Strangely, as millions nationwide struggle to find work, there are millions of jobs that remain unfilled. The ...]]> Even as the economy appears to have turned a corner, high unemployment persists. According to the Bureau of Labor Statistics (BLS), the national unemployment rate teetered at 7.9% in January 2013, and New England’s was 7.3% in December 2012.

Strangely, as millions nationwide struggle to find work, there are millions of jobs that remain unfilled. The BLS reports that on the last business day of December 2012, there were 654,000 unfilled jobs in the Northeast and 3.6 million unfilled jobs nationally. In Massachusetts alone, the governor’s office revealed that there were 211,000 people looking for work in a state with over 144,000 job openings.

High unemployment rates may therefore have less to do than commonly assumed with an economy that is not healthy enough to produce jobs or employers who are unprepared to hire, and rather, more to do with a workforce that is improperly trained for the jobs that are available. With 53% of recent college graduates unable to secure jobs, few universities or colleges can aver that their programs and majors match the needs of today’s labor market.

When such a labor mismatch exists, job-seekers tend to look for programs that can prepare them for available jobs and careers. They desire not just knowledge but also skills that translate readily into the workforce. Learning to do becomes even more critical for our students.

It’s a good bet that New England’s state comprehensive universities (SCUs) and community colleges will play important roles in teaching how to do. SCUs, such as Worcester State University, Southern Connecticut State University and Johnson State College, are broad-access public institutions that, nationwide, offer relatively low-priced instruction to millions of students. SCUs and community colleges educate a significant percentage of bachelor’s degree recipients in New England, many of whom are adult learners seeking to upgrade their skills for a job or career.

But are the region’s non-exclusive institutions up to the task? There are reasons to worry.

Going up-market?

What we have learned from our research on innovation is that organizations in all sectors strive naturally to have a larger footprint by going up-market and building their prestige through steady improvement. Although this natural force is an important inclination, the challenge in higher education is that, today, universities do not build prestige by improving teaching and learning.

In a recent article in The Chronicle of Higher Education, Scott Carlson details the elaborate country-club-like amenities blossoming at less-selective universities. Based on the findings of a new report by the National Bureau of Economic Research, Carlson summarizes that in an effort to increase student enrollment, these universities are actually de-prioritizing instruction and academic quality. The researchers state that “for many institutions, demand-side market pressure may not compel investment in academic quality, but rather in consumption amenities.”

Such a report validates Kaplan Inc. CEO Andrew Rosen’s argument that, in an effort to go up-market, colleges often layer in a multitude of bundled experiences for students that have nothing to do with learning.

When we pause and consider the soaring price of tuition, shrinking state budgets, the rising costs for traditional institutions to stay competitive with their peers, and the labor mismatch afflicting the economy that positions students poorly to pay back the loans for these educations, the perils of such exorbitant spending become clear.

Even though these institutions were established as learning centers, their incentives appear to be pushing them not only to de-prioritize but also to undermine teaching and learning.

To complicate matters, these broad access institutions’ move up-market is clearing more room for potential disruptive innovations led by a variety of online learning institutions, including both for-profit and nonprofit universities. Many of these institutions are introducing massive open online courses (MOOCs) as well as competency-based programs , in which the amount of time each individual student learns is treated as variable, and students only progress upon mastery of concepts. At their best, these competitors are focusing primarily on employer needs, which begs the question: If New England’s non-elite schools continue on their current path, will they continue to exist and serve a large percentage of Americans seeking higher education?

Potential solutions

Even as the disruptive innovations improve at training-job seekers and connecting them to employers, there exists a significant opportunity for SCUs and community colleges as the more established institutions. Although disruptive innovations transform sectors, they don’t always result in a complete disintegration of the old order. A key insight is that the established organizations that are being disrupted can focus their efforts on defending the parts of their business that are beyond the extendable core of the disruptive innovator’s product. The extendable core is “the aspect of the business model that allows the disrupter to maintain its performance advantage as it creeps upmarket in search of more and more customers.”

In the case of online technologies, for example, as e-learning institutions have been gradually improving the effectiveness of their programs while maintaining cost and convenience advantages, their extendable core is not of much use to students who value attending an elite college because of its exclusivity or to those who desire the social aspects of college afforded by campus living.

The key for SCUs and community colleges will be to figure out where they are likely to succeed—or perhaps more importantly, where what they offer will ultimately not be as valued. As Kevin Kiley writes in his summary of the recent Moody’s report, “the ‘buffet model’ of higher education—where institutions try to be all things to all people—is over.” In this particular case, creating exclusive or residential experiences is not necessarily the forte of these broad-access colleges, nor is it what their student population values. These institutions must therefore ask themselves: What is the most indispensable “job” that our students—many of whom are commuting and already employed—hire us to do for them? Nailing this job will be critical and will enable SCUs and community colleges to make critical resource allocation decisions that can define their sustainable, competitive advantage.

SCUs and community colleges do appear to have a defensible opportunity, even as online learning improves. There are countless careers for which learning knowledge is not a good enough entry point for doing the job well; simulations will not even do. Coupling learning knowledge with learning to do—through on-the-job, in-person training, or on-the-ground projects integrated tightly with regional clusters of employers—is vital.

Indeed, there is evidence that students desire these types of experiences. New England’s less-selective universities may not have to focus on amenities at the expense of teaching and learning in order to compete. UCLA’s Higher Education Research Institute recently released its American Freshman Survey in which 88% of college freshmen cited getting a better job as a vital reason for pursuing a college degree—approximately 17 percentage points higher than 2006. This suggests that students would value tailored offerings more closely aligned with their career objectives. SCUs and community colleges therefore have a unique opportunity to return to their original missions of serving the region by figuring out how to align their students better with the industry clusters in the area.

