‘The Job Market for Young People Is Brutal’

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Today, something alarming is happening to the job market for young people.

For the last year, is the unemployment rate for recent college graduates has crept

ominously upward.

One of the questions I've reported most deeply is, is AI replacing young workers' jobs?

To make a long story short, I initially said, yes.

Then some economist convinced me the answer was no.

Then some other economist convinced me the answer was yes.

Then some other experts convinced me the answer was no.

And then some other researchers assured me the answer was, maybe.

If that's unclear to you, then very good.

You're paying attention because it is clear as mud to me.

What is clear is that something weird is going on with the elevated unemployment rate

for young people today.

And no one is exactly sure what that thing is.

And in a way, that uncertainty is even scarier.

After all, if you have an illness and a doctor provides a diagnosis, even if it's a frightening

diagnosis, at least you have an answer.

Oh, you can't breathe?

Well, we did a CT scan.

It's pneumonia.

That sucks.

But what sucks more is if you go to the ER and you can't breathe and they do a CT scan.

And one doctor says, that's clearly pneumonia.

And another doctor says, you idiot, that's nothing like pneumonia.

And then another doctor says, you're both idiots because this machine isn't even good

enough to diagnose pneumonia in the first place.

And the doctor starts screaming at each other in the ER room about methodology and test

sensitivity.

And they're like, I'm not going to be able to breathe there on this stretcher.

Like, hey, I can't breathe over here.

That is the labor market for young people today.

The experts are shouting at each other about evidentiary standards.

And the patient is on the table getting worse by the minute.

Today's guest is Roger Carma.

He's a staff writer at the Atlantic where he writes about economics.

We talk about the labor market for new hires and why young college graduates seem so miserable.

But underneath that analysis, this diagnosis of a sick economy, Roger and I circle the

theme of economic vibes.

A few years ago, the economic commentator, Kyla Scanlan, who's been on this show several

times, coined the term vibe session, which captured the idea that Americans felt like the

economy was in a recession, even though it was not technically in a recession.

When I speak with economists, I sometimes hear them disparage vibes as soft nonsense,

and they hold up statistics to represent the cold, hard truth of reality.

I'm not sure that's the right way to see things.

I do not subscribe to the idea that, quote, feelings are not facts.

In fact, I think feelings are a very important kind of fact.

With, for example, Americans say they're miserable about the economy.

It is a fact that they're saying that they're miserable and their misery has real world

implications for elections, for policy, for the future of the economy.

A miserable electorate does not vote for the same people as a non-miserable one.

Sometimes when the statistics tell one story and the vibes tell another, it's not the

vibes that are fake.

It's the design of our statistics that are failing to tell the full story of what it's

like to look for a job in today's economy.

I'm Derek Thompson.

This is Planning.

Roger Karma, welcome to the show.

Thanks so much for having me.

It's great to be here.

So, today's podcast is a bit of a mystery.

The mystery is why the labor market sucks for young people.

And before we get into guesses and theories and diagnoses, I want to just establish some

baseline facts here.

What are the facts about young college graduates and unemployment today?

So what you have to understand is that historically, young college graduates in their 20s have

had a lower unemployment rate than the rest of the workforce and usually a much lower

unemployment rate than the rest of the workforce.

It makes sense.

They've just spent four years soaking up all this education, the relatively cheap labor.

And so usually they get much better employment prospects coming out of school.

And so, that's the only thing that has flipped.

So, ever since about 2022, the unemployment rate for young college graduates has actually

risen nearly twice as fast as the rest of the labor force and currently is significantly

higher.

So, the unemployment rate right now for, again, 22 to 20 to 70-year-old college graduates

is about 6%, close to 6%, which is unusually high.

Even as the overall unemployment rate is close to 4%, which is near a 50-year low.

And this is happening during a period where unemployment is low, as you said, in hiring

rates have basically declined every single year since what, 2022?

Roughly.

Yeah, since 2022.

This is a phenomenon that you have called in the Atlantic.

The big freeze.

What is the big freeze?

The big freeze is essentially what happens when a labor market grinds to a halt.

So, the statistic that actually blows my mind here is that even though the unemployment

rate, again, is near 50-year lows, the hiring rate, the rate at which people are getting

hired for new jobs, has dropped to its lowest level since 2010.

When unemployment was at near 10%, this was the depths of the great recession.

We are now experiencing by the unemployment rate what looks like a great labor market.

And yet, employers aren't hiring.

Therefore, employees aren't able to find new jobs.

And this is basically a labor market that is frozen in amber.

It's like a hotel with fallochumancy.

If you're in the hotel, you've got a room.

It's cozy.

Everything is working fine.

But if you're locked out of the hotel, there's no vacancy.

Exactly.

And so, it's really weird because typically, economies that are healthy are like a game

of musical chairs where there's always an extra chair for someone who wants to hop

into the economy.

Or if the economy is growing, it's creating demand.

It's creating work.

But we're in this weird steady state where it's like the economy is full.

It's the hotel with perfect occupancy.

We're demand for work equals the supply of workers in the workforce.

And so, there's no room for someone to come in from the outside.

Is something like that?

That is basically it, right?

When there is a lot of churn in the labor force, when there's a lot of people like

playing that game of musical chairs, right?

You have this filtering effect where some spot opens up, somewhere up the career ladder,

people move up, and then there's a new open spot for a young person, fresh out of college

to be hired.

Right now, we're basically seeing while employers aren't necessarily firing workers, layoffs

are so pretty low, they're also just not hiring people either.

And this is again, it's a very weird, mysterious thing.

It's most punishing for young people who aren't in the labor force yet, which may explain

some of the trends that we're talking about.

But also, it's not exactly a great situation for everyone else either, right?

If you are someone who's just at your current job, but you're dissatisfied with it, if you're

someone who maybe wants to raise, the primary way historically workers get raises is by quitting

and finding a new job.

This is also bad for you too.

