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Journal Issue: Transition to Adulthood Volume 20 Number 1 Spring 2010

Labor Market Outcomes and the Transition to Adulthood
Sheldon Danziger David Ratner

Labor Market Outcome Trends for Young Adults

As noted, a young adult's ability to work steadily and become economically self-sufficient is a primary, if not the most important, marker of a successful transition to adulthood. We next describe changes in young workers' median earnings, in the extent of low-wage work, in employment rates and job stability, and in educational attainment and the returns to schooling. We note how many of these changes differ by education, gender, and race and ethnicity.8 Over the past three decades, the two primary labor market trends for young adults have been the declining economic status of those with at most a high school degree relative to those with a college degree or more and the increasing economic status of women relative to men.9

We focus on "older" young adults, those aged twenty-five to thirty-four, most of whom have completed their education and are intent on establishing themselves in the labor market. Peter Edelman, Harry Holzer, and Paul Offner note that younger male high school graduates and dropouts have fared even worse economically than the age group on which we focus.10 Updating their analysis of young men aged sixteen to twenty-four who are neither enrolled in school nor employed11 (men they define as "idle," indicating extensive labor market problems), we find that the 2008 idleness rate for young men of that age group was 12 percent for whites, 21 percent for blacks, and 15 percent for Hispanics. Among women aged sixteen to twenty-four, that rate was 13 percent for whites, 21 percent for blacks, and 26 percent for Hispanics.

As another indicator of labor market problems, Andrew Sum and several colleagues point out that teens have more trouble finding summer jobs now than they did three decades ago.12 In July 1973, the summer employment rate for youth aged sixteen to nineteen was 52 percent for boys and 40 percent for girls.13 By 2007, these rates had fallen to 34 percent and 36 percent. Thus, economic trends for younger workers are more negative than they are for twenty-five to thirty-four-year-olds, who are the focus here.

Median Annual Earnings by Education, Gender, and Race and Ethnicity
The median annual earnings (in constant 2007 dollars) of men aged twenty-five to thirty-four who worked at some time during the year fell by 21 percent between 1973 and 2007 (from $41,712 to $33,000); the median earnings of women workers of that age increased by 62 percent (from $16,685 to $27,000).14 The large annual earnings increase for young women was attributable both to increased employment and to increased real wages (the latter shown in figure 1).

Figure 2 compares median annual earnings of employed high school graduates aged twenty-five to thirty-four, by race and ethnicity and by gender, in 1973 and 2007. For white non-Hispanics, black non-Hispanics, and Hispanics, the inflation-adjusted median earnings of male high school graduates fell by 26, 25, and 29 percent, respectively (left side of figure 2).15 For women (right side of figure 2), the median for whites, blacks, and Hispanics rose by 37, 7, and 7 percent, respectively. Thus, for each race and ethnic group, the earnings of young women increased relative to those of young men. Figure 3 shows a similar pattern among college graduates. The earnings of young women increased relative to those of young men for each of the three race and ethnic groups. Median earnings increased for women, but were mostly unchanged for men.

A comparison of the left sides of figures 2 and 3 shows the widening educational differential for each race and ethnic group, holding gender constant. For example, in 1973, white male high school graduates earned 83 percent as much as white male college graduates ($41,712 compared with $50,055); by 2007, they earned only 62 percent as much ($31,000 compared with $50,000).

The Extent of Low-Wage Work
Trends in the median do not reveal how workers at other points in the wage distribution fared during a period of rising inequality. Thus, we examine changes in the share of young adults who are "low-wage workers," which we define as those earning less than $9 an hour in 2007 dollars. This wage exceeds the 2007 national minimum wage of $5.85 and corresponds to the 15th percentile of the 2007 wage distribution for all young adult workers. Working full-time, full-year (forty hours, fifty-two weeks) at this wage yields annual earnings of $18,720, which falls between the official poverty lines for a family of three persons and a family of four persons.16

