The youth unemployment conundrum

Policy changes to create jobs for young people may be needed to avoid social unrest

George W. Liebmann - Executive director of the Calvert Institute for Policy Research in Baltimore 

(Originally published in the Baltimore Sun - 11/21/2010)

The level of youth unemployment, the highest since records began to be kept on the present system in 1978, is the great undiscussed issue in American politics. The numbers for July 2010, a month when youth employment usually reaches a seasonal high because of summer jobs programs, showed that fewer than half of those between 16 and 24 were employed - 48.9 percent - compared to a record high of 70 percent in 1988. The unemployment rate was 19.1 percent in 2010, compared to 9.6 percent in 2000. (The employment and unemployment numbers do not add to 100 percent because of students and others not seeking employment). Among blacks between 16 and 24, the unemployment rate this past July was 33.4 percent; for blacks in the 16 to 19 age group, the rate was more than 50 percent.

These numbers depict potential social dynamite. The effect of similar percentages in France is already visible. American youth are not politically minded and do not habitually either vote or demonstrate, hence the relative calm here. (German politicians have never forgotten that the young unemployed of the Weimar period fueled totalitarian movements; in the early 1930s, Chancellor Heinrich Bruning and the then British Ambassador, Sir Horace Rumbold, saw no cure for Germany's political distempers save an increase in the voting age.)

The impact of our youth unemployment is felt in quieter ways: the lack of development of work habits, disciplines, and skills, and the diversion of the quiet unemployed to substance abuse and the underworld. It is not for nothing that Franklin Roosevelt warned that "continued dependence upon relief induces a spiritual and moral disintegration destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the national spirit."

What is the response of American politicians, in an election year? The texts of President Barack Obama's last State of the Union message and the Republican Party's "Pledge to America" will be searched in vain for a reference to the problem, as will the websites of the House and Senate majority and minority leaders. The unspoken hope is that the economy will improve and a rising tide will lift all boats; in the meantime there are, for those eligible, Food Stamps and an ever-lengthening period of unemployment benefits, now up to 52 weeks, and in some instances 99 weeks. The lengthening of the "dole" period threatens to create a white underclass resembling that in modern Britain.

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Neither the current president nor the Republican leadership have much else to say. The Republican Pledge proposes as its principal job-stimulating measure a tax deduction of 20 percent of corporate income. This ringing proposal dissolves on close inspection: It benefits only corporations, not proprietorships; is a deduction, not a credit; and benefits only corporations that have taxable income, thus excluding most service businesses and small businesses, the tax benefit for these companies amounting to about 7 percent of profits. The recession has had limited impact on corporate profits, businesses having responded to it with job-shedding and cost-cutting. It is not want of profits but want of confidence in the future - stemming from the uncertain state of the tax system, looming future pension deficits and reduced consumer demand - that has retarded the employment of workers.

The Democrats, for their part, have proposed marginal increases in existing federal youth jobs programs. A Democratic-oriented think tank, the Center for American Progress, proposes an expansion of four youth jobs programs: AmeriCorps, VISTA, Youth Corps and Youth Build. An appropriation of $1.5 billion is proposed, to create a year's worth of jobs at $15,000 each. These "jobs," however, have no future, nor is the training provided related to the needs of any particular employer, public or private. These are "feel-good" proposals, unrelated to the dimensions of the problem, which do not heed Gen. George Marshall's admonition to his subordinates: "Avoid trivia." They are dwarfed by the New Deal's Civilian Conservation Corps, adopted when the nation was less rich and had less than half its present population, but which was informed by a sense of moral urgency.

The difficulty with public youth jobs programs is that they require the creation or expansion of youth jobs bureaucracies, staffed by middle-class workers already attached to the labor force, and are hence over-administered, slow to start and unduly expensive. If much lesser sums were spent on providing each of the appropriate federal and state agencies with funds to hire half-time trainees and to organize distance-learning and other training programs for them, results would be swifter and costs far less; every federal agency would be involved in the effort, not just purpose-built ones, and the temporary employment would be more likely to lead to actual jobs.

Efforts to incentivize youth employment in the private sector such as the targeted tax credit, however beautiful in theory, have foundered on their unintelligibility, on restrictions and complexities imposed at the behest of organized labor, and on their lack of benefit to smaller businesses, where the greatest opportunities for unskilled and semi-skilled jobs exist.

The German response to this problem, which has produced youth unemployment rates half of ours (9.4 percent in July), has taken the form of government forgoing the payroll taxes on young workers, together with subsidies for employers providing half-time employment, and distance and other learning opportunities tailored to employer needs. The per-capita costs of such a system are relatively modest. The cost of 15.3 percent in forgone payroll taxes on 20 hours a week of earned income at the minimum wage amounts to about $1,300 per worker per year. A 50 percent wage subsidy paid to the employer as a refundable tax credit or otherwise would cost less than $5,000 per half-time worker per year.

These measures, embodied in uniform and simple tax rules, would send a message to the whole society, not just those parts of it patronized by the youth jobs bureaucracies. The employment provided would be low-wage work, but austerity is better than idleness for the young.

It also would not hurt to raise the low ($7,000-$10,000) wage bases on which federal and state unemployment taxes are levied; these fall disproportionately heavily on low-wage workers and the companies employing them. The disgraceful organized-labor-induced prohibition on the employment of "helpers" on federal construction projects under Davis-Bacon Act regulations should also be repealed, and in the case of very young workers, there might be a reduced minimum "training wage."

This is also a place here for the bully pulpit, unused by our passive president. It is doubtful that our nation's large companies are acting prudently by failing to recruit younger workers. This kills the seed corn; moreover, the opportunity to recruit competent and motivated young workers is greater when jobs are scarce.

Today's youth unemployment numbers are a threat to the nation's future political and social welfare. They should be depicted as such and addressed accordingly.

George W. Liebmann, a Baltimore lawyer, is the volunteer executive director of the Calvert Institute for Policy Research. His e-mail is george.liebmann2@verizon.net.