By helping students learn not only industry knowledge, but also specific skillsets for the workforce, universities and colleges can stave off disruption through a laser focus on their job-seeking students. Using real-time labor market information (LMI), SCUs and community colleges could take advantage of their regional positions and reach out to the businesses that surround them to assess the kinds of qualifications for which they are looking.

In ways similar to Northeastern University’s model, a university could help students complete coursework while they’re employed at local businesses through various co-op models. Fairfield University recently announced a new internship program to connect their students with employment opportunities in Bridgeport, Conn., with jobs ranging from positions in city departments to the local animal shelter. Although this is a good start for the Jesuit university, it is unclear whether more private liberal arts or research institutions will be able to emulate such programs with their nearby communities. The matriculated students at such colleges arguably might not desire gainful employment in towns to which they have been temporarily transplanted and at which they do not intend to stay. Moreover, most faculty at more selective institutions and especially those that prize research do not necessarily envision their scholarship and specialization within a discipline as having anything to do with training students and equipping them with specific skills for the workforce.

For regional universities and community colleges, on the other hand—the workhorses of academia—their student populations tend to prize opportunities around the campus, as many are already somehow tied to these geographic areas, whether it is because of work, families, or other personal reasons. SCUs and community colleges have the unique potential to think differently about developing student talent into tangible outcomes. Catering specifically to nontraditional, working commuter students with families will be important if, as Rosen affirms, college is increasingly “a place you return to at periodic intervals, to retool and reload for the next phase of life’s journey.”

To execute on this, these less-selective universities will require a very different model from the one they use today. Such a shift in priorities will not be easy or even feasible for many institutions. Educating students with very different resources, processes and priorities is not a simple, overnight task; however, the need for a new model exists. For those regional colleges up for the challenge of emboldening their missions, priorities must shift toward closing the gap between their newly minted bachelor’s degree holders and their graduates’ potential employment opportunities.

Learning to do in the modern workforce

Such a dramatic shift requires academics, administrators, employers and students to move beyond the derogation and conflation of vocation with low-skill factory-line jobs. The alignment of educated individuals to jobs is something that all universities need to consider at this critical juncture of increased global economic competition. Many of the skills that employers say they most value—and that too many students don’t have—are those that a classical liberal arts education purports to develop, such as the ability to write well, think critically and solve problems in teams. These skills are embedded in learning to do in the modern workforce.

The conversation about higher education is changing slowly from one about graduation and retention rates to one about employment opportunities. Perhaps new kinds of rigorous certificates will become just as or even more meaningful than bachelor’s degrees for certain industries looking for specific skillsets. Andrew Ng, co-founder of Coursera, has already noticed a shift in attitudes about informal certificates provided by MOOCs and was “surprised by how seriously [some] employers are taking informal certificates.”

Our standard of measurement, the credit hour, which has been the basis of student workloads and faculty teaching loads, academic calendars, financial aid and degree requirements, could slowly be shifting to a different kind of standardized unit of measure built around competency and mastery of a particular subject. Perhaps some certificates will hold just as much weight as certain degrees, or, at a more granular level, certificates will become the new majors to transition graduates more seamlessly into the workforce.

As staples in their regions with deep relationships in the community, comprehensive and community colleges have the opportunity to innovate, develop robust offerings and nail this job for students and employers in ways that could not only protect their own campuses, but also revolutionize higher education and boost the nation’s competitiveness.

Michelle Rhee-Weise is an education senior research fellow and Michael B. Horn is executive director of Innosight Institute.

Other speakers ...]]> NEBHE convened approximately 400 leaders of business, education and government at the Federal Reserve Bank of Boston on Nov. 7, 2011 for a conference titled “New England Works” Summit on Bridging Higher Education and the Workforce. Following are keynote remarks from Boston Fed President and CEO Eric Rosengren. To download the figures, click here.

Other speakers included: Connecticut Gov. Dannel P. Malloy, U.S. Sen. Sheldon Whitehouse of Rhode Island, U.S. Labor Department Assistant Secretary of Employment and Training Jane Oates, Association of American Colleges and Universities President Carol Geary Schneider, Nellie Mae Education Foundation President Nicholas C. Donohue and several noted economists.

I want to especially commend all the educators in the room for the work that you do. I benefited immeasurably from my experience at Colby College as an undergraduate and at the University of Wisconsin-Madison in graduate school. I am pleased now to have the opportunity to “give back” to both schools, in that I serve on an advisory committee for the economics department at Madison, and on Colby College’s Board of Trustees. These experiences give me a window into some of the daunting challenges that you face, particularly in the current economic environment.

I want to spend a few minutes discussing the nexus between what you do as educators and what I do as a central banker. Like a central banker should, let me first note that my comments represent my perspectives, and not necessarily those of my colleagues on the Federal Reserve’s Board of Governors or the Federal Open Market Committee.

Returning to that nexus between what you and I do, at first glance it might seem as if there is not much commonality. A case in point: Generally when setting monetary policy, we assume we have little impact on demographic variables including the educational attainment of the workforce. Not that such variables are unimportant, by any stretch, because we all know that the educational characteristics of the workforce play an important role in the dynamics of an economy. A well-educated workforce is likely to be more productive, and highly skilled workers tend to have much lower unemployment rates in economic downturns. On the other hand, as senior officials at colleges and universities, you likely view macroeconomic conditions as something you have little control over. You focus instead on key matters like educating students, worrying about raising funds for the endowments that are a key ingredient to financial aid, and affording new and engaging educational programs. So while you might take them as “given,” the recent recession has only highlighted how economic conditions affect how you go about educating students.

I would like to suggest, however, that what educators do matters to the Fed, and what the Fed does matters to educators. I’ll touch briefly on some of the reasons why. As you all probably know, the monthly U.S. employment report was released last Friday (Nov. 4, 2011). The unemployment rate is now 9.0%—a rate that remains stubbornly and unacceptably, high. The Federal Reserve has taken unprecedented actions to improve the growth rate in the economy. But economic “headwinds”—stemming from the previous financial crisis and concerns about possible future financial shocks—have meant that despite Federal Reserve actions, economic growth has been lethargic and job growth has been too slow to make significant inroads into reducing the unemployment rate.

However, underlying the average unemployment statistics are a vast range of circumstances, depending on educational attainment. I want to propose that as you and your peers are making admissions, financial aid and retention-program decisions at your schools, you are powerfully shaping the outcomes for individuals—and society more generally. I also want to emphasize that institutions represented in this room play an important role in economic development in the communities in which you are located. There are important synergies between communities and schools of higher education. Schools are important anchors for their communities. They provide good and stable jobs for people in the area, and businesses that support the academic community benefit as well. They also bring in highly motivated students, some of whom choose to use their education to form businesses in the communities where they were educated. And of course, the schools benefits, in many ways, from their communities.

Educational attainment and the workforce
To state the obvious,  educational attainment is one of the defining characteristics of a workforce. Particularly in New England, we tend to have highly skilled and highly educated workers.

Educational attainment is important not only to individuals, but also to the communities they inhabit. In the current economic environment, the variation in unemployment by educational attainment is particularly striking.

To begin, let me draw your attention to Fig. 1. As a result of a long and severe recession, the unemployment rate has gone up dramatically for people in all categories of educational attainment, but no one will be surprised to hear that the levels of unemployment are dramatically different depending on educational attainment. Those with no high school diploma are experiencing more than three times the unemployment rate of those with at least a bachelor’s degree. While the current unemployment rate is 9.0%, for those with at least a college education it is only 4.4%.

It is important to note that while the level of unemployment has varied by educational attainment, Fig. 1 is not supportive of what economists call a “structural” unemployment explanation for persistently high unemployment—such as when there are lots of open jobs that cannot be filled because the available workers have the wrong skill sets for those positions. As you may know, evidence of a change in the structural level of unemployment has been a matter of significant debate among economists and policymakers. Fig. 1 might provide some evidence that structural unemployment was a problem if, for example, unemployment had risen dramatically for lower-skilled workers but there was a shortage of highly skilled workers (that is, their unemployment rate had fallen).

Stimulating an economy where most of the unemployment is structural would place additional demand on high-skilled jobs—causing rapid increases in compensation for those workers without generating improvement in the overall unemployment rate, as the supply of highly educated workers would be slow to respond.

But we see quite the opposite right now, because people at all levels of educational attainment have experienced a substantial increase in unemployment, as shown in Fig. 2. In fact, if one compares the percentage increase in unemployment by category of educational attainment, it is striking what a high percentage increase in unemployment has occurred in each category. This is consistent not with the “mismatch” dynamic of structural unemployment but with a story of weak demand throughout the economy.

On this subject, I would recommend a recent paper by economists Bob Triest and Bill Dickens, presented last month at the Boston Fed’s annual economic conference. They provide important evidence on employment flows—evidence that is consistent with most of the
unemployment being driven by inadequate demand, rather than structural problems.

A look at the compensation data in Fig. 3 provides additional evidence that structural unemployment cannot explain the persistently high unemployment rate. If most of the current unemployment were structural, we would expect to see compensation increasing as employers bid for scarce high-skilled workers. But as the figure shows, compensation growth has slowed, and remains quite low relative to compensation over the past 30 years.

Similarly, Fig. 4 shows there has been no great divergence in compensation trends across occupations. If a skills mismatch existed, one would expect wages in the sectors where supply is short to be accelerating, while wages would be declining in sectors where there was excess labor supply. We do not see this happening. Growth in compensation for management and professionals—presumably a higher skilled occupational category—has not shown evidence of sharp acceleration relative to occupations that one would presume have somewhat lower skill requirements, such as work in natural resources, construction, and maintenance.

In fact, Fig. 5 presents the increase in labor costs over the past nine quarters (since the beginning of the recovery) by occupation, and it does not show dramatically different growth in compensation by job type. In fact, management and professional occupations have seen compensation grow less than workers in natural resources, construction, and maintenance over these nine quarters of recovery.

This is just some of the evidence that suggests why the notion of rising structural unemployment cannot explain the high aggregate unemployment rate we are unfortunately experiencing. This distinction is very important to the policy response. Of course, for individuals, it should be noted that employment prospects are significantly improved with educational attainment.

But educational attainment affects far more than just employment prospects. The lefthand chart in Fig. 6 shows the relationship between median household income and educational attainment. While the median income of all households is approximately $50,000, there are substantial differences based on educational attainment. Those with no high school diploma have less than half the median income, and those with just a high school diploma (no college experience) have about three-quarters of the median income. And those with professional degrees have more than twice the median income.

Growth in median income over the past two decades also varies substantially by educational attainment. For example, those with only a high school education have experienced a significant decline in median real income where the most rapid growth has been for those who have received doctorate or master’s degrees.

Fig. 7 shows that educational attainment also translates into significant differences in net worth. Those with college degrees have more than triple the net worth of those that do not. Over the past two decades, those with college degrees have had a significant increase in their real net worth, while in contrast, those with no high school diploma have substantially less net worth, and their real net worth has declined over the past two decades. Of course, the causation can work in both directions here, especially with regard to inherited net worth—that is, parental wealth makes it easier to afford higher education.

Implications
Fig. 8 shows that the U.S. workforce is becoming more educated. There has been a substantial increase in the number of people in the workforce that have a bachelor’s degree or higher. Given the employment, income, and net worth differentials shown in earlier charts, it is not surprising that an increasing number of high school students are realizing that higher educational attainment is in their interest.

However, underlying this positive trend are sharp differences across racial categories. Fig. 9 shows that educational attainment differs substantially by race. While Asian individuals have been particularly successful in obtaining college degrees, African-Americans and Hispanics in the labor force significantly lag in educational attainment. This lack of education makes it much more difficult for them to maximize their potential, given the evolving workforce needs in the U.S. economy.

