Damage Done to the Purchasing Power of the Young and Uneducated

Lack of participation in the labor force is fueled by a lack of education which ultimately results in reduced purchasing power, but who’s getting the short end of the stick here — at the end of the day — high school graduates, high school dropouts or college grads? And there’s a catch, employers also want experience.

High school graduation rates reached a record high of 80% in 2012! That would be great news, if it wasn’t for the fact that this “record-high” rate meant a full 20%, or one in five kids, didn’t finish the most basic level of education.

It’s possible that those who didn’t graduate got a general education development (GED) certificate instead, or will at a later point, but people with a GED tend to fare as well economically — have similar purchasing power — as those who got neither a diploma nor a GED.

So while reaching the 80% mark might be a move in the right direction, this is not a number that brings a lot of cheer.

And then there’s college… The percentage of the population with a college degree has continued to grow, albeit slowly, for decades. This trend is coming to an end because the percentage of high school graduates enrolling in college has rolled over.

After reaching a high point of 70% in 2009, only 66% of these kids enrolled in college in 2013. There’s an argument to be made that in years past, too many kids were entering college. They simply went to college because everyone else did, but lacked direction, preparation, or both. Given the cost of college, the recent economic downturn caused many families to re-evaluate if pursuing higher education was the right choice.

This is a great development, but it was brought on by a tough situation. Now we have a few more kids who are getting all the way through high school, but fewer young people entering college, so there are more people getting off the education train in the middle.

Unfortunately, this isn’t translating into more employment. In fact, it’s resulting in reduced purchasing power. While recent college graduates work to find jobs in their field, recent high school graduates struggle to find any employment. Those without high school diplomas are being left behind in record numbers.

In the late 1990s, over 80% of those with just a high school diploma were participating in the labor force (either employed or looking for work) the year after graduation, and roughly 70% had jobs.

By the early 2000s, participation in the labor force — the year after graduation — had dropped to around 78%, while employment had fallen to 60%. Over the decade, participation dropped well below 70%.

Now, with a slight upturn after the massive drop in employment during the financial crisis, labor force participation is back up to 74% while employment is at 51%.

The net effect is that unemployment the year after high school — among those with just a high school diploma — was running at 10% in the 1990s, and is currently at 23%.

As noted above, for those who didn’t graduate high school, it’s worse. That group had a roughly 65% labor force participation rate the year after high school in the late 1990s, while their employment rate was near 50%.

But the numbers have fallen dramatically since then, and have not staged much of a recovery. At the end of 2013, only 43% of this group was either employed or actively seeking employment, with 31% holding down a job.

Oddly, this makes the unemployment rate of this group — around 12% — look better than that of high school graduates, but that’s misleading. The key is that only 43% are participating in the labor force.

Where are the rest of them?

In the year after high school, where are the 26% of graduates not participating in the labor force, and where are the 57% of those who didn’t receive a diploma who aren’t participating in the labor force?

These kids get lumped in with others who don’t count toward labor force participation rates, like retirees and homemakers, but the differences are obvious. These young people are not on a path to a productive life.

It doesn’t mean they can’t or won’t get there; it simply means that they’re not on that path today.

This is part of where the sluggish employment situation shows up. Employees have a tough time getting raises.

Those with skills and experience can get jobs, but the inexperienced college graduates are taking positions outside of their fields of study, and often in jobs that don’t require college degrees.

This pushes high school graduates out of the running for such jobs, and kicks those without a high school diploma out of the equation.

With one in five young people not achieving a high school diploma, we can expect a very large social issue to erupt in the years ahead because this group will have little work experience, and little ability to establish and grow their own household.


Rodney

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Categories: Purchasing Power

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.