Despite a Tight Labor Market, Job Opportunities Lag for Eighth District Out-of-School Young Adults

The period from March 2022 to August 2023 was one of unprecedented labor market “tightness” in the U.S., with the unemployment rate reaching its lowest level since 1969.This pattern continued into September 2023, with the nationwide unemployment rate remaining below 4% that month. But has this shortage of labor benefited out-of-school young adults,We define out-of-school young adults as those who are between the ages of 16 and 24 and have no more than a high school diploma. They are also not enrolled in college. Their labor force attachment is weaker than adults’ and they are more sensitive to changes in the macroeconomy. who face a variety of hurdles to employment, including less education and fewer skills than other workers? The following analysis, which describes the recent labor market experiences of out-of-school young adults who reside in Eighth Federal Reserve District states,The Eighth District includes all of Arkansas, eastern Missouri, southern Illinois, southern Indiana, western Kentucky, western Tennessee and northern Mississippi. For the purposes of this analysis, we examined state-level data. suggests that nonenrolled young adults have made gains but continue to encounter major impediments to getting or maintaining a job. See this July 2023 Regional Economist article for an analysis of the recent labor market experiences of Black men; like out-of-school young adults, they have weaker labor force attachment and are more sensitive to changes in the macroeconomy than workers generally.

The Eighth District Labor Market’s Macro Context

The experiences of workers, including out-of-school young adults, can vary based on the overall labor market. To better understand a particular demographic group’s sensitivity to changes in area economic conditions, it is important to consider how the macro context affects indicators of labor market experience, such as the unemployment rate.

To that end, we looked at four periods of labor market activity based on the U.S. unemployment rate:

• The period before the COVID-19 pandemic (January 2017 to March 2020)Although March 2020 is generally considered the start of the pandemic in the U.S., the full impact of COVID-19 on employment isn’t wholly reflected in that month’s data, so we’ve excluded it from the early pandemic period.
• The early pandemic period (April 2020 to July 2020)
• The labor market recovery period (August 2020 to February 2022)
• The recent period of labor market tightness (March 2022 to August 2023)At the time of this writing, unemployment rate data were available through September 2023, but state-level job openings data were not. Thus, our analysis extends through August 2023. In September 2023, the U.S. unemployment rate was 3.8% and the unemployment rate for Eighth District states was 3.6%.

The following figure compares the U.S. unemployment rate and the unemployment rate for Eighth District states from January 2020, immediately before the start of the pandemic, through August 2023, the end of the entire period we examined. U.S. and state-level unemployment data are from the U.S. Bureau of Labor Statistics.

Unemployment in the U.S. and Eighth District, January 2020-August 2023

SOURCES: BLS and authors’ calculations.

Eighth District Out-of-School Young Adults’ Employment Vulnerability

The unemployment rates of out-of-school young adults in Eighth District states are at least twice those of adults, indicating the higher difficulty of their job searches. Their unemployment rates are also more sensitive to changes in the job openings rate.

As the next figure indicates, an increase in the job openings rate has a larger impact on unemployment for out-of-school young adults than it does on unemployment overall. Among all those age 16 and over, a 10 percentage point increase in the job openings rate is associated with a 0.23 percentage point decline in unemployment. The declines range from 0.33 percentage points to 1.66 percentage points for out-of-school young adults, depending on their race and location.

Tight Labor Markets and Employment Outcomes for Young Adults

The tight labor market period (March 2022 to August 2023) represents an extended time of extremely low unemployment rates in Eighth District states. Sustained low unemployment tends to improve the labor market outcomes of out-of-school young adults. To see how, we compared employment outcomes in this period with those prior to the COVID-19 pandemic, during the pandemic and in the employment recovery period.

The figure below shows that unemployment rates for Eighth District out-of-school young adults exceeded unemployment rates for the general population in any of these four periods—regardless of race, ethnicity and area of residence. On a positive note, the jobless rate for all groups of out-of-school young adults was lower in the tight labor market period than it was prior to the pandemic. However, even amid this tightness, their unemployment rates remained elevated, sitting at 9.3% for all out-of-school young adults, 15.8% for out-of-school young Black adults and 12.5% for out-of-school young adults living in urban core areas.

Unemployment among Eighth District Out-of-School Young Adults by Period

Using Beveridge Curves to Explain Unemployment Differences

To describe the unemployment rate patterns of out-of-school young adults in Eighth District states, we used the Beveridge curve.For more on how the Beveridge curve shifted during the recovery period, see the July 2022 On the Economy blog post “What Does the Beveridge Curve Tell Us about the Labor Market Recovery?” The Beveridge curve illustrates the relation between the unemployment rate and the job openings rate. The job openings rate is the number of open jobs divided by the sum of job openings and employment level. The Beveridge curve typically slopes downward, because there are fewer job openings during periods of high unemployment. The job openings rate, or vacancy rate, decreases as the unemployment rate increases.

Location on the curve itself indicates the condition of the labor market. For instance, a low unemployment rate and a high vacancy rate point to a tight labor market. An economy that’s shifting from recovery to labor market tightness represents an upward movement along the Beveridge curve.

