America’s young workers: Destined for failure?

April 7, 2014, 6:30 PM UTC
Young and underemployed in America

FORTUNE — We’ve all heard the message from our parents: If you work hard, get a good education, and play by the rules, you will do well in life. Baby boomers like me were able to turn that formula into the American Dream. But while we were able to graduate from high school, vocational school programs, or college into an economy that was growing and providing us with great opportunities, we cannot make the same promise to our children and grandchildren today. Instead of hope, the nation faces a widening economic divide; according to Gallup and other surveys, a majority of Americans agree that the U.S. has been going in the wrong direction for at least a decade, and they expect the next generation will have a lower standard of living than ours.

Is this gloomy outlook inevitable? Have the global economy, ever-advancing technology, and other forces left us with no control over the destiny of future generations? Only if we choose to do nothing. Reversing course is possible, but it will take a cross-generational effort by baby boomers and next-generation leaders to negotiate what I call a New Social Contract that fits and works with the features of the future economy and workforce.

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In future columns, I’ll lay out the pieces of that comprehensive strategy, which calls for major overhauls of business, labor, government, and educational institutions as well as the relationships among them. But before we can get to possible solutions, we need to more clearly understand the problems young people — especially millennials between 18 and 33 years of age — face in entering the labor market today. The essence of the problem is that young people face a severe shortage of good jobs. It has taken almost five years after the supposed end of the Great Recession of 2007-2009 to finally get back the number of jobs lost. But that does not take into account the growth in the labor force since then.



To get back to the same employment levels as before the recession, between 13.5 and 15 million new jobs would need to be created by the end of this decade.That’s a minimum of 200,000 jobs per month, which is 50,000 more jobs a month than the average since 2009. How does this affect young people entering the job market? Nearly 40% of recent college graduates are “underemployed,” i.e., working in low-wage retail, restaurant, or other service jobs that don’t require a college degree, don’t put their skills to work, or provide opportunities for further learning and development, according to Northeastern University’s Center for Labor Market Analysis. Such jobs pay wages that are hardly sufficient to meet their college debt payments, much less start a career or a family. And the evidence is clear: Starting off this way results in significant, even permanent damage to their incomes and careers.

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This current reality clashes with our own recent past. For three decades following World War II, wages rose in tandem with increases in productivity — that was the essence of the old “Social Contract.” But in the 30 years since 1980, earnings have essentially flatlined: While the productivity of American workers grew by a healthy 80%, family income grew by only about 10%, and average hourly wages inched up by about 6%. The first decade of this century — sometimes called “the lost decade” — has been even worse. Real wages (wages adjusted for increases in the cost of living) either declined or did not increase for high school or college graduates. Only those at the top of the occupational ladder with advanced degrees experienced modest wage growth. The “Occupy” movement had its facts right: Most of the income growth went to the top 1% or less of the population. America is now suffering from the highest level of income inequality of any time since the 1920s.

Source: Bureau of Labor Statistics and the Economic Policy Institute.

Can this downward, disturbing trend be changed? I believe it can, if we start work now on building a consensus strategy for the future. Education is still the starting point — a necessary but far from sufficient solution today. The good news is there appear to be a growing consensus and considerable momentum in the country to expand access to early childhood education and to reform elementary and secondary schools. For today’s young workers to compete on a global stage, all the rhetoric about “life-long learning” will need to become a reality. We have the tools to do this now. Every U.S. university and community college is experimenting with “online” or distant courses. And many employers complain that new entrants don’t have the right mix of skills. The obvious solution is for university, community college, and industry leaders to get together and design the coursework and the on-the-job experiences young workers need to be productive, learn, grow, and gain access to better and higher paying jobs. But education alone will not solve sluggish job creation or wage stagnation.

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In my upcoming columns, I’ll raise other ideas and proposals, such as moving off the fixation with short-term shareholder value as the sole purpose of the firm, the need to invent new “next-generation” labor organizations, and ways to update employment policies to catch up with the changing economy and labor force. Some will be controversial, and I will invite your comments, ideas, and engagement as we go along. Together, we might just find common ground on a Social Contract that works for the next generation as effectively as the old one worked for mine.

Thomas A. Kochan is a professor of industrial relations, work, and employment at the Massachusetts Institute of Technology’s Sloan School of Management. He is author of the book, Restoring the American Dream: A Working Families’ Agenda for America.