Unemployment and education

by Russ Roberts on July 5, 2011

in Housing, The Crisis

Here is a very interesting graphic (from Catherine Rampell at Economix) taken from the Federal Reserve of Cleveland:

Generally, the more education, the lower the unemployment rate. But as the picture shows, the unemployment rate for high school dropouts instead of being four or five percentage points higher than that of people who have at least a college degree–it’s now more like TEN percentage points higher.

Every level of education has a higher unemployment rate than before. But it seems that the least educated have the worst time and that the effect is much greater than in the recession of 2001 (although it may be similar to the recession of 1991–hard to tell from this picture.)

My speculation is that the narrowing of unemployment rates between 1992 and 2001 and the great increase in the gap post-2007 has a lot to do with the expansion and expansion in construction employment over this period. It’s just a guess, though. It would be nice to have data on construction employment by educational level.

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{ 61 comments }

Kirby July 5, 2011 at 2:35 pm

Did the HSers feel the shock before the college grads because higher-level employment is ‘stickier’?

Methinks1776 July 5, 2011 at 2:50 pm

The graph implies that the higher educated felt it llater. That could be because a higher percentage of the educated receive their compensation as salary plus commissions or bonus. the variable portion of their comp can be lowered quite easily (it was severely cut on Wall Street, for instance) to allow headcount to remain high.

Another factor may be that the higher educated can sweep a floor, but a floor sweeper can’t do higher level work, so the firm may have cut the head count of lower skilled labour first and shifted that workload on the more highly skilled.

Jason July 5, 2011 at 2:36 pm

It’s interesting that the percentage increase among all groups looks similar. It looks like unemployment doubled within each group.

Kirby July 5, 2011 at 2:44 pm

At least it seems to have peaked last month.

Scott July 6, 2011 at 8:03 am

I agree-I’d say the percentage increase is more to the point here: they are all the same.

So what would affect people on a percentage basis?

Perhaps there is a psychological effect to it. Those with college degrees have a greater sense of initiative.

Maybe there is a larger disincentive to remain out of work if you are a middle income college grad. i.e., losing an $8 an hour job not as big of a loss as losing a $75,000 saliaried one.

Subhi Andrews July 5, 2011 at 2:50 pm

It will be interesting to see the high-school dropout’s unemployment categorized based on age. We know teenage unemployment is rather high. I bet it has a lot to do with minimum-wage, and the recent hikes.

yet another Dave July 5, 2011 at 3:07 pm

Subhi,

See the note under the graph – this data excludes everybody under 25. I’d love to see the same graph down to age 18 (or evn younger).

Subhi Andrews July 5, 2011 at 3:41 pm

I should pay more attention to “Notes”.

yet another Dave July 5, 2011 at 4:49 pm

OK, but I agree with you that a breakdown by age would be interesting.

Frank33328 July 5, 2011 at 6:48 pm

I think there is no doubt that minimum wage law have impacted the unemployment numbers. Since jobs that pay less than the minimum wage are illegal in the US and MUST be outsourced by federal law, it should not be surprising that opportunities for those whose skills merit less pay will find fewer options.

Krishnan July 5, 2011 at 2:53 pm

I remember something Bryan Caplan wrote (or spoke about) – that the one big effect of illegal immigration is the impact on High School drop outs – so, if we turn this around – perhaps a solution to the drop out problem is to let the illegals come in … put pressure on those in high schools to stay put – graduate – go to college – make themselves more employable … but yea, I know the conventional solution is to demand to throw more money at failing schools and place the blame for ALL of our problems on those seeking to make lives better for themselves and for us by taking enormous risks and coming here

Dan July 5, 2011 at 2:56 pm

Seems like there’s not much demand for stupid lazy people

Herman July 5, 2011 at 11:08 pm

My small business needs clock-watchers and layabouts. No education required.

dave smith July 5, 2011 at 2:58 pm

It looks perhaps that unemployment rates move as ratios. For example, one demographic’s move from 3 to 6 percent happens at the same time as another demographic’s move from 10 to 20 percent.

But that’s a pretty limited, eyeball approach.

Kirby July 5, 2011 at 3:02 pm

If we had numbers or a more in-focus graph we could do analysis, but the graph itself is good too.

