The recovery of employment since the 2008 crisis has been unusually slow. The unemployment rate has at last dropped below 7 percent because many have left the labor force. Total employment is still below its 2007 level.
Persistent unemployment can be due to structural causes. For example, contraction in housing and retail may reduce jobs in those industries, while there may be expansion in other industries that require skills that the unemployed do not have. Usually this type of unemployment is concentrated among older workers near retirement.
However, now high unemployment still persists among young workers as well. Delaware’s unemployment rate in 2014 versus 2007 is 19.6 percent versus 10.9 percent among 16- to 19-year-olds and 13.7 percent versus 5.4 percent among 20- to 24-year-olds according to the Bureau of Labor Statistics. At the same time, employers complain there is a shortage of qualified workers to hire. Ellen Kuhlman, the CEO of the DuPont Co., repeatedly cites the need for skilled workers in our state.
Why is there such a disconnect? Maybe there has been a change in the dynamics of the labor market.
Screening and training might be more difficult and costly. Without work histories, young workers are riskier hires. More training is needed due to computerization and automation while poor quality public education has raised its cost. In the past, lower initial wage and benefit costs offset higher screening and training costs. However, higher minimum wage rates, taxes, health-care mandates, etc., cut into the cost advantage of young workers.
In fact, recent research finds that the effect of a minimum-wage increase is to reduce the creation of new jobs. This makes it more difficult for young workers to get a foot in the door.
College students have been getting around this problem by taking internships, either paid or unpaid. Both sides gain. Firms have the opportunity to observe a potential employee’s work habits and skills without committing to providing a job should the student prove to be unsuitable or business needs change.
Students gain industry-specific skills and develop a work history that he/she can leverage to get the next job. College students are screened via the college admissions process and have more training. Non-college-bound students lack these advantages. Nor do they have a cost advantage. As the minimum wage rises there is evidence that employers shift toward fewer and higher-skilled workers and away from lower-skilled workers. Research shows that minimum wage increases disproportionately affect low-skilled, economically disadvantaged young workers.
Apprenticeships/internships for these students would be a good option. They could be designed by employers to suit their needs and allow them the chance to observe work habits before committing to employment. That would duplicate the advantages of college internships.
A model is the German style apprenticeship program. After the equivalent of 10th or 11th grade, students can apply to a private company for a part-time job. Students attend school for half of the week, and for the remainder they are trained in the technical aspects of their positions. The company pays for the schooling and the student earns an hourly wage. The program usually lasts two years, and the student ends the apprenticeship with practical and technical skills. German teen unemployment is currently less than 8 percent.
South Carolina has a similar program operating with 4,500 students and 600 companies. BMW scholars study at local community colleges and work 20 hours per week at the auto plant. Siemens has a large and similar pilot program there. Major features of South Carolina’s programs are that they cover many more fields than typical apprenticeship programs, they offer tax credits to employers and they offer assistance with program set-up. Other states and the United Kingdom have programs in the pilot phase. In the UK apprentices can be paid less than $5/hour while in training.
In Delaware apprenticeship programs have been mostly connected to the construction industry. These can be expanded to other industries, such as health care. Delaware could offer tax credits to offset the costs of training. Apprenticeship programs can be successful, and complement other job initiatives, including Jobs for Delaware Graduates. While that program has been successful, its reach is limited to at-risk youth, whereas apprenticeships would be open to all youth. It is time to think of new strategies to prepare Delaware’s youth for the global economy.
Stacie Beck and Eleanor Craig are associate professors of Economics, University of Delaware.