What About the Lost Generation of Unemployed Youth?

  • Author: Michael Saltsman

  • Publication Date: September 2010

  • Newspaper: Washington Examiner

  • Topics: Minimum Wage, Teen Unemployment

In the United States and abroad, young and inexperienced workers faced a harsh reality this summer: No one was hiring. Burger King had no need for new subjects. Supermarkets stopped adding shelf stockers.

Outback Steakhouse had a mile-long line of applicants out back. America saw one out of every four teens in the labor force stuck looking for work – or playing video games instead of learning valuable life skills.

In Washington, policymakers focused on putting adults back to work, but what about the consequences of teens missing out on work experiences? If something isn’t done to help these young adults find employment, we could see an entire generation miss out on the skills needed to be successful in life.

Though teen unemployment rates above 20 percent seem shocking, our European counterparts are no stranger to a labor market this dire. For instance, in Italy and Spain during the 1990s, a year with 20 percent teen unemployment would have been welcome relief. For teens in France that figure has become the norm.

A study released earlier this year from the Organization for Economic Cooperation and Development (OECD) shed light on employment barriers that teens face in Western Europe and elsewhere.

While each country has its unique set of challenges, there are also common burdens, like a high minimum wage that prices less-experienced job seekers out of the workforce.

Here in the U.S., we saw Congress increase the minimum wage by 40 percent between July 2007 and July 2009. Many states have expanded their own minimum wage beyond the federal. It’s not hard to understand why these high entry-level wages are keeping teens out of work.

Employers who utilize minimum wage labor tend to have razor thin profit margins. Restaurants, for example, see only five cents of profit for every dollar of revenue; grocery stores see only three. Raising labor costs forces these businesses to either cut employee hours or increase prices.

We can see evidence of this by taking a look around McDonald’s: In exchange for low prices, American consumers are willing to clear their own tables and fill their own soda cups. This self-service is at the cost of employee hours, and more specifically at the cost of teen jobs.

OECD economists suggested that a lower minimum wage for teens could spur employment in hard-hit countries; editorial boards at major U.S. papers have suggested the same.

Research backs this up; a new study by economists Walter Wessels and Nicole Coomer shows that businesses that aren’t covered by wage statutes act as a buffer for less-experienced teens that are priced out of a job by a higher minimum wage.

Employers are more inclined to take a chance on a new, untrained worker if their labor costs are less and with that, teens get their foot in the door and gain valuable career building experience. Everyone wins.

Sadly for teens, right now everyone is losing. Spending early years shut out of the job market comes with real costs down the road. A study of data from the National Longitudinal Survey of Youth by Drs. Thomas Mroz and Timothy Savage found that “early unemployment has measurable, persistent effects that can be linked to the stagnation of human capital that occurs when an individual is not working, in training or in school.”

For years after the fact, unemployed teens are at a higher risk of earning low wages, or suffering a future spell of unemployment; others are more likely to drop out of high school or get involved in the criminal justice system.

The threat of a “lost generation” isn’t a myth. Shutting teens out of the workforce not only deprives teens of an important opportunity now, but also leaves our country with an entire generation unprepared for the future.

Michael Saltsman is the research fellow at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.