I think there are a number of potential implications for educational leaders from this analysis. As you consider whom to admit, how much of an endowment to spend to provide financial aid, whether financial aid should be in the form of grants or loans, and how those scarce funds should be allocated, I would urge you to keep in mind that you are making choices that are not only important for individuals, but also for society more generally. And I would urge public policymakers to keep similar notions in mind when they consider budgetary investments in public and community institutions.

Indeed, income and net worth differences are highly related to educational attainment, as I have shown. Ensuring that children have adequate preparation, from early childhood education through high school, is critically important. And it is critical that those whose families have limited financial means are not shut out from the opportunities an education provides. In short, finding ways to encourage greater educational attainment—particularly for low- and moderate-income families and those racial groups that have traditionally been underrepresented—will be an important determinant of the quality of the U.S. work force and the income distribution in our country.

Similarly, many of your institutions are in cities that have been hard hit by the economic downturn and tepid recovery, making it even more important—to a macroeconomic policymaker—that you reach out to affected communities, and view your institutions as anchors of community economic development. Certainly the location of this conference, in Boston, highlights the tangible benefits that can accrue to a community when it has great colleges, and college leaders that take the development of their communities seriously.

Finally, I am pleased to note that many schools have become better at bridging their students to the working world. I would strongly encourage using alumni networks and other resources to provide students with internship opportunities. A vibrant New England needs a vibrant workforce, and internships can be an important way for communities to attract and retain top talent. Helping the region attract and retain talented college students is one reason the Boston Fed partnered with the Greater Boston Chamber of Commerce to provide a better clearinghouse for college internships in the Boston area. I would encourage your institutions’ career offices to direct students looking for internship opportunities to the web site that has been set up. We and our partners hope it will continue to grow and provide many opportunities in the greater Boston area over time.

A mismatch is brewing between the supply of skilled workers in New England and the increasing demand for such workers, according to a new report by the New England Public Policy Center at the Federal Reserve Bank of Boston.

The study by senior economist Alicia Sasser Modestino shows that, over the next 10 years, New England ...]]>

A mismatch is brewing between the supply of skilled workers in New England and the increasing demand for such workers, according to a new report by the New England Public Policy Center at the Federal Reserve Bank of Boston.

The study by senior economist Alicia Sasser Modestino shows that, over the next 10 years, New England will face not only a shortfall in the number of workers it needs to pull the region out of recession, but also a detrimental lack of "middle skill" workers—essentially people with an associate degree or some college less than a bachelor's.

Even in these times of high unemployment, forecasts of labor shortages are becoming more prevalent. New England has long-boasted a highly educated population relative to other parts of the country, but the retirement of baby boomers and net losses in population migration suggest that the demand for skilled workers will increasingly outpace supply. These and other looming demographic shifts threaten to hamper regional recovery efforts.

Modestino argues that the dearth of middle skill workers in New England could also contribute to protracted economic woes. While the wage increases that result from labor shortages might generally incentivize workers to migrate or to seek additional educational training, middle skill workers, more so than other groups, lack the resources necessary to take advantage of increased wage-earning opportunities. Over the next decade, the mixture of workers and skills in New England will grow increasingly disadvantageous. Coupled with worker shortages, this mismatch in the labor market could seriously impede economic growth in the region.

Universities, and especially community colleges, according to Modestino, should focus on degree-completion initiatives, increased financial assistance for students, and greater opportunity for career training and professional collaboration to fill the looming workforce gaps; such areas of focus would produce a “win-win-win” for employers, for the regional economy, and for students themselves.

Recent Posts: Too Many College-Educated Workers or Too Few? (Forum); College Labor Shortages in 2018? Part Deux (Harrington/Sum); The Real Education Crisis: Are 35% of all College Degrees in New England Unnecessary? (Carnevale et al); The Future of the Skilled Labor Force: New England’s Supply of Recent College Graduates, Sasser (pdf)

(This lively debate on the future demand for college-educated workers will continue in our Forum.)

“About every two years someone comes up with this story. There is absolutely nothing to it—it's simply not true,” Peter Capelli, Professor, Wharton School, University of Pennsylvania, commenting on the Georgetown's college labor supply shortage forecast.

(This lively debate on the future demand for college-educated workers will continue in our Forum.)

“About every two years someone comes up with this story. There is absolutely nothing to it—it's simply not true,” Peter Capelli, Professor, Wharton School, University of Pennsylvania, commenting on the Georgetown's college labor supply shortage forecast.

—“Prediction of Worker Shortage Has Critics,” The Press-Enterprise (Riverside, Calif.), April 10, 2010.

The recent response by Anthony Carnevale et al. to our analysis of the fundamental shortcomings associated with their predictions of widespread college labor shortages focuses on three areas. First, they suggest that we are educational Luddites by noting in the title of their response that we believe too many people have earned college degrees in New England. Carnevale et al. claim that we think, “New England is producing 35% more college degrees than are actually required for current and future jobs” because we recognize the real labor market problems that confront too many of our college graduates. We don’t think that New England colleges produce too many graduates, but we do find that a considerable number of recent and past graduates are malemployed and don’t get much of a financial return on their investment and that of society.

We simply argue that Carnevale exaggerates the size of the existing college labor market and overstates demand now - and therefore in the future - because he defines every employed college graduate as being in the college labor market. Why does he do this? Primarily, because he refuses to recognize the widespread problem of malemployment of college graduates, especially in the current, very difficult, employment situation confronting the nation. An even casual reading of numerous articles in the media and on the Internet on the labor market adjustment problems of college graduates, their rising debt loads, and increasing loan defaults would illustrate the situation.

