On June 8, the Business Cycle Dating Committee officially declared that the United States entered a recession in February. Young workers are typically hard hit in recessions, and research suggests that entering the labor market during a recession has a negative impact on future earnings and job prospects. In this post we examine the labor market experience of young workers since the onset of the pandemic and provide some thoughts on policy implications.
Senior Associate Director, Division of Research and Statistics - Federal Reserve Board
Former Research Analyst - Economic Studies
While the aggregate unemployment rate increased by 11.2 percentage points between February and April of this year (the local peak), unemployment rates among young workers increased by much more. For example, over the same time period, the unemployment rate for those aged 16-19 increased by 20.9 percentage points. The result is that while young people age 16-29 make up less than a quarter of the labor force, they accounted for about a third of the rise in the unemployment rate between February and April of this year. We also find disparities among young workers by education and by race, with Black and Hispanic workers and workers with lower levels of education experiencing larger increases in unemployment rates between February and April compared to white and college-educated workers. Moreover, we find that while between April and July the unemployment rates for young white1, and to a lesser extent Hispanic, workers have retraced a good part of their initial rise, the unemployment rate for young Black workers remains particularly elevated and was little changed in June and July.
That young workers have experienced a greater rise in unemployment during the recession is not surprising, as this is typically the case. However, the extent to which young workers are bearing the brunt of the downturn is unusual. This is partly attributable to the fact that, as is typically the case, younger workers were more likely to be laid off in both April and in May2, within industries, compared to their older counterparts. Moreover, this pattern has been exacerbated by the fact that, prior to the pandemic, young workers were more likely to work in service industries that were heavily impacted by social distancing policies required to slow the spread of the virus and reductions in consumer spending.
LABOR FORCE STATISTICS BY AGE:
Figure 1 shows the unemployment rate for five groups by age: 16+ (the aggregate unemployment rate widely reported in the media), 16-19, 20-24, and 25-29. As shown, the aggregate unemployment rate rose 11.2 percentage points between February and April (the local peak). Meanwhile, the unemployment rate for the young increased by about 13 percentage points on average, with the largest increases occurring among the youngest workers. Between April and July the unemployment rate for the young decreased by an average of about 7 percentage points while the aggregate unemployment rate decreased by 4.5 percentage points; although, the unemployment rate for young workers in July still remains 7 percentage points higher, on average, than the aggregate.
However, the pandemic unemployment rate has understated the extent to which workers are losing jobs, as more of those who have lost jobs have chosen to drop out of the labor force than is typically the case during a recession. Our analysis suggests that this dynamic has been particularly prevalent among young workers. Figure 2 displays the labor force participation rate for these same age groups. While the aggregate labor force participation rate decreased by 3.2 percentage points between February and April, the labor force participation rate for those between the ages of 16 and 29 dropped by about 6 percentage points on average. Moreover, these declines were much larger proportionally and relative to the rise in the unemployment rate, and they have been more sustained. Since April, the labor force participation rate for those between the ages of 16 and 29 has increased by an average of about 1.5 percentage points, similar to the increase in the aggregate.
LABOR FORCE STATISTICS BY RACE AND BY EDUCATION:
Overall, the young have been hit hard by the recession, but the impact also varies by race/ethnicity and education. Figure 3 shows the unemployment rate since the start of the recession for young white, Black, and Hispanic workers. The unemployment rate rose more for young Black and Hispanic workers between February and April3. Between April and July, young white and Hispanic workers started to make up ground, as their unemployment rate declined by an average of about 7 percentage points. However, unemployment rates for young Black workers only declined by about 2 percentage points.
The disparities by education are also stark. These data, which are reported only for those over the age of 25 (by which time educational attainment is largely complete) show that the unemployment rate for those with a high school degree or less and for those with some college education rose by more than twice as much as for those with a college degree or more between February and April. Interestingly, since then, the unemployment rate for those with less than a college degree have come down—likely as the industries in which they work have recovered—while the unemployment rate for those with a college degree has been fairly flat. That said, the unemployment rates for these lower skilled workers, especially those with a high school degree or less, remain higher than those with a college degree or more.
