Give them drive by making them drive
Youth participation in labor markets is vital to a healthy economy
When you take a step back and look at things with some perspective, it is amazing how quickly everything changes. I grew up in a time that I'd like to think wasn't so long ago, but technologically it was light-years ahead of where my parents grew up and light-years behind today's youths. So indulge me as I go full Luddite and examine the eras and how the more things change, the more those changes (possibly) destroy labor markets!
It was the summer of 1993. Upon turning 16 the previous winter I had gotten my driver's license and it was time to get a job! There was something empowering about working and earning my own money. Even though the first few jobs that I held were at or just above minimum wage, they provided me the ability to indulge in some of the niceties in life without having to ask others to pay for them.
The first summer I worked at a snack bar in a local museum and the local newspaper's sports department. The following summer I would get a job at a local amusement park which was significantly further from my house, but allowed me to work many, many more hours. During summers I would regularly log 60-70 hour weeks. Winters were populated with short term Christmas style employment to fill the gap until the amusement park re-opened and my financial spigots would be turned back on.
The technology of the era wasn't anywhere near today's standard. There were no smart phones. There were no cell phones (well, at least not for those of us working for $4.40 an hour). The great technology of my working youth was a pager. When I felt a buzz on the device clipped onto my waist, I would look at the number displayed on it and get to the nearest payphone to call 1-800-COLLECT, placing a collect call to the number that appeared. In retrospect, I probably should have carried around a quarter or two!
My social circle was the friends I worked with. Gossip was shared person to person and not via an app. Work not only provided a monetary incentive, it was also empowering, fun, and taught me a lot about working in the real world. It was certainly of more value to me than some of the classes I was taking in school.
So what has changed? Why does it seem like less and less of the younger generation wants to work? Why don't they even seem to yearn to drive as much as I did in my youth? What are the impacts of this societal change on our economy writ large? And what can be done about it?
Clearly there are many factors that play into these things. There most likely isn't a single explanation. Likewise, there will not be a silver bullet. But let's theorize on why today's youth would be less inclined to work. Why would they increasingly forgo attaining the one thing that vastly expands one's mobility, a driver's license.
From the early 1970's to 2001 the labor participation rate of those from ages 16-19 in the United States had stayed relatively high. Seasonally adjusted it was over 50% and during summers the percentage working would regularly climb to over 60%. Since that time the rate has fallen precipitously. The rate of employment in that age group is now around 35% in that age group. This is a dramatic drop in participation rate for this age group that is unprecedented (prior to 2000, this rate hadn't dropped below 44% since 1948).
What happened in the early 2000's that may have precipitated this dramatic decrease in this group? Well, if you lived through the late 90's and early aughts one of the ubiquitous items from this era was the America Online (AOL) Free Trial CD. No matter where you went in this era you were sure to see a stack of these. Heck, you had them sent to your house all the time as well. This was the true dawning of the internet era.
I suspect that the overlapping of this moment and the decline of the youth workforce participation rate are no coincidence. The internet of the time was glacial compared to today's speeds. The sites were rudimentary. There was no true social network (MySpace was still years away). It was not the crack/cocaine hit of today. But it offered the ability to remotely connect with people. It offered chat (AOL Instant Messenger and Yahoo Instant Messenger). And to technologically savvy teens living in that world it was becoming increasingly more attractive to live and interact in that world than going out to work in the real world.
Over time the internet matured and its addictive nature increased dramatically. Friendster begat MySpace. MySpace begat Facebook. YouTube. Twitter. Snapchat. TikTok. Speeds went from painful to nearly instantaneous. Access went from a single common computer in the house to the iPhone or Android device in your pocket.
Social networks migrated from in-person to online. And with that the younger generation migrated online as well. Now rather than gaining a social circle by going to work, you were being isolated from your online social circle by being at work. Thus younger generations, who were subsidized by their parents, were less and less inclined to join the workforce. It's purely conjecture, but the rise of social networks and the decline of the youth labor force appears to be strongly correlated. And that lost labor force has yet to return. It appears that the participation rate has levelled off in the mid-30% range since 2009.
One of the issues with this precipitous drop in labor participation is that these members of the workforce are heavily weighted in the service industries. They are generally in relatively low-wage unskilled or low-skilled positions. These are fast food employees. They are grocery store clerks. They are hospitality employees. And when those employees are no longer there, those positions must be taken by older employees. And we can see this filling of the gap in the data as work force participation in the 55+ age group was consistently rising during this same period where youth participation rates were falling.
Covid-19 then sent a shockwave through the system. Lockdowns in many western countries shuttered businesses and reopening those businesses has proven to be extremely challenging. One of the challenges is getting employees to fill the positions that were vacated during lockdowns. And in this case, because the mortality costs of covid-19 were predominantly felt in older demographics, they have subsequently been less rapid to return to the workforce. They are no longer sufficiently filling the gap created by the lowered youth participation rate as they once were.
Note that the labor force participation rate of the 55+ demographic has not returned to pre-lockdown levels.
This likely explains why these shocks are being felt throughout the western world and not just in the United States. The workforce was skewing older and covid-19 took a significant portion of older workers out of the market without a subsequent increase in the youth labor market. In the delicate dance that is the labor markets this can prove to be catastrophic. These systems are somewhat self adjusting over time, but a shock event may take years to return the labor market to an equilibrium.
In the United States we are just now reaching a level of parity with the number of people employed when compared to pre-pandemic levels, but the amount of jobs available has continued to grow creating a large gap in labor available and labor opportunities.
And these gaps have significant costs. With large labor gaps come wage wars where employers fight for the few employees available. Turnover becomes a large issue for employers as their employees look to take advantage of the rising wages. Rising wages become a source of inflation as they are a large portion of costs for many service industries and these costs inevitably get passed onto the consumer. And each of these elements feeds the others.
So is there a way out of this mess? In the short term, I don't see a quick fix on the horizon. Increases in interest rates will make money more expensive to borrow and will have a suppressing effect on rising wages and any expansions. When money becomes harder to access, the inevitable outcome is that wage increases will become less plentiful. Many businesses may cut employees in this environment. This will obviously hurt those employees affected, but the silver lining is that a shrinking labor market probably helps employers as there will inevitably be more workers available. If these outcomes sound less than ideal, well, that's what a recession looks like. These corrections are not fun.
And to be clear, I do not believe the above stated reason is the only reason for our current workforce deficit. I believe there are many factors. Unemployment insurance that was requested by many as a necessity of surviving government enforced lockdowns likely broke through the stigma and shame many felt when requesting government assistance. Asking for assistance the second, third, or hundredth time is nowhere near as difficult as doing it the first. Lax enforcement of restrictions to access these government welfare programs leads to abuse allowing people to stay out of the labor force. Also gig economy jobs may be taking a significant portion of the youth workforce from the service economy. But these are issues we can address at a later point.
Longer term there needs to be a societal shift in work habits trending closer to our previous status quo. That will likely have to come from within the homes. Once children are at a working age they should be incentivized to join the workforce in some capacity. I suggest that motivation should be that they purchase their own smartphones. Purchase their own data plans. Have them earn the privilege of these modern distractions. Get a driver's license. Get a car. Get a job to pay for these things. Not only will our next generation learn valuable life lessons from being in the workforce, they'll also learn to value these items they have earned rather than been given. And, as a useful side effect, they may also help solve one of the great crises we face in the western society right now, a labor force that is meeting the labor demands of society.