Tag Archives: State of Young Workers

Youth Unemployment is Not Just An American Crisis

17 Dec

Youth unemployment is a worldwide crisis.  Many of the the rich countries of the Organisation for Economic Co-Operation and Development (OECD) are suffering from extraordinarily high ratio of youth to adult unemployment, according to a new report, Good Start? Jobs for Youth, released yesterday.  Spain has the highest youth unemployment at 42%, while Switzerland has the lowest.

Of the 16.7 million youth who are neither working nor in school or training, 10 million have given up even trying to get into the system.  This can lead to permanent scaring for both the youth and the country.  To combat this the report suggests governments should:

  • Move towards early intervention programmes and effective job-search assistance for different groups of youth, such as in Denmark, the Netherlands and Japan.
  • Strengthen apprenticeship and other dual vocational training programmes for low-skilled youth, as traditionally done in Austria, Germany and Switzerland and scaled up in Australia and in France.
  • Encourage firms to hire youth, by offering temporary subsidies targeting low-skilled youth and those have completed their apprenticeship, as well as small and medium-sized firms.

Unions have a role to play in creating these opportunities as well.  As occurred during the summer months, locals used federal TANF dollars to create apprentice programs and share workloads.  There is no reason why with a little creativity we couldn’t figure out a way to create similar programs now or create more permanent pathways (of course having more funding from the federal government for such a program wouldn’t hurt either…).  Creating a type of structure where the union facilitates your first entrance into the labor market will pay huge dividends in the long-run as a new generation of union activists emerges.

Why I Will Never Be Able to Retire…

16 Dec

Following yesterday’s post, here are the top reasons why young workers today lack retirement security from US News & World Report:

7 Reasons Retirement Will Be Difficult for Generation Y

By Emily Brandon

Posted: December 15, 2010

Employees under age 30 are in the best position of their lives to begin saving for retirement. But few of these newly minted workers are currently on track to retire comfortably. Here’s a look at why many members of Generation Y may face more difficult retirement prospects than the baby boomers.

Higher savings needs. Workers between ages 18 and 30 will need 18.7 times their final pay to maintain their current standard of living in retirement after age 65, including Social Security, traditional pension income, and personal savings, according to recent calculations by Aon Hewitt. Twenty-somethings will need to save considerably more on their own than generation Xers age 31 to 45, who will need 16.1 times their final pay, and young baby boomers between ages 46 and 54, who should save 14.6 times their salary for retirement. However, young employees are on track to accumulate just 12.4 times their final salary, or only two-thirds of what they will need in retirement, the study found.Less access to pensions. Many companies with traditional pensions and retiree medical benefits have closed the plans to new hires or made them less generous. If you exclude the workers fortunate enough to have access to a traditional pension plan from the analysis, the typical 20-something is projected to have a retirement shortfall of 8 times their final pay. “Younger workers will have fewer future benefits from their employers and potentially the government,” says Pamela Hess, director of retirement research at Aon Hewitt. “They need to save a third more in their defined contribution plans than workers who are nearing retirement today, but there’s clearly a lack of urgency to proactively save.” 

Ignoring the retirement plan. Only half of generation Y workers who are eligible to participate in a 401(k) plan do so, according to the Aon Hewitt analysis. Among those who do save, the average contribution rate is 5.3 percent of pay, far less than the 6.8 percent generation Xers are saving and the 8.4 percent of pay young baby boomers are tucking away for retirement. Some 41 percent of workers age 30 and under are not saving enough to receive the entire employer-provided 401(k) match.

Cash outs. Many 20-somethings dip into their retirement savings well before retirement. Over half (59 percent) of generation Y workers cash out their retirement savings when changing jobs, Aon Hewitt found. Employees who raid their retirement accounts early miss out on decades worth of tax-deferred investment growth. For example, a 25-year-old employee who cashes out $5,000 from a 401(k), perhaps netting only $3,500 after taxes and penalties, could potentially be sacrificing $56,000 upon retirement if he or she earns 7 percent annual returns until age 65, according to Aon Hewitt calculations.A higher Social Security retirement age. Most baby boomers will be eligible to collect the full amount of Social Security they are entitled to at age 66. Americans born in 1960 or later must wait an extra year, until age 67, to claim their full due, under current law. The full retirement age is 65 only for workers born in 1937 or earlier. Retirees who sign up before their full retirement age will receive reduced payouts for life.

