It’s long been believed that young people tend to suffer most from any recession as the impact is felt hardest by those who are at the start of their careers.  For instance, previous research has found that the unemployment rate for 21-25 year olds is double that of 25-54 year olds during a recession.

Redundancies during this early stage in our careers is especially damaging because it’s the time when we see the biggest growth in our income.  New research explores whether the stock price performance of a firm may help shed some light on the kind of workers a company employs, and in turn whether this helps to explain why younger workers bare the brunt of a recession’s impact.

“Our model predicts the unemployment risk of young workers relative to prime-age workers to be more sensitive to productivity shocks when equity market risk premium is high, and in industries with more volatile stock prices,” the researchers explain.

Youth unemployment

One hypothesis that was explored was whether young people were unemployed because they didn’t really want to work.  The reality however was that young people were simply in less demand than prime-age workers.  It transpires that when the economy is good, companies are more willing to take a chance on the relatively unknown potential of a young person, but this willingness tends to evaporate when times are tough.

The researchers believe that so distinct is the challenge faced by young people that specific policies are required to support them.  Their research suggests that financial markets offer a good insight into the relative unemployment risk across different age groups.

“During deep recessions when there is intervention by policymakers—the Troubled Asset Purchase Program, or TARP, for example—what this research shows is there is a beneficial effect to doing that,” they say. “With the intervention, asset values didn’t fall as much so firms were able to hold on to younger workers.”

In the absence of specific policies to help young people, the authors suggest that it might be worth them taking greater risks early in their career to both boost their earnings and show their worth to employers.  The fact that they’re likely to be unemployed during a recession might make a period of risk taking pay off.

“In the field of economics, most of what we study has a goal to understanding the welfare of society,” the researchers conclude. “How much an individual earns is an important determinant of that.”