The Economics of Despair

Since the late 1970s, social science researchers, the media, private foundations, and policymakers have directed considerable attention to the labor market problems of young adults and their families. Most of this attention has focused on high school dropouts, the poor, minorities, and inner-city youth. But an equally troubling—and broader—problem has received comparatively less notice: the steep and sustained decline since 1973 in the real (inflation-adjusted) earnings of young men and women generally. Even adjusting for demographic and socioeconomic characteristics, the labor market problems of young workers are disproportionately severe—they include higher than average unemployment and relatively low earnings when employed. This sustained drop in earnings has been especially dramatic for young adults with no postsecondary school education.

Most proposed remedies have emphasized the quality of the labor supply. But improving education and training, while often worthwhile and necessary, is not by itself sufficient to raise earnings. If this downward trend, which has persisted through recession and recovery alike, is to be reversed, then policymakers and educators must address the demand side as well as the supply side. Raising young adult wages will require not only better academic performance, training, apprenticeships, and school-to-work programs, but also full-employment policies, changes in the configuration of jobs and careers, and larger young adult union membership. Prior to 1973, the annual and weekly earnings of both young adults and older workers had been improving markedly. Between 1967 (the year the Bureau of Labor Statistics began tracking weekly earnings of wage and salary workers) and 1973, the real median weekly earnings of 16- to 24-year-olds rose by approx i mately 8 percent. Since 1973, however, the earnings of young adults have fallen almost continuously. Between 1973 and 1979, the weekly earnings of young men working full time fell by 7 percent. Young men experienced a 19 percent decline in earnings (a real value of $72 per week) between 1979 and 1989. This decline cannot be attributed solely to business cycle contractions. About half of the 19 percent decline did take place during the recessionary period of 1979-1982. But between 1982 and 1989, a period of strong overall job growth, the weekly earnings of young men fell by another $33, or 9 percent. Earnings declined still more between 1989 and 1994, dropping yet another 9 percent. The result of all this decline? A young man under 25 years of age employed full time in 1994 earned 31 percent less per week than what his same-aged counterpart earned in 1973.