And there's this stat right now that came out of Glassdoor last year that around more

than two thirds of all workers report feeling stuck in their current roles.

And I think that is something basically the game that we're constantly playing in this

labor market, this musical chairs that leads to a lot of dynamism, a leads a lot of innovation.

And most importantly, it allows young people to get on the ladder to begin with.

That has stopped.

The music has stopped and no one is getting hired.

And to make it even more literal maybe, like people have to be familiar with their own

companies.

And when your company is growing, it means it's easier to get a raise.

It means it's easier to get promoted.

And when you leave that particular chair, that a younger person is hired to fill it.

And so imagine being in a company where every year the CEO is like, we're growing healthily,

everything is great.

And also we're not hiring and no one can get a raise and no one's getting promoted.

It's like those things don't tend to go side by side.

Either things are good or things are bad.

But in the US economy right now in a weird way, the overall economy continues to be growing.

Roughly the same pace to spend the last few years, but the labor market is frozen in

this way, which is why you called it the big free.

And remarkably, Derek, this is happening across almost every industry.

Right?

Over the last few years, almost the entirety of the job growth that has happened has been

in two sectors, healthcare and local government.

That is because healthcare, there's always demand for more workers.

Americans are always getting older, always needing more healthcare.

And for local government, a lot of this is like a rebound effect from the pandemic.

And also a result of a lot of movement during the pandemic to like new cities, like new

sub belt cities.

All of a sudden have a lot more residents.

They need more school teachers and nurses, etc.

Outside of those two sectors, we've seen almost no job growth.

And in the very sectors that are normally insulated from doubt turns to some extent, you

think of like professional services like lawyers and consultants and architects.

You think of tech in these white collar professions that usually are able to write out

downturns a lot.

We are seeing some of the steepest declines and hiring, some of the steepest declines

where a lot of these sectors have actually lost jobs over the last few years.

And so what is especially interesting about this is it hitting the entire economy.

Especially the entire private sector because the two industries that you correctly said

are adding a disproportionate share or over 100% of the total growth of jobs in last

year.

Healthcare is heavily inflected by government spending, Medicare, Medicaid, the VA.

And then you also talked about local government.

And it speaks to an economy where weirdly the private sector might be making do with less

human labor.

While more job growth is accruing to the part of the economy that are more inflected with

government spending, just something to watch out for.

The final piece of dad I wanted to put on the table before we talk a little bit about

the reasons why this is happening is that recent college graduates are unusually and by

some measures like historically despondent about hiring conditions right now in the state

of the economy.

Can you just like die the end of some of these facts here and let me know like how sad

are young people right now?

How depressed are they?

Eric, young people are more pessimistic today and young college graduates are more pessimistic

today than just about any time we have on record.

So if you look at like four year moving averages, these last four years have again been the

most pessimistic young people have been about their future, about their work prospects,

then ever.

There is a Gallup poll, Gallup regularly polls.

Young people and just the workforce in general about their optimism about being able to find

a new job or be able to just to find work generally.

And in 2022, about 70% of young people said that they were optimistic about finding a job.

Light last year that dropped to, I believe it was 19%, less than a fifth.

And usually this problem, this pessimism among young people is more concentrated among young

people without college degrees.

That makes sense for so much of American history.

It has been young people without degrees who have experienced really terrible, much worse

labor market conditions.

But that has actually flipped.

We're now, it is young college graduates are actually the most pessimistic.

So it's not only that young people are more pessimistic than ever.

It is also that young college graduates who tend to be less pessimistic or more pessimistic.

And specifically it seems like this pessimism is concentrated on the job market.

All right, so those are the facts.

We've got low hiring rates for young college graduates, higher unemployment for young college

graduates.

And this is a group that is historically depressed about the state of the labor market.

What's going on?

I mean, let's start with the big ghouna here, which is artificial intelligence.

What do you consider the single strongest case that this is happening in an age of

AI because it is in fact artificial intelligence that is depressing the labor market for young

college graduates specifically?

I think the strongest case is that the broad educational trends we are experiencing are

sort of exactly what you'd expect if AI was the culprit of displacing workers.

So right, I mentioned that since 2022, and this is actually really if you look at since

November of 2022, when Chatchee PT was released, again, the unemployment rate for young college

graduates has risen nearly twice as fast as the rest of the workforce.

That is that single statistic is exactly what you might expect if AI was displacing entry

level white color workers.

What is the kind of work that recent college graduates tend to do?

It is things like making PowerPoint slides.

It's working in Excel.

It's writing first drafts of reports.

It's doing a lot of the sort of text-based entry level work that we already know that AI

systems like Claude or Chatchee PT can do pretty well.

Another one, big one is writing a lot of first draft of code.

And so you look at these things, you look at the kinds of tasks that AI is already good

at, then you look at the type of workers who tend to perform those tasks, you see all

of a sudden those workers increasing an unemployment faster than they normally are.

You put that all together.

It seems like an AI story.

You've told a very clear, very intuitive story for why artificial intelligence would

of course be able to explain what we're seeing among young people.

So I assume that economists have been able to prove that theory, prove that story with

research.

Is it as simple as that?

Derek, let me tell you, economists normally don't agree on much, but this is an issue

where there is especially vehement.

And sometimes, you know, quite spicy disagreement.

There are economists all over the gamut here, right?

There are ones who think that, and papers that seem to find that AI is already displacing

a lot of entry level, for example, software engineers.

And then on the other side, there are economists who think that it has had basically no labor

market impact at all, lots of views in between and really no clear consensus right now.

And what is the nub of their disagreement?

So I'm going to get a little nerdy here.

One of the main focal points of disagreement, I would say the nub concerns this statistic

called the unemployment rate.

So.

Yes, yes, you might have heard of it.

I think when most people think of the unemployment rate, they think of, oh, this is just the percentage

of people who don't have a job.

That isn't quite true.