Longer life expectancy. Members of generation Y are likely to live longer and need to finance even more years of retirement than people retiring this year. A man reaching age 65 today can expect to live 18 more years until age 83. A woman the same age is likely to live an average of 20 years more until age 85, according to Social Security Administration data. Generation Y members are likely to have an even longer retirement, even after you factor in a higher retirement age. A male born on January 1, 1985 who makes it to age 67 can expect to live an average of 19 more years, or until age 86. A female born on the same date should plan on living 21 more years to age 88, according to SSA data. And, of course, these are just average ages. There’s a significant possibility that healthy retirees will live past age 90 or even reach 100.

Competing financial needs. Young workers have plenty of other costs competing for their paychecks. Twenty-somethings are more likely to be making student loan payments, paying off credit card debt, and are probably paying more out-of-pocket health care costs than their parents were at the same age. Young people also have expenses their parents never faced in their 20s including bills for a cell phone and Internet connection. Saving in a 401(k) plan could propel young people to a comfortable retirement if they save in the plan consistently. Members of generation Y who don’t begin saving for retirement in their 20s or early 30s could end up in a worse financial position than many of the baby boomers are now.

New Report on Youth Unemployment Crisis

8 Dec

New report out today from the New America Foundation:

The Great Recession and Joblessness Among Young Workers

Shayne Henry, Next Social Contract Initiative
December 2010

Introduction

During the last three years, youth employment has taken a large hit, absorbing a significant portion of job losses.  One in four unemployed persons is under the age of 25 and nearly one in five young workers is unemployed.1  The rate of joblessness among individuals aged 16-24 is at its highest level on record.2

The Recession

Young workers, aged 16-24, are an important part of the American labor force, accounting for 14% of all individuals in the labor market.3  At the same time, they are also the most vulnerable workers during weak economies and recessions. Since the start of the recession, youth unemployment has increased by 7.5 percentage points while unemployment for the rest of the labor force has only increased by 4.7 percentage points.  The overall unemployment rate, an aggregate of the two, has increased by 5.1 percentage points. 

During this same period, the number of employed youth has declined by 12.2 percent, compared to only a 3.9 percent decline for the rest of the working population.4 This is the result of increased layoffs and the number of young workers who appear to be leaving the labor market.  While the employment-to-population ratio of young people has been steadily decreasing for the past decade, this decrease has become more dramatic since the beginning of the Great Recession and far outpaces the drop in the employment-to-population ratio of the remainder of the workforce. 

 

The fact that youth have been hardest hit by the recession is not surprising. Since the recession began, both the number of job openings and the number of people voluntarily leaving their jobs have declined dramatically.5 In this tight labor market, young workers are less competitive and are often the first to be laid off because they tend to work in temporary positions, are among the newest hired, and are heavily concentrated in job sectors that are most vulnerable to economic fluctuations.6

 

Underemployment and Long-Term Unemployment

Entering the job market during a recession can lead to reduced earnings for up to 15 years, and many workers may never entirely recover.7 Among college graduates, one study has found that individuals entering the labor market during severe recessions earn 17.5 percent less than their peers who enter the labor force during better market conditions, an effect that can plague workers for over 17 years.8 This is the uncertain future faced by the millions of young people who have entered the job market since the beginning of the Great Recession and represents billions of dollars in lost salaries and potential consumption.

While the future of those youth who find employment during the Recession appears precarious, many youth are faced with an even more severe problem. Perhaps the most alarming aspect of youth employment data is that young workers represent not only a larger proportion of the unemployed population, but also a larger proportion of those who suffer from long-term unemployment. As shown in Figure 3, while young workers make up only 14% of the labor force, they represent 26% of the unemployed and 21% of the long-term unemployed. The remaining two age subsets in the labor force, workers aged 25-54 years and 55+, are both underrepresented in these unemployment categories. Long-term unemployment can have long-lasting and often permanent consequences for the individual’s career in terms of productivity, earnings and skill retention.9 Young workers, both those who are fortunate enough to find jobs and those who are not, face a difficult road of underemployment and low wages in the years ahead.

