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Why Younger Workers Are Being Locked Out of Jobs

A surge in older workers has masked the severity of unemployment as the younger jobless find it increasingly more difficult to get back in the labor force, according to research from a prominent Wall Street economist.

Winston Davidian | Photodisc | Getty Images

Citigroup's Steven C. Wieting's work also throws doubt on a key assertion that some of his counterparts have used to explain a 31-year low in the labor force participation rate — namely that the number has plunged because America is getting older.

Instead, the participation rate from the 55-and-older crowd actually has increased 6.8 percent since the job market began its slide in 2007, while the decrease has come mainly from teenagers and those between ages 35 and 54.

"The rise in labor force participation among 65+ workers is a clear supply positive for the U.S. economy," Wieting said in a research note. "But we are concerned with the long-term social costs of structural unemployment for younger cohorts given their potential failure to build private savings for retirement."

The national unemployment rateslipped to 8.1 percent in August, but mostly because the participation rate — those either working or looking for jobs — hit its lowest mark since September 1981.

Since the March 2007 peak in total employment, the economy has lost a net of 4.5 million jobs, a total that includes the 4.1 million positions President Obamaoften points to as being created since December 2009.

But excluding the 4.4 million jobs that have gone to workers 55 and over since 2007 — 1.4 million to the over-65 group alone — the economy has lost 8.9 million jobs, marking a total 7.4 percent decline.

Looking at job losses of younger workers is important, Wieting said, because they are the ones whose taxes are expected to pay for government programs designed to benefit the elderly.

With long-term unemployment near historic highs, the younger unemployed are finding it tougher to re-enter the workforce as their skill sets fall behind and their professional contacts diminish, a condition known as "hysterisis."

"To be sure, we count the unusually strong and increasing labor force participation of older workers as an absolute positive for the U.S. economy," Wieting said. "But the failure of mid-career aged workers to find employment might drive unexpected long-term social costs."

The findings also are consistent with the types of jobs being created during the recovery.

Lower-wage positions (paying $7.69 to $13.83 an hour) accounted for just 21 percent of the job losses during the recession but are 58 percent of the new jobs created. At the same time, mid-wage positions (paying $13.84 to $21.13 an hour) were 60 percent of the recession losses but only 22 percent of those during the recovery, according to the National Employment Law Project.

Wieting said government fiscal policies should focus closely on dealing with the hysterisis phenomenon.

"We reemphasize that long-term fiscal stability depends importantly on affordable entitlement programs. But relatively full employment is also a requisite," he said. "Employment, income and wealth trends should suggest new fiscal stabilization efforts should be very broadly shared amid a critical need for near-term employment recovery."

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