No Country for Young People

Weak Hiring Hits the Youthful

This piece represents some ideas I’ve been noodling on. I view a lot of the conclusions here as tentative and evolving… feedback welcome.

TL;DR: The cooling in the labor market over the past few years has hit young people particularly hard.

Table of Contents:

1. Context

2. The Increase in Unemployment Among “the Youngs” Is Driven by Entrants & Re-Entrants

3. School Completion Is Probably Playing a Role

4. It’s Happened in the Past

More below chart.

1. Context

An interesting feature of the current labor market: unemployment is low and employed people are at low risk of layoff, but it’s tough to find a job. The current hiring rate is at 3.4%, comparable to where it was in 2013 and early 2014 (around when the unemployment rate was just over 7%).

When you think of groups that experience particularly adverse consequences in this kind of environment, two come to mind. The first is the small but ongoing stream of Americans who are unfortunate enough to lose a job, and need to find a new one. The other, which I’ll be focusing on, is the subset of people who are entering the workforce “for the first time”.

Interpreted narrowly, this only includes the BLS’s definition of “new entrants” - people who are actively looking for work and have no work experience. A supermajority of new entrants - more than 3 out of every 4 - are under the age of 25. They used to skew even younger; their median age was 17-18 about 30 years ago, but now hovers around 19-20.

The drift upward in new entrant age is a function of rising educational attainment. But it’s still the case that a super-majority of new entrants are people with just a high school diploma and no college. In other words, lots of folks who have tertiary education (even if it’s not a degree) are not, strictly speaking, “new entrants”.

Therefore, for the rest of this writeup I’ll also be looking at outcomes for re-entrants ages 20-24, particularly for those who have at least some college education. A lot of these folks are, functionally, new entrants even if they don’t qualify for the BLS definition, though the grouping is probably a little too broad.

2. The Increase in Unemployment Among “the Youngs” Is Driven by Entrants & Re-Entrants

Over the past 18 months, unemployment has risen modestly, by less than a percentage point. Most, but not all, of that increase can be attributed to the job loss.¹ New entry and re-entry have accounted for less than half of it. But this decomposition of unemployment is not uniform by age.

For younger workers, ages 16-24, the increases in unemployment have been substantially larger than for prime age workers, and much more dominated by a surge in new entrants and re-entrants. The new entrants are self-explanatory - these are young people looking for work for the first time; the young re-entrants are probably folks re-engaging for work after finishing school (or while on break). And weaker hiring is impacting them disproportionately.²

One rejoinder is that the recent, massive wave of immigration has been on the young side; those folks are more likely to be looking for work than people who are already here, and are more likely to be new entrants and re-entrants. There’s probably some truth to this, but I’ll share evidence later in this piece which suggests it can’t be the entire explanation. I’ll also add an important point: if current hiring is insufficient to absorb a large increase in unemployment among the young, that’s a problem on its own, regardless of what’s happening on the supply side.

3. School Completion Is Probably Playing a Role

Thanks to a nudge from Joel Wertheimer, during 2024 I started looking regularly at unemployment rates for people in their early 20s. Unemployment has gone up for these folks by a non-trivial amount over the past year and a half. But the increase for people in their early 20s with a BA started earlier; moreover, while the increase in unemployment rates for lower-educational-attainment early-20-somethings brings them back to 2017-19 levels, unemployment for younger folks with BAs is as high as it’s been at any point since 2015 (with the exception of the pandemic).

I initially attributed this to the slump in white collar employment (which some people characterize messily as a “white collar recession”). But there is an alternate explanation. People in their early 20s with BAs are much more likely to be starting their careers than those without a BA; people with only a high school diploma may have been working for several years (and as many as 7).

To detect the effect of weak hiring on folks with a diploma but no tertiary education, we have to look at teenagers. And there, lo and behold, the hiring effect is quite obvious. For people in the 18-19 age group, the unemployment rate has averaged 14.3% over the past year, around where it was in the summer of 2017. For those ages 20-24, the increase has been modest and brought us back to where we were in late 2018.

Returning to college grads, the evidence is a mix of weak grad hiring and a slump specific to the highly educated. Unemployment rates are worse than the late 2010s for each age group, but particularly bad for people ages 20-24.

For what it’s worth, younger folks are not just experiencing rising unemployment - job search has gotten (a little) longer. Duration of unemployment has gone up for unemployed ages 16-24, but the increase has been larger for re-entrants and especially new entrants. For new entrants, we’re now close to the pandemic peak and past the worst of the COVID pandemic.

4. It’s Happened in the Past

The “Great Stay” has been unusual: hiring has fallen by 26%, almost by as much as it did in the Great Recession, but without an actual recession and only a modest increase in overall unemployment.

Nevertheless, declines in hiring unaccompanied by rising layoffs are not unusual - in both 2000-01 and 2006-08 they happened during the pre-recessionary and early recessionary periods. And in those eras, too, younger folks entering the workforce (or re-entering it after a period of school enrollment) were adversely impacted by weak hiring even as older folks (initially) remained insulated by low layoffs.

What was different during those periods is they were followed by widespread pain, including to older workers who experienced layoffs (especially during the 2008-09 recession’s later, more severe phase). This time, it may be that we get lucky in the sense that we avoid recession - so older workers shrug off weakness even as younger ones struggle, and possibly for an extended period.

1. This is mostly due to an increase in unemployment due to permanent layoff, but increases in unemployment due to temporary layoff and due to the ending of temporary jobs have also played a small role.

2. In my opinion this also casts some doubt on the thesis that the recent increase in re-entrants primarily reflects folks who lost their jobs, stopped looking and have since resumed. Some of this may be going on but it’s not playing a big role at present.