Labor Market Mystery: Where Are the Older Gen Z Workers?

The labor force participation rate for 20-24 year-olds has dropped to 70.8% relative to a pre-pandemic level of 72.1%, without a corresponding increase in educational enrolment

Bryan Mena, "Labor Market Mystery: Where Are the Older Gen Z Workers?"Wall Street Journal, November 13, 2022, https://www.wsj.com/articles/labor-market-mystery-where-are-the-older-gen-z-workers-11668278379

Labor Market Mystery: Where Are the Older Gen Z Workers?

The exodus from the labor force in the pandemic’s early months has mostly reversed, but one group remains oddly absent: people in their early 20s.

For people over age 15, the labor-force participation rate—the share of people employed or actively seeking a job—dropped from an average of 63.1% in 2019 to 61.7% in 2021, and recovered to 62.2% in October. But for people ages 20 to 24, participation that averaged 72.1% in 2019 stood at just 70.8% in October.

That equals a shortfall of about half a million workers in their early 20s when comparing the current size of that workforce with 2019 levels.

Those reasons don’t apply to people in their 20s, who are usually just starting out in their careers.

Demand for workers is intense. As states reopened their economies in 2021, employers were competing from a smaller pool of available workers. Wages rose robustly, job openings became plentiful and some employers even reduced their requirements to fill jobs.

That did the trick in luring 16- to 19-year-olds into the workforce, and they raked in the fastest wage increases of any age group last year. That group’s participation rate averaged 36.2% in 2021, the highest since 2009, and has since climbed to 36.6% this year through October.

Economists cite several possibilities for why so many people in their early 20s stayed on the sidelines.

In the past, a decline in labor-force participation among younger people has usually coincided with an increase in their school enrollment, generally reflecting higher relative demand for educated or highly skilled workers, especially in a weak labor market, economists said. That’s what happened during the 2007-09 recession—but it hasn’t been the case this time around.

About 1.5 million fewer students were enrolled in college this fall compared with before the pandemic, according to the National Student Clearinghouse, an educational nonprofit. College enrollment had been declining for a decade in part because of concerns about student debt and the rise of alternative credentials.

Overall enrollment in graduate and undergraduate programs across all ages was 3.2% lower in this fall semester versus two years ago. However, enrollment in graduate school among those ages 21 through 24 was 8.5% higher during the same period. That age group almost entirely drove the 1.6% increase in graduate-school enrollment from 2020 to 2022.

That might indicate that some workers in their early 20s aren’t working because they are pursuing a graduate degree, although some might be working while in school, said Andria Smythe, an economist at Howard University.

Workers in their early 20s may have decided to continue their education because of pandemic disruptions in 2020, when schools pivoted to online instruction.

“For a vast majority of students, going to college is just as much about the experience as it is getting the degree, so if that’s the case, they’ve missed out on the experience and want to figure out a way of getting it,” said Ron Hetrick, an economist at data-analytics firm Lightcast.

Some people in their early 20s are neither in school nor working. The Organization for Economic Cooperation and Development, an intergovernmental group that promotes economic growth, tracks the share of people who aren’t in employment, education or training, known as the NEET rate. The NEET rate for U.S. workers ages 20 to 24 rose from 14.67% in 2020 to 18.27% in 2021, the highest since 2014.

The NEET rate might have increased specifically for workers ages 20 to 24 because some of them might have dropped out of school in the early days of the pandemic when they were high-school seniors, according to Alejandra Grindal, senior international economist at Ned Davis Research Group.

“The NEET rate is always much higher among people who don’t even have a high-school education,” Ms. Grindal said.

These people appear to be disconnected from work, for reasons that include child care, the toll of long Covid, fear of catching Covid-19 and mental health.

An analysis of Census Bureau data by Gad Levanon, chief economist of The Burning Glass Institute, found workers in their early 20s who aren’t in school or the labor force overwhelmingly cited caretaking responsibilities, though the numbers hadn’t changed much since 2019. Covid-19 may also be keeping some of these workers on the sidelines.

Finally, 20-somethings might simply be waiting for the right job opportunity to come along, a luxury afforded by the ease of finding a job in the still-tight U.S. labor market.

“They might just be making decisions that are best suited to them and not necessarily rushing into the labor market to get the first job out there,” said Nicole Smith, chief economist of Georgetown University’s Center on Education and the Workforce.

Job openings began to soar in 2021 and have remained historically high this year. The number of workers quitting their jobs has also remained elevated, reflecting confidence in finding a new job.

“Movements like ‘work your wage’ and ‘quiet quitting‘ are very revealing of this changed mind-set for these young workers. They think that they have more bargaining power so some of them became more picky,” Justine Hervé, an economist at the Stevens Institute of Technology in Hoboken, N.J., said.

“Quiet quitting” and “work your wage” are both phrases popularized this year that mean working no harder than the job, or its pay, deserves.