Too many college grads? Or too few?
Editor’s Note: It’s no secret that, like the rest of Americans, college graduates are struggling to find jobs. Are there just too many of them over saturating the labor market? According to the Bureau of Labor Statistics, it would seem so: only 27 percent of jobs in the U.S. require at least an associate degree and the ranks of under and unemployed college graduates are likely to grow over the next ten years.
Maybe, as economist Robert Lerman has suggested, more energy should be poured into apprenticeship programs, given that so few jobs will absorb our college graduates.
But that’s not the whole story. The BLS projections of demand for college grads are dangerously understated, argue Anthony Carnevale and his colleagues at the Georgetown Center on Education and the Workforce. Why dangerously? Because they discourage disadvantaged students, for whom tertiary education is not a foregone conclusion, from earning a college degree.
Carnevale is director of the Georgetown Center on Education and the Workforce, where Nicole Smith is senior economist and Jeff Strohl is director of research. In October, Carnevale explained on this page why it’s taking so long for millennials — the most educated generation — to reach the middle of the wage distribution. (Hint: it’s not because their parents are crowding them out of the labor market.)
—Simone Pathe, Making Sense Editor
The Bureau of Labor Statistics (BLS), the premier government source for information on jobs, shows that only 27 percent of jobs (percentage calculated from table 2) in the U.S. economy currently require a college degree (associate degree or higher). By comparison, the Current Population Survey, a monthly survey of 60,000 households conducted by the U.S. Census Bureau, shows that 47 percent of workers have an associate degree or higher.
The BLS projections to 2022 are even more depressing. They suggest that the number of overqualified and underemployed college graduates will only get worse. According to BLS, the economy will create 50.6 million job openings by 2022 and only 27.1 percent will require college degrees. That’s a projected increase of only 2.1 percentage points since 1996.
We at the Georgetown University Center on Education and the Workforce respectfully disagree, particularly as it relates to the education required for those jobs. Our projections suggest that the economy will create 55 million new job openings over the next decade, and 65 percent, or 37 million, of these new job vacancies will require some postsecondary education and training.
According to table 2 in the December 2013 edition of the BLS’ Monthly Labor Review, only 23 percent of jobs will require a bachelor’s degree or higher in 2022. By comparison, our projections show that, by 2020, 35 percent of jobs will require a bachelor’s degree or higher.
The BLS estimates are frighteningly low given that so many of our competitor nations have far exceeded them over the past decades. The United States was one of the top countries in college achievement in 1992 but has since fallen to number 11 among Organization of Economic Co-operation and Development (OECD) nations. The United States performs especially poorly in sub-baccalaureate attainment, where we now rank 15th among our peers.
But of even more concern are the far reaching consequences of these understated numbers. The BLS numbers have contributed to growing skepticism about the value proposition of higher education by many vocal and influential public figures, such as William Bennett, Charles Murray, Richard Vedder, George Leef and Peter Thiel.
According to the BLS, only 27 percent of us need college degrees for our jobs. Yet, 47 percent of the workforce currently has a college degree. This 14.9 percentage point difference equates to 21 million overqualified degreed workers in a workforce of 140 million; or the size of the 2013 fall postsecondary enrollment.
If these data are taken at face value, given an expected class of 2.1 million new first-year college students each year in the nation’s colleges and universities — at least from an economic point of view — we should consider shutting the nation’s two and four-year colleges down for the next 10 years to absorb the existing surplus of graduates.
Otherwise, if you take these official BLS data seriously, the army of unemployed and underemployed college graduates will only grow over the next decade. According to the BLS, the demand for college degrees will grow by a paltry three-fifths of 1 percent over the next 10 years, about 800,000 people.
There are several problems with the BLS data. First, the data are not based on data at all. The BLS does not claim to analyze educational demand as measured by hiring or wage differences. Instead they “assign” the minimal education and training requirements for employment. Their educational assignment method is based on the subjective judgment of BLS analysts in consultation with an unstated number of external consultants to cover change in 755 occupations. The process is hardly transparent.
To some extent, the BLS’ limited efforts are a function of their limited goals. The fine print in the BLS data states at great length that their purpose is to represent the minimal education and training requirement in particular occupations. The BLS recognizes that assigning a single education level to a job does not accurately reflect what skills are needed on the job. As the bureau will tell you if you ask, virtually every occupation in the economy comes with a variety of legitimate educational attainment levels. In addition, because it focuses on the lowest level of education required for an occupation, it is not forward-looking in an economy where entry-level skill requirements have been increasing rapidly since the 1980s.
But the problems run much deeper than the methods. The BLS data disagree with the mainstream research in labor economics, where economic demand is measured by employment levels and earnings; economists agree that whoever gets hired and earns more is more in demand. When we use the conventional metrics of employment and earnings differences to measure differences in demand, we get very different outcomes than the BLS does. Unemployment rates and underemployment rates for college graduates are consistently a fraction of the rates for high school dropouts or high school graduates.
The evidence on earnings and college degrees is unequivocal: Employers continue to demand better-educated employees and are willing to pay more to get them. The college wage premium — the difference between the average wages of college and high-school-educated workers — has spiked since 1967. By 2005, that difference had reached 81 percent for men, up from 37 percent in 1967. The story was similar for women, with the college wage premium rising from 54 percent to 81 percent over that time.
