Last week, the U.S. Department of Labor released its Employment and Unemployment Among Youth—Summer 2012 report. While many youths (ages 16-24) found a summer job this year, many did not even try. Fully 39.5 percent of the youth population neither worked nor looked for work this summer. This number has trended upward over time—it is almost double the rate (22.5 percent) from July 1989.
Of those who looked for work, many could not find it. The youth unemployment rate in July 2012 was 17.1 percent. By comparison, it was only 12.4 percent in July 2000 and 10.8 percent in July 2007. For men, blacks, and Hispanics, the youth unemployment rates in July 2012 were worse—at 17.9 percent, 28.6 percent, and 18.5 percent respectively.
Why are fewer youth participating in the labor force, and even fewer working? In part, because a bad economy always hits younger workers harder. The central problem with the labor market right now is a dramatic slowdown in job creation. While job losses rose at the start of the recession, they have since returned to pre-recession levels.
Hiring, meanwhile, has not recovered. Unemployment remains high because employers are creating fewer new jobs. This makes it much harder for those without jobs—like the youth—to find them. It also allows employers to become more selective in the people they do hire. That often means hiring older and more experienced workers.
Government policies have made this difficult labor market even worse for younger Americans. In 2007, Congress voted to raise the federal minimum wage to $7.25 an hour. Half of minimum wage earners are between the ages of 16 and 24. Raising the minimum wage, in addition to employer paid Social Security, workers compensation, and unemployment insurance prices many young workers out of the job market. An inexperienced high school student may not produce enough to be paid $7.25 per hour plus Social Security, workers comp, and unemployment insurance. As a result, since an employer is not allowed to pay her less by law, she is not hired and misses out on the job experience she needs to get a higher paying job: two-thirds of minimum wage workers earn a raise within a year.
Employers looking forward a year and a half to 2014 surely understand that. As stipulated by Obamacare, there will be a $2,000 annual tax for any worker they do not offer health insurance to. Such per-employee taxes contribute to the lack of entry-level positions.
Many younger workers are in school, but employers weigh both educational attainments as well as work experience when hiring. Education is not everything. Experience learned at a person’s first job is built on later in life as the person climbs the socio-economic ladder. It is a classic catch-22: The young person needs a job to get experience, and needs experience to get a job.
Research shows that teenagers in states with higher minimum wages have lower earnings a decade later—forgone experience has serious costs. Labor force participation of 18- to 24-year-olds has trended down, while their unemployment has trended up. Fewer youth are learning on the job. The government reduces young Americans’ ability to find work and gain valuable experience when it makes hiring them more expensive.