Teenagers have been falling out of the nation's labor force for
years. Now, a particularly sharp drop in the number of teenage job hunters may
help explain an economic mystery: why the U.S. unemployment rate has remained so
low despite a sharp slowdown in growth.
At last count, about seven million of the 17 million Americans
between 16 and 19 years old were working or looking for work. That's 41%, down
from 43.5% a year earlier and well below more than 55% two decades ago.
Teens account for just 5% of the nation's workers, but the
decline in their participation in the labor force has reduced the number of
people looking for work -- helping to keep the unemployment rate a low 4.5%.
In recent years, the steadily declining share of working-age
people who are either employed or looking for work has been a distinguishing
feature of the U.S. economy, leading some economists to suggest the labor market
is weaker than the low jobless rate suggests. They say there may be lots of
workers on the sidelines, so the inflation-wary Federal Reserve needn't be
alarmed that wages are about to take off.
"It's still a relatively tight job market, but there's a bit
more slack than people recognize," says Jared Bernstein, an economist at the
Economic Policy Institute, a left-leaning think tank in Washington. "There is
definitely a margin there that could be tapped if need be."
Overall, the percentage of working Americans, which rose for
half a century, stood at 66% last month after peaking at 67.3% in 2000. The
decline is pervasive, cutting across all age groups, except those workers over
age 55, many of whom are confronting reduced pensions or inadequate retirement
savings.
In other words, the job market has softened. Instead of showing
up in the highly visible unemployment rate, it's reflected in the growing ranks
of those who aren't even looking for a job.
It has recently become clear that the phenomenon is driven to a
surprising degree by teenagers. Federal Reserve Bank of Chicago researchers said
in a study last year that two-thirds of the drop in overall labor-force
participation since 2000 was the result of teens staying out of the mix. This
allows the job market to soften "without striking fear into the hearts of the
core of the U.S. labor force," Goldman Sachs economist Jan Hatzius says.
Recent reductions in hiring -- especially among high-turnover
groups such as teens -- are less of a risk to economic growth than layoffs of
older workers, which would cut the income and spending of breadwinners and pit
adult workers against one another for the available jobs. The fact that
teenagers are absorbing the labor market's weakness means the Fed is less likely
to cut interest rates as "insurance" against a steeper slowdown, Mr. Hatzius
says.
One of the Chicago Fed researchers, Daniel Aaronson, speculates
that there may be "fundamental change" in teenagers' behavior. The financial
returns from a college degree increased throughout the 1980s and 1990s. Younger
people could have been "seeing these financial incentives and responding to
them" by staying in school, Mr. Aaronson says.
Economists say the most significant factor in the decline in
teenagers working -- or looking for work -- is higher school enrollment. That
augurs well for their future earnings and the nation's capacity to prosper in an
increasingly competitive global economy.
But that's just part of the story. For other teenagers, the
prognosis isn't as pleasant. They may have given up looking for legitimate work,
or never really tried. For some teens, it may be "a choice which was kind of
imposed," says Abraham Mosisa, an economist at the federal Bureau of Labor
Statistics. Teenage unemployment -- which measures only those who say they are
actively looking for work -- increased sharply to 15.7% last month from 14.1% a
year earlier.
Many teenagers are competing for low-wage jobs with illegal
immigrants and other lower-skilled workers, such as single mothers who have been
pushed off of welfare over the past decade, Mr. Mosisa says. Some employers may
prefer workers with experience over younger workers who might be working
part-time while still in school.
Mr. Bernstein of the Economic Policy Institute says the
prospects for many teenagers reflect the state of the overall job market, with
teens serving as a kind of "pressure valve" for the labor pool. "You can't just
explain this away by saying kids don't feel like working," he says. "Some of
this is due to diminished opportunities."
That means if economic growth increases, the trend could shift
into reverse, drawing teens back into the work force without pushing down the
unemployment rate.
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