 

Existing Programs are Failing to Address the Problem
The federal government continues to allocate money to programs specifically targeting the problem, with the expressed aim of improving employment prospects for young workers. However, these programs have had, at best, limited effectiveness.  Programs like JOBSTART and the Job Training and Partnership Act appear to be largely ineffective in lowering unemployment or providing higher earnings for youth participants.10

Job Corps, the leading program designed specifically to improve youth employment by providing training and benefits for 60,000 disadvantaged youth aged 16-24, costs the federal government $24,000 per participant and yet seems to have little effect on long-term job placement or earnings.11 While individuals who complete the program have higher medium-term job prospects, within as little as five years the difference in wages and employment between individuals who completed the program and those who did not becomes increasingly non-existent.12 The figure below further illustrates the limited effectiveness of Job Corps in placing participants in jobs during the short-term, with only small advantages between years two and four.

Policy Solutions
As seen in Figure 1, unemployment numbers for young workers follow the trend of the general job market.  It makes sense, then, to focus on overall job creation in order to bring down youth unemployment.

However, simply returning to an employment situation similar to pre-recession levels would leave youth unemployment rates hovering around 10%.  In the long-term, then, policies must be created that target young workers specifically.  For example, a continued investment in educational access for young people is something that has been encouraged by the policy community for years. It is widely known that there exists a strong negative correlation between educational attainment and unemployment.13  Further, engaging larger numbers of young people in vocational training or higher education removes individuals from the labor market, bringing unemployment numbers down.  Any durable solution for the youth unemployment problem must at least address high school graduation rates and access to higher learning or vocational training.

Conclusion
Youth unemployment is a continuing and escalating problem for the American labor market. Traditional approaches to bringing down unemployment numbers among youth have failed to adequately address the problem, while important policy initiatives such as increasing access to education seem to be addressing the problem too slowly. As such, it is time for the policy community to turn to new, innovative ideas to tackle the problem of youth unemployment.

Notes

1Bureau of Labor Statistics. Household Data, A-9 Unemployed persons by age, sex and marital status, seasonally adjusted.

2US Congress Joint Economic Committee, Unemployment Among Young Workers, May 2010

3Bureau of Labor Statistics. A-13 Employment status of the civilian noninstitutional population by age, sex and race

4Bureau of Labor Statistics. Employment Level 16-24, Employment Level 25 years & over; Author’s calculations

5Department of Labor. Job Openings and Labor Turnover Survey. October 7, 2010.

6Stefano Scarpetta, Anne Sonnet and Thomas Manfredi, “Rising Youth Unemployment During the Crisis: How to Prevent Negative Long-Term Consequences on a Generation?” OECD Social, Employment and Migration Papers, No. 106, April 14, 2010 available at http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT000028DE/$FILE/JT03281808.PDF and
US Congress Joint Economic Committee, Unemployment Among Young Workers, May 2010; Bureau of Labor Statistics, Household Data, Employed persons by occupation, sex and age.

7Oreopoulos, von Wachter, and Heisz (2008); Till von Wachter Testimony to the Joint Economic Committee, May 26, 2010.

8Lisa B. Kahn. The Long-Term Market Consequences of Graduating from College in a Bad Economy. 2009.

9Stefano Scarpetta, Anne Sonnet and Thomas Manfredi, “Rising Youth Unemployment During the Crisis: How to Prevent Negative Long-Term Consequences on a Generation?” OECD Social, Employment and
Migration Papers, No. 106, April 14, 2010 . Available Online
http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT000028DE/$FILE/JT03281808.PDF

10James Heckman, Robert Lalonde, and Jeffrey Smith, “The Economics and Econometrics of Active Labor Market Programs.” Handbook of Labor Economics, First Edition, (Amsterdam: Elsevier, 1999), Vol. 3, Chap. 31, p. 2056

11ExpectMore.gov. Program Assessment of Job Corps. Available Online <http://www.whitehouse.gov/omb/expectmore/summary/10002372.2007.html>

12Peter Schochet, John Burghardt, and Sheena McConnell, “Does Job Corps Work? Impact Findings from the National Job Corps Study,” American Economic Review, American Economic Association, Vol. 98, No. 5 (December 2008), pp. 1864-1886.

