Baseline Scenario: How Are the Kids? Unemployed, Underwater, and Sinking

Editor’s Comment: Take a look at Paul Krugman’s column this morning in the NY Times. He starts off quoting Sen. Alan Simpson happily proclaiming the coming of a “bloodbath.” Look at the comments on this blog regarding civil disobedience, and the anger at government, banks and business. Look anywhere you want, and you will see that change is coming and that it will be in the typical historical way — chaotic and at times violent. Exactly what part of “unemployed, underwater and sinking” do we not understand? I guess as Naomi Klein says in the SHOCK DOCTRINE, we just won’t do what needs to be done until the crisis hits so hard that we are bewildered. Somehow, it seems, most of us will say we are surprised by the turbulence. Everyone knows it is coming and still they will be “shocked.”

How Are the Kids? Unemployed, Underwater, and Sinking

www.baselinescenario.com

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This guest post is contributed by Mark Paul and Anastasia Wilson. Both are members of the class of 2011 at the University of Massachusetts-Amherst.

In some cultures asking how the kids are doing is a colloquial way of asking how the individual is faring, acknowledging that the vitality of the younger generation is a good metric for the well-being of society as a whole. In the United States, the state of the kids should be an important indicator. Young workers bear the significant burden of funding intergenerational transfer programs and maintaining the structure of payments that flow in the economy. Today, the kids’ outlook is almost as bleak as the housing market; they are unemployed, underwater on student debt, and out of luck from a reluctant political system.

Currently, even after a slight boost in jobs growth, unemployment for 18-24 year olds stands at 24.7%. For 20-24 year olds, it hovers at 15.2%. These conservative estimates, using the Bureau of Labor Statistics U3 measure, do not reflect the number of marginally attached or discouraged young workers feeling the lag from a nearly moribund job market.

The U3 measure also does not count underemployment, yet with only 50% of B.A. holders able to find jobs requiring such a degree, underemployment rates are a telling index of the squeezing of the 18-30 year old Millennial generation. While it appears everyone is hurting since the financial collapse, young adults bear a disproportionate burden, constituting just 13.5% of the workforce while accounting for 26.4% of those unemployed. Even with good credentials, it is difficult for young people to find work and keep themselves afloat.

If companies are unwilling to hire bright young college graduates even at a relatively low salary and minimal benefits, will they ever be willing to hire anybody at all?

Jobs aren’t the whole story. Recent college graduates, those in the labor force with the freshest batch of knowledge and skills, are currently underwater and sinking fast with unprecedented student loan and personal debt. Average student debt for the class of 2008 was $23,200, an increase over four years of about 25%, meaning that students are knee deep in negative equity between their educational investment and actual earnings.

Between inflated student debt and the lack of available jobs for qualified graduates, students are defaulting at an all time high level of 7.2%. From 2008 to 2009, student debt defaults jumped about 30% to $50.8 billion. This earning-to-debt gap not only hurts lending institutions, but also may affect students’ future abilities to borrow – a significant hurdle in our credit driven economy.

If student debt and job stagnation continue, younger workers will face real structural unemployment (as opposed to the fake kind that had been suspected by some economists, but was recently debunked by the San Francisco Fed).  The more time these young workers spend unemployed and underemployed, the greater chance for future structural unemployment due to deteriorating human capital.

High debt, high defaults, and low family earnings will prevent many students from finishing college at all. High unemployment for those who do manage to graduate with a degree will create barriers for those unable to start their careers. As economists have shown, most current deficits can actually be attributed to the decrease in tax revenues ­­- a debilitating trend that will continue without well-targeted action.

In order to combat such structural problems, the need for investment in education and jobs is clear. This investment will act as an insurance policy against persisting future structural unemployment and subsequent government revenue declines. This investment can take the form of direct funding for public higher education, increased financial aid to students, and expanded federally guaranteed loan and grant programs. As many states have slashed and burned public higher education budgets, as in Massachusetts, federal attention should be directed towards this crisis. The 2009 stimulus funding provided only two years’ worth of support to sustain public higher education in the Commonwealth, where universities have historically been a top priority. The need for a long-term restructured investment plan in public higher education is obvious, not just in Massachusetts, but the other forty-nine states as well.

