Young workers face a tougher labor market even as the economy inches towards full employment

Over the last several years, the economy has moved steadily (if more slowly than we would have wanted) towards full employment. Payroll employment growth in excess of working-age population growth is a positive sign of a growing economy, but unrecovered labor force participation and below-target wage growth are clear signs of remaining economic slack—signaling that we haven’t yet reached genuine full employment.

Last week, Valerie Wilson and I put the black unemployment rate in perspective. Today, I want to talk about the plight of young workers in our economy. The overall unemployment rate between July 2016 and June 2017 (we look at data over a full calendar year to allow large enough sample sizes to compare subgroups within the labor force) was 4.7 percent. But this rate masks important differences within the population. Young workers, ages 16-24 years old, had an unemployment rate more than twice as high as prime-age (25-54 year old) workers (9.8 percent versus 4.0 percent) and nearly three times as high as older (55-64 year old) workers (3.3 percent). While young workers typically have much higher unemployment rates, tight labor markets could induce employers to turn to younger workers and push their unemployment rate down disproportionately in coming years. And like all workers, young workers need tighter overall labor markets to see their wages grow.

Unemployment

Unemployment and underemployment by age and race/ethnicity, June 2017

Unemployment

Unemployment rate
16 to 24 9.8%
25 to 54 4.0% 
55 to 64 3.3% 
Black 16 to 24 16.3% 
Hispanic 16 to 24 10.4% 
White 16 to 24 8.0% 
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Underemployment

Underemployment rate
16 to 24 17.8% 
25 to 54 8.0% 
55 to 64 7.1% 
Black 16 to 24 27.4% 
Hispanic 16 to 24 19.0% 
White 16 to 24 15.1% 
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Note: Data are 12-month averages from July 2016 to June 2017.

Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey data

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Among young workers, some fare better than others. The unemployment rate for young black workers (16.3 percent) was twice as high as young white workers (8.0 percent) and four times higher than prime-age workers overall (4.0 percent). If these ratios remained constant, this means that any future reductions in overall youth unemployment will disproportionately benefit these workers of color—e.g., if the overall prime-age unemployment fell by 1 percentage point, the unemployment rate for young black workers would fall by 4 points. If tight labor markets further reduced these ratios by making it harder for employers to indulge in discrimination, the benefits of tighter labor markets will be even greater.

Stark disparities by age and race are also found in the underemployment rate—the U-6 measure from the Bureau of Labor Statistics—which includes not only unemployed workers but also those who are working part time because they can’t find full-time work (i.e., part time for economic reasons) and those who are marginally attached to the labor force. More than 1-in-6 young workers are underemployed, more than twice the rate of prime-age workers (17.8 versus 8.0 percent). More than 1-in-4 young black workers (27.4 percent) and nearly 1-in-5 young Hispanic workers (19.0 percent) are underemployed. As the economy continues to move towards full employment, these workers should see better and better opportunities for jobs, including full time jobs with higher wages and benefits.

Meanwhile, using data for the 2016 calendar year, we can compare how young workers fared across the country. The unemployment rate for young workers ranged from a low of 6.1 percent in New Hampshire and Utah to a high of 15.8 percent in New Mexico. Similarly, the underemployment rate for young workers varies across the country, with 1-in-10 workers in Nebraska (10.7 percent) to a high of 1-in-4 workers in New Mexico (25.7 percent). While the economy is steadily improving, it needs to be allowed to reach genuine full employment for the recovery to reach young workers as well as old and workers in states across the country.

Unemployment

State unemployment and underemployment, ages 16–24, 2016

State Unemployment rate Underemployment rate
Alabama 12.2% 20.4%
Alaska 12.2% 23.0%
Arizona 11.0% 20.0%
Arkansas 8.8% 16.0%
California 10.4% 20.7%
Colorado 6.7% 14.5%
Connecticut 10.7% 21.8%
Delaware 8.6% 16.0%
Washington D.C. 14.6% 22.9%
Florida 10.0% 18.7%
Georgia 13.5% 22.6%
Hawaii 7.1% 14.5%
Idaho 7.0% 14.1%
Illinois 14.3% 23.6%
Indiana 10.8% 18.5%
Iowa 7.2% 13.8%
Kansas 8.5% 16.5%
Kentucky 9.7% 19.3%
Louisiana 13.2% 20.9%
Maine 9.3% 18.1%
Maryland 9.9% 16.5%
Massachusetts 6.5% 15.5%
Michigan 10.7% 20.3%
Minnesota 8.1% 15.8%
Mississippi 12.8% 23.4%
Missouri 10.1% 17.1%
Montana 8.9% 15.9%
Nebraska 6.2% 10.7%
Nevada 9.8% 20.6%
New Hampshire 6.1% 14.1%
New Jersey 11.2% 20.4%
New Mexico 15.8% 25.7%
New York 10.5% 20.6%
North Carolina 12.5% 21.3%
North Dakota 6.2% 12.0%
Ohio 10.9% 18.8%
Oklahoma 12.2% 19.0%
Oregon 12.5% 23.4%
Pennsylvania 10.8% 19.5%
Rhode Island 11.4% 19.9%
South Carolina 10.6% 18.8%
South Dakota 6.8% 11.2%
Tennessee 10.1% 19.7%
Texas 10.2% 17.2%
Utah 6.1% 13.0%
Vermont 7.2% 14.8%
Virginia 9.4% 18.7%
Washington 12.4% 21.1%
West Virginia 13.6% 23.7%
Wisconsin 6.6% 13.1%
Wyoming 9.5% 16.3%

Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey data

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Given the indications we have that there are still workers who want jobs but cannot find them, and the lack of inflationary pressure from wage growth, the Federal Reserve should keep their foot off the brakes and let the recovery continue. Otherwise, we will fail to reach genuine full employment—where workers, young and old, and of any race can fully benefit from the economy by finally having the economic leverage to demand and receive raises from current or potential employers. The cost to these workers of prematurely declaring full employment and slowing the recovery far exceed the costs of waiting to restrain growth and allowing a brief period of above-trend wage and price inflation.