13Bureau of Labor Statistics. Occupation Outlook Quarterly.  More Education: Higher Earnings, Lower Unemployment. 1999. http://www.bls.gov/opub/ooq/1999/Fall/oochart.pdf

 
Youth Unemployment

O’Hare: A letter to my students

24 Aug

Below is an important welcome to campus letter from Michael O’Hare, Professor of Public Policy at the Goldman School of Public Policy at UC Berkeley.  He describes the great swindle that has made young workers far worse off than their parents.  No introduction needed, just read it.

A letter to my students

by Michael O’Hare
Posted: Monday, August 23rd, 2010 at 12:18 pm

Welcome to Berkeley, probably still the best public university in the world. Meet your classmates, the best group of partners you can find anywhere.  The percentages for grades on exams, papers, etc. in my courses always add up to 110% because that’s what I’ve learned to expect from you, over twenty years in the best job in the world.

That’s the good news.  The bad news is that you have been the victims of a terrible swindle, denied an inheritance you deserve by contract and by your merits.  And you aren’t the only ones; victims of this ripoff include the students who were on your left and on your right in high school but didn’t get into Cal, a whole generation stiffed by mine.  This letter is an apology, and more usefully, perhaps a signal to start demanding what’s been taken from you so you can pass it on with interest.

Swindle–what happened? Well, before you were born, Californians now dead or in nursing homes made a remarkable deal with the future.  (Not from California? Keep reading, lots of this applies to you, with variations.) They agreed to invest money they could have spent on bigger houses, vacations, clothes, and cars into the world’s greatest educational system, and into building and operating water systems, roads, parks, and other public facilities, an infrastructure that was the envy of the world. They didn’t get everything right: too much highway and not enough public transportation. But they did a pretty good job.

Young people who enjoyed these ‘loans’ grew up smarter, healthier, and richer than they otherwise would have, and understood that they were supposed to “pay it forward” to future generations, for example by keeping the educational system staffed with lots of dedicated, well-trained teachers, in good buildings and in small classes, with college counselors and up-to-date books.  California schools had physical education, art for everyone, music and theater, buildings that looked as though people cared about them, modern languages and ancient languages, advanced science courses with labs where the equipment worked, and more. They were the envy of the world, and they paid off better than Microsoft stock. Same with our parks, coastal zone protection, and social services.

This deal held until about thirty years ago, when for a variety of reasons, California voters realized that while they had done very well from the existing contract, they could do even better by walking away from their obligations and spending what they had inherited on themselves.  “My kids are finished with school; why should I pay taxes for someone else’s?  Posterity never did anything for me!”  An army of fake ‘leaders’ sprang up to pull the moral and fiscal wool over their eyes, and again and again, your parents and their parents lashed out at government (as though there were something else that could replace it) with tax limits, term limits, safe districts, throw-away-the-key imprisonment no matter the cost, smoke-and-mirrors budgeting, and a rule never to use the words taxes and services in the same paragraph.

Now, your infrastructure is falling to pieces under your feet, and as citizens you are responsible for crudities like closing parks, and inhumanities like closing battered women’s shelters. It’s outrageous, inexcusable, that you can’t get into the courses you need, but much worse that Oakland police have stopped taking 911 calls for burglaries and runaway children. If you read what your elected officials say about the state today, you’ll see things like “California can’t afford” this or that basic government function, and that “we need to make hard choices” to shut down one or another public service, or starve it even more (like your university). Can’t afford? The budget deficit that’s paralyzing Sacramento is about $500 per person; add another $500 to get back to a public sector we don’t have to be ashamed of, and our average income is almost forty times that.  Of course we can afford a government that actually works: the fact is that your parents have simply chosen not to have it.

I’m writing this to you because you are the victims of this enormous cheat (though your children will be even worse off if you don’t take charge of this ship and steer it). Your education was trashed as California fell to the bottom of US states in school spending, and the art classes, AP courses, physical education, working toilets, and teaching generally went by the board. Every year I come upon more and more of you who have obviously never had the chance to learn to write plain, clear, English.  Every year, fewer and fewer of you read newspapers, speak a foreign language, understand the basics of how government and business actually work, or have the energy to push back intellectually against me or against each other. Or know enough about history, literature, and science to do it effectively!  You spent your school years with teachers paid less and less, trained worse and worse, loaded up with more and more mindless administrative duties, and given less and less real support from administrators and staff.

