It’s Crowded at the Top: A New Marketplace Podcast

(Photo: Metro Centric)

Our latest podcast, “Crowded at the Top,” presents a surprising explanation for why the U.S. unemployment rate is still relatively high. (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.)

It features a conversation with the University of British Columbia economist Paul Beaudry, one of the authors (along with David Green and Benjamin Sand) of a new paper called “The Great Reversal in the Demand for Skill and Cognitive Tasks“:

What explains the current low rate of employment in the U.S.? While there has substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labour market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we offer a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the trends in the data that we present, and offers a novel interpretation of the current employment situation in the U.S.

So it appears that, while returns to education remain strong, there are far too many highly educated workers for the available jobs. We also make note in the podcast of a new paper by Hal Salzman, Daniel Kuehn, and B. Lindsay Lowell which argues that, for all the hand-wringing about the U.S.’s inability to educate (or import) a sufficient number of STEM workers, there is in fact no shortage of such workers and that only half of U.S. STEM graduates end up with a STEM job.

We also make note of one potential silver lining in this “de-skilling” process, as Beaudry calls it: more highly educated workers may flow into fields like teaching. It’s worth noting that decades ago, when educated women had fewer job options than today, many of the best and brightest were teachers. Their outflow from the teaching ranks put a hurt on education in general. For further reading, see “Do Alternative Opportunities Matter? The Role Of Female Labor Markets In The Decline Of Teacher Supply And Teacher Quality, 1940-1990,” by Marigee P. Bacolod; and “Why the Best Don’t Teach,” by then-New York City schools chancellor Harold O. Levy.

Audio Transcript

Kai RYSSDAL: Time now for a little Freakonomics Radio. It’s that moment every couple of weeks we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is “the hidden side of everything.”  Dubner, how are you man?


Stephen J. DUBNER: Hey Kai. I’m great.  I bet you can’t wait to see the new unemployment numbers on Friday.  That’s kinda like catnip for you, huh?


RYSSDAL: It makes my day, pal!  Come on.  I live for that stuff.


DUBNER: Let me say this: whatever the numbers say on Friday, the general picture is pretty clear, which is that unemployment remains relatively high.  Everyone has a pet theory, but I’m here to tell you today about a trio of economists who have a new research paper out with a pretty interesting angle to explain the unemployment.


RYSSDAL: Three economists, three times as much fun, Dubner.  What do you got?


DUBNER: Let’s start with something we know to be true – that, on average, the more education you get, the better you do in the labor market.  There’s no question about that, right?


RYSSDAL: Yeah.  It’s “ROE,” baby -- it’s “Return On Education,” much like Return On Investment.


DUBNER: Exactly right. And that’s thought to be especially true for “knowledge workers,” people who primarily use their brains for their job -- managers and tech jobs, things like that. But one author of this new paper, Paul Beaudry, looked at 30 years worth of hiring data and he found that demand for knowledge workers actually stopped growing quite a while ago.


Paul BEAUDRY “Then you start noticing that it has plateaued in 2000 -- even though more and more people are getting educated.  It should have kept on going.”


RYSSDAL: So Dubner, you know 2000 was like 13 years ago, right?  That’s before the recession.  The whole deal.  What happened?


DUBNER: Well, what happened is the tech boom. In the 1990’s, the tech boom led to much higher demand for knowledge workers.  So more and more people started getting the appropriate college degrees. But in 2000, remember, we had the tech bust.  Which meant that demand for knowledge jobs fell, and fast. Beaudry and his colleagues call it “The Great Reversal.”


RYSSDAL: So wait -- let me try this one more time.  2000 was 13 years ago, man.  Make this make sense in the unemployment situation today.


