Tuesday, February 15, 2011

Educated and Underemployed

By Christopher Matgouranis

Relying on a unique data set from the Bureau of Labor Statistics, CCAP has written extensively (here, here and here ) about the growing trend of underemployment for our nation’s college graduates. We estimate that approximately 17 million Americans with college degrees are employed in jobs that do not require college-level skills. The majority of our previous work has examined college graduates in general, lumping together those with bachelor’s and graduate degrees. Recently, I disaggregated the data and found that rampant underemployment is not limited to those with just a bachelor’s degree.

In 2008 (the last year data are available), 7.87 million graduate degree holders were underemployed (that is, employed in jobs requiring less than a graduate degree). Further breaking the data down, 6.98 million held masters and another 1.18 million had PhDs or professional degrees. A full 59% of those employed holding a masters degree were classified as underemployed. PhD and Professional degree holders did better at 22% underemployed. Yet that is still a shockingly high figure considering the level of education that these individuals have attained. To further put things in perspective, the number of underemployed masters degree holders was more than the total number of masters degrees produced between 1998 and 2008 (5.75 million). Similarly for the PhDs/Professionals, 80% of the incremental increase in the total number of degree holders over that same period were considered underemployed.

It should be noted that the underemployment estimate for PhDs is on the conservative side. In calculating the totals, I did not count as underemployed the PhDs/Professionals working in jobs that the BLS classifies as requiring “a bachelor’s degree or higher” or “master’s degrees.” Workers in these fields were given the benefit of the doubt in whether or not they were truly underemployed because of the small ambiguities with these BLS classifications (i.e., are professional degree holders really underemployed if they work in a job requiring a master’s degree?). Had these two BLS classifications been included, PhD/Professional underemployment would have risen to 1.59 million.

A few thoughts come to mind when looking at this data. First, not all graduate degrees are created equal. Those with graduate degrees in finance, economics, and engineering for example likely have a better employment outlook (and are less likely to be underemployed) than those with graduate degrees in anthropology, English or sociology. This is not to say that no one should enter the latter type of fields, but that obtaining one of these degrees should be considered carefully. Secondly, as a recent book, has detailed, a significant number of undergraduates are learning little in college. A likely consequence of this is that more and more people are finding it “necessary” to get graduate degrees. The credential inflation problem associated with this issue could be alleviated somewhat if undergraduate education (and K-12 for that matter) was more rigorous and effective. Lastly, universities should take note of the employment opportunities for graduate degree holders. Graduate students are frequently subsidized (through tuition waivers, stipends, etc.) by their undergraduate counterparts. With an often bleak employment outlook for many graduate degrees/programs, universities should rethink their graduate degree subsidization. Reducing subsidies for graduate education will likely help realign the supply of graduate degree holders with realistic demand from employers.

This blog originally posted on CCAP's "Higher Education and the Economy" blog space at Forbes.com.


Sharon said...

Not so much underemployment as the over-production of graduates. Overproduction is, apparently necessary for job placements because the process of matching job candidates with openings is so inefficient.

But don't expect this to change much: it is in the best interests of the employers to have a surplus of job seekers to chose from. They are, afterall, expendable.

Now you know why the overproduction of graduates is a characteristic of developing countries, and why that won't change.

Glen S. McGhee said...

Another way to look at this problem is in terms of the inefficiencies of the job market, not higher ed.

Markets are rarely efficient. Even when they are stable or have reached local optima, they are rarely efficient; cliches quickly establish themselves opportunistically, and seek control over their environments by legislating special privileges for themselves and restrictions for their competitors.

But no market is more inefficient and irrational than the job market. The inefficiencies of the job market are largely to blame for higher ed problems, including underemployment, exorbitant tuition and student loan debt. Lowering tuition does nothing for job market inefficiencies, which is really a case of ongoing, chronic and systemic market failure. Lower rates of tuition would only worsen the irrational reliance on credentials and credential stratification, which now serve as a marker of worthiness -- of credibility -- in the job market.

Viewed this way, what you are seeking to do may have some short-term benefits, local benefits, but when you scale these benefits up to whole populations, the result is disasterous. Look at the upheaval in Egypt, if you want a reference point for comparison.

YouShouldGoToSchool said...

Thanks for sharing this data. It's important to realize that graduate school is not necessarily the ticket to a more satisfying (or higher-paying) job. More people should consider this before they mindlessly go to graduate school because it's "the thing to do" or the only perceived way to get ahead.

As per Sharon's comment, I understand how overproduction of grads creates a nice situation for employers, but how do we "know why the overproduction of graduates is a characteristic of developing countries"? Is this implying that the US is developing? If not, I'd like to know more about the tendency for developing countries to overproduce graduates.

Glen S. McGhee said...

Appold's study of Singapore and Asia might answer some of your questions.

In any case, a couple of recent letters in the Wall Street Journal draw attention to the job market / credentials puzzle.

In response to a comment on the Arum/Roksa study, my friend George C. Leef raises an important question:
"If large numbers of college students are studying little and learning almost nothing of lasting benefit, how can it be that 'the reward for the collegiate credential has been going up'?"

The answer "is that the earnings disparity is not due to the high skills of college graduates ... but rather that over the last several decades good opportunities for people who don't have college degrees have been vanishing," which is due to the increasing reliance upon credentials as an indicator of job worthiness. (WSJ Feb 16 A16)

Leef is right to attribute the wage gap to shifts in corporate hiring practices, and the point comes up again in a follow up WSJ letter by David Finch, stating that "The real problem is that the hiring decisions of too many companies rely on credentials rather than skills. ... it is much easier to verify a person's credentials than to verify a person's skill set," and goes on to hope that "Perhaps when companies start demanding candidates with the requisite skill sets, colleges will start requiring the same of their graduates." (WSJ Feb 18, 2011 A12).

Few would argue that the QWERTY keyboard is very efficient (it was designed to be the most inefficient), but market forces have not yet dislodged it from its embeddedness in our technical culture. The job and credential markets suffer from inefficiencies no less drastic, inefficiencies that resist market forces just as effectively as the QWERT keyboard does.