Rampant Youth Unemployment in the United States and Europe: How we got here and how to get out of the mess. Misleading a generation of young people. Part 1

You meant well when you preached the value of higher education to your children. You constantly pushed and prodded your son or daughter: Go to a university. Get a degree. Stay with it. Make good grades.

And, if necessary, borrow lots of money to pay for four years of higher education—-or possibly five or six or seven years. Don’t worry about the debts. You will be able to pay them off in the long run with good wages, you assured them.

Your arguments were often personal and, at times, emotional: You’ll possibly be the first one in the family’s history to have earned a four-year university degree, you told your kids. We’ll all be proud of you. With those sheepskins, you’ll be set for life.

What went wrong?

Now, since your jobless son or daughter started living in your basement, you wonder about your advice. You question the college debt they, and possibly you, took on. You wonder if you, along with school counselors and government officials, didn’t send your child down the wrong road. It is the road called “the only way to succeed in life is by obtaining a four-year university degree.”

Since World War II, it is a road taken by millions of young Americans and others in Western countries. It is a road with heavy tolls. For example college tuition and fees have risen by 1,000 percent since the late 1970s, according to Andrew Rossi in his documentary “Throwing Rocks at the Ivory Tower.”

College costs, he notes, now average $22,826 for a public college and $44,750 for a private college. And that’s not taking into account the costs of books, housing and other living expenses. Young university students are accumulating huge amounts of red ink (See below).

Yet, despite these incredible costs, university educations became an article of faith in the United States and many other countries.

That’s because many times there is no counter argument ever made to this everyone must go to university idea. Few people make the case for trade school and apprenticeships, says Nicholas Wyman. He is the author of an important new book, “Job U: How to Find Wealth and Success by Developing the Skills Companies Actually Need.” (CrownBusiness.com, 276 pages, $15)

Wyman’s path to success is a remarkable story. As a young man, he didn’t want a traditional higher education, even though his father attempted to steer him in that direction. Yet Wyman, who is the CEO of the Institute for Workplace Skills and Innovation, achieved success by following a different path.

He preferred learning how to become a chef to the life of a university student. His father tried to get him to go to a university. Still, culinary education attracted him more when he was growing up in “a lucky country,” Australia (Lucky because it is a country blessed with great natural resources).

Trade education took Wyman for a great ride. Now he helps others by relating his experience. Today he is a corporate chieftain, the CEO of WRC Group, which specializes in training apprentices. Wyman understands why so many young people after a university education end up in basements or in their parents’ spare rooms. These young people followed the course that parents, government and others in society urged them to take.

Then, after school, they don’t know why their pricey higher educations have put them behind the eight ball. They lose confidence and hope. Many give up. This is a terrible thing for a person with so many years in front of him or her. They are part of a lost generation.

“Today around thirteen million Americans, some with college degrees, are unemployed, and that does not include those who are underemployed or have given up trying to find work,” according to Wyman.

After serving an apprenticeship and achieving a skill that would mean he would never starve, Wyman later obtained an MBA degree. He is today a corporate success story.

Through his research on youth unemployment, he argues that many don’t belong in a university. That’s because they don’t thrive in a classroom setting. Some need to do things in a workplace classroom. They should study at a technical institute or a community college, he believes. They should first learn a trade, obtaining some marketable skill that will help them succeed in the private sector.

“Onsite work and mentoring are the core of the training model that today’s entry-level workers need in order to build and sustain life long careers,” he writes.

“Strategically designed apprenticeship programs aggregate, monitor and streamline the changing inputs and relationships required to promote workers and pave paths of sustainable employment,” according to Wyman.

Taking the technical school route, Wyman assets, doesn’t bar one from going to a university. If later a young person gets the urge to go to a university and obtain a traditional four-year degree, that’s fine. But first things first. Young people in their 20s need a marketable skill; one that will get them off to a good start. This will prevent them from a rudderless life in their 20s. This is one in which they are too poor to make it on their own.

Much of what Wyman and others are trying to do is to clean up after the mess of past generations. Over the past sixty years, in the United States, technical training has been discouraged. Those interested in such training were often steered to a traditional four-year university course. Many nations measured their success by the traditional university graduation rate. Like many of the assumptions of the modern welfare state, more is always presumed to be better.

Yet lots of these young people find themselves with too much expensive formal schooling and not enough useful education.

