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.)