How Entitlements Can Perpetuate Youth Unemployment

May 31, 2012

Persistently high post-recession unemployment is ravaging the economic prospects of younger workers, delaying their skill development and eroding their work ethic.  But blaming the recession alone is misguided.  We must also address longer-term trends in education, labor and capital, largely due to government policies.  Social Security and Medicare, for example, are shifting wealth away from younger generations, discouraging saving and therefore education and skill acquisition, says Jagadeesh Gokhale, a senior fellow at the Cato Institute.

The gradual erosion of traditional sectors of the economy has given way to a large portion of the workforce whose skills are mismatched with available jobs.

  • Long-term labor shifts are hurting employment as many middle-class jobs have shifted from manufacturing to services over the past two decades.
  • At the same time, the information-technology revolution has made it harder for lower skilled workers to find higher paying jobs.
  • Some who were laid off from such jobs continue to demand higher wages, further delaying the recovery of employment.

Moreover, there are fundamental factors in America's education system and consumption patterns that are undermining recovery for younger workers.  The share of workers with postsecondary education leveled off during the 1990s.

In addition, increased competition from the globalization of labor forces necessitates a new approach.

  • Workers will have to innovate on the job and use new technologies, and efficiency will become more important, requiring workers to continuously update their skills.
  • The focus on skills speaks to the need for greater governmental incentives (through tax credits) for young workers to expand their skill set.

Additionally, government policies can encourage greater national savings through entitlement reform.

  • Under current policy, for example, Social Security will shift $20.5 trillion to older generations, funded by younger and future generations' payroll taxes.
  • Medicare is expected to transfer even more ($27.8 trillion), even with savings under health reform.
  • A government that seeks to help its youngest workers would address this problem by placing greater taxes on Social Security benefits and increasing copays for Medicare.

Source: Jagadeesh Gokhale, "How Entitlements Can Perpetuate Youth Unemployment," Cato Institute, May 18, 2012.

For text:

http://www.cato.org/publications/commentary/how-entitlements-can-perpetuate-youth-unemployment

 

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