We could conclude that employers are just hiring degree-holders and paying more for them because they are dazzled by college graduates. But we know that employers are very sensitive to wage costs. For example, when the baby boom entered the workforce in the 1970s, college degrees were oversupplied and the wage premium for college degrees over high school degrees fell from 59 to 48 percent before rising again in the 1980s. This suggests that employers were not getting fooled by shiny sheepskin just because there were plenty of them around.
The fact that the college wage premium soared from a meager 37 percent in the 1970s to peak at 81 percent in 2005 suggests that college graduates are undersupplied. This perspective is one widely agreed upon among economists, comprehensively stated by Claudia Goldin and Lawrence Katz in “The Race Between Education and Technology” and quantified further in our recent report “The Undereducated American.”
Moreover, it’s not at all clear that a temporary surge in college graduates is bad economics in the longer term. True, a surge in college graduates as occurred in the ’70s can temporarily drive down the college wage premium for individuals, but it may ultimately lead to productivity increases that boost growth and college wages later on. Growth economist Daron Acemoglu and others argue convincingly that the oversupply of college-educated labor in the 1970s helped to leverage growth that otherwise would not have occurred in the 1980s and 1990s. In other words, postsecondary demand has been increasing because of both supply and demand effects.
In our study “The Undereducated American,” we found that if we increase the overall number of college graduates by 20 million by 2025, the share of the workforce with bachelor’s and graduate degrees will increase from 32 percent to 46 percent. The immediate effect of this surge in college attainment, holding productivity constant, might be to reduce the college wage premium from the current 74 percent to as low as 46 percent.
The good news here is that the benefits of a college degree would be more broadly shared and the earnings differential between college and non-college workers would fall to more respectable historical levels. But if the new college graduates boost economic performance as Acemoglu and others would argue, then overall wages for both college and non-college workers would rise and the decline of the college wage premium would be moderated.
The BLS data also suggest that employers were smart in the ’70s and dumb ever since. If the BLS is right, workers with postsecondary education are getting an appreciable economic benefit from their degrees that they didn’t earn. It would mean that employers were smart enough to cut back the college wage premium in the 1970s when they experienced an oversupply, courtesy of the baby boom, but the same employers started throwing money at degrees in the 1980s and continue to do so. If the BLS is correct, the increasing wages for college workers have us headed for a college bubble that will surely burst, which would mean markets don’t work, employers are irrational and preparing your children for college is naive for all but a very select few.
We agree there is some mismatch between college curricula and career opportunities. Career development is only one of many purposes that college curricula serve. As the BLS data demonstrate, there are bartenders with bachelor’s degrees even in good times. However, they take the argument about over-qualification way too far in the wrong general direction. The bartenders with bachelor’s degrees (and similar stories) are a testament to our failure to connect college programs to career pathways, but they do not signal overproduction of college degrees in general.
To the contrary, since the 1980s the evidence suggests that we have been under producing college talent, and the rising college wage premium is the best summary proof. Degree production in the 1980s flattened out after baby boomers reached college graduation age and has remained flat ever since. The supply of college talent has increased at roughly 1 percent per year and the employer demand has risen by as much as 3 percent. Over the past decades, employers have responded to scarcity in college talent by raising college wages relative to the wages of workers with no more than high school diplomas.
Despite the growing economic advantage of college degrees, the overproduction or over-qualification school of thought implicit in the BLS data has a strong following.
Going forward, both demography and labor market change favor increased demand for college degrees. The baby boom that reduced the college wage premium in the 1970s by surging into the workforce will be surging out of the labor force over the next two decades. This most highly educated generation includes more than 40 million workers, each with roughly 40 years of experience. The retirement of college-educated baby boomers will only increase the demand for degrees to make up for their lost educational attainment as well as their experience.
Our focus on this issue is not driven by a desire to complain about the Bureau of Labor Statistics. The BLS is the gold standard for occupational and industry job data, and we would not be able to do much of our own analysis without them. But the BLS education data is the exception to the rule. The relationship between education and jobs falls in the crack between the government’s education and jobs statistical agencies. The education statistical agency doesn’t track jobs and the jobs statistical agency doesn’t track education, while neither tracks the relationships between education and jobs. The U.S. Census Bureau does track both jobs and education, and it finds that people with college have a substantial wage advantage over high school dropouts or high school graduates.
The BLS data are most troubling because they send bad advice cascading from the federal to state governments and to student counselors and into the hands of young people and their parents.
For example, the BLS education data say that a two-year degree is what’s required to become a registered nurse even though we know that over 50 percent of nurses already have a four-year or graduate degree and that those nurses have more responsibilities and higher earnings than nurses with associate degrees once they get on the job. So the backward-looking advice implicit in the BLS data misrepresents the education it takes to be a registered nurse and the earnings potential of these nurses.
The BLS data encourages policymakers who see higher education attainment programs as a place to cut their budgets, and, worst of all, it encourages bad decisions about college-going that are made at kitchen tables all across America. But the sensationalist stories about high unemployment among college graduates and the misleading official data are unlikely to keep advantaged youth from going to college.
The real tragedy of these headlines is the message they send to less privileged youth for whom college is not an assumed or easy path. The negative press on college fuels biases among working families that college is neither accessible nor worth the cost and effort. Moreover, the bad press and worse data strengthen the hand of elitists who argue that college should be the exclusive preserve of those born into the right race, ethnicity and bank account; college is for me and mine but not for thee or thine.