DUBNER: Here’s the thing: all those highly-educated workers who educated themselves up from what was supposed to be the everlasting tech boom, they didn’t get the jobs that they thought.  But those workers don’t go away, and then there are new graduates in the pipeline every year. But there still aren’t nearly enough high-end jobs to suit them. So what happens? Here’s Paul Beaudry again:


BEAUDRY: “If these educated people aren’t getting their jobs in that sector, they must be pushing down.  That’s when we started noticing all this cascading.  I wouldn’t want to exaggerate.  It’s not like everyone is getting a barista job.  But that’s exactly the feeling.  It’s kind of like this pushing down.


DUBNER: So that’s a pretty word – “cascading” – to describe a pretty ugly effect: too many highly-educated workers aren’t able to find the jobs they’re expecting.  As a result, they get shoved down the labor ladder a couple rungs. Here’s a fellow named Clayton Thomas.  He’s a software consultant in Salt Lake City.  When he graduated from Duke a few years back -- he studied life sciences -- he was expecting to have no trouble finding a good research job.


Clayton THOMAS “I went to job fairs where I would discuss openings with companies and I found that I was competing with people who had masters degree, even PhD’s for basically entry level positions, which was pretty scary.”


RYSSDAL: All right, so Dubner, what’s that saying?  I heard it in the service a lot.  “Stuff,” shall we say, “rolls downhill.”  What happens to the people on the bottom rungs of those ladders?


DUBNER: Exactly right.  As the top pushes the middle, the middle pushes the bottom.  The crowding at the top pushes everybody down. But let me stay on the top for a minute.  As much as we hear about needing to educate more  STEM workers – “STEM” stands for science, technology, engineering, and math – there’s another new research paper out which argues that there is, in fact, no shortage of STEM workers and that only half of U.S. STEM graduates end up with a STEM job already.


RYSSDAL: This is the most depressed you have ever made me, my friend.  There must be some silver lining here.  You gotta hit me with that.


DUBNER: Let me try: if you go back several decades, you’ll find that a huge share of the college-educated women in the U.S. labor force worked as schoolteachers.  Right?  So even though it didn’t pay that well, a lot of the best and brightest women in the country were teachers, because they didn’t have as many opportunities as they do now.  When the feminist revolution opened up those opportunities, it was great news for women, who became doctors and lawyers and radio show hosts, on and on.  But bad news for the classrooms.  So, see what you think of this idea.


RYSSDAL:  Is this the “hidden side?”  Is that where we’re going?


DUBNER: This is so hidden.  This “cascading” that we’re seeing now, with the top pushing down -- what it means is that it might be good news for a field like education, because more and more highly-educated people -- women and men -- could end up working as, say, teachers, or elsewhere in education. So this year for instance, Teach for America, which recruits from elite college campuses, had the most applications in its 20-year history. It accepted only 17 percent of the applicants – which means that on some campuses, it’s almost as hard to get into Teach for America as it was to get into the college itself.  So, if selectivity is any measure, that means that the corps of potential teachers, at least, is drawn from a very, very talented pool.


RYSSDAL: All right.  I think we can say silver lining found there.  Stephen Dubner.  Freakonomics dot-com is the web site.  He’s back in a couple of weeks.  See ya, man.

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  1. Harriet Kline says:

    Your comments about how women changed the balance of who gets the better, more skilled jobs when they started joining the ranks of doctors and lawyers, are on the mark. However, it is only part of the story. With the exodus of the smartest and best educated women from the classrooms, secretarial pools, and hospital bedsides (the best jobs available to women pre-1960s) , came an influx (I believe) of women who – well – were not, or who could not make it into the prestigious law and medical schools. This resulted in a cascading (your term) effect downward of fewer smart and well educated female (and male?) teachers in the schools (I am one of them) and – taking it further, contributed to significant qualitative decreases in American education. Not complaining – just observing.

