Last week, a banker asked us a thoughtful question about the relatively low unemployment rate among adult bachelor’s degree holders (25 years and older) we had written about in The New England Journal of Higher Education. Noting that the U.S. Bureau of Labor Statistics (BLS) release this month shows those age 25 or older with ...]]>

Last week, a banker asked us a thoughtful question about the relatively low unemployment rate among adult bachelor’s degree holders (25 years and older) we had written about in The New England Journal of Higher Education. Noting that the U.S. Bureau of Labor Statistics (BLS) release this month shows those age 25 or older with a bachelor’s degree have an unemployment rate of 4.5%. he asked, “Could we assume that these 4.5% are structurally or frictionally unemployed, that is, do adult college grads have a full employment rate of unemployment? After all, the full employment unemployment rate for the economy as a whole is generally thought to be around 4.5%.”

We think that the 4.5% unemployment rate for college graduates is not the full employment rate of unemployment. The Beveridge full employment concept was developed during the early post-World War II period and is defined as approximate equality between the number of unemployed workers and vacant jobs at a given point in time. When this occurs, all unemployment represents either structural (skills or geographic mismatches) or frictional (job search unemployment) imbalance between labor supply and demand.  Under the Beveridge definition of full employment, there is no unemployment caused by insufficient demand for labor, since there are enough vacant jobs to eliminate all unemployment if the labor market were perfectly efficient. In practice, this means severe labor shortages in high-end labor markets that can coincide with continued albeit modest excess supply in lower-end occupations. Certainly, this is what much of New England looked like in the 1998 to 2000 period when the regional unemployment rate fell below 3%, and severe shortages existed in much of the college labor market, especially in scientific and engineering fields, along with tightening in the health professions at that time (although the shortages in the health fields were to come after 2000)

The Beveridge full employment condition occurs when the national (state or regional) unemployment rate falls to around 2.5% to 3%.  At that point, there is a near equality in the number of unemployed workers and vacant jobs.

The common view that the full employment unemployment rate occurs at around 4.5% is based on the NAIRU (non-accelerating inflation rate of unemployment) concept of full employment. NAIRU is defined as that unemployment rate at which efforts at further reductions in unemployment will result in upward wage pressures that increase the inflation rate.

The 4.5% unemployment rate for age 25 and older college grads published by BLS should not be interpreted as an indication of full utilization of these adult college graduates. During 2007, when the overall unemployment rate in the nation was fluctuating between the NAIRU full employment level of 4.4% and 4.7% for most of the year, the unemployment rate for holders of bachelor’s degrees and above aged 25 and older ranged between 1.8% and 2.2%. . So we would argue that the full employment unemployment rate for adult college graduates is around 2%. Unemployment above this level would suggest that some unemployment among these college grads is associated with slack labor demand.

Currently, there are no job vacancy measures nationally that measure job openings by either by education or occupation to see what the balance of vacant jobs and job seekers might be in that labor market segment. A few states do have measures of job vacancies by occupation. In Rhode Island, with an unemployment rate in the 12% range during 2009, we found that in the college labor market occupations, there were more than six experienced unemployed workers for every one vacant job. In Massachusetts, the ratio was closer to 3-to-1, with the state unemployment rate hovering around 9%.

It is important to note that other manifestations of labor market underutilization problems for college grads also increase as the economy shifts away from full employment. Nationally, we find that about 3% of employed college grads are working involuntarily in part-time positions and an additional 2% have withdrawn from the labor force even though they have a job desire and would go to work immediately if a job was available. Adding these shares together with the college grad unemployment rate, we find that about 9.5% of the adjusted college graduate labor force has a labor market problem of some type.

A quick look at newly minted college graduates reveals marked difficulties in finding work in the college labor market. Our analysis of 2009 Current Population Survey data on the labor market experiences of college grads under 25 who were not currently enrolled in school found that while 83% were employed, only two thirds of these recent college grads had college labor market jobs. The remaining one-third worked outside of the college labor market. They were employed in teen labor market jobs or jobs that most often employed high school graduates or those with even fewer years of schooling, frequently in retail trade and low-end service jobs. This means that only about half of new college grads who don’t go on to grad school were employed in a college labor market position.

