Sunday, November 16, 2014

Over-Educated or Lacking Skills?

(* Excerpts from VOX with notes.)

A sizeable fraction of workers hold occupations that don't require as much schooling as they have ... Around 38% of college graduates have higher education than the typical worker in their profession. Even if workers manage to transit to better jobs, they experience wage penalties similar to those after unemployment.

Americans had accumulated more than 1 trillion dollars in student loan debt as of 31 December, 2013 ... Young college graduates earned 62.5% more on average than high school graduates in 2013. However, researchers have started paying more attention to the fact that the huge average ‘college wage premium’ masks large differences in post-college earnings. In particular, a sizeable fraction of workers hold occupations that do not require as much schooling as they have acquired. Think, for example, of college-educated secretaries or school teachers with a PhD.

Over-educated workers earn more than less-educated workers in the same occupation, but a lot less than similarly-educated workers in occupations that do require their level of schooling.

* L.A. Times: College-educated workers are taking jobs that don't require degrees -- College graduates are tending bar and driving taxis, pushing people without degrees out of those jobs. As more college graduates have flooded the market, employers are able to offer lower wages. The earnings of college grads have fallen about 13% in the last decade. Because college is so expensive, many [high school] graduates are facing a dilemma: If they go to college, they still might not get a job that requires a college degree and they'll be on the hook for big student loan payments. But if they don't go to college, they might be pushed out of entry-level jobs by overqualified college graduates who can't find other work.

One year of surplus schooling, above the level required for one’s job, only yields an increase of 4.3% in earnings, which is about half of the usual ‘returns to schooling’ estimates for non-over-educated workers. Such numbers might lead some to reconsider whether more schooling is a good investment*, at least financially, given increasing tuition costs. Ultimately, the ability of over-educated college graduates to repay their pile of loans will hinge on how their careers progress.

* Note: The New York Daily News and Fox News (among others) have articles about Bloomberg suggesting that many people should consider being a plumber rather than going to college — which makes sense, because not everybody can really afford to go to college, and many can’t hack it and drop out. (And a plumber's job can't be outsourced to China either.)

Not all workers are equally likely to remain over-educated. The probability of finding a non-over-educated job is one third as low among over-educated blacks than among over-educated whites. And workers with higher cognitive ability are also less likely to be over-educated and more likely to exit that state.

Not only is it hard for many workers to transition out of over-educated employment, but they are also likely to face wage penalties even after they do. Overall, the persistence and wage penalties that characterize over-educated employment may help explain why up to 21% of outstanding student loan balances were considered delinquent in 2011.

Other results suggest an interesting parallel between unemployment and underemployment (i.e. over-education). Which of these two options hurts a worker’s career prospects the most? A number of studies have established that past unemployment lowers a worker’s subsequent earnings. This could happen if unemployed workers see their unused skills decline or because failing to secure a job sooner affects how prospective employers evaluate their potential.

Wage regression estimates suggest that past underemployment spells generate ‘scarring effects’ similar to those associated with past unemployment spells. Many unemployed workers may have to choose between accepting an over-educated job or wait for one that matches their qualifications.

Employment agencies are often evaluated on their ability to get workers out of unemployment quickly. This could generate more over-education as workers accept jobs for which they are overqualified for fear of being disqualified from unemployment benefits.

* New York Times: More young Americans out of High School are also out of work -- For this generation of young people, the future looks bleak. Only one in six is working full time. Three out of five live with their parents or other relatives. A large majority (73 percent) think they need more education to find a successful career.

Editors Note: For any college or high school graduate the labor market is still brutal — so imagine being a high school dropout. Labor statistics shows that dropouts are nearly twice as likely to be unemployed as a high school graduate (or a holder of a GED). High school dropouts would also be competing for the same jobs that those with college degrees are taking that don't require a college degree. If college grads are working as taxi drivers, bartenders and strippers, what type of jobs can high school drop-outs expect to find?

But almost everyone agrees, the lack of manufacturing is the root cause for high unemployment in America. Robert Mundell, a Nobel Economics Laureate (and one of the chief architects of Reaganomics and a lifelong advocate of trade liberalization), now believes outsourcing has gone too far. "It has been a mistake to let U.S. manufacturing run down so low. While other nations have industrial policies to maximize their trade benefits, the United States leaves itself open like a naked woman.”

