Generation X-onomics

Billed by the Clinton administration as an ``intellectual exercise'' from which ``nothing concrete'' would emerge, the jobs summit that drew labour and finance ministers from the Group of Seven countries to Detroit on March 14th-15th lived up to its promise in fine style. On general principles - free trade is good, labour markets should be flexible - there was anodyne agreement. On specifics - how flexible, say, and at what cost? - there was not. Mr Clinton's lieutenants admit privately that the summit was an acute reminder that, in many ways, America's employment dilemmas are different.

Nowhere was that more plain than in the discussions on youth employment. In all of the G7 countries save Germany, joblessness among people under 25 is worse than for the workforce as a whole. But that is where the similarities end. In Europe, young workers are at the sharp end of high overall unemployment; in America jobs are more plentiful, but often ill-paid or temporary or both. As Lester Thurow, an economist at the Massachusetts Institute of Technology, puts it: ``In Europe you get unemployment insurance; in the US you get a low-wage, dead-end, part-time job.'' For Mr Clinton's team, the second option is barely more palatable than the first.

It is not alone in feeling this way. In the past few years, many Americans have become convinced that a youth employment ``crisis'' is afoot. Economic recovery has done little to dissuade them. Jobs there may be, say parents and young workers alike, but not of a kind likely to lead to a stable career. Non-college graduates expect to earn little more than the $4.25-an-hour minimum wage. Even a college degree is no longer considered a guarantee of prosperity. A recent New York Times headline gave warning: ``When college is not enough''.

Such insecurity about jobs is a defining characteristic of Generation X: the ``baby busters'', aged 15 to 29, who now preoccupy the media as the boomers did before them. America's popular culture brims with stuff which could easily have been hatched at the Bureau of Labour Statistics - from books by Douglas Coupland, whose ``Generation X'' started it all (and coined the term ``McJobs''), to films such as ``Reality Bites'', in which Winona Ryder plays a college-leaver who is either over- or under-qualified for every job she seeks. And Xers believe their own press. Polls find that 75% think they will be worse off than their parents.

The trouble with such talk is not that it is all wrong, but that it is dominated by the loud voices of those who actually have the least to squawk about: middle-class, well-educated whites. Not that their fears are entirely groundless. For a start, college graduates typically enter the labour force around $10,000 in debt, from loans taken out to pay soaring tuition bills. The job market they encounter is one in which 22% of employed Americans are either part-time or temporary workers, the highest proportion ever; indeed, employment with temp agencies accounted for 15% of the new jobs created last year and 26% the year before. Since 1989 median full-time earnings for workers aged 20 to 24 have fallen, in real terms, by 7%.

No doubt such trends have touched some college graduates. But precious few. Yes, the number of bus drivers with college degrees has nearly doubled in the past ten years. Yet the labour secretary, Robert Reich, contends that a college diploma remains ``a fairly sure ticket to a secure place in the new economy''. The figures support him. According to Richard Freeman of the National Bureau of Economic Research, the wage premium commanded by college graduates doubled during the 1980s. Today they earn an average of 77% more than high-school graduates - a gap that is widening relentlessly.

Just what is driving this divergence is far from clear. Alan Krueger, an economist at Princeton, puts much of it down to a combination of increased computerisation and the higher wages paid to workers with computer skills, who tend to be better educated. Others point to the effects of trade. But, whatever forces are behind it, the trend makes plain America's real youth-employment problem. In an economy where earnings are tied ever more tightly to skills, and where employers use education as a proxy for such skills when hiring young workers, the 75% of Americans who do not graduate from college face a grim future of stagnant or falling real wages.

What to do? Mr Reich argues that two areas of policy need revamping. The first centres on the transition from school to work, so that non-college-bound students can gain marketable skills. Already he has pushed through the House and Senate legislation to funnel money to public (state) high schools for apprenticeship programmes. Another bill, calling for ``national skills certification'', is on its way.

The second area cited by Mr Reich is welfare reform, an overhaul that is intended to introduce time limits and work requirements. Such a reform will have a profound effect on the areas in America where youth unemployment is worst: inner cities. Even as they traipsed through the eerily empty streets of downtown Detroit, few G7 labour ministers may have realised that the central city's jobless rate is 18%, more than twice the national average. For blacks there aged 16-19, the rate is an astonishing 47%.

Yet neither school-to-work nor welfare reform may cure what ails the youth labour market. On the former, the administration's plan is fairly cheap, handing out only an expected $300m in 1995, compared with the $1.5 billion Mr Clinton originally proposed. And that $300m will come only if the plan is fully funded - an unlikely prospect, say some on the Hill, since budget rules require any new spending to be matched by a cut somewhere else. Similar fiscal constraints may hobble welfare reform too. And even if they do not, time limits and work requirements will apply almost solely to women - who receive the lion's share of welfare payments - whereas it is young black men whose employment ills are most chronic.

Mr Reich himself admits that, in the end, there is no getting round the fact that the biggest impediment to developing America's ``human capital'' is its education system. In his most recent book he argued that inequalities in school systems were at the root of inequalities in skills, and hence incomes. Many experts agree. But until the day when the federal government takes control of the school system away from the states - a day that will never come - there will be little Mr Reich or any of the Clintonites can do about it. And you wonder why the administration sometimes seems envious of Europeans.

The Economist, 19 March 1994