So the short answer to this great question is that there is plenty of excess labor supply in the college labor market, and few signs of frictional or structural imbalances. Despite all this bad news there are plenty of reasons to think college grads are much better off than everyone else … that’s part of the reason the share of high school graduates going to college last fall was at an all-time high.

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Neeta P. Fogg is senior economist at the Center for Labor Market Studies at Northeastern University. Paul E. Harrington is associate director of the center.

June 2009 is seen by many as the end of the Great Recession. Strong growth in GDP following massive monetary and fiscal responses to the collapse in housing and financial markets meant that the economy was on the mend. Yet a year later, 1.1 million fewer people are working, and the unemployment rate is stuck ...]]>

June 2009 is seen by many as the end of the Great Recession. Strong growth in GDP following massive monetary and fiscal responses to the collapse in housing and financial markets meant that the economy was on the mend. Yet a year later, 1.1 million fewer people are working, and the unemployment rate is stuck at 9.5%. Worse still, more than one million individuals have left the job market since April. If these individuals had not quit looking for work, the nation’s unemployment rate this morning would have been 10.3%. The fraction of teens at work has hit a record low, with just 25% of 16-to-19 year olds working this summer.

The jobs report released Aug. 6 has a lot of political and economic significance.

Economically, this means that concerns among fiscal and monetary leaders may now seriously focus in the threats of a deflation. Deflation is the opposite of inflation insofar as it is characterized by reductions in the aggregate level of prices and wages in the economy. See economist John Makin of the American Enterprise Institute for a discussion of this.

One critical manifestation of the deflationary pressure exerted by this downturn has been the sharp decline in housing prices. The worst effects of deflation occur when consumers and firms expect prices to decline. With an expectation of future price declines, they delay consumption and investment activities and instead hold on to cash to capture a better bargain down the road. This means that consumption slows and savings increase as firms hold on to cash. Both families and firms seek to pay-off debt and cash becomes king. Why? Because unlike inflation, where a dollar can buy less tomorrow than today, with deflation, a dollar buys more tomorrow than today.  Today’s poor jobs report means that the monetary authorities may seek to expand the monetary base in an effort to keep interest rates and the cost of borrowing low. Congress and the president may be more likely look to finance another round of stimulus of some type, including what some have called a back-door stimulus, that will hopefully have a stronger jobs component to it than the last round of "STIM" that didn’t seem to do much in the private sector.

Politically, there are only two more jobs reports between now and the midterm elections in November. Expectations for GDP growth in the second half of this year have been curtailed and are at a level that would fail to generate a sufficient number of jobs to reduce the overall unemployment rate. Along with the weak showing in the new jobs report, this suggests a diminished likelihood of a quick turnaround in the labor market in time for November. Those candidates for congressional and statewide positions who needed a stronger labor market environment didn’t get the summer of recovery promised by Joe Biden, but they may get a fall from grace this autumn.

Deflation is very bad news for those parts of the higher education system that rely on debt financing. As the risks of deflation become more vivid, colleges that hold lots of debt will be forced to pay off those loans with more valuable dollars that could crowd out other kinds of spending. Students may be more reluctant to take on debt to finance school in a weak labor market where employment prospects are poor and nominal wages are declining. The Chronicle of Higher Education’s recent article on student loan defaults is a scary reminder of the limits of student debt.

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Neeta P. Fogg is senior economist at the Center for Labor Market Studies at Northeastern University. Paul E. Harrington is associate director of the center.

The U.S. once had the world’s highest percentage of adults with a college degree, but has now dropped to 10th, according to the OECD. In an attempt to reverse this slide, a number of policymakers and foundations have sought to make increased degree attainment a national priority. President Obama has articulated the goal that America ...]]>

The U.S. once had the world’s highest percentage of adults with a college degree, but has now dropped to 10th, according to the OECD. In an attempt to reverse this slide, a number of policymakers and foundations have sought to make increased degree attainment a national priority. President Obama has articulated the goal that America will regain the world’s highest rate of degree attainment and challenged every American to complete at least one year of postsecondary education. The Lumina Foundation for Education, likewise, has set a goal to increase the percentage of Americans with high-quality degrees and credentials from the under 40% today to 60% by the year 2025, while the Bill & Melinda Gates Foundation aims to double the number of low-income adults who earn postsecondary degrees or other credentials by age 26.

