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Lost Generations

A Long Recession's Long Shadow

By | Updated July 23, 2014

The worst global economic slump since the Great Depression is ending and things are looking up. But for some, the recession’s toll will last for decades. Chief among them are the young adults who had the bad luck to come of age in hard times — and are on track to be this downturn’s Lost Generation. History shows they’re unlikely to fully recover from the chances they’ve missed: career-launching first jobs, early promotions, quick raises, strategic leaps from one employer to another. Those who graduated from college into the teeth of the 1981-82 U.S. recession languished behind their peers long after the economy rebounded, with lower earnings and less prestigious jobs even in middle age. Lost generations span the globe from Europe, where the longest-ever slump left almost a quarter of young people out of work, to the Middle East, where the prospects of the young remain blighted even after Arab Spring uprisings fueled by their frustration.

The Situation

In the hard-hit southern tier of the European Union, youth unemployment hit highs of more than 50 percent in Spain and close to 60 percent in Greece, and by some estimates is worse than in the Great Depression. In the U.S., unemployment in early 2014 among 20- to 24-year-olds was still about double the national rate, and for black youths it ranged up to 19.7 percent. Not only the unemployed are being hurt: In 2012 and 2013, only 44 percent of young U.S. college graduates held jobs commensurate with their education — meaning they were pushing less-skilled workers down the ladder or into unemployment. The natural churn in the labor market also has been unusually slow for more than five years, with fewer people quitting jobs and fewer new hires, reducing the chances for job-hopping that is a key avenue to early career advancement.

The Background

No one ever thought recessions were a great time to find a first job. But recent research shows that the damage to career trajectory is surprisingly long lasting. Even 17 years later, members of classes that completed college in the U.S. during the 1981-82 recession earned an average of 10 percent less than colleagues who got their starts in boom times, and fewer of them held professional or prestigious jobs. By then, the cumulative cost of a poorly timed graduation already had exceeded $100,000 on average. The impact on earnings of Stanford Business School graduates was found to persist at least 20 years. Following 20 graduating classes of Canadian college students across two recessions showed that the biggest contributor to the lag was initial jobs that offered poor positioning on career and salary ladders. Lower-skill college graduates have a particularly hard time making up lost ground, even when the economy booms. Another study of Japanese workers also found persistent effects on those who start work during a recession.

The Argument

Europe’s leaders have called youth unemployment a catastrophe for the continent. France and Germany unveiled a proposal last year to put young people to work by spurring business lending that they compared to the U.S.’s New Deal of the 1930s. The plan was criticized as a token effort with little new money behind it, although Germany’s call for others to adopt its successful apprenticeship system generated wide interest, if little action. In the U.S. as well as Europe, calls for increased spending on jobs programs have been blocked by opposition to deficits by conservatives who argued that today’s young people would be the taxpayers stuck with the bill later. Diminished prospects for the young in southern Europe haven’t translated into large-scale political movements. In 2011, youths took to the streets in Spain and Greece, but those protests faded as the worst of the crisis passed. Emigration, particularly within the open borders of the European Union, may be providing a safety valve for social pressure, while in the U.S., more young people may be staying in school till growth returns. In the Middle East, new leaders in countries like Tunisia and Egypt are struggling to live up to the expectations of unemployed youths whose anger brought down governments across the region in 2011.

The Reference Shelf

(First published March 25, 2014.)

To contact the writer of this QuickTake:

Mike Dorning in Washington at mdorning@bloomberg.net

 

To contact the editor responsible for this QuickTake:

John O'Neil at joneil18@bloomberg.net