Young workers are at a particular disadvantage when the US labor market is weak and employers become more selective in their hiring processes. The share of young workers hired during the 2001 and 2007–2009 recessions, for example, fell substantially and much more than that of more experienced workers. More recently, the COVID-19 pandemic caused dramatic disruption among sectors that disproportionately hire younger workers, including food and retail services.
Eliza Forsythe, a labor economist at the University of Illinois at Urbana-Champaign, finds in her study “Why Don’t Firms Higher Young Workers during Recessions?” that these disruptions negatively affect young workers in the first 10 years of their careers. Forsythe uses changes in state unemployment rates from 1994 to 2016 to identify the effects of recessions on worker-hiring rates. She defines young workers as those with less than 10 years of potential experience in the US labor force, calculating potential experience as the difference between one’s age and years of education.
Key findings
- Young workers have greater difficulty finding work during recessions versus more experienced workers. Young workers face this vulnerability regardless of their prior status—employed, unemployed, or not in the labor force.
- Workers with less than one year of potential labor market experience—calculated as the difference between one’s age and years of education—register the largest drop in hiring rates for every additional percentage point in state unemployment rates. This effect remains negative but becomes smaller for workers with additional experience. Nine years into their careers, workers no longer experience a hiring disadvantage. Those with 15 years or more of experience have a leg up because they are more likely than others to be hired.
- Elevated youth unemployment rates during recessions are driven by employers’ decreased hiring of young workers from unemployment, rather than by higher layoffs or quits. As unemployment grows, employers increase layoffs of young and experienced workers at similar rates. At the same time, young workers become slightly less likely quit their jobs, while more experienced workers become slightly more likely to quit (0.01 percentage points less and 0.008 percentage points more, respectively, for each percentage point increase in the unemployment rate).
- A college degree moderates, but does not eliminate, the negative effect of recessionson the hiring of young workers. Young adults without a four-year degree face the greatest reduction in hiring, which is consistent with employers predicting they will be less productive than other workers and with contractions within the industries that typically hire these workers, such as food and retail services. The reduction in hiring for individuals without a college degree is significant for up to nine years after exiting school, compared to just two years for those with a degree.
Policy and practice implications
WorkRise has identified the following implications for policy and practice:
- Improving access to workforce education and training programs can help the most disadvantaged young workers mitigate the negative effects of recessions on their career progression over the long term. Local and state governments can support subsidized work opportunities for younger workers. These kinds of programs help less-experienced job seekers compete in the labor market and provide a financial incentive for employers to participate. Other work-based learning models, such as registered apprenticeships, can help younger workers weather economic downturns by allowing them to earn an income while building hard skills. Short-term credentials can be especially useful during economic recoveries and tight labor markets when employers loosen degree requirements.
- State and local and federal policymakers alike could extend the duration of Unemployment Insurance and expand its coverage to working students and young workers who just entered the labor market during recessions. Because these workers face a quicker and larger drop in hiring rates than their more experienced counterparts, such an intervention would help millions of young workers remain in the labor force while also providing much needed financial support, as was seen during the response to the COVID-19 pandemic. Research also shows that extending the duration of unemployment benefits facilitates better matches between firms and job seekers, leading to higher wages and upward occupational mobility. Coupled with the Congressional Budget Office’s finding that increasing unemployment benefits is among the policies that have the largest effects on employment per dollar spent, such an extension seems the fiscally responsible choice.
- Employers could consider alternatives to laying off their young workers during economic downturns. For instance, they might offer work-sharing provisions such as those included in Unemployment Insurance modernization policy proposals. Additionally, allowing employers to file short-time compensation claims with the state on behalf of their employees would help younger workers stay connected to the labor market, even if they are unfamiliar with navigating the Unemployment Insurance system.
Young workers in the early stages of their careers are subject to increased uncertainty during recessions. Given the harmful, long-lasting wage effects of experiencing spells of unemployment, it is crucial for policymakers to increase access to work-based learning and build more robust income supports for young workers who are more likely to face unemployment when the economy is weak. Even in the absence of a national recession, local policymakers could apply these strategies to help new workers weather recessionary contractions.