One View of State Budgets and Higher Education

I start out with the belief that investment in higher education is in general a good thing. However, I’ve been worried by the decline in real college grad wages.

 I came upon this 2009 Brookings paper, “The Causal Impact of Education on Economic Growth:Evidence from U.S.”, by P. Aghion , L. Boustan , C. Hoxby, and J. Vandenbussche. Let me take two excerpts from the beginning and end of the paper: 

Should countries or regions (generically, “states”) invest more in education to promote economic growth? Policy makers often assert that if their state spends more on educating its population, incomes will grow sufficiently to more than recover the investment.

 //giant snip//

We find support for the hypothesis that some investments in education raise growth. For the U.S., where all states are fairly close to the world’s technological frontier, we find positive growth effects of exogenous shocks to investments in four-year college education, for all states. We do not find that exogenous shocks to investment in two-year college education increase growth.

This suggests that the money would used equally productively elsewhere. We find that exogenous shocks to research-type education have positive growth effects only in states fairly close to the technological frontier. In part, this is because research-type investment shocks induce the beneficiaries of such education to migrate to close-to-the frontier states from far-from-the-frontier states. Put another way, Massachusetts, California, or New Jersey may benefit more from an investment in Mississippi’s research universities than Mississippi does. Finally, we show that innovation is a very plausible channel for externalities from research and four-year college type education. Exogenous investments in both types of education increase patenting of inventions.

What conclusion should I draw from this paper?  Should we put more money into research-related education spending and four-year schools, and less into two-year colleges? Or are we missing something important here?

‘Middle-educated’ workers: Unemployment rate hits new high

According to this morning’s BLS report, the unemployment rate for  ’middle-educated’ workers–people with some college or an associate degree–hit a new high of 9.1% in September. That’s up from 8.2% in June, and the highest unemployment rate since this data started being collected 20 years ago.  

This is not the result of an improving labor market drawing in more willing workers who were sitting on the sideline. The labor force participation rate for this group is actually lower than it was in June.  I’m going to do more analysis of the numbers to see exactly what’s happening here.

Meanwhile, the labor market situation for college graduates seems to be bottoming out–’improving’ would be too strong a word.

Where Young College Grads Are Finding Jobs: Government

First, let me apologize for the gap between posts.  I’ve been immersed with other members of the VisibleEconomy crew developing videos that combine the best of news and education.   In a month or two we are going to roll out a line of news videos entitled VisibleCareers–short, fast-paced news videos focusing on key events and changes in the economy that young job seekers should know about  (the VisibleCareers site will be up  soon).

As part of that effort, I’ve been developing new job market indicators. One question that people often ask: Where are the new jobs being created? But they are really asking: Where can people like me find a job?

So assuming that most of the people reading this blog are college-educated, here’s a table that shows where young college graduates (aged 25-34) are finding jobs over the past year. The number for each industry represents the increase in collegee-educated employment, comparing the year ending August 2010 with the year ending August 2009.

Immediately obvious: Government has been the main hirer of young college grads over the past year .  And why not? Government jobs are safer, they pay well, and have better benefits than the private sector.  The next biggest hirer of young college grads is the broad category entitled professional and technical services, which includes such  industries as law, accounting, computer systems design, and management consulting.  These industries as a whole have not been expanding, or expanding only slow–but they have been shifting towards better-educated workers.

Then comes the distressing category: Hotel and restaurants.  We hear anecdotes about young college grads being forced to work as waitstaff in restaurants, and here’s one indication that might be more common than we would like–the number of young college grads working in hotels and restaurants is up 33K over the past year.

Two industries that I lump together in my mind as the ‘social and community’ sector are social assistance and membership associations. Now, for sure, not all the enterprises in these two industries are nonprofit. But in some sense, they are directed towards broad social goals. Total young college grad employment in the social and community sector is up about 60K.

One final but important source of jobs for young college grads is the communications sector, which for me includes industries such as telecom, internet publishing, and broadcasting.  Young college grad employment is up about 18K in these industries. Please note–I was formerly in publishing, and now I’m in internet publishing–two different industries.

Which sector is worst? Finance, of course, which has been shedding young college grads like crazy.

Top Occupations for the Educated Young

If you are a new college graduate, what kind of job can you expect to get?  That’s obviously a tough question in this economic environment, so I first decided to see where young college grads are working today.  The tables below look at the top occupational groups for young (aged 25-34) holders of bachelor’s degrees and associate degrees.

The first thing to note is that young women and young men still have different occupational patterns. In fact, I was surprised by the size of the gap (maybe I shouldn’t have been surprised, but I was).

For both genders, the top occupational group is management, business, and financial. But almost 40% of young female college grads work in healthcare or educational occupations, compared to 17% for young male college grads.  On the flip side, computer and engineering occupations show up near the top for  young male college grads, but not for females.

Top Occupations for Young Male College Grads
		percent of labor force, aged 25-34*
Management, business, and financial occupations		23.1%
Sales and related occupations		11.1%
Computer and mathematical science occupations		10.1%
Education, training, and library occupations		9.1%
Healthcare and social services occupations		7.4%
Architecture and engineering occupations		7.3%
Top Occupations for Young Female College Grads
		percent of labor force, aged 25-34*
Management, business, and financial occupations		20.5%
Healthcare and social services occupations		19.6%
Education, training, and library occupations		19.3%
Office and administrative support occupations		11.6%
Sales and related occupations		7.4%
Arts, design, entertainment, sports, and media occupations		3.8%
*12 months ending July 2010, bachelor’s degree or higher
Includes anyone who responded with an occupation,
including a small number of people not in the labor force
Data: Current Population Survey

And here is the table for young holders of associate degrees.  This includes the associate degree in nursing for registered nurses.