Martin Brock July 5, 2011 at 3:21 pm

Apparently, if the unemployment rate in one cohort is twice as high the rate in another before the recession, then a member of the first cohort is twice as likely to lose a job during the recession than a member of the second cohort.

Steve_0 July 5, 2011 at 6:11 pm

Yeah.
I wish graphs like this would come with a delta version, flattening the lowest series and reducing the others commensurately so it would be easier to make comparisons.

I couldn’t find contact information for the author to suggest it.

John Dewey July 5, 2011 at 3:45 pm

The federal minimum wage remained unchanged for 10 years, from September, 1997, through June, 2007. And then in a period of just 25 months, the minimum wage jumped 41%.

High school dropouts are the group most likely to have been earning at or near the former minimum wage of $5.15 per hour. Is it at all surprising that unemployment among this group doubled during exactly that same 25 month period?

Ryan Vann July 5, 2011 at 5:02 pm

Maybe, most states I’ve lived in had higher min wages than the federal minimum anyway. Moreover, I don’t see how the min wage would account for the increases in other cohorts. I think too much thought is being put into the graph; it’s just a basic recession/depression data set.

polifrog July 5, 2011 at 3:59 pm

It seems the demand for the lesser educated has shifted lower with an increase in supply of higher educated individuals.

In a sense it shows that the higher educated one is the more categories of employment they have to fall into if necessary.

The college degreed can, at a higher rate, fall into jobs that do not require college degrees, thus they are still employed while those who have not graduated high school have no lesser educated categories to fall into thus find employment at a lesser rate.

Slappy McFee July 5, 2011 at 4:37 pm

I am more convinced of this after looking at the second graph showing the average duration. With all them relatively similar, employers seem reluctant to hire any unemployed, regardless of education.

John Dewey July 5, 2011 at 4:54 pm

“employers seem reluctant to hire any unemployed, regardless of education.”

That may be true in some cases. On the other hand, I’ve noticed that highly skilled workers are more likely than unskilled workers to be selective about the next opportunity they take following job loss.

Workers who previously earned $80K will at first not apply for $50K jobs. Minimum wage workers will take whatever they can get as soon as they can get it. That’s a generalization, but I think it is common enough to account for the similar employment lapses among highly skilled, desirable workers and low-skilled workers.

Slappy McFee July 5, 2011 at 5:09 pm

I agree with most of what you said but the duration graph should show some separation eventually. Even the college educated take the jobs available eventually. Tho, this doesn’t account for the increases in the availability of unemployment insurance, which could refute both of our generalizations.

John Dewey July 5, 2011 at 5:34 pm

“Tho, this doesn’t account for the increases in the availability of unemployment insurance, which could refute both of our generalizations.”

That’s certainly a factor. Unemployment insurance makes it easier for the unemployed to remain selective about the next job.

vikingvista July 6, 2011 at 12:56 pm

Your amount of savings will affect your sense of urgency.

John Dewey July 6, 2011 at 1:10 pm

I agree.

I used to believe that a higher education would be correlated with amount of savings. I’m not so sure anymore. I’ve known so many smart people who are in their 50′s, yet have saved little or nothing.

polifrog July 5, 2011 at 6:55 pm

I’m less convinced of my reading of the first chart by the second chart. Other factors are certainly at play… those meddling Keynesians.

ArrowSmith July 5, 2011 at 4:36 pm

The lack of compassion on this blog for the downtrodden is striking. No wonder most people look at libertarians with utter disdain. No compassion, no caring, no empathy.

Slappy McFee July 5, 2011 at 4:41 pm

What compassion would you like me to show? And after reading the 15 comments, just how do you jump to this conclusion? I suppose you would prefer if we all discussed the magical government program that will lower the unemployment rate for high school dropouts to that of the college educated. Then after that mental masterbation, we could discuss the income inequality of college grads and associate college grads and devise another government scheme to punish college grads so their incomes equalize. Cuz you know, stealing from my neighbor and giving it to myself is highly compassionate, caring and full of empathy.

kirby July 5, 2011 at 4:59 pm

You’re right, everybody who has a college degree should make the same and have the same unemployment rate as people who dont have an education.

