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The Great Squeeze Continues to Hit Young People

By / 9.5.2014

The latest jobs numbers, along with new research from the Federal Reserve and Brookings, reaffirms what I’ve been writing for some time: the Great Squeeze in labor force participation is hitting the young and least educated the hardest. Further, the conclusion that this drop is a structural problem bolsters my argument that both a slow-growth economy and a workforce skill mismatch are to blame, instead of simply higher rates of school enrollment. This has big implications for what policies will – and won’t – fix the problem.

The new joint Brookings-Federal Reserve study takes a deep dive into the troubling fall in the labor force participation rate for young people aged 16-24 since the mid-1990s. The study concludes that:

“some crowding out of job opportunities for young workers [is] associated with the decline in middle-skill jobs and thus greater competition for the low-skilled jobs traditionally held by teenagers and young adults”

I’ve been writing about this for two years – calling this phenomenon the “Great Squeeze.” The premise of the Great Squeeze is simple: the slow-growth economy, coupled with a skills mismatch, is forcing more college graduates and experienced professionals to take lower-skill jobs for less pay. This is hitting those with less education and experience the hardest – young people, who are being forced down and out of the labor force.

That’s why we still see historically high numbers of young people neither enrolled in school nor in the labor force, particularly during the summer. In fact, the latest numbers for July show that more than 8.1 million people aged 16-24, 4.9 million of whom were teenagers, were neither enrolled in school nor in the labor force. This is 1.8 million more young people than in July 2000, and still 1.3 million more than in July 2007.

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Importantly, the new Brookings-Fed paper makes it clear that most of this problem is structural – that is, it is a long-term problem as opposed to a temporary effect of the Great Recession. This can certainly be seen in the latest data, where the labor force participation for teenagers not enrolled in school during July has dropped from 67 percent in 2000 to 50 percent in 2014.

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The structural nature of the Great Squeeze has significant implications for policy. First, it suggests that some of the problem stems from employers not creating enough middle-skill jobs. In other words, the slow-growth economy of the last decade has left a large amount of young college graduates underemployed. That calls for a pro-growth, pro-investment agenda, which we will outline in a forthcoming PPI paper.

Second, it suggests there is a workforce skill mismatch, particularly for young underemployed college graduates. This will not be solved by maintaining the current postsecondary education system, or funneling everyone into four-year college degrees. New research also out from the Fed demonstrates that a Bachelor’s degree is not the right investment for everyone, with a quarter of college graduates earning the same salary as those with a GED. Instead, we need more public-private partnerships in higher education, and viable, employer-driven alternative pathways into the workforce.