The gender difference here is enormous.  For young women with associate degrees, more than half are in health and social services occupations or office and administrative support occupations.  But  surprisingly, those two occupational groups are low on the list for young men with associate degrees, and don’t even show up on the top six.

Top Occupations for Young Male Associate Degree Holders
		percent of labor force, aged 25-34*
Installation, maintenance, and repair occupations		11.3%
Sales and related occupations		11.2%
Management, business, and financial occupations		10.5%
Construction and extraction occupations		9.7%
Protective service occupations		6.9%
Transportation and material moving occupations		6.6%
Top Occupations for Young Female Associate Degree Holders
		percent of labor force, aged 25-34*
Healthcare and social services occupations		32.3%
Office and administrative support occupations		24.0%
Sales and related occupations		8.9%
Management, business, and financial occupations		8.3%
Food preparation and serving related occupations		4.7%
Education, training, and library occupations		3.6%
*12 months ending July 2010, associate degree and not a bachelor’s degree
Includes anyone who responded with an occupation,
including a small number of people not in the labor force
Data: Current Population Survey

P.S. I did the tables differently for this post. Better or worse?

Recession Hits Harder at College Grads Without an Advanced Degree

I’m sure many of you read the  NYT article about the 26-year-old college grad with almost $100,000 in student loans.  The article was fascinating and horrifying, but it didn’t mention a key factor–since the girl in the article graduated in 2005, the  real wages of college grads without an advanced degree have fallen substantially.

 Take a look at this chart.

I’ve plotted median usual weekly earnings of fulltime workers, adjusted for inflation, and indexed to 2001Q1 =1. The dark blue line shows the weekly wages of workers with an advanced degree, while the lighter line shows weekly wages of workers with a bachelor’s degree only.

The real wages for college grads with a bachelor’s have  been in a downswing since 2004.  That offers at least a partial explanation of her problems…she got caught by a weakening labor market for bachelor’s degrees.  

To put it another way–college grads who are clothed with the protection of an advanced degree have on average managed to hold their own during the financial crisis, and even gain ground. Since mid-2007, their usual weekly wages are up by 3.7% in real terms, putting them at their highest level for the past ten years.

‘Naked’ college grads–that is, those without advanced degrees–have not fared nearly so well during the recession. Their real weekly earnings are down 0.7% since mid-2007, and they are well below their 2004 level.

Is this simply supply and demand,  a function of which industries were hit, or is there something else going on?

One Explanation of the Innovation Shortfall

I’ve just read a very important paper  that I strongly recommend to anyone interested in innovation and growth.  The paper, by Ben Jones, an economist at Northwestern, is called “As Science Evolves, How Can Science Policy?”. Jones documents two crucial points. First, as the length of education and training for a scientists gets longer, the value of a scientific career drops sharply.    

Second, teamwork has been getting more important. For example, on the issue of teamwork, Jones looks at all science, engineering, and social science journal articles published from 1995 to 2005, and shows that team-written papers have far more impact than solo papers.    

Take a look at these two charts, drawn from Jones’ paper.
    

    

The first chart shows that team-written papers end up drawing a lot more cites than solo papers, on average, in both science and engineering, and the social sciences. The second chart shows that the ”home run” papers are much more likely to come from teams.    

(Related papers include “The Increasing Dominance of Teams in Production of Knowledge” from Science (2007) and ”The Burden of Knowledge and the Death of the Renaissance Man: Is Innovation Getting Harder?”)    

Jones then goes on to point out that the current incentive structure in science is struggling  to deal with a world where scientists have to wait so long to get started:    

For example, if careers in finance, management, or law require more static levels of training, then scientific careers will be increasingly costly by comparison. The estimated 6-8 year delay in becoming an active innovator over the 20th century suggests, at a standard 10% discount rate, a compound 45-55% decline in the value to becoming a scientist. This kind of selection effect may not only slow scientific progress but also slow economic growth, should the positive spillovers that follow from idea creation (see Section III) not feature in other white collar careers. The recent finance boom, drawing talented undergraduates into quickly attained,high wage streams, may make this comparison particularly acute.    

Some Higher Education Facts, Good and Bad

I was thinking about human capital and growth, and the importance of  having workers with advanced degrees to drive innovation forward.  So I asked myself the question: What percentage of U.S. college graduates have an advanced degree? (Masters, professional, doctorate)

It turns out that  35% of college graduates have an advanced degree. (You didn’t know that, did you? I didn’t). That’s up from 32.7% in 1999 (these figures are for workers 25 and over).

That seems pretty good, doesn’t it?  More and more of our college grads are getting advanced degrees, which is exactly what we would want to help foster innovation.

But then I asked a second question: What percentage of  U.S. college grads have a doctoral degree?  That is, what percentage of them have a research-oriented education? The answer was not so pleasant.

In fact, the share of college grads with a doctorate has fallen over the past decade. Not by much, for sure—but there’s no sense of a PhD being a desirable degree.  Americans are not flocking to spend 4-6 years writing a dissertation and going on to research.

And why not? This chart, which shows the change in real pay since 1999 for higher ed graduates,  may help explain the relative undesirability of the PhD.

Yowza! The real earnings for full-time workers with a doctoral degree has dropped by 10% since 1999.

That’s not what you would expect in an innovation-driven economy.