Understanding the Unemployment Picture: Unemployment Rate by Age and Education

November 20, 2011

Unemployment rates have increased across all age groups and education levels, but the Great Recession has hit young members of the labor force the hardest, Waller says. Employment prospects are also worse among the less educated, regardless of age.


Christopher Waller: Now, one of the things about unemployment is the numbers I showed you in that first unemployment slide, that's when we look at everybody. But, of course, unemployment is not going to be felt by everybody equally. So what I've plotted here is, the black line is total unemployment. The blue line is 20 to 24-year-olds, which includes a lot of college graduates right now, my daughter included, who's looking for a job, if anybody's looking to hire somebody. And the red line is 16 to 19-year-olds.

Now remember that's high school graduates two years out of high school, 18-year-olds and 19-year-olds out of high school. You can see that this recession has a—it's always more severe for young workers than the rest of the population, but it's been especially severe in this recession. The unemployment rate for teenagers is over 25 percent. Okay? Those are Great Depression unemployment numbers. One out of four teenagers who are looking for a job cannot find one. For college graduates, it's over 12 percent. It's around 14 to 15 percent. Of young college-age college graduates or partial college years, almost 15 percent of them are unemployed. Okay?

So this has got a lot of us very concerned that the young people in this recession are being hammered severely. And one of the things we know from some research in this area, or the evidence suggests, the worse the labor market is when you come out of college and look for a job, the lower your entire lifetime earnings stream is. Okay? So when you start matters. If you start in a severe recession, it affects you potentially permanently. So that's one thing,that the longer this goes on, the more the long-term potential damage is to young workers entering the labor force.

All right, another pre-poll event question. Now I showed you age, but another thing we always talk about is education. So we asked the question, how important do you think differences are for individuals and their levels of education or training or skills in the current level of unemployment? Most of you said 52 percent "very important," 35 percent "important." So everybody has kind of figured out that education matters. So that's what I'm going to show you, that you're all right on that one. Whoa, something happened to that slide. It says some stuff here. I think it's in Ukrainian, but I'm not sure. This I think is less than 4 percent, 4 to 7 percent, 7 to 10, and over 10. Ha, pretty good.

So what we can see is 10 percent of respondents thought the college graduates had an unemployment rate of less than 4 percent. And almost nobody said high school graduates or high school dropouts are less than 4. And you've kind of got, basically, the ordering somewhat right, right? The college graduates are going to have the lowest unemployment rate, high school graduates the next lowest, and high school dropouts with the highest. That's what your survey answers were, and here's what the data shows.

So the red line is anybody, independent of your age. 70-year-olds and 25-year-olds that have a college degree, the red line is kind of your unemployment rate. So you can see for a long period of time, the unemployment rate for college graduates was 2 to 3 percent. It's now popped up a bit over 4. If you're a high school graduate, for a long period of time your unemployment rate was around 4 to 5 percent. It's now up to 10. And if you are a high school dropout, your unemployment rate—now remember this is all ages. This isn't just, you know, young high school—this is everybody who dropped—ever in their life who dropped out of high school. Your unemployment rates are 14 to 15 percent.

So what I always try to tell people—and this is one of the pictures I show you—is if you know any kid who's thinking of dropping out of school, give them a good, swift kick in the backside. Okay? Because the rest of their life, they're going to be staring at relatively high unemployment rates. It's just, that's going to be the thing. We are in a skill-premium or skill-driven economy, and it's gotten more severe that way. That's just a fact of life. If you don't have the skills, your job market experience is not going to be fun.

Now here's a kind of a narrower cut on education. And, again, you can see less than a high school diploma and your unemployment rate's 15 percent, and it just steadily goes down with education. So if you have a bachelor's, it's around 5 percent now, master's about 4, professional degree a bit over 2, and if you're a doctorate, it's under 2 percent. So, again, one thing everybody guessed and is correct, the more education you have, the better your chances are of having a job.

It's also true it's better in terms of your income and to the types of job that you're going to have. Typically, high school dropouts are all in menial labor and kind of lower-end manufacturing jobs. Okay? College graduates are all up in more professional manager—it's just job selection matters as well based on education.

Now one of the things that, again, has policymakers concerned at all levels is the increase in the duration of unemployment that has occurred. If you go back to May 2007, what you see is that 36 percent of the unemployed, when you measure them one week as unemployed, they're unemployed for less than five weeks. So you check somebody, say, "Are you unemployed?" they'll say "yes." You go back five weeks later, one out of three people will have a job. The number of people over six months is only 17 percent. So six months or longer you've been out of work, 17 percent.

Now look at this chart. Less than five weeks, only 19 percent. Those over 27 weeks is 42 percent. Okay, this number is more than doubled. So what we have is nearly half of the unemployed have been out of work for six months, not a short spell, but a long spell. That's the highest that number has ever been. Even when you go back to '81 and '82, the duration was not that long. The reason why, unemployment spiked up, and then it spiked down. Now it's spiked up, and it's just staying up. It's not coming back down.

Now why do we care about duration? Well, there's a lot of evidence that suggests potentially that the longer you're out of work, there's a loss of job skills, a loss of market contact. There's something that starts popping up that we in economics call a lemons problem. People start saying, "Well, why are you out of work so long? Is there something wrong with you? You're maybe not a good worker. Is there something there?" So a lot of negative things start kicking in the longer and longer you're out of the—excuse me, unemployed.

This popular lecture series addresses key issues and provides the opportunity to ask questions of Fed experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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