The Economic Disappointment of Generation O

Yet another resume arrived in my email box this week, from a young man who graduated with a BA in economics and a minor in math last May, and has yet to find a job. He’s a graduate of York College of Pennsylvania, with summer job experience as an engineering technician at the Patuxent River Naval Air Station in Maryland.

Unable to find a job in an economy with persistently high unemployment because of weak job growth, Anthony Lewis is now looking for an unpaid internship. As a new entrant to the labor force he doesn’t get unemployment insurance. He’s just looking for a job.

Anthony is not alone. The unemployment rate in 2010 for newly graduated men and women with bachelor degrees was 9.2 percent, far higher than the 5.1 percent rate such adults experienced in 2005.

This is Generation O: the age cohort that contributed, registered, volunteered and voted for Barack Obama with greater intensity than we have seen since at least the 1960 presidential election. Since then, the effect of President Obama’s failed economic policies has fallen most disproportionately on them.

The unemployment rates among Generation O not only suggest personal disappointment, but also large and lasting implications for them and for society.

A paper forthcoming in the American Economic Journal Applied Economics found that graduating in a recession leads to earnings losses that last for 10 years after graduation.

The authors, University of Toronto economics professor Philip Oreopoulos, Columbia University professor Till von Wachter, and economist Andrew Heisz of Statistics Canada, found that earnings losses are greater for new entrants to the labor force than for existing workers, who might see smaller raises, but who have jobs. In addition, recessions lead workers to accept employment in small firms that pay lower salaries.

That, in turn, may help to explain why there is in our country a creeping fear of downward mobility, a prospect that Generation O will not do as well as their parents.

Young male graduates have been particularly adversely affected, with an unemployment rate of 11 percent, compared to 7.9 percent for women. Five years ago male graduates had an unemployment rate of 5.8 percent, and the rate for females was 4.5 percent.

This divergence in male and female unemployment rates was a product of the last decade. In 2000 young men and women graduates had similar unemployment rates.

This is puzzling because young men tend to major in science, technology, engineering, math, and business, fields that should be in demand. However, young women may be finding jobs in the service sector, particularly education and health care, which has seen steady growth during the recession.

How would Generation O fare if they remained in school, and earned a master’s degree? Not that much better. The unemployment rate for MA degree holders was 7.7 percent in 2010, up from 4.6 percent in 2005.

Breaking the data into subsets tells an even starker story. White males with bachelor’s degrees are commonly regarded as a privileged class, but they have not been insulated from economic trends. According to unpublished Labor Department data, their unemployment rates have more than doubled over the past five years, from 5.2 percent in 2005 to 13.1 percent in 2010. Rates for white female grads have soared, from 4.1 percent in 2005 to 12.3 in 2010.

Black male BAs have fared even worse, with unemployment rates tripling from 6.5 percent in 2005 to 24 percent in 2010. This means that nearly one quarter of the black males who made it through a four-year degree program was unemployed.

Politicians and educators tell minority students that educational attainment is the path out of poverty, but this is not persuasive if 24 percent of our black male graduates are unemployed.

As if lack of a job isn’t bad enough, large increases in college tuition in recent decades mean that Generation O is graduating with a lot of debt. According to Howard Dvorkin, founder of Consolidated Credit Counseling in Fort Lauderdale, students who graduated in 2011 left school with almost $23,000 in student loans, the most ever.

Anthony told me that he owes $21,000 in student loans, and he needs to start repayments in November.

That’s one reason why rates of recent graduates living at home with either a parent or grandparent have increased. In 2005 the share of 20-24 year olds who had at least a bachelor’s degree but were living at home was 36 percent, and it reached 43 percent in 2011.

It used to be that if you graduated from college with a degree you were assured of a job. For many in Generation O, this is no longer true.

It’s not just bad luck, or President George W. Bush’s fault, as Mr. Obama tries to suggest. Mr. Obama has promoted an Old Economy model that favors big corporations, labor unions and more government. But Generation O thrives best in a New Economy model that favors nimble start-ups, hard-charging union-free workplaces and minimal government interference.

Generation O voted for Barack Obama believing him to be a new kind of leader, but he has delivered them an Old Economy with European-style mandates (think Obamacare), sclerosis, and dysfunction. They put him in the White House, Barack Obama has consigned them to their parents’ house. Clearly, only one side made out well on that deal.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets