Why Don't Firms Hire Young Workers During Recessions?

Recessions are known to be particularly damaging to young workers’ employment outcomes. I find that during recessions, the hiring rate falls faster for young workers than for more-experienced workers. In order to distinguish between the competing explanations of firm-hiring behavior and worker labor supply decisions, I develop a model of cyclically selective hiring and develop necessary conditions for firms to reduce hiring of young workers during recessions. Comparing predictions from this model with alternative models, I show that labor supply and wage evidence is inconsistent with young workers’ labor supply behavior driving the fall in youth hiring. I conclude poor employment outcomes for young workers during recessions are due to firm hiring decisions.