Many of your parents took a hike as well, somehow getting the idea that the schools had taken over their duties to keep you learning, or so beat-up working two jobs each and commuting two hours a day to put food on the table that they couldn’t be there for you. A quarter of your classmates didn’t finish high school, discouraged and defeated; but they didn’t leave the planet, even if you don’t run into them in the gated community you will be tempted to hide out in.  They have to eat just like you, and they aren’t equipped to do their share of the work, so you will have to support them.

You need to have a very tough talk with your parents, who are still voting; you can’t save your children by yourselves.  Equally important, you need to start talking to each other.  It’s not fair, and you have every reason (except a good one) to keep what you can for yourselves with another couple of decades of mean-spirited tax-cutting and public sector decline. You’re my heroes just for surviving what we put you through and making it into my classroom, but I’m asking for more: you can be better than my generation. Take back your state for your kids and start the contract again.  There are lots of places you can start, for example, building a transportation system that won’t enslave you for two decades as their chauffeur, instead of raising fares and cutting routes in a deadly helix of mediocrity.  Lots. Get to work.  See you in class!

This article originally appeared on www.samefacts.com.

ILO Report- Bad Trends for Youth Employment

16 Aug

In case you were unconvinced that young people globally are especially suffering by the world-wide jobs deficit, the International Labour Organization released a report late last week documenting the crisis, showing 13.1% unemployment through 2010 and 28% of working young people actually doing so in extreme poverty.  More ominous is that the current downturn resulting in unemployment, underemployment, and idleness will negatively effect future prospects, both on individual lifetime earnings and on the make up of society.  A global strategy is needed to ensure that the generation with the most potential of any in recent decades does not become a lost generation.  Here is the press release from the ILO:

(If you are still unconvinced, there is nothing that can help…)

World economic crisis has spurred a record increase in youth unemployment says ILO

GENEVA (ILO News) — Global youth unemployment has reached its highest level on record, and is expected to increase through 2010, the International Labour Organization (ILO) said in a new report issued to coincide with the launch of the UN International Youth Year on 12 August.

The report ILO Global Employment Trends for Youth 2010 says that of some 620 million economically active youth aged 15 to 24 years, 81 million were unemployed at the end of 2009 — the highest number ever. This is 7.8 million more than the global number in 2007. The youth unemployment rate increased from 11.9 percent in 2007 to 13.0 percent in 2009.

It adds that these trends will have “significant consequences for young people as upcoming cohorts of new entrants join the ranks of the already unemployed” and warns of the “risk of a crisis legacy of a ‘lost generation’ comprised of young people who have dropped out of the labour market, having lost all hope of being able to work for a decent living”.

According to the ILO projections, the global youth unemployment rate is expected to continue its increase through 2010, to 13.1 per cent, followed by a moderate decline to 12.7 per cent in 2011. The report also points out that the unemployment rates of youth have proven to be more sensitive to the crisis than the rates of adults and that the recovery of the job market for young men and women is likely to lag behind that of adults.

The report indicates that in developed and some emerging economies, the crisis impact on youth is felt mainly in terms of rising unemployment and the social hazards associated with discouragement and prolonged inactivity.

The ILO report points out that in developing economies, where 90 per cent of young people live, youth are more vulnerable to underemployment and poverty. According to the report, in the lower income countries, the impact of the crisis is felt more in shorter hours and reduced wages for the few who maintain wage and salaried employment and in rising vulnerable employment in an ‘increasingly crowded’ informal economy.

The report estimates that 152 million young people, or about 28 percent of all the young workers in the world, worked but remained in extreme poverty in households surviving on less than US$1.25 per person per day in 2008.

“In developing countries, crisis pervades the daily life of the poor” said ILO Director-General Juan Somavia. “The effects of the economic and financial crisis threaten to exacerbate the pre-existing decent work deficits among youth. The result is that the number of young people stuck in working poverty grows and the cycle of working poverty persists through at least another generation.”

The ILO report explains how unemployment, underemployment and discouragement can have a long-term negative impact on young people, compromising their future employment prospects. The study also highlights the cost of idleness among youth, saying “societies lose their investment in education. Governments fail to receive contributions to social security systems and are forced to increase spending on remedial services”.

