The Real Washington Scandal? The War On Youth

Story Stream
recent articles

The media are consumed with multiple Washington scandals: the IRS, Benghazi, the Justice Department wiretapping. But what about the tragedy of the dim prospects for this month's college graduates?

In a commencement address at Morehouse College on Sunday, President Obama told graduates, "Your generation is uniquely poised for success."

But young Americans who campaigned for Obama, voted for Obama, and turned out their friends for Obama are graduating from college with substantial debt, few job prospects, and the requirement to buy expensive health insurance. They might be poised for success, but most have not yet seen it.

Although 1.6 million more Americans have jobs than a year earlier, a large share went to workers aged 55 and older, who saw a 1.2 million gain in employment. Employment rose by only 230,000 among young adults aged 20 to 24, and by 250,000 for those aged 25 to 54.

Young adults have hardly benefited from declines in the unemployment rate. Between April 2012 and April 2013 the overall unemployment rate has declined from 8.1 percent to 7.5 percent. But over that time period the young adult unemployment rate barely edged down, from 13.2 percent to 13.1 percent.

The unemployment rate in 2012 for newly graduated men and women with bachelor's degrees was 8 percent, far higher than the 5 percent rate such young adults experienced in 2006.

In 2012, the fraction of young people employed or looking for work, known as the labor force participation rate, was the lowest since 1972. In contrast, Americans 55 and older had the highest labor force participation rate since 1961.

Since 2000, the labor force participation rates of workers 65 and over have been rising steadily, along with rates for those aged 55 and over. In contrast, the labor force participation rates of workers aged 16 to 54 have been declining. The biggest decline in labor force participation rates can be observed for workers aged 16 to 24.

Some are in school, investing in their human capital, but others would prefer to be out working.

And, exacerbating their employment problems, younger people are graduating with more student loan debt. Student loan debt is the only debt that continued to rise during the recession. At the end of 2012, almost 40 million borrowers owed about $1 trillion, according to the Federal Reserve Bank of New York.

In 2012, 60 percent of borrowers had balances over $10,000, and 30 percent had balances over $25,000. The average balance per borrower was almost $25,000, the New York Fed reports. By the end of 2012, over 40 percent of 25-year olds had student debt.

It's a lose-lose situation. Students are told that 21st century jobs require a college education. So if they do not attend college, they will not be employable. To get to college they need loans-loans that they can only pay off if they have jobs. But the job market continues to be poor, at least for them.

That is one reason why rates of recent graduates living at home with either a parent or grandparent have increased. In 2005 the share of 20-24 year olds who had at least a bachelor's degree but were living at home was 36 percent. A survey by Accenture, a management consulting firm, found that 44 percent of 2011 and 2012 graduates were living at home.

As if a 13 percent unemployment rate and average students loans of $25,000 weren't enough, the Affordable Care Act wants young adults to sign up for insurance. Based on a survey of 17 major insurance companies, a new study by the Republican House Energy and Commerce Committee, released last week, reported that the Affordable Care Act would lead to a 180 percent premium increase for young, healthy males.

Under the Affordable Care Act, older people cannot pay more than three times the premiums of younger people. To keep the system solvent, premiums for younger people have to rise by more than the cost of their insurance, so the young are subsidizing the old.

Further, with "guaranteed issue," meaning that insurance companies have to take everyone, it is logical for people to delay signing up for health insurance until they are sick. This raises rates for everyone, because the pool of insured Americans is sicker. It is as though people could sign up for auto insurance after a car crash: no one would bother to sign up before.

Finally, insurance offered under the new health care exchanges has to be generous and comprehensive, with no routine payments for preventive care, mandatory mental health care and drug abuse treatment, and required contraceptive coverage. This costs more than previous plans.

Mandating that employers with more than 49 workers have to offer health insurance or pay a $2,000 penalty reduces employment, especially for younger, less-skilled workers. Moving from 49 to 50 employees can cost an employer $40,000.

Under the Affordable Care Act, there's no employer penalty if the employee works fewer than 30 hours. Not coincidentally, in April those working part-time because they could not find full-time work rose by 278,000.
Youth unemployment is a serious matter, and not just for the young.

A society that cannot offer young people work will see the brightest flee to countries that have more opportunities. Others, less entrepreneurial, will stay and collect welfare benefits. Society will see more crime, as young people congregate on the streets. Hard-won college degrees will atrophy. The vaunted American work ethic admired by Alexis de Tocqueville will slowly disappear.

The economic woes of young adults have been compounding during President Obama's term of office. Today's graduates are paying the price. The real Washington scandal is to leave the problem unaddressed.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

Show commentsHide Comments

Related Articles