1. Businesses would be forced to eat massive losses until the economy crashes
2. Nobody would become a college grad
3. The government would be the main employer, thus simply recycling money from the taxpayer to the government worker
4. With a failing economy and nobody smart enough to understand the quadratic equation, we can marvel at how everybody has a job making 25 cents an hour at a 100% tax rate. Finally! Equality!

John Dewey July 5, 2011 at 5:04 pm

Arrowsmith, you may have trouble understanding this: free market advocates, including libertarians, sincerely believe that the welfare of all members of an economy are most helped when every person acts in his own self-interest.

Also, though I don’t want to speak for libertarians, most people who follow this blog sincerely believe that government-transfers and well-intended regulations help to make the so-called “downtrodden” more dependent on government.

Methinks1776 July 6, 2011 at 11:51 am

John,

Arrowsmith is kidding. It’s his schtick.

John Dewey July 6, 2011 at 2:24 pm

Thanks for the information. I will forever after ignore him.

ajk.econ July 5, 2011 at 4:39 pm

The higher unemployment rate for the uneducated maybe only shown as a short term effect. As employers demand to pick out the skilled workers, and leave out the unskilled workers, increases there is an increase in job competiton, therefore a increased demand for higher education.
The sudden spike in people obtaining an education; moms going back to school, graduates going back for masters and phd, etc. has most certainly left high school drop outs without jobs. However, without any intervention, the long run effect will be beneficial. In one aspect; an increase in skilled workers will raise our standards of living, as well as open new and diverse markets, which means more demand for workers.

tdp July 5, 2011 at 5:54 pm

Could it ever get to a point where everyone has a college degree and suddenly highly educated people have trouble finding jobs?

ajk.econ July 5, 2011 at 11:24 pm

That’s like saying is there ever a point where there are no more things to learn and innovate. As we innovate there are more skills and knowledge to be learned. The standards of education will rise and those who meet the higher standards will then get hired and eliminate the less educated and so forth. It’s cycle.

tdp July 5, 2011 at 5:53 pm

The kind of education also plays a role in unemployment depending on the level of government intervention in the economy. In countries like Germany, where the educational system is overall strong, the strong focus they put on vocational education there combined with an increasingly service-oriented economy and labor laws making it very expensive to hire workers result in high unemployment even though a very high percentage of the population could be counted as “skilled labor”.

Corey July 5, 2011 at 7:31 pm

Is it too naive of me to observe a giant debt fueled economic disaster in the making after reading this post? The cost of higher education seems to have exploded in recent times and as far as I can tell it shows no sign of slowing down anytime soon.

But the benefits of a degree (or a certain kind of degree, engineering or accounting etc.) don’t seem to be falling very much or at least not enough for the price to adjust lower. I think employers rely the sorting mechanism imbedded in the system to a great extent, partly because of laws against testing applicants.

If the price continues to rise and outpace inflation year after year wouldn’t it be reasonable to expect low income folks to go into more and more debt? And from what I understand bankruptcy isn’t an option for those with student loan debt.

As an undereducated casual observer I feel that I must be overlooking some obvious detail that must refute this prediction. This seems to me to be a BIG problem in the making, one that around 10 years from now could rival the 2008 disaster.

Can anyone explain to me why there aren’t more folks sounding the alarm over this? There must be a reason because I’m not that smart.

Herman July 5, 2011 at 11:17 pm

You should catch the Frontline report on for-profit education.

It’s brilliant. First, buy a failing, accredited small college. Next, run aggressive advertising in ghettos and blighted neighborhoods. Promise them that high-paying jobs are easy to get after your 4-year education.

Fill out all the paperwork for their government-guaranteed student loans, no money now, just sign here and start your new life. Collect $250,000 in government loan money over four years, then graduate the students.

They still can’t get a high paying job? Not your problem.
They can’t pay back the government loan? Not your problem.
Your senator threatens to crack down on you? Remind him how the headlines will sound, “senator Johnson opposes education for minorities.”

Profit.

yet another Dave July 6, 2011 at 11:39 am

Yet another example of ostensibly well-intentioned government intervention creating rent-seeking parasites.

The solution is to eliminate government financial aid. The better solution is to completely and totally remove government from all education.

vikingvista July 6, 2011 at 12:50 pm

Separation of education and state.