We find that about 25% of all employed college-educated adults in the nation and closer to 40% of recent graduates work in non-college labor market jobs. Some voluntarily do so while others are trapped involuntarily. But, in either case, they receive a substantially diminished rate of return to their degrees compared to those who become employed in a college labor market occupation. We do not argue that these graduates should not have gone to college. Instead, we argue that colleges, employers and other labor market intermediaries need to develop strategies to reduce malemployment rates among college graduates and help them obtain better access to occupations that allow them to utilize their college skills. Otherwise, the expected size of the payoff to a college degree for them is not very high. Denying the existence of widespread and costly malemployment problems does not make this very severe problem go away. It simply diminishes the ability of our education and labor market institutions to effectively respond to the needs of college graduates who are stuck in low-skill, low-mobility and low-wage jobs.

The second issue Carnevale points to is the long-term rise until recently (2000) in the economic return to a college degree, suggesting that we think that college does not pay-off. Again, we have argued that college pays off on average and have written plenty of papers about this. The results of our recent multivariate analysis of the annual earnings premiums of college graduates in New England during 2009 summarized in the Chart 1 below reveal very large earnings payoffs to college graduates. However, the findings clearly reveal that, whether a given graduate’s degree pays off, depends on the success of the individual becoming employed in an occupation that has a substantial set of duties and tasks that utilize the knowledge, skills and abilities that they acquired in college. The estimated annual earnings advantages over and above a high school graduate for those who earn a degree and become employed in the college labor market were 55% for those with an associate degree, 71% for those with a bachelor’s degree, and 107% for those who earned an advanced degree. Among those graduates who were malemployed, however, we found very modest annual earnings advantages ranging from only 5% to 8%.

Source: American Community Survey, Public Use Data Files, analysis by the authors

Carnevale argues that we use a rigid set of “elite, traditional white-collar and professional jobs” to define the college labor market. In fact, we use a very broad-based set of occupations and an objective source of information that utilizes large-scale occupational analysis studies of the knowledge, skills, and abilities used at the workplace. This system was developed and regularly updated by the U.S Department of Labor, Employment and Training Administration through its O*NET system. We readily admit that we exclude many occupations from our listing of college labor market jobs, and our argument is that if you include all occupations in the definition of a college labor market (as Carnevale does), then its usefulness as a measure of the demand for college-level skills has lost most of its utility. Including “everything” in your definition is hardly the basis of any classification system that could serve as a meaningful taxonomy of employer requirements around postsecondary knowledge, skills, and abilities.

The findings in Table 1 below provide estimates of the occupational distribution of the jobs held by recent college graduates under 25 who were malemployed during 2009. The table illustrates the kinds of occupations that we exclude when we define the college labor market. The data also illustrate the kinds of occupations Carnevale et al. include when they determine the size of the college labor market. These 15 occupations are dominated by waiter/waitress, bartender, cashier and retail sales jobs, and low-end service and clerical jobs. The inclusion of so many waitress, waiter, and bartender occupations gives a new meaning to STEM occupation. By the Georgetown authors’ reckoning, all of these are part of the college labor market.

Table 1:

Distribution of the Malemployed with a Bachelor’s Degree Only Under Age 25, by Occupation, Annual Averages, 2009, U.S.

What’s the rationale for including these occupations in the measure of the college labor market? Carnevale et al argue that college degrees generate positive earnings premiums whether graduates are employed as they put it as “insurance agents or a rocket scientist.” But this is a poor example of what they see as our exclusionary classification. We include both of these occupations in our current college labor market definition. We do exclude most clerical, blue-collar production, material moving, retail sales, low-level services and jobs like bartenders such as those listed in Table 1 where entry skill requirements are well below the college level. We suspect that most fair-minded observers would agree that these occupations do not require a bachelor’s degree to become qualified for employment. Nevertheless, the proof is in the pudding and this gets us to Carnevale’s third point.

Carnevale argues that college graduates working in these sorts of non-college labor market occupations earn more than their high school graduate counterparts who are employed in those same occupations—like bartenders or landscapers. As we noted in our initial article in NEJHE, we agree. College graduates who work in occupations outside the college labor market do typically earn slightly more than their high school graduate counterpart, but not much more, and a lot less than their fellow college graduates who did become employed in a college labor market job.

Our findings clearly reveal that in New England college graduates at the associate, bachelors and advanced degree levels employed in occupations outside of the college labor market had annual earnings that were only 5% to 8% higher than those of their high school graduate counterparts, a small but statistically significant annual earnings advantage. Based on other recent research by the Center for Labor Market Studies, we find that some of this advantage is associated with better literacy and/or numeracy skills, making these malemployed college graduates slightly more productive than their high school graduate counterparts—within the constraints of the task/skill requirements of their occupations. That is, being better at math may raise the earnings of malemployed college graduates relative to employed high school graduates—but not by much.

A malemployed college graduate’s earnings are constrained because their ability to use the college-level skills they acquired are limited by the job duties and work tasks associated with their occupation. Graduates of a rocket science program who work as bartenders gets bartender pay. However, their pay will rise sharply when they become employed in a rocket scientist occupation where they are able to engage in a set of job duties and work tasks that better capitalize on the knowledge, skills and abilities that they developed while earning their degree.

What is the evidence for this? As our regression results reveal, college graduates in New England who work in college labor market occupations had annual earnings premiums during 2009 that were about 10 times greater than those of their counterparts who worked in non-college labor market jobs. New England residents with associate degrees who worked in college labor market jobs had an annual earnings premium of 58% compared with just 5% premium for their graduate peers who worked in non-college labor market occupations. At the bachelor’s degree level, New Englanders who work in the college labor market had an annual earning premium of 78% compared to only 8% among those who were employed in jobs outside the college labor market. At the advanced degree level, those employed in the college labor market had an annual earnings advantage of 108%, compared with just 8% for those who worked outside the college labor market

Carnevale and his colleagues do a disservice to the nation’s higher education system by so dramatically overstating the size of the college labor market. The Georgetown projections exaggerate the demand for college degrees in the present and future while at the same time ignoring the large and severe problems of malemployment and even joblessness among college grads around the nation. The consequence is that it suggests that colleges should prepare for a labor shortage problem that is based on a false premise. The nation’s labor markets continue to struggle with unemployment rates that hover close to 10% and under-utilization rates closer to 20%. The Georgetown analysis also fails to recognize the collateral impact of malemployment among college graduates. As college grads move down the labor market queue into occupations dominated by those with less schooling, the employment rates among those with fewer years of schooling plunge. Added labor supply also depresses their wages. Especially hard hit are non-college-educated teens and young adults who can no longer find work as recent college grads crowd them out of the labor market. These displacement effects further erode the value of a college education. So the problem of malemployment among college grads creates additional problems of unemployment and underemployment among non college grads, especially teens and young adults.