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  2. Ryan says:

    Could this lack of growth could stem from the cuts to research funding at the end of the Cold War? The great thing about educated workers, and in particular those in the STEM fields, is that they can not only do existing jobs but use new discoveries to create jobs that had never been imagined before. At the end of the Cold War there was a cut in basic research funding, and after the pipeline of basic science slowed down the jobs in new technologies also started to slow down. The reversal at around 2000 could just reflect the effects of the policy shift having worked its way through the system to the private sector. I suspect economists have thought about this, but I would be interested to hear whether they think this is related.

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  3. Caleb B says:

    This is related to job requirement inflation. My job hired me out of college six years ago, but now they are putting “MBA prefered, 5 years experience preferred.”
    While the ego boost is nice, I can’t help but feel bad for the undergrad kids that aren’t getting a shot now.

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    • John says:

      This is the crux of the issue. I graduated from college last year with a good GPA and language skills and have been interning since (paid and unpaid). I am going to have to go to grad school to have a chance at finding a job with upward mobility and in my field. And as this article points out, a graduate degree is not a panacea.

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  4. Harriet says:

    Ryan, interesting point and also points to why the US gets involved in wars- good or bad – because wars stimulate manufacturing…and profits. Caleb, another good example of the cascading down.

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    • someguy says:

      While it’s true that wars stimulate manufacturing, that manufacturing is actually just artificial demand. So in the long run, wars do not create any profits from these artificial increases in manufacturing demand, because during those years in war, you could have been allocating more resources to invent new technologies, manufacture those new technologies, etc etc. People these days tend to only consider the short-runbenefits of decisions whilst completely neglecting long-run consequences.

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  5. hmt says:

    @Caleb B

    Requirements inflation could be explained by the increased supply of available educated workers. If there is an increased supply of workers I can get a “better” worker for cheaper than I could before. So while $x got me a BA six years ago, those $x will now buy me an MBA.

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  6. Reese says:

    I’m about to graduate from Oklahoma State with a BS in Sociology. My peers and I are all scrambling for jobs, circling the drain toward the Department of Human Services (in Oklahoma, they’re hiring a massive number of case workers). It’s not our ideal place of employment, but I have some talented colleagues from whom DHS and those they serve will surely benefit. I’m not necessarily optimistic for my own career, but I am optimistic for the future of our society.

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  7. ReeseTipton says:

    I’m about to graduate from Oklahoma State with a BS in Sociology. My peers and I are all scrambling for jobs, circling the drain toward the Department of Human Services (in Oklahoma, they’re hiring a massive number of case workers). It’s not our ideal place of employment, but I have some talented colleagues from whom DHS and those they serve will surely benefit. I’m not necessarily optimistic for my own career, but I am optimistic for the future of our society.

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  8. Mike B says:

    Productivity has soared since 2000 which when combined with the downward demand caused by the recession has created this general lack of employment opportunities. Other problems regarding high skill workers is that in the digital age one, or a few people can satisfy the needs of millions. How many web browsers do we need? How many office productivity suites? How many movies and TV shows? Previously increased demand for a good led to increased employment. Today Microsoft doesn’t need to add new workers when more people decide to buy its operating system.

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    • Ruthmarie says:

      That is partially true. But the outsourcing and insourcing (through the H1-B and other guest worker visa programs) is creating havoc as well. They ARE hiring at microsoft, but they are hiring foreign talent at cut rates and letting American employees go. Its interesting that no one can put their finger on the precise number and no one is even TRACKING the percent of American workers hired vs. foreign nationals.

      What we need to know is this:
      How many Americans are getting laid off or hired?
      How many foreign nationals are getting laid off or hired?
      What is the visa status of those foreign nationals hired and fired?
      What are Americans and foreign nationals getting paid?

      These are simple questions and every single major employer in the US should be required to produce those numbers. Better yet, the US should be tracking these numbers.

      Time to push for hiring Americans FIRST. There are PLENTY of highly qualified American nationals that are being pushed aside in favor of people holding temporary visas who will work until they drop of exhaustion and accept abuse without complaint. This part of the problem can and should be fixed.

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