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Jonathan James |

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Jonathan James

Jonathan James is a former research economist in the Research Department.

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03.02.12

Economic Trends

Starting Off on the Wrong Foot: Early Careers and High Unemployment

Jonathan James

Younger workers typically face a higher rate of unemployment than their more mature counterparts. For example, in 2007, prior to the last recession, the unemployment rate for workers aged 30 to 54 was about 3.7 percent, while for workers aged 20 to 29 it was 6.5 percent. Since the recession, the situation has gotten worse. The unemployment rate for these younger workers has increased substantially, averaging about 13 percent. This 6.5 point increase was more than one-third larger than the increase for workers aged 30 to 54, whose unemployment rate has averaged about 8.5 percent over the same period.

The current challenges to finding employment raise serious questions about the prospects for young workers’ life-time earnings and career outcomes. Traditionally, the early part of one’s career is characterized by a period of rapid wage growth. On average, two-thirds of the wage growth experienced over people’s lifetimes occurs within the first 10 years of their careers. This large increase in wages is often attributed to new workers acquiring new skills as they gain labor market experience. With this thought in mind, it is important to investigate which subpopulations have been most affected by the last recession and to investigate the driving forces behind the changes.

Stratifying young workers by gender and education level shows which groups have been most affected by the recession. Males with at most a high school degree saw the largest increase in unemployment. Their unemployment rate went from 9.5 percent in 2007 to slightly more than 20 percent on average after the recession. Females with at most a high school degree showed a similar pattern but on a slightly smaller scale. Females with at least some college experience saw changes in their unemployment rate well below average, and males with some college incurred changes in unemployment similar to males aged 30 to 54.

Males with at most a high school degree represent about 25 percent of workers aged 20 to 29, while female workers with the same level of education comprise only 15 percent of this population. While those with high school degrees or less have been disproportionately impacted by job losses, it is the male workers in this age range who are responsible for most of the increase in the unemployment rates of younger workers.

Given the large secular decline in construction occupations that coincided with the 2007-09 recession, the driving force behind these very high unemployment rates for males is not surprising. Construction occupations are the primary entry-level job for young male workers, representing 23 percent of their total employment in 2007. Between 2007 and 2011 this fraction has fallen 7.8 points, to 15.9 percent. The sharp decline in construction employment accounts for more than two-thirds of the total decline in employment for young males with at most a high school degree and can explain about 80 percent of the change in their unemployment rate over this period.

Although unemployment rates have increased significantly for all workers, the rise in unemployment for young workers with high school degrees or less has been substantial. This is particularly true for males, whose predominant employment sector has contracted. Without a large shift to other types of employment, it is likely that these workers will continue to endure high levels of unemployment until construction jobs return. However, even if these jobs return, the effects of the recession during these formative years in what otherwise would have been a period of skill formation and productivity growth may continue to be felt throughout their careers.