So the Bureau of Labor Statistics, the way they calculate the unemployment rate, is they

actually try to take out people who have not looked for a job in the last four weeks.

So if you haven't looked for a job in the past month, you are removed from the data set.

Why do they do that?

Well, there are a lot of people who don't want a job.

Students, retirees, state home parents, those are the kinds of people that you don't want

to include in this data set because it wouldn't give you as accurate a snapshot of the labor

force.

The problem is that that move, that methodological move also excludes people who would otherwise

want a job, but have given up looking for one.

So this was a big thing that happened after the Great Recession.

There were actually, after the Great Recession, the unemployment rate recovered pretty quickly,

but then economists went and they noticed, wait a minute, the reason it recovered so

quickly is actually because a lot of people were so discouraged that they stopped looking

for work altogether.

And so they actually dropped out of the data set and made the unemployment rate artificially

look better.

There was a recent analysis by the economist, Adam Osomek, and Nathan Goldschlag at the

Economic Innovation Group that basically found that a very similar thing is happening

here and it completely changes how we think about this question of young people in AI.

So what the EIG folks found is that basically, again, like the story of the Great Recession,

what has been happening over the last couple of years is you've had huge numbers of young

people without college degrees dropping out of the labor force, basically giving up looking

for work.

And what that basically means, it's the labor market equivalent of the worst performing

students not showing up on standardized test day.

All of a sudden, the score, the unemployment rate, looks a lot better, looks a lot lower

for young people without degrees, but that's only because a bunch of the students stopped

showing up.

And what the actually do in this analysis is that they look at a different measure, they

look at the employment rate.

It's confusingly titled, I know.

But basically, this is just excluding students, just everybody, every young person, every

25 year old or below who, you know, in the labor force, what's happening to them?

What you find when you look at that rate is that young people without degrees have actually

seen their employment prospects fall faster and steeper set over the last few years,

then young workers with degrees.

And again, this subverts a lot of the story we've been talking about, right?

The whole, it is AI story is premised on the idea that it is college graduates, this

group that is usually doing so much better than the rest of the labor force.

All of a sudden, they're the ones who experience the worst labor market deterioration.

Therefore, it must be AI.

A lot of these young workers without degrees, they're working in fields like fast food and

retail and construction.

These are not the professions that we think AI would disrupt.

And so the fact that they've actually experienced the brunt of this downturn, I think casts a

lot of doubt as to whether AI is the main driver here.

It just makes it seem like it's an economy wide phenomenon rather than a phenomenon of

AI seeking out automating jobs that are most likely done by 22 year old graduates from

the University of Michigan and Middlebury, right?

One way that I thought about that paper is like imagine, imagine two economies.

Each of them have 100 people.

In economy number one, everyone is looking for work, but 10 people can't find a job.

So the unemployment rate is 10% in economy one.

In economy two, 100 people, but 10 of them have dropped out of labor force.

They're not looking for work at all.

The other 90 all found jobs.

The unemployment rate of that second group is 0%.

So you're looking at two groups with the exact same employment rate, 90 out of 100, but

they have entirely different unemployment rates, 10% versus 0%.

And that's a way in which you can have two populations with the same employment rate,

but very different unemployment rates.

I'm sorry if that's confusing for some people who are listening, but it turns out to

be this huge issue when it comes to looking at why is the unemployment rate for college

graduates rising faster than the unemployment rate for non-college graduates?

It's because college graduates are still looking for work, but ultimately they're seeing

the same decline in working opportunities as non-college graduates.

Is something like that affair recapitulation of the OZMX study?

I think that is a totally fair recapitulation.

And I will actually go one step further, which is I would actually say that those who

have stopped looking for work altogether because they're so discouraged are arguably

even worse off than the people that are still looking for work.

They have no more hope.

The fact that basically in the statistic we normally use to measure the health of a

labor market, you are actually rewarded if people absolutely lose hope.

The give up rate.

Is such a bizarre, anti-common sense?

Is such a bizarre reversal of how we normally think about the health of labor market or the

health of young people that I think it actually, what it actually signals is that people in

these fields that are probably the least exposed to AI that are folks without college degrees

are actually experiencing a much more severe labor market.

So I think it really, again, turned this picture on its head and in the way that I think

you put so nicely.

I want to tie a bow on this section about artificial intelligence.

What we're basically trying to say is, if specific college graduates employed in precisely

those jobs that artificial intelligence is good at, like writing memos and coding, if they

are facing special difficulties in this economy, that is a very good sign that the culprit is

artificial intelligence.

But in fact, what you've explained is that the pain is broader.

It's shared by non-college graduates who are dropping out of the economy entirely, and

so it's more likely that what we're looking at is not artificial intelligence picking

off special occupations, but rather an economy-wide disease that is hurting entry-level work

across the board.

So let's turn to that explanation.

When you spoke to economists last year about your big freeze theory and you said what

we're looking at is a decline in hiring rates across the board.

What was the explanation?

Like what did they say was the cause of this big freeze?

So there are a few different causes, and I will say this reporting was based on not only

talking to economists who economists have their theories, but I was like, I want to talk

to employers.

I want to talk to hiring managers.

I want to talk to people in companies who are actually experiencing this and ask them,

what is going on?

Why aren't you hiring?

If you're an advisor for different companies, why aren't they hiring?

What's going on with your clients?

And I heard the same two stories over and over again.

The first one was that employers were really scarred by this period.

We now call the Great Resignation.

So let me rewind the clock back to a period that may seem far away at this point, which

was this period around 2021, early 2022, when you had all of these stories of employees

quitting their jobs and record rates, finding new jobs at higher pay.

This was the period where, again, it was known as like the zenith of worker power, of

worker movement.

As you noted at the time, right, it wasn't workers just quitting their jobs altogether.

It was workers quitting jobs to find better jobs.

Terribly named for now.

Ironically named.

Because it was not the Great Resignation.

It was the Great Job Switching of 2021.

The Great Rechuffling, I think was.

