Monday, May 27, 2013

College Graduates and the Decline in Jobs Requiring College Skills

If one looks at the unemployment rate for college graduates and compares it to the unemployment rate for high school graduates, one finds that having a college degree makes it considerably more likely that a person will be employed. The conventional wisdom derived from this fact concludes that if only we had more college graduates, then net unemployment would decrease. A related conclusion holds that there are jobs going unfilled because we are not producing enough quality applicants for the jobs available. The unemployment rate data for the two degree types is necessary to support these two contentions, but not sufficient to prove them. 

Could something more complex be taking place and confusing the issues?

In the article The Evolving Labor Market: Hiring Trends we discussed some hiring dynamics that preclude applying a simple supply and demand analysis. In particular, we discussed an article by Catherine Rampell in the New York Times: It Takes a B.A. to Find a Job as a File Clerk. Rampell provided these insights:

"The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job."

"Economists have referred to this phenomenon as "degree inflation," and it has been steadily infiltrating America’s job market. Across industries and geographic areas, many other jobs that didn’t used to require a diploma — positions like dental hygienists, cargo agents, clerks and claims adjusters — are increasingly requiring one, according to Burning Glass, a company that analyzes job ads from more than 20,000 online sources, including major job boards and small- to midsize-employer sites."

"This up-credentialing is pushing the less educated even further down the food chain, and it helps explain why the unemployment rate for workers with no more than a high school diploma is more than twice that for workers with a bachelor’s degree: 8.1 percent versus 3.7 percent."

These interpretations would lead one to conclude that unemployment for college graduates is lower because they have been forced to accept positions that were once considered below their capabilities, not because there is an abundance of good jobs waiting to be filled. One could also conclude that the difference in employment rates between the two degree categories is artificially increased by the willingness of college graduates to accept work that traditionally was performed by high school graduates.

Viewed from this perspective, a college degree entails an educational experience, but it is also a very expensive means of obtaining a work permit.

Three economists, Paul Beaudry, David A. Green, and Ben Sand, provide a more rigorous analysis of college graduates and the work available to them: The great reversal in the demand for skill and cognitive tasks.

These economists have analyzed employment data for college graduates along with characterizations of various job categories in terms of the cognitive skills demanded by each job category. Their basic finding is illustrated by this chart:

"....we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal....In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow."

They find that the number of positions requiring high cognitive skills has leveled off at about the year 2000 level. Meanwhile the number of college graduates has grown. This increasing number of job seekers then must be taking jobs of lesser cognitive content, resulting in the lowering of the average cognitive content indicated in the above chart.

The authors also draw this conclusion:

" response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force altogether."

These economists applied an academic glaze and provided hard data to arrive at exactly the same conclusions that Catherine Rampell reached based on more anecdotal evidence.

Things are not always as they seem, and statistics can be interpreted in many ways. It seems we don’t have too few college graduates; we have too many. It seems we don’t have a lack of skills; we have a lack of jobs requiring skills—at least for college graduates.

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