Methinks1776 July 7, 2011 at 1:21 am

Bingo!

tdp July 7, 2011 at 12:19 pm

Or require people to actually graduate to get aid and pay it back at the same rate as from a private lender.

yet another Dave July 7, 2011 at 2:16 pm

So all a student has to do is get the school to defer payment until after graduation when the aid will be provided! Why didn’t I think of that? /sarc

Ignoring the logistical impossibilities of your proposal, why should government be providing aid for college expenses in the first place? What do you think is the practical result of government financial aid?

Herman July 5, 2011 at 11:03 pm

The US has modernized it’s economy. One educated worker at a computer can do the work that ten blue collar workers did twenty years ago. Now what will become of them?

Bulldog July 6, 2011 at 4:04 pm

If a job can be performed at a computer terminal, it can be outsourced anywhere in the world. That’s the unfortunate reality. Technology is the global economic equalizer.

Spike July 6, 2011 at 1:29 am

Admittedly, I didn’t read all the comments, so excuse me if someone already wrote this. . .

Over the past several decades, we’ve channeled ALL students to Higher Education. As alternative “tracks” (trade/services) are not available, many FAIL the system, and then, have no degree, and no skills.

We need to reform Education. Drop 40% of underperforming High Schoolers from college-track classes, and provide them skills training, in trades and/or services. Dedicate the balance of Educational resources to the 60% of students that are capable of (truly) succeeding at college.

tdp July 7, 2011 at 12:21 pm

Wouldn’t that give skilled workers’ unions like the UAW more power, though, since they would have more potential members to recruit?

vidyohs July 6, 2011 at 7:14 am

Has anyone ever done a similar study on the percentage of businesses, small and large, that are owned and operated by identical classes of subjects?

Idle curiosity makes me wonder how that would shake out.

Bulldog July 6, 2011 at 2:15 pm

Spike, your comments are elitist in nature. What you are suggesting is beaurocratic social engineering and that has failed wherever it has been tried. Separation of government from education would be far more beneficial to all.

Herman July 6, 2011 at 8:15 pm

The trouble with education is that it is a big investment. Someone has to pour money into a person, and that person hopefully turns out more valuable. And the person prctically by definition cannot make that investment himself. Are there free market solutions that do not leave students heavily indentured to their investor? I am intrigued, but concerned that the resulting society could be unpleasant.

Please explain your vision further.

I would also like to consider whether parents should get some benefit from undertaking the costly exercise of raising children, given the positive externalities that the ambient society realizes from that work.

Methinks1776 July 6, 2011 at 8:52 pm

Benefit? You must be joking.

I have no children, but I have to pay to educate other people’s children. When parents are done “enjoying” their kids while not actually parenting them, they foist them on the rest of us. Please, parents, while you’re helicoptering over your precious offspring and catering to their every whim, remind them that while they’re special to you “just for being themselves”, they are not special to their employers unless they make themselves especially useful! And if you send them to MIT, please find a way to stuff some social skills into them. Being able to calculate everything is not that helpful in expanding the career opportunities of your dear children if they’re 24, talk like a 13 year old, displays a collection of “Hello Kitty” writing implements on their desk at work and look at me like I’m about to give them cooties when I assign them a project to work on. This is what we’re saddled with. I hardly call that a benefit and that’s why your kids are unemployable after college.

The someone who poured money into my education was me. My parents provided $0 for my education, nor did they pay for living expenses. I took out loans and worked year-round to pay for it. I often worked multiple jobs. As you can imagine, I chose a degree and profession that allowed me to pay off the amount I was forced to take out in loans in a reasonable amount of time. So, you know, I didn’t go off to “find myself” while hanging out at home playing video games with my parents waiting on me hand and foot after college. I also took as many classes as I was allowed to and I sat in the front row and never missed a single class – I was getting my money’s worth! So, by definition, a person can absolutely make that investment himself (I’ve done it!) and and the bigger the investment, the higher the motivation to actually get an education.

College tuition is rising, but what incentive do colleges have to lower tuition when it’s heavily subsidized by government? I think a free market solution is to cut the subsidy and stop force-feeding college to kids who don’t want it.

