posted on June 20, 2007 08:17:40 AM newTeenagers 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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