The Kids Are (Not) Alright
While the U.S. student loan debt “crisis” might be the primary concern associated with the youth population here, this morning's dreadful European data confirms that 15-24 year olds around the world are struggling with a more widespread and pressing issue: high unemployment. In 2012, the youth unemployment rate was 12.4%, projected to grow to 12.6% in 2013 – nearly 3 times the rate of adult unemployment, which stood at 4.5% in 2012. Developed economies, along with the Middle East and North Africa, have some of the worst youth unemployment rates in the world: the US’s unemployment rate for 15-24 year olds in 2012 was 15.4%, according to the Current Population Survey, more than 3 percentage points above the world average. ConvergEx's Nick Colas notes there is one exception to the U.S.’s high rates, though: for all the talk about how student loan debt has crippled young adults in the U.S., we actually have one of the lower unemployment rates for young adults with a tertiary (college) education – better, even, than many countries with free or low-cost universities (though the 'type' of jobs may be questionable).
Via ConvergEx's Nick Colas:
Many of the dire unemployment numbers we hear around the world rest almost entirely on the shoulders of the youngest demographic cohorts.
Over the past and next few weeks in the U.S., more than 5 million teens and young 20-somethings walk across the stages at schools across the country to receive their high school and college diplomas. Many, undoubtedly, are headed to college or graduate school for higher education. More, meanwhile, are entering the workforce, looking for jobs ranging from analysts on Wall Street to cashiers at the local grocery store. Outside the U.S., too, young people will be seeking employment as they leave school or home, searching for a job. Any job.
Unfortunately, employment prospects are generally dismal for young people (15-24) around the world; particularly in developed nations such as the United States. 72.9 million persons aged 15-24 were unemployed in 2012 worldwide, according to the International Labor Organization, accounting for a full 12.4% of the youth workforce. For comparison’s sake, 122.5 million adults were unemployed worldwide last year, and the adult unemployment rate stood at 4.5%. And if that wasn’t bad enough, the ILO projects that youth employment will growth to 12.6% this year, and to 12.7% by 2014. By these numbers, it becomes clear that the worldwide jobs recession is primarily one of youth unemployment, an underappreciated fact with implications for policymakers around the globe.
And while youth unemployment is uncomfortably high in every corner of the world, some areas have it worse than others. Consider the following points, based on data from the ILO’s “Global Employment Trends for Youth 2013” report:
- For starters, the global youth unemployment rate has grown almost a full percentage point since 2007, up from 11.5% (69.9 million people) to 12.4% (72.9 million). Each year, unemployed youths account for nearly 25% of the global unemployment rate and make up nearly 40% of the unemployed. This despite the fact that they make up about 17.5% of the world’s population.
- The single most unemployed region for younger adults in the world is the Middle East, which had a 28.3% unemployment rate for youths in 2012. Women in the region were almost twice as likely to be unemployed as men with a 43.5% unemployment rate – the highest rate by gender, followed by females in North Africa who face a 36.7% unemployment rate. The highest unemployment rate for young males is also in the Middle East, at 25.2%.
- The highest participation rate for youths is in East Asia, where 59.8% of 15-24 year-olds consider themselves part of the labor force. The region also has one of the lowest unemployment rates for youths across the world, clocking in at 9.5% for 2012. The lowest participation rates, meanwhile, are found in the Middle East and North Africa. Not surprisingly, there is a fairly strong (r²=0.67) correlation between participation rates and unemployment rates for youths around the world: the lower the unemployment, the higher the participation, and vice versa.
- The average youth is 2.8x more likely to be unemployed than the average adult, but youths in Southeast Asia and the Pacific are unemployed at 5.2x the rate of the adult workforce. The lowest youth-to-adult unemployment ratio is in Sub-Saharan Africa, where youths are only twice as likely to be unemployed.
- According to the OECD, 37.6% of youths in OECD countries have been unemployed for 6 months or longer. Mexico and Korea have the lowest instances of long-term unemployment for youths with only 3.3% and 3.4% of the unemployed remaining without work for 6+ months, respectively. On the other end of the spectrum, more than 50% of the youth unemployed in Eastern and Southern European countries – the PIIGS in particular – have been so for 6+ months. Slovakia has the highest rate at 70.7%.
- Similarly, the OECD reports that an average of 27.1% of youth workers in 2011 (the latest data available) were working part-time. Somewhat surprisingly, the countries clocking in with the highest percentages of part-time workers are not where you might expect: the Netherlands, Denmark, and Norway had the highest rates of part-time employment for youths in 2011 with rates of 65.8%, 59.7%, and 49.3% each. These high rates of part-time employment, though, may also help explain generally lower youth unemployment rates in these countries.
