Question

According to the recent unemployment data, how do the unemployment and participation rates differ for workers age 16-19 and workers over age 20? What, based upon your experience or observations, do you consider to be the primary reason for this difference?

Answer 1

Many younger workers in the US experienced a drop in labor force participation during the recession, with the reduction being very pronounced among the very youngest. Just prior to the recession, the labor force participation rate among those aged 16–19 was 44 percent. During the recovery, the labor force participation rate for this group stabilized at 34 percent—a 10-percentage-point decline from its prior level. Among those aged 20–24, the decline was not as dramatic; the labor force participation rate in this group fell from 74.5 percent pre-recession to 71 percent post-recession, a decline on a par with that experienced by the labor force as a whole.

If young adults’ current high unemployment rate follows them across their work lives, funding retiree pensions and health care may be even more challenging than otherwise, as those with lessened prospects for income will be asked to support an ever-growing number of retirees.

With youth unemployment still at high levels, young people are getting off to a slow start in the job market, a situation that may well translate into lower lifetime earnings. At the other end of the age spectrum is a growing number of retirees who, under the current system, will be consuming an increasing proportion of the nation’s output.

This twin tension is not unique to the United States; it is a hallmark of most advanced economies. As nations struggle to figure out how to adjust or pay for existing pension systems, they should also focus on policies to help improve the employment and earning potential of their younger workers.

If the high rate of unemployment among young adults continues to follow them across their work lives, permanently depressing their earnings, addressing the funding conundrum of retiree pension and health care will be even more difficult than otherwise.

Those with lessened prospects for income will be asked to support an ever-growing number of retirees—many of whom may have had opportunities for success not as widely available to the current cohort of young workers. This raises a question of generational equity: How much is fair to ask from today’s younger people to help support their elders?