“Young people are the drivers of economic development,” Mr. Somavia said. “Foregoing this potential is an economic waste and can undermine social stability. The crisis is an opportunity to re-assess strategies for addressing the serious disadvantages that young people face as they enter the labour market. It is important to focus on comprehensive and integrated strategies that combine education and training policies with targeted employment policies for youth.”

“Today the UN is launching the International Year of Youth. Through this year’s themes of dialogue and mutual understanding, we will be better placed to shape viable policies that respond to the need and aspirations of young people for decent work,” he added.

Key findings in youth labour market trends at the global level:

  • Between 2007 and 2009, youth unemployment increased by 7.8 million (1.1 million in 2007/08 and 6.7 million in 2008/09). In comparison, over the course of the ten-year period prior to the current crisis (1996/97 to 2006/07), the number of unemployed youth increased, on average, by 191,000 per year.
  • The global youth unemployment rate rose from 11.9 to 13.0 per cent between 2007 and 2009. Between 2008 and 2009, the rate increased by 1 percentage point, marking the largest annual change over the 20 years of available global estimates and reversing the pre-crisis trend of declining youth unemployment rates since 2002.
  • Between 2008 and 2009, the number of unemployed youth increased by 9.0 per cent, compared to a 14.6 per cent increase in the number of unemployed adults. In terms of unemployment rates, however, the impact on youth has proven to be greater than that of adults. The youth rate increased by 1.0 percentage point compared to 0.5 points for the adult rate over 2008/09.
  • In 2008 young people accounted for 24 per cent of the world’s working poor, versus 18.1 per cent of total global employment.
  • Young women have more difficulty than young men in finding work. The female youth unemployment rate in 2009 stood at 13.2 per cent compared to the male rate of 12.9 per cent (a gap of 0.3 percentage point, the same gender gap seen in 2007).
  • The projections show a longer expected recovery for youth compared to adults. Youth unemployment numbers and rates are expected to decline only in 2011. The ILO forecasts a continued increase in global youth unemployment to an all-time high of 81.2 million and a rate of 13.1 per cent in 2010. In the following year, the number of unemployed youth is projected to decline to 78.5 million with a 12.7 per cent rate. Meanwhile, the adult rate is expected to peak in 2009 at 4.9 per cent and then decline by 0.1 percentage points in both 2010 and 2011 (to 4.8 and 4.7 per cent, respectively).

Regional trends:

  • Youth unemployment rates increased by 4.6 percentage points in Developed Economies & the European Union between 2008 and 2009 and by 3.5 points in Central & South-Eastern Europe (non-EU) & CIS. These are the largest annual increases in youth unemployment rates ever recorded in any region. The youth unemployment rate of 17.7 per cent in 2009 in the Developed Economies & European Union is the highest the region has seen since regional estimates have been available (since 1991).
  • In most regions, young women continued to be the hardest hit by unemployment. Only in the Developed Economies & European Union were young males harder hit; the increase in the male youth unemployment rate between 2007 and 2009 was 6.8 percentage points compared to 3.9 points for young women.
  • In some countries, including Spain and the United Kingdom, there was an increase in inactivity among youth in the crisis years. This implies an increase in discouragement, whereby growing unemployment has led some young people to give up the job search.
  • In developing economies, the crisis adds to the ranks of vulnerable employment and informal sector employment. There is supporting evidence of such an increase in Latin America where between 2008 and 2009 the number of own-account workers increased by 1.7 per cent and the number of contributing family workers by 3.8 per cent. The region also experienced an increase in the share of teenagers engaged in informal sector employment during the crisis.
  • For almost all regions, slight improvements are forecast as compared with the peak unemployment years (2010 in most cases). Only in the Middle East and North Africa are youth unemployment rates expected to continue on an upward path in 2011. The largest decrease (1 percentage point) in youth unemployment rates is expected for Central & South-Eastern Europe (non-EU) & CIS. The projected 2011 rate in the Developed Economies & European Union would represent a 0.9 percentage point decrease from the previous year. However, the projected rate of 18.2 per cent would still be higher than was ever seen in the pre-crisis period (1991-2007).
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