The Great Rechuffling, I think, was a much better explanation.

Because this was like, this was the experience of people who were, you know, quitting their

job at TGI Friday is making $15 an hour.

Yeah.

Seeing that Applebee's down the street was paying $20 an hour and switching to that job.

So if you're TGI Friday's, it looks like your employee is quitting.

But if your Applebee's, it looks like you're hiring.

So it's not about resignation.

It's about a resuffling.

And this was a period where, as you said, the quitting rate was high, the hiring rate

was high, wage growth was high, and employers felt like they didn't have power in the labor

force.

Exactly.

This was a great moment for workers and their power.

It was a terrible moment for employers.

You talk to employers.

You talk to hiring managers.

And this period actually really scarred them.

Where their customers were experiencing all kind of shortages.

They were experiencing use price increases.

You might remember airlines at the time.

They're not in a great state now.

But you might remember all the delays because you couldn't literally get employees trained

up fast enough to be able to staff these planes, to staff these flights.

And what employers did in response was they said, we need to hire as many workers as possible

and we need to hold on to them for dear life.

Because we don't know whether this is going to happen again.

This is a story I heard over and over and over again.

Employers were scarred from that period.

And so they were very reticent to let workers go afterwards, which also because they were

very reticent to let workers go, once they had staffed up completely, they weren't ready

to hire new ones.

So basically, it was almost an over correction from the great resignation was to hire, hire

a bunch.

And then all of a sudden, we might, we have enough people, maybe too many people, we're

not going to hire anymore.

That said, that explanation only gets you so far, Derek.

You could see, okay, maybe 2022, 2023, I could see that.

But eventually, you would realize the economy is moving again.

And maybe we need to hire more workers, we can get rid of certain workers.

And it still hasn't happened.

So why?

And overwhelmingly the answer I heard from employers, from hiring managers was uncertainty.

That you have the end of this great resignation period.

But then you get rising inflation, you get the Federal Reserve raising interest rates,

all of a sudden by the end of 2022, every economist on the planet is convinced that there's

a looming recession that is coming.

There is that famous Bloomberg model in October of 2022 that said there was a hundred percent

chance of a recession in the next year.

It never happened, it never came.

So employers, you can imagine we're sitting, waiting, like, okay, we're going to bear down.

We know a recession is coming, we're not going to hire.

By the time then it became clear a year, a year and a half later that a recession wasn't

actually coming, then all of a sudden you're in 2024 and there's this election that now

has injected a bunch of political uncertainty where you don't know what the agenda of the

new administration is going to be.

It could be radically different based on who's elected.

And so you have, okay, we're going to another, you know, the big, the big overarching view

for employers during that period, I heard this phrase over and over again was survive

until 25, survive until 25.

We just got to get through the election, we got to get through this period and then we are

going to thrive in 2025.

Trump, not an agent of chaos, exactly.

We're going to deregulate and do nothing else to make sure the economy works as smoothly as possible.

Exactly.

And this is where sort of my piece comes out.

In January 2025, everyone is very excited.

Finally we have some political certainty.

Finally we can begin hiring again.

And then what is Donald Trump too?

He comes in and on day one, he begins right like a massive purge of the federal government

that no one knows exactly where it's quite going to go.

And then he immediately launches into a series of on again, off again tariffs that upend

the entire global trade system that you send the bark bond markets into a frenzy.

He, you know, racks up a ton of deficits spending.

We have a potential trade war with China.

This kind of, this kind of, you know, these kind of actions go, you know, throughout

the year.

And the economic, there's this index, right?

The economic policy uncertainty index, which is sort of a measure of overall policy

uncertainty.

It reaches its highest sustained levels on record during this period.

And it just keeps continuing until right most recently still, you just think, okay, maybe

companies were finally getting used to tariffs.

Maybe they're finally settling down.

And then you have a war with Iran that sends global oil markets into a frenzy.

And now you have no idea whether there's actually going to be a 1970 style

stagnation crisis.

And so basically what you've had is I think over and over again, every single time that

employers have thought, okay, maybe now it's time where we can start our normal operations

again.

You've had more and more uncertainty injected in to the economy.

And I think that is a big piece of the story that we're seeing here.

And I will say it is possible that AI is part of this constellation of uncertainty.

But it is definitely part that one of the things happening here is companies are like,

I don't know how AI is going to affect my future hiring.

So maybe that's contributing to the wait and see.

But again, it's really hard to parse that in the data.

I'm going to hang a shingle over all of this that just says shit keeps happening.

Because that's fundamentally what you're describing.

Right?

Like 2021, you've got the great resignation.

2022, you've got inflation.

And the Federal Reserve, Jackseppin, just rates, fashion, and any period on record.

2023, 2024, there's still an inflation phenomenon, a cost of living phenomenon.

And the economy keeps being predicted to fall into recession, but keeps on how avoiding

a recession.

2025, you have liberation day and all the Trump chaos, 2026, you have a war in Iran.

So this theory is essentially the economy can't catch a breath.

Yes, GDP continues to grow between whatever 1.5 and 2.5% every single year.

But fundamentally, this is an economy where employers feel like they're hanging on by

this kind of their teeth.

And as a result, they're not hiring.

So that's explanation number two.

And I think really quickly, one, just one thing I'll add here is that the reason why you

might see, you might expect uncertainty to lead to less hiring is especially hiring young

people's and investment, right?

It's a big investment in the picture.

Yes, important point to make.

A young person is not going to come into a workplace and be productive right away.

It's going to take time for them to learn the trade, for them to get acquainted.

And so any time you're bringing on a young person, you are saying, I'm making an investment

in the future.

I believe that there's a future of growth and prosperity.

And so I'm bringing these young person in that I know might not be able to improve the

business right away, but over time will.

And if you are uncertain about the future, you are going to stop making all future investments.

And especially, you're probably going to stop making this one, which takes a lot of time

and effort and sacrifice and order making.

