Steven Hill and Youth Unemployment

Stephen Hill had a piece today on Project Syndicate explaining what he called “The Mirage of Youth Unemployment.” The central premise can be explained in one of his examples:

The problem stems from how unemployment is measured: The adult unemployment rate is calculated by dividing the number of unemployed individuals by all individuals in the labor force. So if the labor force comprises 200 workers, and 20 are unemployed, the unemployment rate is 10%.

But the millions of young people who attend university or vocational training programs are not considered part of the labor force, because they are neither working nor looking for a job. In calculating youth unemployment, therefore, the same number of unemployed individuals is divided by a much smaller number, to reflect the smaller labor force, which makes the unemployment rate look a lot higher.

In the example above, let us say that 150 of the 200 workers become full-time university students. Only 50 individuals remain in the labor force. Although the number of unemployed people remains at 20, the unemployment rate quadruples, to 40%. So the perverse result of this way of counting the unemployed is that the more young people who pursue additional education or training, the higher the youth unemployment rate rises.

The article is basically specious logic target practice. Let’s take the concluding paragraph from the above quote. We are led to believe, I suppose, that there are 30 jobs available for these 200 workers, but then immediately afterward are told that if the 150 possible workers who chose school were also looking for work, the unemployment rate would only be 10%. Were that the case, we might expect those 20 unemployed workers from his paragraph to have jobs. If there are 180 jobs available in the economy and only 50 people seeking jobs, there should be zero unemployment. Hill’s attempt magically to move workers from school into the work force and adjust the math accordingly is ineffective. In Hill’s version, the choice of 150 of the possible laborers to enter a university instead is completely unrelated to the paltry availability of jobs.

Second, while Hill acknowledges that, actually, “some young people use higher education to escape a rocky job market,” his sense of the obligations that entails is limited. For instance, students don’t switch into schools from the labor force when it’s convenient and then immediately switch back out. Rather, there are significant material gains to be had from the completion of a sequence in higher education or vocational training. Even if jobs were suddenly to become available right now for the youth group, any student in college would have to evaluate his chances with a degree vs. with some college, no degree, and the numbers don’t support the some college, no degree option. Some college, no degree did beat the high school diploma unemployment rate in 2011 (8.7% vs. 9.4%), but both associate’s degrees and bachelor’s degrees, at 6.8% and 4.9%, respectively, beat it by a considerable margin. But obtaining those percentage point advantages is expensive, both in terms of time and money.

A graduating high school senior sees two options: 1) he can enter the labor force, where he knows that he has an 18% chance of not finding a job1, or he can 2) seek the safe haven of higher education. The first choice is obviously unappealing. The second, though, may also be, depending on his family and personal financial situations. His choices appear to be Russian Roulette on the job market — with slightly worse odds of spinning to the wrong chamber than in the actual game — and some risk of longer-term financial ruin. Andrew Martin and Andrew Lehren write in the NYT:

With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.

About two-thirds of bachelor’s degree recipients borrow money to attend college, either from the government or private lenders, according to a Department of Education survey of 2007-8 graduates; the total number of borrowers is most likely higher since the survey does not track borrowing from family members.

It’s easy to agree with Hill that the youth unemployment rate doesn’t quite capture youth employment problems, but it’s harder to agree with him that its error is overstatement. High youth unemployment changes the incentives for graduating high school seniors and those expecting to graduate soon and makes huge quantities of student debt less unattractive, hobbling their post-graduation financial viability. If 16-24 year-olds are using college as a safe haven and incurring huge debts to do so, then Hill has the effect backward. The youth unemployment rate, then, is every bit a mirage, but of the type that covers up something much worse than what it appears to be.

Hiatus (kind of)

I’m on vacation. Meanwhile, check out this NYT article from a few days ago that talks about how for profit colleges are jerks, this econbrowser piece that assumes the validity/descriptiveness of the Phillips curve in the short-run before speculating that the Fed is using an early announcement to let everyone know that inflation might be coming, and Matt Yglesias’s twitter for some conversational capital next time you’re talking to someone from DC. (“Did you have to fly out of terminal A? I’m so sorry.”)