Convenient narratives drive these 4 misconceptions about economic opportunity. Here is the truth and why it matters.
Myth 1: Young People Aren’t Working
You’ve heard it all before. Young people today don’t want to work. They’re too entitled. All the good jobs have been taken by illegal immigrants. Minimum wage laws have squeezed them out of the market. Today’s overprotective parents don’t want their kids working manual labor jobs. Young people would rather be inside playing video games or chatting on social media anyway.
All of these quite frequent refrains have been used to explain the ever increasing share of the population of young Americans without jobs, often implying the requisite social ills that come from idle hands. And the concerns are not altogether unreasonable. In fact the Bureau of Labor Statistics has reported an ever growing youth unemployment rate — defined as people between 16 and 24 without a full time job — since it started tracking this data in 1955 (see chart).
From my vantage point, the statistics seem to have some basis in reality on the ground. The town where I grew up, for example, was in the ’80s and ’90s made up of small retail shops and fast food restaurants primarily staffed by neighborhood teenagers and college students in between semesters. Visiting today, it’s striking how different the local employment demographics are. Once the province of pimply faced local adolescents, large numbers of recently arrived immigrants and middle-aged adults are now taking orders, bagging groceries and bussing tables in the stores and cafes around town.
But what all the first-glance evidence, both anecdotal and statistical, tends to ignore is the fundamental shift in young people’s employment behaviors and preferences, mostly driven by information technology. In other words, it misses the meteoric rise of the independent worker, which includes freelancers, short-term contractors, cash employees and, most importantly, participants in the sharing economy. In case you haven’t heard, the sharing economy, or gig economy, represents the Ubers and Airbnbs of the world, where people converge via online networks to share or exchange services on a repeating basis of small transactions.
According to a poll conducted recently by Time magazine, 44% of U.S. adults have participated in the gig economy, “playing the roles of lenders and borrowers, drivers and riders, hosts and guests.” The same report estimated that 45 million people routinely work these jobs, and they are most often young males. That’s a staggering number of young drivers and apartment renters. But of course, if the number is to be believed, we also have to factor in young folks who make their living selling online goods, blogging professionally, and conducting any number of other virtual businesses that go on anonymously and unseen from suburban basements and urban lofts throughout the USA.
Another trend not accounted for in the oft-heard youth unemployment narrative is the trend of young people taking internships, which are simply not reflected in official employment statistics. According to a 2014 report from the National Association of Colleges and Employers, 61% of the graduating class of 2014 served in an internship or co-op experience before finishing school. These numbers have grown steadily over time. Though about half of these internships were unpaid, the numbers indicate that millions of college-aged individuals are in the workforce performing important job functions while not being tallied in the data or most media reports.
So what’s it all mean? There are many implications about this development, both concerning and uplifting, but the important takeaway is that opportunities are still prevalent if you know where to look. Young people are taking advantage.
Myth 2: Government Policy Can Fix Inequality
When Bernie Sanders and popular commentators discuss the casualties of globalization, free trade and the decline of the quality of life for the average American worker, they have a point. The numbers don’t look good. Whether it’s stagnant incomes, deteriorating health conditions, unemployment or inability to afford a home, there is no question that large segments of our population have been left behind by changes in the U.S. economy.
Regardless of what you think about free trade or free markets, this country cannot be a world leader or beacon of prosperity if large segments of our population are incapable of holding steady jobs or delivering reliable skills in a competitive marketplace. We’re only as strong as our weakest link, or so the thinking goes. And right now, the gap between the richest Americans and the poor and working classes is wide and growing.
But the idea that we need the federal government to step in and fix the problem is not rooted in any historical evidence. On the contrary, there is ample data to suggest the opposite is true, as well as plenty of ammunition on the side of those who believe that growing government is a chief underlying cause of the problem.
In the past eight years, growth in the size of the federal government has significantly outpaced economic expansion. This public sector growth was ostensibly a result of increased stimulus to bolster the economy during the recent recession and contribute to public works, infrastructure and larger safety nets for citizens. And yet, average incomes are stagnant or decreased, labor participation is at a 40-year low, collective public debt is nearing unsustainable levels and we never saw the promised upgrades in our roads, bridges and communication networks. Meanwhile, a majority of Americans now depend on federal benefits of some type for their survival.
Take partisanship out of the equation. From a utilitarian perspective, these are not positive signs. Certainly not the hallmarks of a thriving country with a healthy, hungry populace. These are the reflections of a people with a damaged psyche and an overpaid psychiatrist. Reliance on a highly unpopular bureaucracy to address the issue is the equivalent of throwing water on an oil fire: it’s intuitively tempting but scientifically liable to blow up in your face.
With that said, a Bernie Sanders style government redistribution plan could certainly even out the scale of results. Richer folks would make less, and poorer citizens would theoretically reap more government rewards. But the costs would be steep. Innovation would take a hit. Work incentives would suffer. Private businesses would flee the country. Research and development would become almost completely government controlled, meaning fewer random explosions of creative genius and more centrally controlled agendas subject to the whims of the political party in power.
When proponents tout this kind of system to make us more like Europe, they’re absolutely right. We’d likely get more accessible healthcare, “free” college tuition and generous entitlements to create more guaranteed comfort for all American citizens. Just like Western European nations. We’d also get higher costs of everything (cars, food, rent), higher taxes, lower home ownership rates, less entrepreneurship, and lower social mobility. Also just like Europe, except without the beautiful medieval castles and charming old country traditions.
If that’s a worthwhile trade off to most Americans, then so be it. But my guess is the descendants of a political experiment created by Jefferson, Franklin and Washington won’t be heading down that path anytime soon.
