Back to School: The Decline in NC's Youth Labor Force Participation Rate

<p>The percentage of young North Carolinians at work or seeking employment has declined substantially over the past 13 years. This article reveals that most of this decline is in fact attributable to higher levels of school enrollment. How should this affect our interpretation of North Carolina&rsquo;s unemployment rate? And what might this mean for the earnings prospects of the state&rsquo;s youngest workers?</p>

Author: Andrew Berger-Gross

Much has been written about the big demographic and labor force trends in North Carolina. Over the past couple of months, LEAD has published stories on the population share and participation rates of different cohorts (e.g., Boomers and Millennials); labor force participation among older workers; and the impact of a maturing workforce on average wages.

We recently received a request from one of our agency partners to talk about labor force participation among younger workers. This topic may also be of interest to other members of North Carolina’s workforce development community who provide services to this segment of the population.

Let’s start with a quick refresher. The recent decline in North Carolina’s labor force participation rate (the percent of residents who are either employed or seeking work) is nothing new. The state’s participation rate started trending downwards after 2001 and has fallen nearly every year since then.

A simple tabulation of data for different age groups in North Carolina can help us understand why this decline is occurring. The first factor to pay attention to is the changing age composition of the population. North Carolina’s older population (age 55+) has grown as a share of the overall population since 2001, while the prime working age (25-54) population has declined in share. Older workers are far less likely to participate in the labor force than the prime working age population.

But the changing composition of the population is only part of the picture. The past 13 years have also seen participation rates decline among several age groups, in particular the youngest (16-24).

Should we be worried about the decline in youth labor force participation? Commentators sometimes assert that labor force declines are being driven by unemployed persons who are ready, willing, and able to work, but are too discouraged by the difficult labor market to even seek employment. However, the vast majority of young people out of the labor force do not actually want a job right now. Of the 255,000 increase in the number of young North Carolinians out of the labor force since 2001, only 9 percent (22,000) consisted of youths who want a job now.

Another concern voiced by some advocates is that these labor force dropouts illustrate the problem of youth “disconnection”— young people who are neither in school nor engaged in the labor force. Addressing this concern requires us to look at this group with a finer level of detail to find out what they are doing with their time. The younger segment (age 16-19) of North Carolina’s youth population has seen soaring levels of full-time school enrollment since 2001, while the number who are either both in school and in the labor force, or only in the labor force, has declined over this period. The disconnected segment of the age 16-19 population (neither in school nor the labor force) has increased, but to a far lesser extent than the much larger increase in full-time students.

Older youths (age 20-24) are at a very different stage of the school-work life cycle than their younger counterparts, typically participating in the labor force at higher rates. However, we again see that the largest change by far since 2001 in this segment of North Carolina’s population was an increasing number in school full time, overshadowing a smaller increase in those who are disconnected.

We can draw three broad conclusions from these data. First, we should note that the upward trend in disconnected youths in North Carolina — while minor compared to the increase in school enrollment — is a potentially serious problem that could negatively impact the long-term earnings potential of our youngest workers.

However, we should also note that the increase in disconnected youths explains very little of the overall decline in youth labor force participation. The vast majority of growth in young North Carolinians out of the labor force is being driven by those who do not want a job right now, including those who are enrolled in school full time. This suggests that the unemployment rate is still a valid measure of labor market slack — i.e., it is accurately reflecting the outcomes of labor force participants and is not being distorted by “discouraged” labor force dropouts.

Lastly, we should question why this surge in school enrollment occurred. The economic and social benefits of schooling have been increasing over time, making education (particularly higher education) a crucial gateway to career development. However, as the previous century’s middle-skill jobs continue to disappear from our 21st century economy, young people might also be driven into education because of increased competition for entry-level positions from displaced higher-skill workers as well as lower-skill immigrants.

The big question will be how these highly-educated young men and women fare after they graduate into a still-troubled labor market. Their newly minted skills, credentials, and social networks should make them ideal candidates for open positions — or, barring that, give them the tools needed to identify market opportunities and start their own businesses.

But for now, the elevated youth unemployment rate in North Carolina doesn’t provide a lot of good news for those youths who are participating in the labor force. While the prime working age and older age groups have both regained much of their ground lost during the Recession (71% and 73%, respectively), the rate for young workers has only recovered by 55 percent.

General disclaimers:

The Current Population Survey (CPS) estimates are based on a survey and are subject to sampling and nonsampling error. Note that the state-level CPS estimates are not directly comparable to state-level labor force estimates from the Local Area Unemployment Statistics (LAUS) program due to differences in methodology. Any mistakes in data management, analysis, or presentation are the author’s.

Related Topics: