Employment and Earnings of Disadvantaged Young Men in a Labor Shortage Economy

This study contrasts the economic position of youths across local labor markets that differ in their rates of unemployment using the annual merged files of the Current Population Survey and the National Longitudinal Survey of Youth. The paper finds: (1) Local labor market shortages raise the employment-population rate arid reduce the unemployment rate of disadvantaged youths by substantial amounts. (2) Shortages also raise the hourly earnings of disadvantaged youths. In the 19805 the earnings gains for youths in tight labor markets offset the deterioration in the real and relative earnings of the less skilled that marked this decade. (3) Youths in labor shortage areas had greeter increases in earnings as they aged than youths in other areas, implying that improved labor market conditions raise the longitudinal earnings profiles as well as the starting prospects of youths. These findings show that despite the social pathologies that plague disadvantaged youths, particularly less educated black youths, arid the 1980s twist in the American labor market against the less skilled, tight labor markets still operated to substantially improve their economic position.