“I never let my schooling, interfere with my education,” wrote Mark Twain, one of America’s least credentialed yet possibly greatest writer. (H.L. Mencken, another self-educated writer who went to an institute as a young man, said reading Twain’s wonderful “Huckleberry Finn” changed his life).

This insistence on universities for everyone is a disastrous policy in several ways: Young people carry the albatross of student debt while society pays taxes for student loan programs that, like so many other government programs, have costs that are bigger and bigger. The debt numbers among 20 Something’s are awful.

Seven out of ten seniors who graduated from public or private colleges last year had a student loan debt of $28,400, according to credit card industry numbers. This represents a two percent increase from the year before.

“Save for mortgages, student loans constitute the largest component of household debt for Americans. As of June 30, 2014, total outstanding student loan balances disclosed on credit reports stood at $1.12 trillion, the Federal Reserve Bank of New York reported in August,” according to WalletHub.com. “The latest figure represents an increase of $7 billion from the first quarter and $124 billion from a year ago.”

As a young man I had my own experience with student loans, which I will discuss later in this series. But clearly the numbers are stacked against traditional university graduates. For example, as Wyman noted in a recent publication, there’s too many people all trying to succeed at the same thing. He says there are not enough young people with skills the industry needs.

“Every year,” Wyman writes, “the United States produces approximately 2.1 million college graduates, yet only 27 percent of jobs in the U.S. labor market currently require an associate’s degree or higher. By comparison, more than 47 percent of workers actually hold an associate’s degree, while millions of jobs that require no higher level of education remain vacant begging to be filled.”

We will examine this job market anomaly later in this series when we review some of the good jobs that are open. But, in the meantime, the U.S. Labor Department forecasts this supply and demand imbalance will be growing. In the next seven years, it says, only 23 percent of jobs will require a degree. Yet now this imbalance affects millions of young people.

“The jobless rate for college graduates under age 25 averaged 8.2 percent in 2013 (compared to 5.4 percent in 2007), and the underemployment rate for college graduates ages twenty two to twenty seven was 44 percent,” according to Federal Reserve numbers cited by Wyman.

And that’s not the worst of it. In some European nations, such as Spain or Greece, the youth unemployment numbers can be 40 percent to 50 percent or higher. What does this do to a society? (See note below)

And youth employment isn’t necessarily improving much as the economy picks up. According to the latest U.S. Labor Department figures, the unemployment rate dropped to 5.7 percent. That’s much better than when the jobless rate was around 10 percent. However, even though unemployment is declining here in the United States, the youth jobless rate remains high—17 percent—and there is another disturbing number in the good news. The labor participation rate remains weak, 62.9 percent rate, a three decade low.

How can unemployment decline yet labor participation not go up?

In part it’s the other side of these grim youth unemployment numbers. It is the millions of college graduates who can’t find work.

Let us consider the psychological damage of this one size fits all government policy, which pressures young people to attend universities although many don’t want to go. Yet, when they apply themselves and graduate, bad things still happen. Degrees from prestigious universities often lead to unrealistic expectations and disappointments among young graduates.

Many of us know these young adults, who have been promised so much if they only obtained degrees. Those numbers lead many people to despair. They quit on society. That means that the unemployment numbers we hear are worse than reported.

The government numbers are rigged because not everyone is counted when people drop out of the job pool. (In mutual funds a similar number blurring takes place. It’s called “survivorship bias.” You no longer count the worse performing funds as part of the fund universe. Therefore, overall fund performance seems better than it actually is when one leaves out the lemons. One thinks of Disraeli’s line, I’m sure purloined from someone: “There are lies, damnable lies and then there are statistics”).

Rigging numbers is tantamount to saying that if in a four quarter football game your team has one lousy quarter, then we just don’t count that one. Or maybe we should not count Seattle’s last disastrous pass in this year’s SuperBowl. Ojala, senor!)

So why are millions of young people dropping out, giving up all hope? How did it happen and what can we do about it?

We will further explore this generation’s problems and how they came about in our next segment on GregoryBresiger.com. And we will hear more from Nicholas Wyman, who in the concluding parts of this series, will provide more on this topic in a Q&A I recently conducted.

It will be run here in a few days. Please visit us then.

Note: On our recent trip to Espana with my wife, we saw demonstrations almost every day that often had something to do with youth employment. (By the way, if you go to Madrid, be sure to visit the old section of town. And don’t skimp on the chocolate con churros. They’re fabulous.)