At the same time, insurance against the impending doom of climate change could be taken out in the form of a green jobs bill, providing work and an outlet for innovation for recent college graduates. As Robert Pollin and Dean Baker have suggested, long-term investments in rebuilding a green energy industrial base, complete with manufacturing and R&D, could revitalize the entire economy if funded as part of a 10-year plan to the tune of $50-100 billion. Such investment could create 660,000-1.3 million jobs per year – the kind of growth that seems to have escaped our collective memory.

Green collar industry would naturally target the young workers who are up to date on the high-tech nature of green jobs, and much research and development would, as with most budding industries, take place at academic research institutions like public universities – a two-for-one stimulus in both jobs and education.

In order to solve future structural problems in the United States and ensure a future for the sandwich generation, fiscal policy focused on educational and job growth is crucial. While deficit hawks may squawk about the costs, the burden of repayment is on younger people Without adequate education and careers for students, we will never be able to balance the budget. In the long run, it makes more fiscal sense to create jobs and collect tax revenue than to rely on a model that merely waits for the private sector to invest.

While the political feasibility of such a measure is questionable, the incentives are there no matter on what side of the aisle you may sit. Jobs investment will improve employment. Education will increase productivity (and profits too), increasing tax revenues from businesses and personal incomes and helping balance the budget. Crisis is not the time for austerity, and these types of investments in the viability of the U.S. economy should be done when money is at its cheapest.

In a dire job market, facing imminent climate change, and lagging aggregate demand, keeping the younger generation afloat will inevitably be a decision to sink, swim, or at least throw out some life jackets.

5 Responses

  1. LIKE I’VE BEEN SAYING FOR GOD KNOWS HOW LONG, WE NEED TO STOP PROLONGING THE INEVITABLE “ALTER AND ABOLISH” AND START ORGANIZING NOW. BECAUSE THE LONGER WE WAIT THE MORE BLOOD THERE WILL BE AND THE MORE LIVES WILL LOST.

    THINK ABOUT IT EVEN IF THE BANKS, COURTS OR CONGRESS SAID “YOU KNOW WHAT THIS IS WRONG, HERE TAKE ALL YOUR HOUSES BACK”. WOULD WE STOP? HELL NO! BECAUSE WE KNOW WELL ENOUGH GIVEN THE INSTABILITY OF OUR GOVERNMENT MAJOR CHANGE IS STILL NEEDED.

    WE MUST MAKE HASTE, THE LIFE YOU COULD BE SAVING MAY JUST BE YOUR OWN.

  2. Pat,

    I once thought the way you do, that it was my duty to vote and try and effect change. However, all that has changed. I now see that the two party system and how it’s structured simply allows us to choose between two people who have both eaten the pod. I will no longer vote to support these despotic abuses of power coming from both the left and the right.

    This system has run it’s course and is broken beyond repair. Only through collapse and rebuilding can we effect the kind of serious change that is needed to clean up this mess.

  3. Often…..

    GREEN = Unproductive, overpriced busy-work, for people who should be producing food and goods instead, to rebuild the economy

    80% of my neighbors don’t produce anything to actually trade and consume anymore. The Bank’s and Federal Reserve’s Ponzies, along with this subsidized non-production are the real reasons this economy is dying.

    We need a roof over our heads; free & clear, because the bank mortgages are fraudulent and null.

    Then we need the government to GET OUT OF THE WAY of millions of new small home-based businesses, and in the way against the bank corporate fraudsters.

    Fight a lying bank – For the Children!

  4. Remember our schools no longer teach American History or sociology. There is not enough time because no child can be left behind.
    Face it, our nation does not want our citizens informed, or we would have decent education instead of tired platitudes and lies about how the natives needed killing.
    What could a newly college educated person do if they had a background in history? They would have to unlearn it and teach the crap they are being told to teach by a school district beholding that belongs to a corporate interest that has no interest in teaching that their corporation is an organized crime family.

  5. All this is very true.

    Yet what did your generation with the most stake in the future do. Sat out the recent election. Not voting is as good as voting for the people who go us into this mess in the first place since 2000.

    This is even more sad given the fact the Republican leadership announced well in advance what they would do if given the chance again which was tax cuts and policies that would benefit the top 2% of the people.

    So the country belongs to you and if you want to see change the first step is getting involved and voting.

    Oh by the way a recent survey of college kids showed a majority did not know basic things like the number of justices on the US supreme court, the number of senators in the senate and congressmen and even who the current vice president is. This is very sad.
    pat

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