William J. Polley

Why would you use the 16-19 group as your "staying in school during bad job market" group when for most of those people, the "school" is high school, not college? I don't recall an epidemic of students dropping out of high school to take dot-com jobs, do you?

I know this will not be popular, but perhaps the drop in the teenage participation rate is because of the drop in the real minimum wage.

It makes sense and agrees with economic theory--
you lower the price and get less supply.

Over time there has been a strong relationship between teenage participation and the real minimum wage.

Increasing value (or perception thereof) in education and a lower real minimum wage are certainly primary factors.

Another possible factor is demographic trends. The Baby Boomer cohort has been in its prime earning years since the 1990s, and the oldest Boomers are retiring now. The "echo Boombers" or "Gen Y" children born in the 1980s and 1990s. These two age cohorts represent the biggest two demographic slices of the U.S. population.

Gen Y has parents with the highest levels of income at present. So why should they get jobs? Mommy and Daddy will pay for a car so they can stay after school for sports practice, or go to the mall. Unfortunately, I don't think U.S. Census or other sources provide data to test this hypothesis.

The main reason for teen employment has been to pay for a car. If their parents are now paying for it, or paying their teens who pay for it, one can expect much lower levels of employment among them. If this is the bulk of lower participation, than so much for the theory of greater educational investment then.

M1EK,

Here's a link from my post back in May.

http://www.cbo.gov/showdoc.cfm?index=6017&sequence=0

Minimum wage was mentioned back in May when I did the first post--but in the context of increases in the minimum wage that would have been expected to decrease the quantity of teenage labor demanded (for past episodes--the federal minimum hasn't changed since 1997, I belive). Here, Spencer is arguing that declining real minimum wages contribute to lower labor supply.

If that were the case, there would be no reason to expect it to be coincide so perfectly with the decline in e/p for the 20+ age group. Why didn't e/p start declining earlier when inflation was higher and the real wage was declining more rapidly than in the 2001-2004 period?

"American bond investor" raises an interesting point. Perhaps Gen Y is different. In the time since the recession, a whole group has transited in and out of the 16-19 cohort. Was there a shift that coincided with the recession? I'm hesitant to claim that there is because it is very difficult to entangle it from the effect of the recession. Your comment about the difficulty in testing this hypothesis is also important.

I'm still stumped.

Professor: In general, employment growth has lagged previous recoveries - but when I look at retail employment over the last few years, it has really been anemic.

At first blush, this is surprising. Consumer spending and retail has lead this recovery (from a GDP prespective), and still there has been very little retail employment growth. Perhaps this indicates much of the productivity gains over the last few years has been concentrated in retail (like internet sales, and self checkout at Home Depot, etc.).

I suspect most teens get their start in low paying retail jobs - so the lack of these jobs might be part of the reason for the lower participation rate. Frequently work is a choice for teens (they can sponge off their parents), and the inability to find a job might delay their entry into the work force.

Just a thought ...
Best Wishes.

Maybe these are the weakest members. The men and women in the previous charts may be displacing the teenagers in marginal jobs because they can't find anything better....(?)

CR,

That could be part of it. Your suggestion addresses a key part of the puzzle, namely that inability to find a job delays their entry into the workforce.

But take a look at the retail employment and service producing employment figures since before the 1990-91 recession. The recovery in retail looks marginally weaker than in 90-91, but the recovery in the service producing sector looks marginally stronger (I haven't crunched the numbers--these are just eyeball impressions). Wouldn't young people adjust from retail to services if that's where the jobs are? This doesn't seem to explain why teenage e/p has behaved so radically different compared to the 1990-91 recession.

That's the real issue: Why has the recent labor market picture for teens been such a departure from previous recessions?

Maybe it's senior citizens working longer? They would take jobs normally taken by teens - displacing the teens.

A couple of points on the minimum wage.
It is not a short run fit, but in general the real minimum wage rose from 1960 to 1980 and teen participation rates rose. both have since fallen on a trend basis.

The other point is the growth in other sources of minimum wage employment through immigration and welfare reform that created a rise in the number of minimum wage workers. So there may be some competition issues here.

Well, spencer, the fact that the long run story is consistent but the short run story is not suggests that there could be some hysteresis effect.

Worth pondering.

Prof: I just looked at some numbers ... at this point after the '91 recession (just over 4 years), the economy had added 8.42 million jobs, 905K in retail. For this recovery, since Nov '01, the economy has added 3.68 million jobs, only 150K in retail. So retail job growth was weaker than in '91.

Retail has been running about 11.5% of all non-farm jobs, so the '91 recovery was normal. Its the '01 recovery that has an unusually low percentage of retail jobs.

As you point out, the numbers show that Service excluding Retail has been reasonably strong in this recovery. After '91, service ex-retail added 6.24 million jobs; after '01 service ex-retail added 3.86 million.

Your Q: "Wouldn't young people adjust from retail to services if that's where the jobs are?"

My guess is other service jobs require slightly higher skills than retail - but that is just a guess. But I think these numbers lend support to my suggestion - the drop in 16 to 19 e/p might be related to productivity improvements for retail employment.

Best Wishes.

Retail is flagging even with all those Wal-Marts going up....

Wasn't it the recovery after the 1990-91 recession that brought the first big wave of Wal-Marts? Look at retail in 1994 and then someone tell me how many Wal-Marts, Old Navys, and so on went up.

Retail might explain some of it. But what about manufacturing? Is the decline of teenage e/p really a story of declining manufacturing? Before you dismiss it, consider this: When manufacturing was at its height an 18 year old with a high school diploma could make a good wage for many years with the security of a union contract. As manufacturing contracts, it's not exclusively the young workers that lose their jobs. The outflow or workers cuts across all ages, but the inflow of younger workers into the sector should slow, perhaps significantly. Something like the dramatic contraction of manufacturing in absolute terms would show up a lot more than differences in the growth rates of retail or services.

This explanation might actually make sense if it is true that the typical manufacturing worker starts looking for a job in that sector as a teenager. We're looking at a dynamic process of contraction over time. Before long, that has to show up in the intake into the system.

Thoughts?

William, love your blog and post.

One word: immigration.
I don't have all the numbers, but if you look at the trends it may answer some of your questions.

Rerun for immigrate population workforce participation. Make sense?

Most of the lower paid jobs (manufacturing, retail, services, agriculture...) are being filled by immigration. Thus native born children are waiting to enter the work force hopefully with better skills to compete internationally.

I believe that immigration has always allowed the US to raise up and create a stepping stone to higher levels. Just as the influx of immigrants led to a strong industrial base, the new ones will allow us to expand into new areas.

Ronald,

Immigration is worth looking at. Thanks for the kind words. Glad to have you as a reader and commenter.

Immigration flow is one of the main trends in the labor market.