The substantial earnings losses associated with malemployment of college graduates also reduce their tax contributions to federal, state and local governments in the form of lower income taxes, Social Security payroll taxes, and state sales taxes. Malemployed graduates are also much less likely to receive health insurance and pension coverage from their employers, further reducing the private and social return to their investments in college.

It is time to stop fantasizing about the future and to start addressing the severe malemployment and joblessness problems confronting college graduates in the present day. The nation needs a laser focus on creating college-related employment opportunities and upward mobility pathways in today’s job market. Right now, there are at least five unemployed workers for every vacant job, and our recent analysis of state job vacancy data suggests that the ratio is 8 to 1 when we focus on only full-time job vacancies and unemployed persons. The pace of new job creation in the U.S. has been sluggish at best. Indeed, at the current rate of growth, the nation won’t recover the entire payroll jobs lost during the Great Recession and its aftermath until the end of 2017. If the labor force continues to grow as projected, the pace of reduction in unemployment rates will be even slower. Higher education’s major challenge is not a labor shortage in 2018. Instead our task is helping our graduates find intellectually fulfilling and economically remunerative employment that provides upward mobility, and favorable economic returns on skills and abilities that all of us desired when we entered college.

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Paul E. Harrington is associate director of the Center for Labor Market Studies at Northeastern University. Andrew M. Sum is the center’s director.

The notion of the "college labor market" as a fixed set of occupations is remarkably static. In contrast, we assume that job and skill requirements are dynamic.

(This lively debate over future demand of college-educated workers will continue in our Forum.)

Northeastern University economists Paul E. Harrington and Andrew M. Sum argue that in our ...]]>

The notion of the "college labor market" as a fixed set of occupations is remarkably static. In contrast, we assume that job and skill requirements are dynamic.

(This lively debate over future demand of college-educated workers will continue in our Forum.)

Northeastern University economists Paul E. Harrington and Andrew M. Sum argue that in our recent report Help Wanted, we “radically overstate the size of the college labor market.”  This overcount, they claim, has nothing to do with the recession. “Even in times of near full employment,” Harrington and Sum argue that “substantial shares” of college-educated workers are “overeducated,” or “malemployed.” Harrington and Sum argue that we so overstate demand for college labor that we “ignore perhaps the most pressing problem facing college graduates today: malemployment, arguing the reality is that more and more college graduates are stuck in low-wage, low-skill jobs. This assertion contradicts the best available data on the hiring and pay practices of American employers. 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.

Harrington and Sum rely on official national and state Bureau of Labor Statistics (BLS) data, which implies that that New England is producing about 35% more college degrees than are actually required for current and future jobs. If true, their empirical assessment of “substantial shares” of “malemployed” people with college degrees in New England includes about 1.1 million people. [1] However, the earnings data raise serious questions about the quality of particular state and national government education data that undergirds their analysis.

If Harrington and Sum and the national and state BLS data are correct, "overeducation" and “malemployment” are rampant in every one of the New England states:

• Connecticut has 248,062 unnecessary degrees;
• Maine has 79,738 unnecessary degrees;
• Massachusetts has 531,669 unnecessary degrees [2];
• New Hampshire has 119,705 unnecessary degrees;
• Rhode Island has 70,904 unnecessary degrees; and
• Vermont has 51,026 unnecessary degrees.

Harrington and Sum have a point on “malemployment.” We agree there is some mismatch between college curricula and career opportunities. As they demonstrate, there are bartenders with bachelor’s degrees even in good times. However, they take the argument about over-qualification too far. 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 we have been underproducing college talent, and the college wage premium is the proof. Degree production in the 1980s flattened out after baby boomers reached college graduation age, and has remained flat ever since, at slightly above 40% of the labor force. 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. Yet in spite of the growing economic advantage of college degrees, the overproduction, over-qualification or “malemployed” school of thought still has a strong following. Harrington and Sum are not alone in their view that Americans get more college than is good for them. [3]

Overproduction?

The overproduction argument is always in the public dialogue, but gets more traction in hard times when even the most highly educated are unemployed or underemployed. The Great Recession of 2007, like recessions before it, has many people publicly wondering whether college is a safe investment. Hard times always inspire stories like bartenders with bachelor’s degrees, as well as the ever-popular cab drivers with PhD's and janitors with advanced degrees. With many college graduates unsuccessful in finding work, the temptation to reject postsecondary education as a viable economic option grows more tempting, especially among working families where college costs are always a stretch. Since we project a continuing slow recovery through 2016, the over-qualification and “malemployment” argument will likely get even more traction.

Media stories on the value of college follow the business cycle, and the bad advice gets more pointed as the recession deepens. The prominent conservative economist Richard Vedder thinks we need only a small fraction of the college talent we now produce. Charles Murray believes the vast majority of Americans are not innately intelligent enough for real college curricula. A few months ago, The New York Times suggested “Plan B: Skip College,” while the Washington Post ran “Parents Crunch the Numbers and Wonder, Is College Still Worth It?” Even the Chronicle of Higher Education has succumbed, recently running “Here’s Your Diploma. Now Here’s Your Mop,” a story about a college graduate working as a janitor that implies a college degree may not be worthwhile in today’s economic climate.

