Friday, March 16, 2012

Explaining High Unemployment Rates

In a few paragraphs and charts, a new analysis by Jonathan James of the Federal Reserve Bank of Cleveland goes a long way toward explaining what ails us. James examines the unusually high unemployment rate today among young adults relative to the middle aged. Typically, young adults are more likely to be unemployed than the middle aged. But beginning with the Great Recession, the difference in the unemployment rates of the young and the middle aged grew by one-third. James wanted to figure out why young adults have been disproportionately affected by the Great Recession, and this is what he found...

  • the abnormally high unemployment rate among young adults is mostly due to the increase in unemployment among young men with no more than a high school diploma. Their unemployment rate climbed from 9.5 percent in 2007 to more than 20 percent in 2011. 
  • behind this high unemployment rate is the loss of construction jobs, which explains 80 percent of the increase in the unemployment rate of young men.

Because construction is the primary entry-level job for young men, "it is likely that these workers will continue to endure high levels of unemployment until construction jobs return," says James. Because two-thirds of wage growth occurs in the first ten years of a career, he warns: "Even if these jobs return, the effects of the recession during these formative years in what otherwise would have been a period of skill formation and productivity growth may continue to be felt throughout their careers."

Source: Federal Reserve  Bank of Cleveland, Starting Off on the Wrong Foot: Early Careers and High Unemployment

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