College enrolment: Snob nation
Surging enrolment may help explain a labour-market puzzle
Mar 10th 2012 | WASHINGTON, DC | from the print edition
Unemployment always hits the young particularly hard, reducing the opportunity cost of going back to full-time education. An expansion of both federal Pell grants, from 5.5m in 2007-08 to 9.6m in 2011-12, and of college tax credits has helped defray costs, which may help explain why the share of students holding down jobs also dropped sharply after 2008.
This trend sheds light on one of the central mysteries of the recovery: why so many people have left the labour force. The proportion of the working-age population that is working or looking for work (the participation rate) has fallen from 66% in 2007 to below 64% in January. This has been an important part of the reduction in the headline unemployment figure. With fewer people entering the labour force, there are fewer job hunters to be counted as unemployed.
The drop has been by far the largest among 16-to-24-year-olds; their participation rate has dropped almost five percentage points since 2007. Alan Krueger, the chairman of Mr Obama’s Council of Economic Advisers, reckons this can explain almost a third of the drop in the overall participation rate.
That puts a different spin on a trend most economists have seen in a drearier light. They thought a lacklustre economy was suppressing participation by driving discouraged workers out of the labour market altogether, and that participation would rebound along with the economy. Mr Krueger agrees that part of the drop is due to lack of demand for labour because of the recession, but thinks something else is at work: the underlying trend in participation in the past decade has already been falling because of an ageing work force and a downdrift in participation by women. It may tick up in coming years as the young people now in college graduate. When they do, Mr Krueger notes, they will have more human capital, which will, with luck, earn them higher wages and boost the economy’s overall potential. Which would be all to the good, since they will have hefty student loans to repay.
The original article is linked here.
Written by gregip
March 8, 2012 at 1:43 pm
Posted in Labor market