The kids are not all right

Published 11:00 pm Wednesday, July 11, 2012

This past Friday, the Bureau of Labor Statistics released the latest national jobs report: 80,000 jobs were created in the past month, and the unemployment rate remains at 8.2%. The numbers were disappointing for the Obama administration and reduce the chances of the President being reelected in November, since, in 2009, he sold us on federal bailouts by promising unemployment would be down to 5.6 percent by June 2012.

When the official unemployment statistics are unpacked further, there’s another tragic story to be told: unemployment rates for Americans age 16-24 are currently at 18.1 percent, and the rate for males in this cohort is 19.5 percent. These rates are particularly troubling because youth unemployment is harmful to the whole population. When young adults are unemployed, parents are often burdened by having to support their adult children. Out-of-wedlock births increase, drug use rises, and overall crime becomes a bigger problem, too. Worst of all, once young adults get off on the wrong foot financially, they seldom recover; on average, they never make up for these lost years of earnings later in life, so their wages and savings for retirement are lower compared to peer groups.

Given the serious consequences that follow from youth unemployment, government policies should focus on promoting economic growth that would benefit workers in all age groups. Instead, a number of policies hamper growth and create disincentives to work. For example, President Obama recently extended the cap on Federal Stafford Student Loan interest rates. Instead of letting rates rise to 6.8 percent, they will remain at 3.4 percent. The legislation encourages young adults to stay in school longer, pile up more debt, and then enter the same weak labor market with degrees that do not guarantee employment.

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For many people, student loans have become a form of welfare. They help pay bills for items such as housing and food in the short-run and delay students’ entry into the labor market. As long as students maintain minimal enrollment requirements at a college or university, they can keep borrowing and worry about how they will repay their debts later. By lowering the price of borrowing, President Obama has encouraged more young adults to choose a life of debt over work.

Young adults are also being done a disservice by federal minimum wage laws. Minimum wages are ostensibly meant to help the poor, but, ironically, they hit young, unskilled adults the hardest. Unemployment rates for young minority males, for example, are well above 30 percent, and economists believe these rates can be traced to minimum wage laws.

Minimum wages set the price of labor artificially high and interfere with an individual’s freedom to contract his or her labor. If a young man and an employer want to strike a labor agreement that pays less than the minimum wage, they are forbidden to do so. Often, though, a wage of $7.25 per hour is a tough pill for an employer to swallow. Some employers choose to use capital and machinery instead of a person to get the job done or seek to fill the position with someone with better qualifications. The young, unskilled adult gets outcompeted in the market; had he been given the freedom to negotiate his wage, he could have secured the job for a wage less than the minimum.

The minimum wage and federal manipulation of the student loan market are just two policies harmful to young adults; sadly, the list of bad policies goes on, with further examples such as unprecedentedly extensive unemployment benefits. America’s young adults need jobs, and job creation requires private-sector economic growth, not more government legislation. Seemingly compassionate policies often distort human behavior and wreak havoc on markets, as the two examples above demonstrate. Americans, especially those who are young and unemployed, will benefit if politicians recognize their limits in understanding and controlling the economy, minimize their interference in it, and allow individuals and companies to get back to work.


Scott Beaulier is Executive Director of the Manuel H. Johnson Center for Political Economy at Troy University.