Myth 3: The Cost of Higher Education Is Too High
Speaking of rising costs, there is a higher education bubble in this country. Fees associated with a traditional college education have been rising year after year for at least the past two decades (see chart below). According to the College Board, the average cost of a “moderate” college budget for an in-state public college for the 2015–2016 academic year was $24,061, and at private schools it was $47,831. That’s high.
Finding a culprit for constant tuition inflation isn’t easy. Government guaranteed loans have made college more accessible to more students and created a debt boom not unlike that of the housing bubble that tanked the U.S. economy in 2008. And steep state budget cuts in the wake of that recession have led to colleges raising prices to make up for funding shortfalls. But the simplest explanation for continued price increases is that, whether paid for via loans or cash out of pocket, people still think college is worth the price of admission.
However, this admission price doesn’t have to be exorbitant, and can in fact be supplemented with experiential learning, internships, vocational training and other efforts to increase a student’s employability and long-term career prospects. Step one is recognizing that the majority of companies competing in the global economy today care a lot less about a fancy degree than they do about the level of maturity, skill and competence a candidate brings to the job.
Alternatives to a pricey four-year university are many. For one, students today can attend community colleges for two years before transferring to a bachelor program at a bigger school, thus offsetting costs drastically. The College Board reports the average annual cost of a two-year community college is under $3,000. Based on average costs cited above, this means students can shave off up to 40% of the total price of an undergraduate degree by starting on the junior college route.
Another way to approach the problem is for young people to ask themselves if attending college in the first place is the right choice. While we seem to be bombarded by the national message that everyone needs a degree, the truth is more complicated. According to a 2014 Federal Reserve Bank of New York study, nearly half of college graduates in the past 15 years are working jobs that do not require a bachelor’s degree. Given the costs of a traditional university education, pursuing other angles seems worth some careful consideration.
As pointed out by a recent Wall Street Journal report, high school apprenticeship programs offered by companies like Siemens and John Deere are producing entry-level annual salaries above $50,000 for students who receive an associate’s degree. With the retirement of legions of Baby Boomers, many well-paying professional trades around the country are in desperate need of new talent, including HVAC technicians, electricians, machinists and tool makers (see chart below). Unfortunately, many students are not aware of these opportunities because recruiters, high school guidance counselors, financial institutions and university administrations are incentivized to push young people toward college.
If the idea of such a decision is daunting, families should discuss with their teenaged children the option of taking a year or two off from school to decide about the future. In the meantime, prospective students can find an internship, take online classes or get a job and save some money. Or if they are feeling adventurous, a long international trip can also pay lifetime dividends. Whatever the activity, the key is to focus on receiving work and life experience that can round out a resume and help students put the world in perspective before jumping headlong into a college experience that will determine their career trajectory.
Myth 4: Rapid Technology Advances Will Supercharge Our Economy
This is a complicated subject and in some ways represents the seminal challenge of the modern American economy. There is no doubt that we are on the cusp of incredible technological progress that will result in drastic productivity increases. Infusion of spectacular new devices into everyday life will create unparalleled convenience and limitless possibility for businesses and consumers alike.
But there is a downside to this brave new world, as the increased efficiency and efficacy of modern wonders push legacy models to the brink of oblivion. We’ve already seen it with newspapers, bookstores, taxis and travel agencies. And the ongoing integration of drones, robots and automation will continue to disrupt industries such as restaurants, retail, tourism, agriculture and healthcare. Even sexier innovations such as augmented and virtual reality have put entertainment, design and customer service businesses and their employees on notice.
While the results will undoubtedly be great for consumers, how they affect the average worker is a different story. Jobs will be lost. Workers will be replaced. A wealth of institutional experience, wisdom and skills will become worthless. People will be physically, mentally and spiritually frustrated and resentful. This has already happened, and goes a long way toward explaining the election season phenomena of Donald Trump and Bernie Sanders. Unfortunately, no matter who becomes the next president, the rise of the robots will only accelerate. Increased minimum wage, better illegal immigration enforcement and tighter trade deals are all policies that favor more corporate automation. So the question is what will happen to the American rank and file worker?
On the other hand, throughout history every sea change in new productivity technology has ultimately resulted not just in better consumer experiences but also increased employment. Or at the very least, increased quality of employment (i.e. more comfortable and dignified work). For example, the introduction of the automobile destroyed an entire industry related to horse-powered labor and transportation, but no one laments the unemployment it caused. Why should it be any different this time around?
In truth, it may not be. Our current technological advancement will be a net positive for society and possibly even increase employment at some point. If it does not increase work, perhaps we will all just have more leisure time, as futurists have long predicted (so far, inaccurately). That’s why it’s critical that we manage this evolution wisely. We have to find a place in society for the manual laborers, drivers, waiters and assembly line workers left empty-handed. Eventually, this list of affected industries will expand to include white collar jobs like writers, lawyers and real estate agents. There will be many casualties.
But we have to remember that the success of the U.S. is dependent on giving everyone access to the pie. There is no reason this access should not be increased with the wealth of new technologies. It will require education and the guarantee of economic liberty and mobility. We should also push for the elimination of corporate rent-seeking, government corruption and excessive regulation. In fact, there are technologies that already exist today that could drastically reduce costs and increase efficiencies in energy, communications, healthcare and transportation. But often government controls and bad legislation have slowed or blocked their adoption into the mainstream. This must change.
The truth is that we have a long slog in front of us, and there will be many jobs lost and industries replaced or revolutionized. It’s crucial that through this transition we continue to invest in our most important capital: human beings.