Is Summer Hiring a Labor Supply or Demand Effect?

Last week, University of Chicago economist Casey Mulligan argued that the relatively resilient summer hiring for teenagers shows poor political choices -- not a lack of jobs -- is responsible for high unemployment. I disagreed, writing that these new summer jobs are specifically geared towards teenagers and show a seasonal and temporary labor demand shift on the part of employers for young workers, while unemployed adults continue to face too few openings. Mulligan responded this week to such criticisms by attempting to show that labor supply is mostly what has changed since all the kids are out of school -- not the demand of employers. I still don't think his argument makes sense.

First, he shows a chart that shows bigger employment spikes for workers ages 16-19 more than those 20 and over in the summer and so does employment. Well yeah -- nobody would really dispute that. High schools and college kids are out of school and want to make some extra money. That's obvious. But then he then provides another graph showing a small spike in summer unemployment for workers of 20 years of age and concludes that the teenagers instead of those adults because they want them more than the adults do. He says:

When school lets out, students storm into the job market and jobs are created for most of them. A few students spend some of the summer unemployed because students, and not their employers, are the ones who suddenly decided that summer is the time when they are available to work. That's why the summer unemployment spike is positive -- unemployment per capita for these groups is greater during the summer than during the academic year, especially for the groups with more school enrollment.

This doesn't make sense to me. According to Mulligan's logic, if the unemployed adults stormed the job market, then jobs would be created for them too. I wish Mulligan was right; I really do. But this just doesn't jive with empirical observation. As I noted in my prior post on this subject, summer employment for students is a very different labor market than that for adults. It's easy for a company or proprietor to employ a student at minimum wage knowing it's a temporary situation. Benefits are almost never expected or provided, and the kids have no expectation of job advancement -- just to make some spending money for a few months. That contrasts starkly with the jobs unemployed adults seek.

This reasoning might cause Mulligan to jump up and scream, "Precisely! Unemployed adults aren't seeking employment with an open enough mind -- that's my whole point!" In a sense, he's right. If unemployed adults were willing to take absolutely anything they could get -- even if the work is well below their experience level, pays minimum wage, and offers no benefits or opportunity for advancement -- then they could probably find some more of that. Unemployment might tick down a little.

But bear in mind that roughly 960,000 more young adults (ages 16-19) were employed in July 2010 compared to April, according to the Bureau of Labor Statistics. And for that age group the unemployment rate was 26.1% in July 2010, compared to just 15.3% in July 2007 -- meaning that there are clearly teenagers that have stormed the labor market as Mulligan describes, but came up empty. Jobs are limited despite teenagers' passion to mow lawns and to work as summer camp counselors, so how can the 15 million unemployed adults hope to find employment if even 1.9 million ultra-motivated teenagers can't? At best, 960,000 adults might have taken those new low-paying, dead-end, temporary summer positions instead of kids, if you believe that employers didn't specifically create these jobs specifically for teenagers.

Even in the best case scenario, in which adults got the sorts of jobs generally reserved for kids during the summer, we need to ask a key question. Is the economy really much better off if adults take these sorts of jobs instead of waiting a little longer until a job with at least some opportunity for advancement, permanence, and benefits presents itself? Mulligan would presumably say "yes," but not everyone would agree.

He is certainly correct that jobless benefits shouldn't put the unemployed in so pleasant a situation that they can be ultra-picky about what job they eventually accept and stay unemployed indefinitely until their dream job materializes. But that's different from arguing that unemployment insurance should be eliminated altogether after a relatively short time period. If Mulligan is wrong, and employers do have a greater willingness for teenage workers during the summer than they do adults in similar jobs year-round, then millions of Americans would find themselves in very desperate straits with no unemployment checks. Unless someone can prove a little more convincingly that there's enough labor demand for these unemployed adults to lose their jobless benefits and still live above the poverty line, then Mulligan's seasonal hiring narrative is a pretty hard sell.