And so I think that is how the uncertainty connects to why we might be seeing an especially

tough hiring environment for young people in particular.

The last point that I want to make here is that there are some viral grass floating

around the discourse that show that the hiring rate started to decline literally the

same quarter that ChatGPT was released in November of 2022.

And the problem with 2022 is that unfortunately for the purposes of economists and economic

writers trying to explain the world, ChatGPT's release was not the only thing that happened

in 2022.

Exactly.

You also had this turnover between the age of the great resignation and the age of essentially

the great, what you call the big freeze.

From everyone is quitting and leaving and getting retired, two companies are saying, no,

we're going to try to make do with the labor force that we have.

That's the first that happens.

The second that happens in 2022 is the Federal Reserve starts jacking up interest rates.

And what the Fed is trying to do here is to cool off demand.

One way you cool off demand is by discouraging companies, you know, constantly hiring employees

from each other and driving up wage growth.

So a lot of stuff was happening around the same time here, which complicates the theory,

the convenient and easy and crisp theory.

Oh, all this may have started just around the same time that ChatGPT came out.

Therefore it's an AI phenomenon.

Unfortunately for our purposes, AI is not the only thing that happens in the world.

The situation happens in the world.

The Federal Reserve happens in the world, invading Iran for some reason happens in the world.

And so all these things together are causing employers to just hold on for dear life and

drive down the hiring eventually level workers.

That's important.

The third thing that's happening, we talked about AI, talked about the big freeze.

I think we have to talk about demographics because people are living longer.

People are working longer.

Modern jobs are physically easier than they used to be, easier than construction, manufacturing,

farming, taking up, you know, whatever.

50% of the economy, like it did in the early 20th century, is the aging of the workforce

another factor that you think is reducing employment for young people.

I'm really glad you brought in demographics because when I was working on the set of pieces,

there was a study that I came across on this precise point that totally changed how I

view things.

So this paper was, I love the title, it's called, Countries for Old Men.

And it is basically these two Italian economists.

They looked at what, how has the age pay gap, they call, changed over time.

So this is the gap in pay between workers under 35 and workers over 55.

And basically what they find, again, they're looking at wages here, non employment, but

they find that in the United States, over approximately the last 40 years, the age pay

gap has increased by 61%.

In Italy, it's increased by 96%.

In some European countries, it's actually even higher than in the US.

And that is functionally the equivalent of if you're a young worker, making the median

salary 50, 60,000 dollars, 61% differential, means you're like functionally losing out

on like a 10 to 20,000 dollar bonus every single year.

And that is basically this longstanding structural trend that has been happening for decades

now.

The primary explanation they give in the paper is it's exactly because of the aging of

the population.

We were talking earlier about this sort of game of musical chairs in the economy.

You can think about this game of musical chairs also within firms, right?

With older workers, as they age out of the labor force, they give up their positions,

then the worker, the middle manager below them ends up taking their position.

And then everyone moves up and a new young person gets hired.

And what is basically been happening is as life expectancies have increased, older

workers are just hanging onto their jobs longer.

And what that has basically done, it has not destroyed the game of musical chairs, but

it has slowed it down.

It has made it so that the jobs are opening up five, ten years later than the otherwise

would because workers are staying in the workforce longer.

And basically what that means, the upshot of this from the paper is that there is this

concept that economists use called peak earnings.

And it really, it really matters not only what you end up earning over your lifetime, but

when you earn it, because that determines when you can afford a home, when you can start

a family.

And what basically has happened is young people's peak earning years are getting pushed back

further and further as a result of this aging.

And while the authors didn't necessarily look just at employment, over the same time period

you are seeing, and especially since 2000, you are seeing a decline in the job finding

rate for college graduates in particular, for recent college graduates in particular.

And so I don't think it is a far stretch to say you are both seeing this age wage gap

increase, workers being unable to advance within their organizations.

And as a result, those entry level positions aren't actually opening up in the first place.

And so you, this is more of a long standing version of the big freeze, but it's happening

just because we're living longer.

Yeah, when you showed me that paper, it made me think about a couple of things.

One is, I think sometimes young people are blamed.

I think blame is the right word for delaying adulthood, right?

They're choosing to stay single longer.

They're choosing to delay marriage.

They're choosing to delay, you know, having a kid.

They're choosing to delay buying that first home.

They're going to school for longer.

They're extending their adolescence into their 20s.

But this paper saying, yeah, okay, maybe some of that is happening,

but also their peak earning years are being materially and mechanically pulled into a later period

of their life.

That's not something that young people are choosing at all.

That's a function of the fact that older managers in those companies are living longer,

working longer, staking in those chairs, not vacating them to either, you know, become a

pensioner or, you know, join the C suite.

And as a result, those middle management chairs just aren't opening up at the same rate

that they were 30 or 40 years ago.

I think that's a really profound point that I think pushes back against some of this analysis

that basically says all of the outcomes of young people are essentially chosen by young people.

No, young people are a function of the world too.

And they're reacting to and being pushed around by the world.

The other thing that's maybe think of, and this is what I want your brain on in a second.

The presence of older workers, the idea that that can harm the labor market outcomes of younger

workers, I think, is a bit of a scary one because you know what's not going away,

is old people.

And that's not like my beginning of like a swifty and modest proposal here.

I'm just saying like they're not going away.

Like people are living longer, jobs are getting easier, people are often staying in those jobs

for longer.

And two phenomena that I really don't see going away anymore are number one, fertility decline,

and number two, life expectancy.

And when you put those two phenomena together, fertility decline and longer life

that is a recipe for companies getting older every decade infinitely.

Which means the phenomenon that you've described and that you're telling me these Italian

economists have discovered, that's not going to get better anytime soon.

In fact, it seems more likely to get worse.

Have you thought about this?

Did you talk to them?

Like how do you make sense of the fact that this is,

this is definitely a trend that is going to accelerate this view forward?