Herman July 7, 2011 at 12:23 am

I suspect your K-12 education was paid for by someone else. Thank you for repaying that. Your parents also did an excellent job educating and raising you, as evidenced by your comment in support of my latter point.

Your supporting evidence is that you find yourself surrounded by poorly parented children under the current system. Well, parenting doesn’t pay anything and takes a ton of time, so don’t be surprised that so many parents are shirking the job. You might find both parents working in paid fields, aligned with the economic incentives. Or skipping child raising in the case of a portion of the well educated.

How do you propose to create an incentive for parenting work?

Methinks1776 July 7, 2011 at 1:19 am

Herman,

I’m going to take that as a compliment, but you don’t have any idea how I was parented. My parents were always under the impression that children raised themselves from birth!

Incentives for parenting work? Becoming a parent is a personal choice. Why do you suppose someone else should pay for personal choices? I’m assuming people think it’s somehow beneficial to them to reproduce since right around the age of 33 all my married friends suddenly set out on a quest to become pregnant or to adopt. I don’t understand why you and I should be held responsible for their personal decisions.

Herman July 7, 2011 at 2:07 am

A few points; parenting (or not) begins with a personal choice, I agree, but it, and the series of choices that follow during parenting have repercussions on you in the aggregate. Done poorly, you will have to live with a bunch of borderline sociopaths. It is in your interests to devise a system that operates efficiently, by providing the best net outcome once all the actors choices have been made.

Also, I must point out that it is not a personal choice for the children. They are not the personal property of the parents to be used, abused, or discarded at their whim, though it’s pretty close. What you have now is largely a system of penalties and punishments for gross negligence, but no system of rewards for success. Aside from not killing their children, the parents have a lot of leeway and are free to dedicate as much or as little effort as they like to the endeavor. Children might benefit from some incentives for the parents to do a better job.

I have not even said that payment is a required part of the system, but it’s a possibility. There was a time when having children and raising them properly was an economic necessity, since they provided needed labor and security for the family. You could devise a system that restored that imperative, for example.

Bulldog July 6, 2011 at 2:27 pm

Possibly the worst thing W did was sign those increases in the Federal Minimum Wage – even a VERY strong economy would be unable to absorb a wage increase that steep. A governmentally mandated minimum wage was a bad idea; if the country swings more to the left we can expect a maximum wage next.

Methinks1776 July 6, 2011 at 2:36 pm

we can expect a maximum wage next.

As you might expect, the government is way ahead of you in extortion. Isn’t that what a compensation czar is for?

The minimum wage increase is very bad, but I don’t think it’s worse than the Patriot Act. That thing has made us toxic around the world (just try to open a bank account in another country as a U.S. citizen or open a U.S. bank account if you’re a citizen of any other country and do not reside here.). It’s increased compliance costs, made renewing drivers licenses a nightmare and generally expanded the power of Big Brother.

Bulldog July 6, 2011 at 3:44 pm

The very concept of having a compensation czar slipped my mind. Confiscatory and punitive taxation policy has not gone far enough, apparently. The ultimate failure of the Patriot Act is that when the Right pushed it, they failed to realize that eventually the pendulum would swing and all that power would end up in the hands of the Left.

Warren Smith July 7, 2011 at 4:55 pm

Frank33328 and Bulldog mention increasing minimum wage rates as being suspect of causing rising unemployment to lesser educated workers since 2007. This seems more likely than the collapse in construction spending. My experience is that most construction workers have skill sets which allow for reemployment at a better than average rate. They also would have had work place experience. On the other hand high school drop outs are generally unskilled as well as possessing less experience and since the minimum wage increase are now more likely to be over priced labor.

Warren Smith July 7, 2011 at 5:51 pm

“The minimum wage increased in three $0.70 increments–to $5.85 in July, 2007, $6.55 in July, 2008, and to $7.25 in July 2009.”

In a two year time frame the cost of employing the least skilled and least educated component of the work force increased 41%. This is a strong disincentive for an employer.

Warren Smith July 8, 2011 at 8:39 am

I am unfamiliar with the mechanics of unemployment benefits and how they effect various wage categories. However, the extension of the duration that these benefits are now available to claimants and how higher paid jobs respond to these benefits versus lower paid jobs may be contributing to the observed widening in unemployment rates between classes of employees.

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