Increasing the number and percentage of Americans with postsecondary education will require a number of strategies, including increasing capacity at colleges and universities and providing access to high-quality college education for more Americans.

But these ambitious goals cannot be met without also dramatically increasing the completion rates at our public colleges and universities. College completion rates in the U.S. are troubling: At public, four-year institutions, fewer than 55% of students earn a degree within six years, while at public, two-year institutions, fewer than 30% of students earn a degree within three years, according to the U.S. Department of Education. Overall, only half of the nation’s students will ever receive the degree they sought to earn. These lost students, who have already demonstrated their desire for postsecondary education and made steps toward reaching it, hold significant potential for being among America’s critical next generation of college-educated workers.

States are the key

Almost three quarters (74%) of America’s college students are enrolled in public institutions of higher education, according to the U.S. Education Department. Since states often have statutory control over public higher education and provide the largest single source of funding, state leaders hold critical levers—and are uniquely accountable—for reshaping policies and improving outcomes in public higher education.

While implementing dramatic reforms may seem daunting to state policymakers in the midst of budget crises, focusing on college completion is critical for states, even—and perhaps especially—in these challenging economic times. First, increasing completion rates will allow America to meet the needs of a new economy that rewards knowledge and innovation. In the next 10 years, more than 60% of jobs will require a college education; indeed, the jobs currently growing the fastest require either an associate or bachelor’s degree or a certificate, according to research at Georgetown University’s Center for Education and the Workforce. Second, college completion can bring positive outcomes to individual students, including increased wages and benefits, plus non-monetary benefits such as better health and better outcomes for future generations, according to 2007 College Board research by Sandy Baum and Jennifer Ma. The current economic crisis has demonstrated the importance of education for individuals and families: Unemployment rates are more than twice as high for those with just a high school diploma (10.9%) than with those with a bachelor’s degree or higher (4.7%), reports the U.S. Bureau of Labor Statistics. Third, these individual benefits translate to significant societal and state benefits, including increased tax revenues and decreased reliance on state services, broader civic participation and increases in the earnings of all workers as overall educational attainment rates rise.[1] College completion is truly a tide that raises all boats.

Joining with other national groups in making college completion a priority, Complete College America (CCA) has set a goal that by 2020, six in 10 young adults in the U.S. will have a degree or certificate, up from the 38% of adults ages 25-34 hold who now hold a college degree, according to the U.S. Census Bureau, 2008 American Community Survey.[2] Such a large increase in completion rates and educational attainment will require more than tinkering around the edges; we need major changes in the way public higher education conceives of and delivers postsecondary education to today’s generation of students—we need innovation at scale.

Bold action

The first step to enabling these bold changes is improved data collection, without which policymakers are hampered in their efforts to analyze barriers and identify opportunities for improvement, show progress over time, and hold individuals and institutions accountable. Much of the data collected today (particularly by the Department of Education’s Integrated Postsecondary Data Systems, or IPEDS) fail to adequately capture college completion rates for huge numbers of America’s students—especially part-time and transfer students. Nor does IPEDS allow for disaggregation by ethnicity, income or by age groups, all of which are necessary in order to close gaps and ensure that postsecondary success rates are keeping up with the dramatic demographic shifts taking place across the country. Collecting data that are comparable across institutions and states will also help to identify barriers to student achievement and guide actions that might improve student success. In addition to completion, these data should include measures of progress and the intermediate milestones that research has shown predict student success in earning a degree or certificate.

In addition to collecting and analyzing the data, a number of other state policy levers are critical for driving improvements in college completion. States have the opportunity to influence policy by using performance funding, by transforming the delivery of developmental (remedial) education, and restructuring the delivery models of higher education to meet the needs of today’s new generation of students—both young and adult. [See “Putting Money Where the Mouth Is Ways to Build Momentum for College Completion,” The New England Journal of Higher Education, Dennis Jones.]