So I am actually of a few different minds of this.

And I think actually in an interesting way, this ties us back to AI and the future of AI.

Because I totally agree with you on the demographics.

It is we are moving to a world in which the population is only getting older and older.

And so this, you would imagine this is only going to be magnified.

You can also imagine a world in which if the predictions of the leaders of a lot of AI

companies are true, that technology can accelerate this.

Right? We're talking a lot about how we're not seeing labor market impacts right now.

But you could very much imagine a world.

If you look at what is happening right now, for example, at Anthropic with Cloud Code,

they are frantically hiring software engineers, but they are hiring experienced software

engineers, much more senior level software engineers who are now using a bunch of AI

agent assistants. And so you can actually imagine a world in which AI makes this problem a whole

lot worse because it actually makes the returns to experience higher. All of a sudden companies may

not need entry level workers as much. They might actually need more and more senior workers.

And so it actually makes the age wage gap even bigger. And so at the same time, we have an aging

population. We also have a return to the premium of age. Here's the other thing though.

This is where I'm of two minds on this. Something I didn't mention about the paper originally is that

there are actually two factors going on. One of them is the aging of the population. The other

thing that is contributing to this is a slowdown in new business formation. Where do young people

historically? Where are they most likely to work? Startups. At the same time that we've seen

the population age, we've seen less new businesses being created. And so at the same time that you have

within existing firms, more older workers, you have less new businesses being created and employing

young people. Well, what also have we seen over the past few years? An explosion of new startups,

an explosion of new businesses first enabled by remote work, but right now, likely because of AI.

And so you could also just for listeners to jump in here. This is not some impressionistic point.

The federal government has said starting around 2020-2021, the rate of, I believe the technical term

is new business formation has jumped up considerably and stayed an elevated level for the last five

years. So this is an observed statistic. It is an observed statistic. It is risen at its fastest

rate over the past few years ever. These are like, this is, it came out of seemingly nowhere and it is

at some of its highest new business formation is at some of its highest levels in at least 50 years.

And so what you can also imagine happening is that at the same time that we had the workforce

aging, you can also imagine these new tools, the new AI tools, enable young people to avoid playing

that game of musical chairs altogether to be able, young people who are at the frontier of technology

being able to create new startups and therefore create a level of new business formation and economic

dynamism that can actually maybe shock the labor market into being a little bit more dynamic and

friendly to young people. I like that this allows us to turn the page a bit because first what we

did is we talked about the facts. We talked about reality. What's the reality of young people and

unemployment? What's the reality of their impressions of the labor market in short, bad and bad?

Then we talked a little bit about what are some possible explanations for this phenomenon? AI,

the big freeze, ship keeps happening, federal reserve, inflation, even demographics.

Now I want to talk about what we should do with this information. Someone who's between the ages

of 22 to 30, let's say could hear your last answer and say, all right, if established firms

are seeing this game of musical chairs slow down significantly, then maybe my best

employment prospect is either to start my own company or join a company that's just getting started.

Another decision that someone could make, listening to the last 40 minutes of you and I going back

and forth, is maybe I should skip college entirely. Maybe college just isn't as valuable as it used to be.

So you have the statistics. You talk to economists. How do you feel about this encipient

impression that college is just not where it's at anymore, that it's just not worth it the same

way that it used to be worth it? I'm really happy you went there because there are two things that

are true at once. It is both true that what is often called the college wage premium, which is the

premium in lifetime earnings that college graduates earn over non-graduates, that really has declined.

The employment premium, as we've been talking about, the rate at which college graduates find jobs

over non-graduates, that has also declined. The gap between these groups is shrinking. The premium

of going to college has fallen. With that said, in absolute terms, it's still huge. Let me be very

clear on this. It is still more than worth it to go to college. College graduates still make 60 to 80%

than non-college graduates. They have lifetime earnings of anywhere from on average, 600,000 to

a million dollars in lifetime earnings greater over time. Once they are employed, they are far more

likely to stay employed. So it is both true that in directionally, this gap has been shrinking. It

is also true that it is still very large and potentially life changing. And I think both of those

are, you have to hold both of those into account at once. Also, an interesting addendum here

is that part of the reason for the decline in the college wage premium and the college employment

premium is the very fact that so many more people are getting college degrees. The rate of BA

attainment, so the percentage of young people with a BA has increased by about a third since 2008.

And that is mostly, expansion is mostly because it is expansion at less selective universities.

And so a lot of the reason that relative gap is shrinking is exactly because so many people

are getting college degrees in the same way that 50, 60 years ago, so many people were getting

high school degrees that the premium on them just became less of an advantage. That is a good thing

that is happening. That premium still gives you a lot of benefits. And so, yes, definitely not saying

don't go to college. Whenever I report on this subject on the travails of young people and the

miseries of young people today, I will invariably get emails and DMs from economists who will make one

of the following four points, four points here, four points. I like that. Try to remember them.

Number one, despite the impression that homes are too expensive everywhere, more than half of

US housing markets have seen falling rents in the last year. So in more than half of US housing

markets rent is cheaper today than it was one year ago. Number two, according to two separate

analyses by the St. Louis Federal Reserve, millennials and Gen Z are earning more at their respective

ages than any previous generation on record. That is after adjusting for inflation and buying power.

So even after you do all the adjustments, today's young people are richer than any generation

in American history. Number three, today's 34-year-olds have more wealth, more savings than any previous

generation at their age. And number four, the unemployment rate for young people while it is

elevated, as we've discussed, is still lower than almost every month between 1971 and 1997.

Is the young people as screwed narrative? I'm not going to say false. Do you think it's sometimes

overtorked a little bit? I mean, even higher in media. So we know the dirty secrets of all those

media, which is that if you want to get people to pay attention to a story, you could

testifies it as much as is factually allowed. You stretch the catastrophic

torquing as much as is possible while remaining within the bounds of telling the truth,

or if you're not constrained by truth, then you simply catastrophize as much as you want.