Figure 4 shows that between 1979 and 2007, the percentage of young workers who earned less than $9 an hour increased for men in each of the race and ethnic groups and declined for women across the board. White men were 3 percentage points more likely to have low wages in 2007 than in 1979, whereas white women were 7 points less likely. Young Hispanic men were much more likely than white and black men to be low earners in 2007, and had the largest increase since 1979. Among young women, the declines were greatest for whites. In 2007 young women, especially the mothers of young children, had more education and more labor force experience and thus earned higher wages than their counterparts in 1979.17

Employment Rate Differences by Education, Race and Ethnicity, and Gender
The level and trends in the annual employment rate also differed by gender. Among all young men, the employment rate fell 6.6 percentage points between 1973 and 2007, whereas for young women, the rate rose 16.1 points. The gender gap in employment, therefore, fell from 35.4 to 12.7 points over this period.

Chinhui Juhn, Kevin Murphy, and Robert Topel document an increase in the fraction of the year workers spend either unemployed or out of the labor force—the non-employment rate.18 When we update their analysis for young adult men, the non-employment rate rose from 7.2 percent to 12.5 percent from 1973 to 2007. For women, the fraction of the year spent not working declined from 55 percent to 38 percent.19 The rate increased the most for black male high school dropouts, who spent 49 percent of the year on average non-employed in 2007, up from 18 percent in 1973.20

Juhn, Murphy, and Topel attribute part of the rise in male non-employment to the lower real wages offered by employers who, in part because of labor-saving technological changes, hired fewer less-educated men relative to more-educated ones. Michael Elsby and Matthew Shapiro suggest that choosing to work is analogous to getting on a "wage escalator," whereby workers earn higher wages with each year of labor force experience.21 Because the "wage escalator" for the less-educated flattened after the mid-1970s, the payoff to work over a lifetime has fallen substantially.

Figure 5 compares the annual employment rates in 1973 and 2007 for high school graduates aged twenty-four to thirty-five, by gender and race.22 Among men, the employment rate fell 23 percentage points for blacks, 7.3 points for whites, and 4.4 points for Hispanics, with the result that male Hispanic high school graduates in 2007 worked more than their white and black counterparts. Employment rates increased for each of the three groups of female high school graduates. Between 1973 and 2007, the male-female employment gap shrank for whites from 39.6 percentage points to 16.8 percentage points and for Hispanics from 31.7 points to 25.3 points. For black high school graduates, the gender gap in employment had been essentially eliminated by 2007; employment rates were 75.5 and 72.7 percent, respectively for women and men.

One reason why employment declined more for young black men than for young white men is the dramatic rise in incarceration rates for black men over the past three decades and the negative effect of a criminal record on an employer's willingness to hire.23 Steven Raphael reports that in 2001, among all adult men, 2.6 percent of non-Hispanic whites, 16.6 percent of non-Hispanic blacks, and 7.7 percent of Hispanics had served time in prison.24 Among younger cohorts, incarceration rates are higher: more than two-thirds of black male high school dropouts, and one-third of those with less than a college education, had been incarcerated by the time they reached their early thirties.25 Harry Holzer finds that increased incarceration accounts for an employment decline among black men of from 4 to 9 percentage points.26

William Julius Wilson offers several additional reasons for the more rapid decline in black employment—young black males' lower educational attainment (a "skills mismatch"), their residential concentration in the inner city during an era when jobs were moving to the suburbs (a "spatial mismatch"), and persisting employer racial discrimination, often reflected in how firms advertise for and recruit entry-level workers.27

Job Instability
Over the past thirty years the labor market has also seen increased "churning"—a term used by economists to refer to movements from employment to unemployment (involuntary job changes) as well as movements from one job to another (voluntary job changes), especially among younger workers.28 Involuntary job changes tend to be associated with negative outcomes; voluntary changes, with positive outcomes.29 Regardless of the subsequent wage changes associated with churning, job instability can lead young adults to postpone marriage or childbearing decisions and can reduce the likelihood of independent living. By making future employment and earnings more uncertain, increased churning makes purchasing a home or having a child a riskier decision.