* Also read: Offshoring from Sea to Shining Sea and The STEM Crisis is a Myth and H-1B Guest Worker Fraud and the "Lacking Skills" Scam (We could all have a PhD, but that wouldn't create enough jobs paying a living wage if all the job creators are going to do is put us out of work with robots and foreign workers — just to keep wages as low as possible.)


  1. Economic Policy Institute: The Number of Unemployed Exceeds the Number of Available Jobs Across All Sectors -- "The main problem in the labor market is a broad-based lack of demand for workers — not, as is often claimed, available workers lacking the skills needed for the sectors with job openings."

    Zerohedge: "Contrary to the pervasive and erroneous propaganda, the collapse in the labor force has little to do with the alleged millions of retiring baby boomers (quite the contrary: as a result of ZIRP crushing their lifetime savings, baby boomers have been forced to remain in the workforce in ever greater numbers) and everything to do with the lack of employment opportunities, or perhaps an unwillingness to work, for young Americans."

    Zerohedge links to Pew Research: "More and more Americans are outside the labor force entirely. Who are they?"

  2. November 17, 2014 -- Measuring Labor Market Slack: Are the Long-Term Unemployed Different? "The long-term unemployed group has the largest share of prime-age workers."

    (My comment pending) As of October 2014 from the BLS: 6.1 million not counted as "unemployed" and "not in the labor force" and "want a job".

    New York Times: Inequality, Unbelievably, Gets Worse -- "Before the impact of tax and spending policies is taken into account, income inequality in the United States is no worse than in most developed countries ... However, once the effect of government programs is included in the calculations, the United States emerges on top of the inequality heap."

    God Bless America -- We are exceptional --- We are #1

  3. Robert Reich (November 2014)

    "People with college degrees continue to earn far more than people without them. And that college “premium” keeps rising. Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees. In the early 1980s, graduates earned 64 percent more [but] a college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping. In fact, it’s likely that new college graduates will spend some years in jobs for which they’re overqualified. According to the Federal Reserve Bank of New York, 46 percent of recent college graduates are now working in jobs that don’t require college degrees. Employers still choose college grads over non-college grads on the assumption that more education is better than less. As a result, non-grads are being pushed into ever more menial work, if they can get work at all. For years we’ve been told globalization and technological advances increase the demand for well-educated workers. This was correct until around 2000. But since then two things have reversed the trend. First, millions of people in developing nations are now far better educated, and the Internet has given them an easy way to sell their skills in advanced economies like the United States. Hence, more and more complex work is being outsourced to them. Second, advanced software is taking over many tasks that had been done by well-educated professionals. As a result, the demand for well-educated workers in the United States seems to have peaked around 2000 and fallen since. But the supply of well-educated workers has continued to grow. The New York Times calls them "Generation Limbo" --- well-educated young adults “whose careers are stuck in neutral, coping with dead-end jobs and listless prospects.” A record number are living at home. Given all this, a college degree is worth the cost because it at least enables a young person to tread water. Without the degree, young people can easily drown." (MY NOTE: I guess that at this rate, one day they'll need a PhD to mops floors.)

    Timothy Taylor (November 2014)

    "The age group with by far the biggest rise in those saying they don't want a job since 2000 is the 16-24 age group ... We are in the midst of a social change in which 16-24 year-olds are less likely to want jobs. Some of this is related to more students going on to higher education, as well as to a pattern where fewer high school and college student are looking for work. I do worry about this trend. For many folks of my generation, some evenings and summers spent in low-paid service jobs was part of our acculturation to the world of work. As I've noted in the past, I would also favor a more active program of apprenticeships to help young people become connected to the world of work.

  4. We all know about China taking our manufacturing jobs through slave wage labor. I think this video here gives a pretty good idea of what has been happening.

    A long time ago, the idea was floated that when manufacturing is shifted overseas, Americans can find employment in higher paid service and knowledge jobs. But that hasn't happened.. why??! Well, a lot of those skilled and sophisticated service jobs have moved to India.. just watch these videos...