Friday’s jobs report will tell us how many new jobs were added to payrolls in February as well as the unemployment rate. Analysts will also closely watch for changes in the labor force participation rate, which measures the share of the population that is working or looking for work.
Today’s blog post focuses on youths (age 16-24) in the labor force. Notably, we find that, facing a tough job market, many youth have increasingly invested in developing their skills and education, which will make them more productive and help them earn more when they do re-enter the labor market.
Changes in the unemployment rate are often heavily influenced by changes in labor force participation. The labor force participation rate is defined as the percentage of people in the civilian non-institutional population (or a part of it) who are working or looking for work. Since the unemployment rate is defined as the percentage of active job seekers in the labor force, a decrease in the labor force participation rate can affect the unemployment rate whether or not the actual number of job seekers changes. We need look no further than the 1.1-percentage-point decline in the unemployment rate since its October 2009 high of 10.1 percent to see how changes in labor force participation can affect the unemployment rate, as the drop was due nearly equally to increases in employment and decreases in the labor force. Overall, since the recovery began in June 2009, the labor force participation rate has declined by 1.5 percentage points to 64.2 percent. An increase in employment is certainly good news for the economy. However, the effect on the economy resulting from changes in the labor force participation rate is more complicated, and no single narrative explains the exit of more than 1.5 million people from the labor force.
To better understand changes in the unemployment rate and the labor force participation rate, it is useful to examine changes in these measures for different cohorts. Today’s focus is on youth (age 16 to 24), a group that continues to face high unemployment rates (the labor market has gotten particularly tough in the recession as their jobless rate soared above 19 percent and still remains at 18.1 percent) and whose labor force participation has been shrinking over the past two decades. For many youth, time outside the labor force is anything but time wasted.
Last July, fewer than half of young people had a job, the lowest level since records were first kept in 1948. The flip side is that in October 2009, 70.1 percent of 2009 high school graduates were enrolled in colleges or universities, the highest level on record for the series, which began in 1959. So, while youth employment is hitting record lows, school enrollment is climbing. These are long-standing trends; nevertheless, the Great Recession likely accentuated them.
Many people choose to stay out of the labor force precisely because they are enrolled in school and wish to focus on gaining skills and preparing for future careers.
The monthly Current Population Survey measures school enrollment among people age 16-24, allowing us to examine the interplay between school and work. Human capital investment among people of all ages is a fundamental source of growth for our economy. Workers see education as the path to higher-income jobs, so it is not surprising that the data show that youth college enrollment rates have been trending upward for years. In 2010, 28.2 percent of people ages 16-24 were enrolled in college, up from 17.3 percent 25 years earlier. (See Figure 1. above)
The enrollment rate for young adults ages 19-21 in 2010 was roughly 50 percent. Although the trend has been upward, enrollment undoubtedly is sensitive to changes in the labor market. Anecdotal evidence in the recession pointed to a surge in college applications, and enrollment of 16-24-year-olds jumped 1.9 percentage points from 2008 to 2010. Since 1985, college enrollment rarely declined and the most pronounced drops occurred late in the 1990s and 2000s, during times of economic expansion when the jobless rate was quite low.
School enrollment and work force participation are not mutually exclusive, however, and there are instances where students [less so high school or full-time students] balance school with employment. In fact, labor force participation among part-time college students is nearly 80 percent, a few points higher than for youth not enrolled in school. However, participation is clearly lower among high-school and full-time college students than non-students. (See Figure 2. below)
As a result, rising enrollment rates have exacerbated a more generalized decline in the labor force participation of all youth. Between 1985 and 2010, overall labor force participation for 16 to 24 year olds declined by 13.1 percentage points to 55.2 percent. (The decline in labor force participation among high school students has been especially pronounced, having been nearly halved from about 41 percent in the mid 1990s to 21.9 percent last year.) If enrollment trends had not changed since 1985, participation would have declined by about half this amount, to 62.0 percent. The remainder reflects a more generalized decrease in the share of young adults’ labor force attachment regardless of their school enrollment. Various factors may have contributed to this decline, including increased focus on school and studying or increases in family wealth.
Thus, the historically difficult labor market that the recession created spurred even more youths to shift their focus from searching for a job to getting an education. However, for youths and the economy as a whole, there is an important upside to this trend. Education is vital to reach the President’s goal that the U.S. have the highest college graduation rate in the world with 5 million additional graduates by 2020. Reaching this objective means some youths will remain out of the labor force for a few additional years as they invest in developing the skills that will make them, and our country, more productive in the long-run.
Mark Doms, Chief Economist, U.S. Department of Commerce March 2, 2011