The New York Times and other prominent newspapers were printing the same kind of stories in the early 1980s during the last severe recession. The Times ran headlines like “The Underemployed: Working for Survival Instead of Careers.” The Washington Post even ran the college graduate-to-janitor story back in 1981: “When Lyman Crump graduated with a liberal arts degree he was confident his future rested in an office somewhere. But after working a year as a file clerk, Crump, 31, took a higher-paying job as a janitor.”

These ideas of “overeducation” were popular among labor economists in the 1970s and 1980s. It was in the context of stagflation in the 1970s and early 1980s that the big think books and articles were written about over-qualification and “malemployment.”  In that era, Harvard economist Richard Freeman wrote the Overeducated American and University of Pennsylvania sociologist Ivar Berg wrote Education and Jobs: The Great Training Robbery. It was also in the 1970s  that Frederick Harbison, the seminal author mentioned in Harrington and Sum’s critique of our work, coined the term “malemployment” as he worried over the ability of the economy to employ the full talents of the baby boom in other than low-wage, low-skill jobs. The BLS chimed in as well. As late as 1984, as the “bidding war” for college talent was underway, the New York Times quoted BLS Associate Commissioner Ronald Kutscher as saying “We are going to be turning out about 200,000 to 300,000 too many college graduates a year in the 80's. ... the supply far exceeds the demand.”

A boom in college jobs and earnings

Their central premise proved embarrassing when the boom in college jobs and earnings came in the 1980s—a boom that has continued with no sign of stopping, although it has slowed in recessions and picked up again in recoveries. After the early 1980s, the surplus of baby boomer college grads quickly became a shortage and spawned the most rapid and highest college wage premium in history.

The source of error in the dire predictions in the 1970s and early 1980s was too strong a focus on demography and not enough focus on the "upskilling" that would come with the knowledge economy that was replacing the industrial economy. At 74%, the college wage premium still dominates our labor markets and is the major cause of growing income inequality. Moreover, most of the growth in college degree requirements and earnings came in occupations where college degrees weren’t deemed “necessary” in the official data—occupations like insurance agents and financial analysts.  Going forward, both the demography and economic change favor increased demand for college degrees. The baby boom that reduced the college wage premium in 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.

That’s why we use the actual earnings of college to determine the demand for postsecondary education in the labor market instead of relying on the BLS’s subjective and static designations of college and non-college occupations. We reason that if the wages of people with postsecondary education are high and/or rising relative to people without postsecondary education within an occupation, there is an advantage that postsecondary education confers.  People with postsecondary education in these occupations, therefore, are not overeducated, because they see a real return to their educational investment—while all degrees may not produce equal returns, in virtually all cases, that return is far greater than the cost of obtaining the degrees. [4]

The difference between Harrington and Sum and BLS and our method is that we believe that we should not define the "college labor market" as “essentially a set of occupations,” in keeping with the elite, traditional, white-collar and professional jobs. The notion of the "college labor market" as a fixed set of occupations is remarkably static. In contrast, we assume that job and skill requirements are dynamic. Technology and other economic forces are constantly updating the skill requirements in jobs.  We view a college job as any job that brings substantial, positive earnings returns to a college degree, irrespective of occupation—whether an individual is an insurance agent or a rocket scientist. In contrast, Harrington and Sum argue that the economy and employment is like a game of musical chairs where opportunity is limited by a very small and fixed set of college jobs, many fewer than the economy’s college graduations.

Most importantly, what Harrington and Sum miss by defining occupations as either college occupations or non-college occupations is the shift toward increased postsecondary requirements that occurs even within occupations that are not deemed college jobs at a given point in time.  Their conclusions don’t coincide with the consensus among labor economists—that there has been a consistent shift towards increased postsecondary requirements on the job across a growing share of occupations that previously did not require two year or four year college degrees. [5] The increasing demand for college degrees among managers, healthcare workers, and office workers are examples in the white-collar world.  The increasing degree requirements among computer and information systems workers, production workers who become degreed technicians, the growth in healthcare technicians, and increased degrees among workers in utilities and transportation are examples in the blue-collar and pink-collar worlds.

The standard explanation for those shifts within the economics literature is a concept called “skill-biased technology change.”  The core mechanism behind this is that information technology automates repetitive tasks, increasing the relative value of non-repetitive tasks in individual occupations.   The relentless engine of technological change, spurred onward by global competition, drives up skill requirements and demand for postsecondary education and training within occupations—all occupations, not just “professional, technical, managerial and high-level sales occupations.” There is no indication that the economic trend has suddenly reversed itself, and the demographic effects of baby boom retirement are clear.

Moreover, our method is careful to minimize counting statistical outliers like those ever-present bartenders, cab drivers and janitors with BA’s and graduate degrees. As we point out in our Help Wanted study, these kinds of mismatches between degrees and low-skilled jobs are relatively small in number and don’t matter much in an economy of almost 150 million jobs. In addition, we have to account for the fact that most bartenders with bachelor’s degrees will eventually move on to better-paying jobs. Many workers are just passing through low-wage, low-skill jobs as part of their natural career progression and are not indicative of career-long effects of college degrees. Over a 10-year period, each cashier job has 13 incumbents who permanently leave the occupation; among medical doctors, that replacement rate is only one. People rarely leave jobs that require college because they have the best earnings, benefits and working conditions. There are many more brain surgeons who used to be cashiers than there are cashiers who used to be brain surgeons.

In addition, these kinds of non-college jobs are greatly over-represented in the official data because so many of them are part-time.  Although low-wage, low-skill jobs make up 20% of all jobs in a single year, they only make up 14% of the hours worked in a single year. Jobs that require a BA or better make up 30% of  all jobs, but 75% of them are full-time, full-year jobs, compared with 64% of jobs that require a high school diploma or less.

