How Unemployment Insurance May Affect Young Men's Job Prospects

Policy Changes Needed to Boost Employment for Young Men

by Faruk Imamovic
How Unemployment Insurance May Affect Young Men's Job Prospects
© Getty Images/Stephanie Keith

The employment landscape for young men in America has shifted dramatically over the past few decades. Currently, only about 86% of men aged 25 to 54 are employed, a significant drop from the mid-20th century when employment rates for this group were closer to 95%. Additionally, just 52% of men aged 16 to 24 are working, compared to over 60% in previous decades. This decline raises critical questions about its causes and potential remedies.

The Role of Unemployment Insurance

One possible factor influencing these employment trends is the structure of the unemployment-insurance (UI) system. When workers are laid off or terminated, they typically qualify for unemployment insurance, designed to support them financially while they seek new employment. However, the process of funding UI is complex and may inadvertently discourage employers from hiring certain workers.

Employers finance the UI system through taxes, but these taxes are not fixed. Instead, they fluctuate based on a system known as "experience rating." Companies with a history of frequent layoffs face higher tax rates. The logic is straightforward: businesses contributing more to unemployment should bear a larger share of the cost. However, this well-intentioned system may lead to unintended consequences.

Experience Rating and Its Impact on Hiring

A recent study by Matt Darling, a senior employment-policy analyst at the Niskanen Center, suggests that the experience-rating system can make employers hesitant to hire workers they perceive as a higher risk. This reluctance particularly affects young men. Darling's research indicates that states implementing experience rating saw an increase in unemployment rates among young, entry-level workers. For instance, in Washington, the unemployment rate for young men increased by 2.7 percentage points after the introduction of experience rating, while the rate for young women remained relatively stable.

"If you are going to get taxed for any employees that get laid off, you're going to be a lot more hesitant about hiring," Darling said. "It isn't the sole driver, but I think it's an important one."

Employers might be wary of hiring young men due to stereotypes that they are less reliable or more volatile than their female counterparts. This perception, whether accurate or not, combined with the financial implications of the experience-rating system, can lead to higher unemployment rates for this demographic.

Understanding the Employment Decline Among Young Men
Understanding the Employment Decline Among Young Men© Getty Images/Justin Sullivan

Industries and Economic Vulnerability

Young men are often employed in industries like manufacturing and construction, which are particularly susceptible to economic downturns. These sectors typically face the brunt of recessions, leading to more significant job losses. When businesses in these vulnerable industries consider the additional cost of unemployment taxes, they may opt to reduce hiring or shift towards using contractors who do not require the same financial commitment.

Moreover, employers might implement strategies to avoid paying unemployment insurance. These can include discouraging workers from applying for UI benefits or creating work environments so challenging that employees leave voluntarily, thereby disqualifying them from receiving UI.

Potential Solutions and Policy Recommendations

Addressing the declining employment rates among young men requires a multifaceted approach. One suggestion is to simplify the UI tax structure, removing the experience rating in favor of a flat tax rate for all employers. This change could reduce the disincentive for hiring perceived high-risk workers and create a more equitable system.

However, implementing such changes is challenging. Unemployment insurance reform often lacks political momentum, primarily because the urgency of reform tends to diminish when the economy stabilizes. Furthermore, lawmakers are typically reluctant to address tax-related issues unless there is a clear public demand or significant economic pressure.

Beyond Unemployment Insurance

While reforming the UI system could be beneficial, it is not a silver bullet. Other factors contributing to the employment decline among young men include educational disparities, shifting economic conditions, and broader social changes. Men are dropping out of college at higher rates than women, which affects their employability and career prospects. Addressing these educational gaps through targeted interventions and support programs could help improve employment outcomes.

Additionally, promoting job training and reskilling programs tailored to the needs of industries with high demand could provide young men with better opportunities. Encouraging entry into fields traditionally dominated by women, such as healthcare and education, could also diversify employment options and reduce gender disparities in the workforce.

Moving Forward

The employment decline among young men is a complex issue with no easy solutions. It requires a concerted effort from policymakers, employers, and educational institutions to create an environment where young men can thrive. By understanding the multifaceted causes and exploring a range of interventions, it is possible to address this trend and support the economic participation of young men in America.

Employers, too, have a role to play. Taking a chance on hiring young men, despite the perceived risks, and investing in their development could pay off in the long run. As Darling suggests, a shift in hiring practices and a reevaluation of the unemployment insurance system could be steps in the right direction to tackle this pressing issue.