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What’s behind the collapse in teen employment?

Mar 17, 2014

FORTUNE -- The job market isn't great for anyone these days, but for teenagers, the picture is downright dismal.

According to a new study released last Friday by the Brookings Institution, the employment rate for teens aged 16-19 has fallen from 45% in 2000 to 26% in 2011, the lowest rate for teens in the post-World War II era. This data is in stark contrast to what's happening to older folks, who are working longer than ever. Employment rates among those aged 55-64 ticked up slightly during the same time frame, from 58% to 60%, and the employment rate rose for those aged 65-74 from 19% to 25%.

In some ways, this data should not be surprising. The economy in 2000 was coming off of one of the strongest periods of growth in U.S. history, while the nation was still mired in high unemployment in 2011. But when you see that employment has increased among the older population, it's clear that there's more going on here than just a poor economy.

One explanation is that more teens are enrolled in school. As the Brookings report states, school enrollment did increase over the same period, which likely accounts for some of the decline in teen employment, but certainly not all of it. The report shows this by measuring a statistic called "labor force underutilization," which, unlike the unemployment rate, measures those who are officially unemployed, but also those who have part-time jobs when they want full-time jobs, and those who aren't looking for work but want work.

As you can see, underutilization remains considerably higher than unemployment for the 16-19-year-old population, which means that a significant part of the problem is a lack of jobs for teens. Teen employment rates also vary widely based on geographical location. For instance, teen employment is highest in smaller cities like Omaha, Neb. (42.3%) and much lower in densely populated areas like New York (19.3%). One possible conclusion from this is that areas with more productive economies -- where available jobs pay more and demand for high-skill labor is high -- have a smaller need for teenage workers than less productive areas of the country.

These differences in teen employment rates are far more extreme than those for the population in general, which makes sense as younger workers are often considered marginal and are the first to lose their jobs. These statistics should inform public policy conversations, particularly those surrounding the federal minimum wage.

Opponents of raising the minimum wage often point to the fact that:

Based on the data, companies operating in less productive economies seem more willing to employ teens than firms in more productive areas. Locally based minimum wage laws could address such regional differences.

Furthermore, if, as the Brookings report states, "employment can provide young people the chance to acquire specific occupational skills and broader employment skills such as communication, teamwork, and problem-solving," perhaps a minimum wage hike, which may prevent employers from hiring teen workers, is not ideal. More targeted aid, like wage subsidies or the earned income tax credit, could be used to assist low-income families instead.

The U.S. could also follow the lead of Australia, and have separate minimum wages for teenage workers.

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