Beveridge curves can also shift over time as the job-matching process becomes more or less efficient. Greater efficiency, for example, means that the vacancy rate will be lower at a given level of unemployment. If there are barriers to the job-matching process, such as a lack of access to child care, workers may not be able to join the labor force even though they want to, causing the curve to shift outward. At a point in time, Beveridge curves can differ across demographic groups because one group may face more hurdles in their job searches.

The figure below shows the Eighth District Beveridge curve for all those age 16 and over. The curve shifts outward during the pandemic because many people left their jobs due to health considerations, and then shifts inward during the recovery and tight labor market periods as people returned to work. In fact, the Eighth District Beveridge curve is near its pre-pandemic position.

Focusing solely on the tight labor market period, the next figure compares the Eighth District Beveridge curves for select groups of out-of-school young adults with the curve for all those age 16 and over. Beveridge curves for out-of-school young adults are quite different from the overall labor market, which suggests that structural barriersFor more on structural barriers, see our May 2023 Bridges article “Barriers to Participation in the Labor Force: A Primer.” persist in tight labor markets.

Beveridge Curves for Eighth District Out-of-School Young Adults in the Tight Labor Market Period

At higher job openings rates, the Beveridge curve for out-of-school young Black adults remained higher than the curve for their out-of-school young adult peers (see the above figure). This would suggest that race-specific barriers exist alongside the structural barriers facing all Eighth District out-of-school young adults.

Sources of Structural Barriers for Eighth District Young Adults

The St. Louis Fed’s Community Development team conducted 16 roundtables across the Eighth District between May 2023 and July 2023 that engaged 168 workforce and economic development experts about local workforce challenges and opportunities. These conversations yielded qualitative evidence regarding the sources of structural barriers to labor force participation.

Roundtable participants observed that many young adults in their communities were not working. They pointed to a rise in mental health issues, especially anxiety and depression. Recent analysis suggests that during the pandemic young adults were more likely than others to experience anxiety.See the May 2023 Economic Equity Insights article “Mental Health during the Pandemic.”

In addition, roundtable participants often identified a lack of soft skills among younger workers as a challenge they face, and they noted that generational differences in the workplace might create a mismatch between the expectations of employers or managers and younger workers. This might help explain why we found that out-of-school young Latino adults had an upward-sloping Beverage curve, especially in a tight labor market. Finally, younger workers were more inclined to gig work, which offers quick and flexible payments.

Addressing the Barriers to Labor Force Participation

Community-based organizations, in collaboration with government agencies and employers, are pursuing several strategies to address these barriers, according to roundtable participants. These include:

• Building partnerships with employers to create professional development opportunities for young high school graduates
• Creating or expanding wrap-around social services to support young adult workers throughout the job search and even post-hire
• Providing barrier-busting resources, such as rental and utility assistance, to out-of-school young adults so they can focus on performing a job or completing a training

Seizing the Moment to Support Eighth District Workforce Development

Roundtable participants claimed that greater coordination and exchange of information could improve the workforce development system. They also noted that employers’ attitudes have shifted because of recent skills and labor shortages. For example, employers seem more willing to develop partnerships to create apprenticeship programs for young adults. Therefore, there are more opportunities to think creatively about partnerships, programs and policies.

Finally, many Eighth District community-based organizations know what works. Yet, without adequate support they cannot maintain or scale up their programs. Pursuing these opportunities could enhance the region’s productivity and competitiveness.

Notes

1. This pattern continued into September 2023, with the nationwide unemployment rate remaining below 4% that month.
2. We define out-of-school young adults as those who are between the ages of 16 and 24 and have no more than a high school diploma. They are also not enrolled in college. Their labor force attachment is weaker than adults’ and they are more sensitive to changes in the macroeconomy.
3. The Eighth District includes all of Arkansas, eastern Missouri, southern Illinois, southern Indiana, western Kentucky, western Tennessee and northern Mississippi. For the purposes of this analysis, we examined state-level data.
4. See this July 2023 Regional Economist article for an analysis of the recent labor market experiences of Black men; like out-of-school young adults, they have weaker labor force attachment and are more sensitive to changes in the macroeconomy than workers generally.
5. Although March 2020 is generally considered the start of the pandemic in the U.S., the full impact of COVID-19 on employment isn’t wholly reflected in that month’s data, so we’ve excluded it from the early pandemic period.
6. At the time of this writing, unemployment rate data were available through September 2023, but state-level job openings data were not. Thus, our analysis extends through August 2023. In September 2023, the U.S. unemployment rate was 3.8% and the unemployment rate for Eighth District states was 3.6%.
7. For more on how the Beveridge curve shifted during the recovery period, see the July 2022 On the Economy blog post “What Does the Beveridge Curve Tell Us about the Labor Market Recovery?”
8. For more on structural barriers, see our May 2023 Bridges article “Barriers to Participation in the Labor Force: A Primer.”
9. See the May 2023 Economic Equity Insights article “Mental Health during the Pandemic.”