Is it possible that the emphasis on negativity in news media sometimes represents the struggles

of young people as being more miserable than they actually are? I think that is absolute the case.

And I think all of the statistics you just brought up are absolutely accurate. I hear the same

ones from economists all the time. I think the same economists are emailing both of us.

Yes, the same economists are emailing both of us. And I think it is very hard. It is very obvious

as a journalist when you were looking at what stories get the most clicks to know that when

you write about something, things that are alarming that are happening to young college graduates,

people flock to those stories. It is a story that a lot of us, I think, want to believe. I think

that has caused this narrative to get overtorked. That said, I want to complicate at least one of those

statistics a little bit. And I feel like so much of this conversation is going to end up revolving

around like the ways that statistics can be mirroges and the ways that they can be actually more

complicated. And so basically, it actually was true that for most of the great recession,

when you looked at wealth statistics, young people really were behind, right? I'm pretty

sure. It was in 2016, the St. Louis Fed came out with a study, basically showing that millennials

at that their age were about 34% behind in terms of aggregate wealth, the generations above them,

at that that age. What has happened though is over the last 10 years that gap has closed and now

millennials are actually, like you said, wealthier. But you have to understand that a huge part of

that closure was the appreciation of home prices that happened between 2019 and 2022.

So over those during the pandemic, right? You see home prices increase at some of their fastest

rates in history. It's something like 40% in the matter of a few years. That means that millennials

who owned homes already saw collectively $2.5 trillion in paper wealth being created over those years.

And that has opened up what has been described to me as like the single greatest divide

within the millennial generation and within Gen Z is if you bought a house before 2020 or you bought

a house after 2020. Because if you bought a house before 2020, you locked in low interest rates

and you just watched the value of your home go up incredibly. If you did not buy a home,

you now feel more locked out of the housing market than ever before. And so I think that is a

really important dynamic here that you have even though you have an aggregate, millennials are more

wealthy at their age and other generations. You actually have much more inequality within the

millennial generation than previous generations. There was another statistic. If you look at the

difference between the 80th percentile wealthiest millennials, the top fifth basically of wealthiest

millennials and the bottom fifth, that gap for the baby boomers was about $250,000. For millennials,

that gap even inflation adjusted is about $350,000. So one thing you might be seeing even though there's

a broad based pessimism is that you are seeing a particular deleterious effect for those who don't

have a home. One last point I will make that I think is actually also will complicate this a little

bit more. The way that the wealth statistics are calculated is they are calculated at the household

level, which means if you are a millennial or a Gen Zier that is living with your parents,

you are actually not included in the data set as a Gen Zier millennial. So think about which young

people this is very similar to the point before about unemployment and employment rates. It's

numerator and denominator. It's survivorship bias. So if you it's what's yeah, if this is often

known as survivorship bias, the people that are arguably the least well off in the millennial and

Gen Z generations are the people living with their parents. Young people are living with their parents

at about 50% higher rate today than they were in 1989, 30 years ago. And those individuals are

actually not being included in these statistics at all. I reached out when I discovered this,

I reached out to the economist Jeremy Harpidol who was great at doing like on everything wealth.

And he was able to do a calculation with for me where he showed that if you if you try to account

for this by like lowering the median to try to account for a lot of these you know these dropouts,

these folks living with their parents who aren't being counted, you actually see a huge drop in

the aggregate amount of wealth this generation has to the point where actually still it's

its highest on record. So it still does not it's still higher than other generations at this age,

but it's barely higher and it's actually around the same rate that young people had at the turn of

the century. So it actually hasn't gone up that much. I so again, I don't think either of these

points totally disrupt the overall story that you're telling. But I think it complicates it because

it means that there are within a generation, there are multiple stories you could tell, there are

homeowners and non-home owners, there are people living with their parents and not. And sometimes when

we take these big aggregate looks and say like what's happening with the young people, we can be

missing these very specific stories that are hiding in the data. Yeah, that's a fantastic answer. I

mean my way of summarizing all of this and there's there's a lot of food in the table right now. So

if someone's like wow, we're talking about a lot of different things. Here's how I would try to

organize it. I say number one, working Americans today are richer than they used to be. Real

incomes are rising. So it is just a fact that working Americans today are richer than they used to

be. That's number one. Number two, inequality is also rising, which means that average numbers can

often mislead because averages disguise inequalities that exist within that aggregate data set. So

number one, richer, number two or more, more than equal, number three homes are getting expensive,

faster than Americans are getting richer. So it can simultaneously be true that one economist can

say Americans are richer than ever. Why are they complaining? And another economist can say Americans

are upset about the price of homes and they're both right because housing appreciation is rising

faster than incomes. And number four, it is the first point that we made in this episode,

simply the case that it is unusually difficult for the folks outside of the US economy to get

into the US economy. There's a no vacancy sign right now on the hotel of America. And so it's

difficult for people to find that proverbial room. The last point that I want to make about this

debate that sometimes happens between economists who are obsessed with statistics and commentators

who focus on surveys, vibes, for lack of a better word, is this is a little bit of a woo-woo place

and this particular episode, but you're a California boy so you can take it. I can take a lot of

woo-woo. Yeah, you'd be surprised. Probably more than I can. So I was listening to Michael

Pollen's book, A World of Peers, about consciousness while feeding a bottle to my four-month-old the

other night. And he referenced this book by Antonio DiMasio called Descartes Error. This is

initially not going to seem to make any contact with the subject matter. We're going to get there.

So Descartes Error, the subtitle is emotion-reason of the human brain. And Descartes famously tried

to separate our reason from our emotions. And DiMasio, who's this, I believe, is a neuroscientist,

his point is that emotions aren't separate to thinking. Emotions are a part of reason. People

have brain damage that makes it harder for them to feel emotions tend to also struggle with reasoning.