Performance funding ties institutional appropriations to outcomes, not simply to enrollments, and allows states to align their fiscal policies with their statewide goals for workforce development and economic prosperity. For example, states can provide funding based on the number of courses completed or the number of degrees and credentials earned. While the use of performance funding has been controversial and its implementation uneven, states can emphasize specific goals by providing funding incentives in areas such as the success of low-income or underrepresented students or degrees produced in key industry sectors such as health care, engineering, and technology.[3]

States must also take on remedial education; while evidence on the effectiveness of remedial education is mixed, for far too many students, it represents a dead end. Students who need remediation are required to take courses that do not count toward their degrees, adding time and expense to their studies with dismal results. More than 40% of all students (and 60% of community college students) enter postsecondary education needing remediation, but fewer than 25% of students who enter remedial courses ever earn a degree or certificate, according to research by Thomas Bailey of the Community College Research Center at Teachers College, Columbia University.

Innovative programs in community colleges have shown that remediation can be improved by targeting it through improved diagnosis of student needs, tailoring it to focus only on those skills that students need, and helping move students as quickly as possible into courses that count towards a degree. Specifically, remediation can be embedded within credit-bearing courses, technology can target specific academic deficiencies, and anchor assessments can be performed while students are still in high school to accelerate their progress once they arrive in college (e.g., the California State University “Early Start” program and Tennessee’s community colleges’ implementation of the National Center for Academic Transformation remedial education models).

Finally, public colleges and universities must restructure the delivery of higher education to meet the needs of today’s students. No longer does the majority of students attend full-time, live on campus, and complete a degree within four years; instead, most students are attending school part-time while juggling families and work. Promising models suggest that restructuring the delivery of postsecondary education with a focus on transparency, consistency and structure leads to significantly better outcomes for students. These models use block scheduling, offer degree programs instead of courses, take advantage of the known benefits of cohorts and learning communities and integrate remediation into credit-bearing or career-oriented courses.[4]

Each state faces its own set of demographic and economic challenges, but increasing educational attainment is a common goal for state policymakers as they seek to ensure the future health of their economies. Twenty-two states have joined the Complete College America Alliance of States in order to elevate college completion in their policy agendas and develop plans to make dramatic increases in attainment over the next decade. These and other states have also been leaders in helping their public colleges make improvements in access and completion through participation in national initiatives like Achieving the Dream and Access to Success. These complementary efforts have shown promising results, yet in light of the promise postsecondary education holds for each individual, family, and community—and to meet our goals as a nation—there is much left to do.

Stan Jones is founder and president of Complete College America. David Soo is state policy analyst at Complete College America.

Endnotes

[1] Sandy Baum and Jennifer Ma note in their report Education Pays: “Estimates suggest that controlling for other factors, a 1 percentage point increase in the proportion of the population holding a four-year college degree leads to a 1.9% increase in the wages of workers without a high school diploma and a 1.6% increase in the wages of high school graduates.”

[2] No reliable national data are available on the percentage of adults who hold a postsecondary certificate. The president and other national organizations, including CCA, believe that completion should be defined as a earning a bachelor’s or associate degree, or a certificate of at least one year in length that has demonstrated labor market value (Bosworth, 2010; Carnevale, Strohl & Smith, 2009; Washington State Board for Community and Technical Colleges, 2005; Wheary & Orozco, 2010).

[3] Under its current performance funding system, Indiana rewards increases in the on-time graduation rates at public colleges and universities, increases in transfer rates for community colleges, and increases in the numbers of low-income graduates. Ohio has also phased in a performance funding system that utilizes different formulas for each sector (community colleges, branch campuses, and research universities) and incorporates progress indicators for community colleges.

[4] For examples of successful highly structured and accelerated programs, see the City University of New York (CUNY) Accelerated Study in Associate Programs (ASAP); Community College of Baltimore County’s Accelerated Learning Program (ALP); and the Tennessee Technology Centers.