The BLS method: flaws and misinterpretation

Bartenders with bachelor’s degrees aside, in the final analysis, Harrington and Sum rest their empirical case on an appeal to a higher authority above reproach: the U.S. Bureau of Labor Statistics. Harrington and Sum write:

“Could BLS, the most objective, impartial and certainly data rich observer of American labor markets so objectively underestimate the demand for college graduates for such a relatively short time horizon? Our answer to this is no!”

We beg to differ.

We have high regard for BLS, and believe that the national and state level BLS occupational and employment data are unimpeachable. However, the BLS educational data is an offhand by-product of its employment and occupational data and is of substantially lower quality.

To a large extent, the poor quality of data that connects education to labor markets is a natural function of institutional silos. Labor departments at the federal and state level produce good employment, earnings and occupational data but are weak on its link with education. Education departments are strong on educational data but not its linkages with occupational and labor market data. Since no agency has responsibility for linking education and employment data, the connection is done badly and does not square with the broader economic literature that has shown skyrocketing returns to college degrees since the 1980s. That is why we set out in Help Wanted to link degrees and jobs both historically and over the near future.  Our report includes our results.

Because of the silos that separate official data on jobs form the official data on college degree production, the quality of data that links education to careers gets very little scrutiny  Every state and the vast majority of social scientists use the BLS education data uncritically. Similarly, Harrington and Sum accept the BLS data as gospel. In this regard, they are not alone. BLS’s deserved reputation on employment data gives its undeserved credibility to its static and misleading metrics on education requirements in labor markets. Very few ever look closely enough to see the huge discrepancies between the BLS and Census data on educational demand, or read the fine print, indicating that the Bureau does not claim to project educational demand. [6]

The Census data allow us to assess the BLS method. The Census Bureau actually counts college workers and their earnings in jobs. As time passes and the census data catch up with the BLS projections, we can determine if the BLS projections were accurate. To get to the punch line: The BLS projections always underpredict college demand.The BLS estimate the numbers of college degrees required and the census data report the actual numbers of college degrees employers hired; their conclusions are dramatically different. When we compare the BLS projections for 2006 and the actual count of people in the labor force with degrees in 2006, we see that the BLS undercounted the true count of postsecondary-educated workers by 17 million  in 2006, or roughly 30%, and by 22 million, or 40% in 2008. Our alternative method missed by 4%.

The bottom line is that the BLS predictions didn’t even come close to what actually happened in the economy. The only way to reconcile the BLS projections with what actually happened is to assert, as BLS, Harrington and Sum argue, that BLS is predicting the number of college degrees that employers require, not the actual numbers of college educated workers that employers hire. If this is the case then not only did employers hire these "extra" workers, in 2006 and 2008, but paid them more than 70% wage premiums for postsecondary degrees they didn’t need.   This would be cause for concern—it would mean that in 2008, 22 million workers—or more than a third of all workers with postsecondary education—got 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 Harrington and Sum are correct, crisis abounds, markets don’t work, employers are irrational, and preparing your children for college is naive for all but a very select few.

We hope the dialogue over the measurement of the future demand for postsecondary-educated workers does not end here, but is carried into state agencies.  We need to know why the national and state BLS data show so much difference between what they estimate as the number of required college degrees and the actual counts of college degrees in each state. Intuitively, the difference between what the BLS says is required and the actual number of degrees is overqualification or “malemployment.” If that’s what the BLS believes, it needs to expand on why overqualified workers with college degrees make so much more than workers with high school or less. Eventually, the steady progress in most states to align education and careers will ultimately make the current flaws in our information systems moot, but in the meantime the myth of overeducation is perpetuated in national and state labor market data.

Unfortunately, the myth of overeducation misinforms policymakers looking for places to cut their budgets, and, worst of all, discourages decisions about college-going that are made at kitchen tables all across America. The sensationalist stories, the high unemployment among college graduates, and the misleading official data are unlikely to keep middle- and upper-class 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 path. The negative press on college fuels preexisting 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.

[1] Nationwide, a comparison of the BLS and Census data shows 37% or 22 million college degrees that are not required, even though employers pay much higher wages for these unnecessary degrees than they do for high school degrees.  See author’s calculations, CPS, various years.

[2] This count includes associate degrees and higher.

[3] Anyone who knows them or their work knows that Harrington and Sum are not to be associated with another popular view on overqualification that begins with the assertion that the majority of Americans are not smart enough for college. This elitist view on what’s best for other people’s children is most closely associated with Charles Murray and Richard Vedder and many more who believe we are lowering the bar by increasing access to college. To their credit, Harrington and Sum worry that college isn’t good for many students, not that the students aren’t good enough for many colleges. Our argument with Harrington and Sum is one of fact not values.

[4] Our projection method intentionally minimizes the impact of outliers—like bartenders with college degrees. For more information, please see the technical report on our website and Appendix 4 in our report.

[5] There is a deep and long literature on this subject.  It is best and most recently summarized in Claudia Goldin’s and Larry Katz’s book The Race Between Education and Technology (Harvard University Press, 2008).  The empirical essence of Goldin’s and Katz’s and Katz’s narrative is that the rising wage premium for college proves that technology is increasing the demand for college workers faster than we can produce them since the 1980s.

[6] The BLS does not claim to analyze educational demand nor do they project these estimates. The BLS data don’t project skill change at all. Instead they “assign” the most significant education and training requirements for employment in 755 particular occupations. BLS does not track skill or earnings from skill in occupations empirically.  Their educational assignment method is based on the subjective judgment of analysts in consultation with experts and 755 occupations, and requires a lot of subjective judgment and consultation. To some extent, BLS‘s 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 most significant education and training requirement in particular occupations. BLS recognizes assigning a single education level to a job does not accurately reflect what is needed on the job.  As they will tell you if asked, virtually every occupation in the economy comes with a variety of legitimate educational attainment levels.  According to BLS:

Because of the variability of job functions within a given occupation, and because different employers have many different requirements of education and training, workers in the same occupation can have substantially different education and training backgrounds. [BLS, 2009]

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.