So what the hell does it have to do with economics? In economics, I think commentators often try to

keep vibes and statistics separate. They divide the world into, well, the vibes say this, young people

are sad. But the stats say this, young people are rich. And that means that young people are wrong

to feel the way they feel. Right? The stats are real, the vibes are everything that's fake.

And I think that's just the wrong way to look at the world. Vibes are facts. They're just a

different kind of fact. And if you don't treat them as facts, I think you're going to fail to see

the world clearly. I was just doing research for for this episode. And I saw that 84% of college

graduates in New York City, under the age of 30, voted for Zoran Mamdani, 84% of college grads

under 30 in New York City voted for Mamdani, a socialist. So if you're an economist and you say

vibes are fake, stats are real, and young people are rich. How the fuck do you explain how 84%

of college graduates in New York City under 30 voted for a socialist? You can't.

Yeah, absolutely can. You can only make sense of that if you treat vibes as facts. And so

I am trying, this is more of a sermon, I think, then a question. I will try to off-ramp

as it a question because I've been criticized in some of the comments for for sometimes ending

in sermons rather than questions. So I will off-ramp this. But I'm trying to make a point to

resist that economic or economist tendency to say vibes are in facts. Vibes are facts. And so

even as we try to like, you know, poke holes in how young people feel, their feelings drive the

world, their feelings elect people, those people make policy, those policies make economic reality.

And so I guess here's how I'll off-ramp it. You also deal in a world with vibes and statistics,

where sometimes your job, your editor comes to you and they say, you know, the surveys say this,

but the economic statistics say this, make sense of it. Are the people wrong? Are Americans wrong?

And I wonder how you as the Louisville Californian in one of these two chairs, how you make sense of

trying to take people's feelings about the economy seriously, even when the experts you talk to

insist that those feelings are fake. That might have been a sermon, but I think it was a pretty

great sermon, Derek. I agree with a lot of that. And I will say another way of putting this is

that I think we are so often asked as journalists again, find the statistics that show that the

people are wrong. Yes. And something I've actually started doing is try to ask the question,

what might people be experiencing that our statistics don't have good ways of capturing?

And I actually think there are two big ones that we've circled a lot in this conversation,

and that make the pessimism today make a lot more sense to me at least. And I'll be very

interested in what you think about these. I'll call them stuckness and uncertainty.

So stuckness, we've been talking a lot about this low higher, low fire, big freeze environment.

And something I mentioned up top is that like, right, this is particularly punishing for young people

trying to find jobs. But it's also really frustrating for everybody, right? The idea, even if you have a

job feeling like you're stuck and you can't leave, if you have a boss that is terrible, if you just

want to raise, there is a subjective experience that is not easily captured in statistics of like,

I want a better life, I want a better job, and I feel like I can't move that I am stuck.

I think that's happening across the labor market right now. And there are a few statistics that

actually signal that like that actually may be driving some pre-brought frustration, the employee

confidence index that the classroom does reach its all-time lows last year. And I think what's

interesting about stuckness is you're also seeing something similar in the housing market, right?

We talked about how there's a divide between millennials who bought before 2020 and bought after.

Those who didn't buy feel stuck because they can't afford a home. But those who did buy also

feel stuck because they secured ultra low interest rates. Now interest rates have gone up and there

is now emerging what's called this lock-in effect, where people who bought their homes aren't selling,

home-so volumes have plummeted because they're afraid if they leave, they're now going to have to

pay away higher interest rate. So even if you own a home, you have all this paper wealth, you cannot

realize if you want to move because you just had a family or you want to move to better schools or

you want to move because your neighbor is unsafe, you also now feel stuck. And so, and again, I think

stuckness, this feeling of paralysis is one of those things that our statistics don't get at,

but is very important to viscerally how people live in the world. And the second concept, which

is related to that, I think is uncertainty. Our, the unemployment rate does not tell you about how

uncertain people are feeling. But we know, you know, there are not many replicable findings in

psychology, but one of the few is that people place a high premium on certainty instability. We don't

like uncertainty about the future. We don't like volatility. And what has the last few years been,

then a constant whipsaw of great resignation to big frees of tariffs to Iran war to there's

going to be a recession to theirs not all this entire time workers are wondering what's next for me.

And then you have this huge uncertainty looming on the horizon, which is AI, right? The conversations

I've had with young people almost exclusively over the last decade have been about how am I going to

afford a home. In the last year, it's changed to will my job be around in five years. So you have this

combination of people feeling stuck in place of like in a labor market and a housing market that

makes them feel like they're in quicksand. And then you have this uncertainty about where,

whether you can ever get out of it. And then you have like, comment of potential AI job disruption

coming at you. And all of these things I'm talking about, we don't have neat ways to capture

and statistics, but might be part of why people feel so pessimistic right now. So those are just a

couple of couple thoughts, but I think there are a lot of areas like this. I think it's a great place

to land. And I think there's an interaction effect between stuckness and uncertainty as you describe

them, right? People, I think, feel more comfortable when external circumstances are predictable.

And internally, you have a sense of day over day, year over year improvement.

You're saying that people are experiencing the opposite.

They think external circumstances are unpredictable and negative. And internally, they feel stuck.

There is no year over year improvement. That seems to me to be a key part of the psychological

disposition of the workforce. And you add to that the fact that between social media and ample

access to news, people have in their pockets access to a world that constantly seems like and

sometimes is burning. And you see other people from a social comparisons standpoint that seem on

social media to be the ones that have it all. You're stuck. They're enjoying their best life.

And so I think when you put all of that together, the stuckness, the internal stuckness,

the external uncertainty and social comparison on social media being a thief of joy,

I do think that that altogether makes for a very difficult situation for for

lots of Americans, but for young people in particular. So I guess bottom line is we're going to

treat the vibes with that most seriousness going forward. And Rochelle was really going to see

him in. This is great, Derek. Thanks so much for having me and wishing us both good vibes going

forward. Yeah, good vibes. Thanks.