RECENT UNEMPLOYMENT BY INDUSTRY:
These results raise the question of why young workers have lost their jobs at much higher rates. The left panel of Figure 5 shows that between March and April, young workers were more likely to be laid off than older age workers in almost every industry, although in a few cases the differences are quite small (and the same dynamic is true between April and May). The differences are especially pronounced in mining, information, wholesale and retail trade, information, education and health services, leisure and hospitality, and other services sectors4. These dynamics are similar to those typically observed during a recession. Employers may be more likely to layoff young workers for a variety of reasons, which depend on the culture of the industry, the nature of the work, and the cost structure. For instance, firms may have policies of firing the most recent hires first, as a way to retain the morale and support of long-time workers. In industries that require significant firm-specific knowledge, young workers with lower tenure would likely have less of this, which would make separating them from the firm less of a loss.
However, the pandemic appears to have introduced an additional economic challenge for young workers. As the right panel of Figure 5 shows, in February, prior to the significant decline in economic activity due to the pandemic, young workers were significantly more likely to be working in many of the hardest hit industries, including leisure and hospitality (17.5 percent) and wholesale and retail trade (16.5 percent) compared to their older counterparts (7 percent and 10.8 percent respectively). These industries are not especially sensitive to economic downturns, so this is a dynamic that is unique to the pandemic and is different from a typical recession.
POLICY IMPLICATIONS & DISCUSSION:
In this post we provide evidence that the labor market prospects of young workers have been particularly hard hit by the current economic downturn, and this is especially true for young Black and Hispanic workers and young workers with lower levels of education. Our findings are consistent with research done by our colleagues in the Metropolitan Policy Program who find that the most vulnerable workers are disproportionately young and have less formal education.
The particular economic vulnerability of young workers right now points to the need for policy support. To some extent, young workers benefit from the same policies that that aid the wider public. For example, as young workers tend to spend a higher proportion of their income on rent5,they would disproportionately benefit from an extension of the federal eviction moratorium in the next relief package. However, policymakers should also take into consideration the special circumstances of young workers. For instance, simply extending federal unemployment insurance benefits will not provide enough financial support for young workers. Congress must also continue to waive work history requirements, since many young workers have short work histories or are just entering the labor force and would therefore be ineligible for UI benefits otherwise. Similarly, a portion of young college graduates did not receive stimulus payments6—a small but significant omission that policymakers should take into account, if they do another round of payments to households.
But the problems young workers currently face go beyond an immediate economic need. The jobs young workers hold are important stepping-stones in their careers, allowing them to learn valuable work skills and make connections, which can improve their future employment prospects. To the extent that industries such as retail trade, and leisure and hospitality undergo significant transformations in response to the pandemic, some young workers might find that traditional pathways into the labor market are unavailable.
For those who get a college degree, research suggests that graduating during a recession can leave a lasting imprint. For instance, nearly 1/3rd of college graduates who entered the labor market during the Great Recession ended up in jobs that did not require a college education. Although this is often a temporary phenomenon, it can have long-lasting implications. For example, research shows that college graduates who have the lowest predicted earnings (based on college and major) suffer the most during a typical recession: experiencing a loss of 8 percent of cumulative earnings in their first 10 years.
All this means that, as we look beyond the pandemic, young workers will need added support to make sure that they are integrated into the labor force.
Becca Portman contributed to the graphics/data visualization for this blog.
- We define white/Black as those whose race is white/black and whose ethnicity is not Hispanic. We define Hispanic as any race with Hispanic ethnicity.
- Although we don’t display a figure showing these results. We did run the same analysis for May; the results were similar to April.
- Note that the unemployment rate for young Black workers was increasing before February of 2020. This increase in the Black unemployment rate is unlike the other two groups whose unemployment rates hit a low in February of 2020.
- We calculate the short-term unemployment rate from the Current Population Survey by counting the number of people in an age group and in an industry who became unemployed since the last survey and divide this number by the total amount of people employed and unemployed in that age group and industry. An unemployed person’s industry is the industry in which they were last employed.
- Note that the young group showing up as especially rent-burdened in the linked ACS table includes a range of different household types with differing financial circumstances.
- This group consists of students whose parents claimed them as dependent on their 2019 tax returns, but who graduated in December of 2019 and started to look for work right before the downturn.