- Temporary work also accounts for a good portion of youth “employment”, according to the OECD, with member countries reporting that 36.1% of youth employees are only temporary workers. Slovenia reports the highest rate with 74.5%, while North America and the UK are the lowest at 14.5% and 13.5%.
Where does the U.S. all fit in this? Well, we certainly can’t boast the lowest unemployment rate for youths in the world, and our youth participation rate (55.2%) isn’t anything to write home about, we do have lower incidences of 6+ month unemployment, part-time work, and a lower ratio of youth-to-adult unemployment. Youths in the US also have a better chance of finding a job than their counterparts in other developed economies and the EU, according to the ILO: the unemployment rate for 15-24 year olds here is 15.4%, while the “developed economies and EU” region had an average of 18.1%. Only Asia and Sub-Saharan Africa, in fact, have lower unemployment rates.
What really sets the US apart from most other nations is the unemployment rate for college-educated youths: we have one of the lowest in the world, with only 4.9% of young college grads (under 24) currently unemployed. The highest rate, according to the OECD, is in Greece, where 48.6% of young college-grads are currently unemployed. Spain follows with 35.0%, and Romania comes in third with 29.3%. The Netherlands, Germany, and Norway are the only OECD countries with similar rates at 4.4%, 4.5%, and 5.4%, respectively. It is worth noting again, though, that these countries also have some of the highest rates of part-time work for young people.
The important thing here is not necessarily that a college education yields better employment prospects – we already knew that. This fact applies around the world, even in countries where the unemployment rate for young college grads is 50%+: even in Greece the college-educated are still better off than their less-educated peers.
Even the U.S. isn’t exactly the “Utopia” for jobs for young college grads: only about half of 2013 grads have a job offer, according to the National Association of Colleges and Employers. Many will also be stuck with part-time jobs as they seek full-time employment, if they are able to find a job: 7.8% of 15-24 year olds in the U.S. (not distinguished by educational attainment) are working part-time for economic reasons. And most importantly, the majority of recent grads (60%, according to College Board) are laden with student loan debt, at an average of $26,000 a pop: most part-time and some full-time salaries will not be enough to pay back these debts on time, if at all.
If we take a closer look at recent graduates’ employment and earnings, though, the employment and student loan situation for these young adults becomes a bit more optimistic. Here are a few data points to paint the picture:
- According to the NACE, employers plan to hire 2.1% more new college graduates this year than they did in 2012. That indicates a slightly better job market for college grads compared to prior years. Though only 49.5% had been offered jobs at the time of the report, it is likely that most job-seekers will find a job over the next 3 years, given that the unemployment rate for 15-24 year-old college grads is only 4.9%.
- The average salary for the class of 2012 was $44,455, according to the NACE, 3.4% above the starting salaries for the class of 2011. It’s also the best starting salary since 2008.
- Based on this income and employment prospects, a recent college graduate could easily pay off his or her student loans in full. If we assume a $27,000 average debt with a 10-year loan term, the college grad would owe $311 per month: less than 1% of their post-tax salary.
What is important to recognize here is that student loans may serve a purpose in terms of the labor force and unemployment – if the borrower completes his or her degree. It’s obvious that the degree is hugely advantageous to a young American in terms of employment: with a 4.9% unemployment rate, they are three times less likely to be unemployed than the average person their age (15.4%). With better employment prospects and better earnings than non-college-degree-earning peers, these young adults are also more likely to pay off their student loan debts without a problem. True, many student loans go unpaid in the case of incompletion or unemployment. But for a large portion the nearly 2 million students that graduate from college each yeah in the U.S., student loans were instrumental to the completion of their education and, consequently, their employment. In this case, then, student loans – and student loan debt – is actually advantageous to the labor market.
Perhaps the most tangible argument for the benefit of student loans is the comparison of U.S. youth unemployment current youth unemployment rates in Europe. The average 4-year college cost in Europe is not even half the price of a similar institution in the US, and many public universities charge no tuition at all. Student loans are few and far between – as is student loan debt. And yet the average young college graduate in France, Sweden or the UK is more than twice as likely to be unemployed as an American graduate. Certainly, current economic conditions – as well as employment policies, standards, and practices – in Europe are quite different from those in the U.S., making a direct comparison of youth unemployment rates a bit blurry. But it is hard to ignore the implication that a lower-than-average youth unemployment rate in the U.S. for college grads is somewhat attributable to student loans.
As we’ve said before, student loan debt growth is definitely concerning and its disadvantages are numerous. Almost 12% of outstanding loans are delinquent, and the average outstanding debt continues to grow every year along with college costs. But if this expanding debt, even if some of it goes unpaid, helps young U.S. college grads to enter the workforce more easily and remain employed, then perhaps student loans could be considered somewhat advantageous to the labor market.