College Grad Earnings Continue to Fall in 2011

Even as President Obama proposes some steps for student debt relief,  real wages for college graduates continue to plunge.  In the third quarter of 2011,  full-time workers with a bachelor’s degree and no advanced degree earned 3.5% less, in real terms, than a year earlier.*  Male college graduates saw their real wages fall by 5.3% over the past year,  while female college graduates had a 1.4% decline.

This continues a long term trend of declining real wages for college graduates. I discussed the plight of young college grads here.  Because real wages are declining, it’s much harder for grads to pay back their loans.

 

*Median weekly earnings, full-time workers 25 years and older with a bachelor’s degree only. See the BLS press release here).

 

 

The State of Young College Grads 2011

I started writing about tough times for young college grads in 2006, when I was at BusinessWeek. Seems like a different day and age, doesn’t it?  Since then things have only gotten much much worse.  By my latest calculations:

• Real earnings for young male college grads are down 19% since their peak in 2000.
• Real earnings for young female college grads are down 16% since their peak in 2003.

These figures are for full-time workers, ages 25-34, with a bachelor’s degree only. See the charts below.

I want to ask an economic question, a political question, and a policy question.  First, no one has given me a good explanation yet of why young American college grads should have been hit so hard. Is there increased competition with young college grads around the world?  Are new college grads lower quality than their predecessors? Has information technology reduced the need for young grads? I really would like to know.

Politically, Obama captured the imagination of this group in 2008. Are young college graduates going to sit out the next presidential election in disgust?  Is there any candidate that can excite them?

Finally, if  we were going to design some economic policies to help young college grads, what would they be?

 

An Interesting Education Spending Chart

As I was revising my intro economics textbook, I came on an odd education fact. I don’t know quite how to interpret it, but it seems interesting.  The chart below shows the share of consumer spending on education, by income class.

What’s interesting that the top 20% of households have dramatically increase the share of their spending that they devote to education, from 1.8% in 1999 to 3.1% in 2009. Meanwhile, the other income quintiles have seen a much smaller increase in education’s share. For example the third quintile–the “middle class” –has  only increased education spending from 1.1% to 1.5% of their budgets.

There are of course all sorts of potential explanations. The top quintile are more likely to send their kids to expensive private colleges; the middle income quintiles are more likely to get financial aid;  the middle income quintiles don’t have the resources to send their kids to college, and so forth. Take your pick.  

But even if we don’t know the reason, we know the implication: Education spending is increasingly concentrated in the high-income backet. The top quintile accounted for 56% of all consumer spending on education in 2009.  That makes education spending one of the most ‘top-heavy’ spending categories.  Is this a sign that high-income households are the only ones who can afford to pay for college? Or is a sign that higher-income households are being soaked?  Your choice.

The Health-Education Decade

 We might as well put the 2000s to bed completely.  From 2000 to 2010, health sector jobs grew by 3.3 million; Education sector jobs rose by 1.8 million; The rest of economy lost  -7.1 million jobs.

Here’s some more detail if you want it.

Young College Grad Unemployment

This morning’s jobs report saw the unemployment rate for all 25-34 year olds drop to 9.3%, the lowest level since March 2009.  Good news, for sure. But that comes after a year where the unemployment rate for young workers barely  budged.

In particular, the unemployment rate for young college graduates did not fall at all from the end of 2009 to the end of 2010. Take a look at the chart below, which reports the unemployment rate for young workers, age 25-34, by education. I compared  the fourth quarter of 2009 with the fourth quarter of 2010 (not seasonally adjusted). (The data is not yet available for January 2011, so I’m lagging by one month).

What’s striking here is that young workers with a bachelor’s degree only faced an unemployment rate of  5.2% at the end of 2009, and a statistically identical unemployment rate of 5.3% at the end of 2010.  No wonder young college grads felt like they were on a treadmill to nowhere in 2010 (for a good story on this topic, see my old comrade Peter Coy’s cover story in BusinessWeek this week, the Youth Unemployment Bomb).

However, I suspect that the decline in the young worker unemployment rate in January foreshadows a much much better 2011 for young grads. Here’s hoping!

Education-Based Inequality Increased In 2010

I usually don’t like graphs with lots of lines, but this one is too important to pass up.

This chart shows median weekly wages for full-time wage and salary workers, adjusted for inflation, and indexed to 2000 (the data comes from the BLS   “usual weekly earnings” series). There are three things to take away from this chart. 

*First, the wage gap between holders of advanced degrees and everyone else widened in 2010.

*Second, workers with advanced degrees have done much  better than everyone else over the medium run,  both since 2000 and since the Great Recession started in 2007. For example, since  2007,  real weekly wages for advanced degree holders have risen by 3.8%, compared to a 0.1% decline for holders of bachelor’s degrees only.

*Third, over the past ten years, the pay for a bachelor’s degree has more or less tracked the pay for high school grads. 

Now, within advanced degree holders, the pay inequality has widened as well. Take a look at this chart. The top decile–that is, the dividing line between the top 10% of advanced degree holders and everyone else–has risen 13% over the past ten years.  The median and the third quartile (top 75%) has risen by 3-4%, while the bottom 25% of advanced degree holders is actually down since 2000.

Who Got the Wage Gains, 2000-2009

This weekend I’m writing a draft of my new paper, “Biosciences and the Long-Run Economic Recovery.” Along the way I came up with three charts that I thought I’d share with you. I’m not going to put much gloss on these, because they are pretty much self-explanatory, and because I need to get back to the paper.

This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from 2000 to 2009 (all in 2009 dollars). Next biggest was state and local government, which generated $151 billion in real wage gains. (The exact numbers change a lot if I change the end dates, but the pattern stays the same).

On the other hand, the big losers were manufacturing (-$245 billion), information (-$56 billion), retail trade (-$24 billion), and transportation and warehousing (-$6 billion). It’s interesting that the industries in the global supply chain were the big losers in real wages, but I’m not sure quite what to make of it.

Now I’m going to take the same data and cut it by federal govt, state and local govt, and private sector. The short answer is that the public sector accounted for 55% of real wage gains between 2000 and 2009, while the private sector only accounted for 45%. Once again, this is not necessarily a surprise, but it’s still interesting.

Now we get to the third chart (having fun with 3D pie charts–like it?). What we see is that health and education (public and private) accounted for an amazing 75% of real wage and salary gains between 2000 and 2009. The rest of the economy–only 25%.  Make that what you will.