A Lost Generation?

By Robert Samuelson

This is not a good time to be starting out in life. Jobs are scarce, and those that exist often pay unexpectedly low wages. Beginning a family — always stressful and uncertain — is increasingly a stretch. The weak economy begets weak family formation. We instinctively know this; several new studies now deepen our understanding.

When the labor market operates smoothly, it creates an economic escalator. Just out of high school or college, young workers typically switch jobs frequently until they find something that fits their talent and temperament. Job changes often mean higher pay; people move to advance themselves. The more they succeed, the more confident they feel in marrying and having children.

The most startling evidence of the broken escalator is the collapse in marriages and births. Marriage has been declining for years. Now, in a new study, the Pew Research Center finds that in 2011 the U.S. birth rate (births per 1,000 women between the ages of 15 and 44) fell to its lowest level since at least 1920, the earliest year of reliable statistics. From 2007 to 2011, the U.S. birth rate dropped almost 9 percent. The total fertility rate — the estimated number of children born to adult women in their lifetime — has fallen four straight years to 1.9 (the replacement rate is 2.1).

States with large economic setbacks suffered steeper birth rate drops, Pew says. Interestingly, births to immigrants fell more sharply than for native-born Americans. In 2010 — the latest detailed data — they dropped 13 percent from 2007 compared with a 5 percent decline for native-born women. Hispanics, both foreign and U.S.-born, had big birth-rate declines, reflecting (Pew said) exceptionally high unemployment and wealth losses from the recession.

The bleak labor market has hurt all age groups, but none more than the young. Consider the 23.4 million Americans who, on average, were considered “underemployed” over the past year. This group consists of 12.7 million officially unemployed; 8.2 million working part time but wanting full-time jobs; and 2.5 million desiring work but so discouraged they’d stopped looking. Of all these workers, 41 percent (9.5 million) were 30 or under, far in excess of their labor force share of 27 percent, reports Heidi Shierholz of the Economic Policy Institute, a liberal think tank that provided these numbers.

Fully one-fifth of younger workers belong to the “underemployed.” As Shierholz notes, the young always have higher unemployment rates. It’s just worse now. “Young workers are relatively new to the labor market — often looking for their first or second job — and so may be passed over in hiring due to lack of experience,” she says. “If employed, their lack of seniority makes them candidates for being laid off.”

But it’s more than the lack of jobs — or full-time jobs — that hurts the young. Wages have also sagged because too many applicants are chasing too few openings.

Traditionally, U.S. labor markets have featured enormous turnover: Workers voluntarily leave jobs or are fired. Job changes vastly exceed net job creation, as hires often fill slots that someone else just left. On the whole, this has been a good thing, argues a new study. Workers can often find a better-paying job. But this “churning,” as the study calls it, is abating. Because employers are creating fewer net new jobs, workers won’t give up the ones they’ve got. As the labor market freezes up, the young lose bargaining power.

“Because job change accounts for a substantial portion of earnings growth, especially for younger workers, this decrease in churning reflects a decrease in workers’ opportunities for [higher wages],” write the study’s authors, economists John Haltiwanger of the University of Maryland and Henry Hyatt, Erika McEntarfer and Liliana Sousa of the Census Bureau.

The glut of job seekers depresses wages in a second way, argues the study. New firms — which create a disproportionate share of new jobs — don’t have to pay as much to hire. In 2001, workers at firms 10 years old or less earned 85 percent as much as workers at older firms. By 2011, they were paid only 70 percent as much. And these newer firms matter. From 1998 to 2011, they created 40 percent of net new jobs despite representing only 25 percent of total employment.

It’s usually a mistake to generalize about entire generations. The bad luck and bad timing of today’s 20-somethings may pass. Birth rates could bounce back. “In the past, women who have postponed births make up for it later,” says Pew’s D’Vera Cohn. The economic recovery may strengthen; the retirement of baby boomers will create new job openings; and surveys indicate the young remain optimistic despite setbacks.

So the economic escalator may again accelerate. Still, the question nags: Could this become a lost generation?

Samuel Roberson is economist for WAPO and Real Clear Politics

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