The Rising National Debt Means Fewer Jobs, Lower Wages for Young People
The national debt is growing faster than ever, and the consequences for the job market are serious. The stakes are especially high for young Americans, who are already navigating a challenging labor market.
Rising National Debt Will Reduce the Number of Jobs Available
As the national debt grows, so too does the cost of servicing that debt. Rising interest costs not only crowd out resources for public investments within the budget, but also deter private investment in businesses, which slows economic growth and negatively impacts the labor market. An analysis from EY’s Quantitative Economics and Statistics (QUEST) practice projects that the path of rising debt in 2025 would reduce the number of jobs in the United States by 1.2 million in 2035, 2.7 million in 2055, and 3.6 million in 2075, as compared to if lawmakers stabilized the debt. It’s important to note that these job losses are annual and cumulative over time.
Rising National Debt Will Lower Wages
Rising debt also results in lower wages for workers, driven by the crowding out of private investment. The Congressional Budget Office calculates that for every dollar the federal deficit increases, private investment falls by 33 cents. Reduced private investment can lead to lower productivity for firms and less compensation for workers.
Over the long term, the American Action Forum estimates that the current trajectory of our rising debt would reduce income growth from 2025 to 2055 by 16 percent, and the EY report projects that take-home pay would be 5.3 percent lower than if lawmakers adopted policies to stabilize the national debt.
Implications for Young People
Higher unemployment. Young people are disproportionately sensitive to labor market conditions. The Federal Reserve Bank of St. Louis finds that a 1 percentage point increase in the job openings rate is associated with more than twice as large of a decrease in the jobless rate among 18-to-24-year-olds than among the general population. Similarly, the Economic Policy Institute estimates the unemployment rate for 16-to-24-year-old workers typically rises 2.6 percentage points for every 1 percentage point increase in the unemployment rate for workers 25 years and older. During the low job growth environment in 2025, when the U.S. added just 181,000 jobs, the unemployment rate among 20-to-24-year-olds peaked at 9.2 percent in August, the highest since the pandemic. In contrast, the unemployment rate stood at a relatively low rate of 4.3 percent among the general population. With less experience and fewer developed skills, younger workers face an uphill climb competing for fewer jobs.
Lower wages. Wages for young people are also sensitive to changes in the unemployment rate, far more than for older workers. The Economic Policy Institute found that a 1 percentage point increase in the unemployment rate is linked to a 0.86 percentage point decline in median annual wage growth for young workers, compared to a 0.39 percentage point decrease among workers 25 years and older.
Long-term repercussions. For younger workers, lower wages can have long-lasting repercussions over their working years and beyond, impacting lifetime earning potential. Median household income during the Great Recession, for example, declined by 3.6 percent in 2008 and greatly affected the trajectories of Millennials who had just entered the workforce. Research found that by 2013 Millennials had earned 20 percent less in wages, were less likely to be homeowners, and had accumulated approximately half as much wealth as their parents had at the same age. Today’s Gen Z workers are likely to face similar challenges — albeit not as intensely or abruptly as during the Great Recession — in building wealth, especially as reduced earnings could make it more difficult to pay off large student loans and ultimately lead to less retirement savings over time.
Conclusion
The growing national debt will both shrink the labor market and drive down wages, contributing to an uncertain economic future for millions of younger Americans. The decisions that today’s leaders make about America’s fiscal future are extremely consequential to the next generation. The good news is that young Americans can play a critical role in ensuring a more prosperous economic future by making their voices heard — and there are many solutions available to put us on a better path.
Image credit: Spencer Platt
Further Reading
The National Debt Can Crowd Out Investments in the Economy — Here’s How
Large amounts of federal debt could “crowd out” investments by the private sector, making the economy less productive and stunting wage growth.
Rising National Debt Increases Costs for American Families and Businesses
Federal fiscal policy is a significant but often overlooked factor in the affordability of vehicles, homes, and small business loans.
The Fed Held Its Target Range For the Fourth Meeting in a Row but Interest Costs Remain High
High interest rates on U.S. Treasury securities increase the federal government’s borrowing costs.