The greater the extent of churning, the less time a worker spends with a single employer. Henry Farber analyzes the evolution of job tenure with a given firm for recent cohorts and finds that between 1973 and 2006, average private-sector job tenure for men, controlling for age differences, fell almost 25 percent, whereas female job tenure remained constant.30 The proportion of men aged thirty-five to sixty-four in long-term jobs, defined as tenure of at least ten years, fell from about 50 percent to 35 percent between 1973 and 2006. Farber concludes that the "company man" who spent a lifetime with the same employer in earlier generations is no longer a staple of the labor market.

Farber also documents substantial job churning among young workers.31 Between 1973 and 2006, about 34 percent of workers aged twenty to twenty-nine in private-sector jobs had held those jobs less than one year. Older workers are less likely to have job tenure of less than one year, suggesting that job churning has mainly affected the young over the past thirty years.

Although employment instability can delay the transition to adulthood, job churning in young adulthood might lead to better outcomes in later years. For example, making voluntary job changes from one firm to another can raise wages in the long run. By contrast, making many involuntary job changes can slow the acquisition of labor market skills and experience, which can reduce wages in the long run.

David Neumark documents the negative effects of job churning on future employment and earnings.32 An additional year of job tenure in the first five years after leaving school, he finds, leads to an increase, on average, in adult wages of about 7 to 13 percent for men and 12 to 24 percent for women. One additional job held in the first five years after leaving school reduces wages by 8 percent for men. Holzer and Robert LaLonde also find that shorter job tenure and job instability for young workers reduce wage growth and employment opportunities in later adulthood.33 The empirical evidence, therefore, suggests that the uncertain economic prospects faced by young adults may have long-lasting effects on employment and earnings.

Educational Attainment by Gender
Women's gains in relative earnings and employment over the past three decades are attributable in part to their increased access to jobs, particularly managerial and professional positions, and in part to their increased educational attainment, which in turn results in part from their improved labor market opportunities. Between 1973 and 2007, college completion rates more than doubled, from 16.4 percent to 35.9 percent, for women aged twenty-five to thirty-four, but increased only from 23.7 percent to 28.9 percent for men in the same age range. In 1973 young women were 7.3 percentage points less likely to have graduated from college than young men; by 2007, they were 7 points more likely to have graduated. College completion rates for women overtook those for men during the late 1980s.34

Some researchers have suggested that the improved economic status and educational attainment of young women relative to young men have contributed to delays in marriage and childbearing and to increases in divorce rates and single motherhood.35 Claudia Goldin uses the term "the quiet revolution" to describe changes since the late 1970s in the way that women view employment, education, and family.36 She suggests that thirty years ago women were secondary earners who worked if their families needed extra money, but that now they work because employment defines their "fundamental identity and societal worth."

Goldin notes that higher divorce rates and easier access to contraception have shortened the portion of their adulthood that women spend as wives. She contends that expectations of being married for fewer years have led women to invest more heavily in human capital, such as education in career-oriented subjects. Martha Bailey attributes women's increased investment in education to better access to contraception, particularly the birth control pill.37 Like Goldin and Bailey, Maria Fitzpatrick and Sarah Turner attribute women's greater educational attainment both to economic changes and to shifting social norms about women's roles and labor market opportunities.38

Increasing Returns to Higher Education
Although college-educated young adults have always had more success in the labor market than those with high school degrees or less, differences between the two groups have grown in recent decades. In particular, the wage gap between high school and college graduates in their first seven years after entering the labor force has widened. In 1973, male college graduates in entry-level jobs earned 33 percent more than men with a high school degree or less; for women, the difference was 52 percent. By 2007, the educational premium had grown to 79 percent for men and 92 percent for women.39 In addition, the gap in employment rates between male college graduates and high school graduates widened from 0.2 to 5.8 percentage points between 1973 and 2007. College-educated workers are also less vulnerable to recessions, as they are not the marginal workers who are generally laid off.

James Heckman, Lance Lochner, and Petra Todd estimate that the rate of return to a college degree compared with a high school degree increased from 13 percent to 18 percent between 1970 and 2000 for all white workers and from 14 percent to 24 percent for all black workers.40 David Card and Thomas Lemieux show that for workers aged twenty-six to thirty-five, college graduates earned 20 percent more than high school graduates in 1975, but 40 percent more in 1995.41