maintain that youth unemployment stems mainly from the characteristics of the labor market, not from specific attributes of young people. In contrast, the unemployment of older individuals is more related to their specific characteristics, such as higher salary expectations, higher labor costs and stereotypes about being less productive (Henkens and Schippers 2008; Keese et al. 2006). To test these hypotheses, we conduct an empirical analysis using statistics from the Israeli labor market and data published by the OECD. We also discuss some policy implications stemming from our results, specifically, a differential policy of minimum wages and earned income tax credits depending on the worker’s age.