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. Lou says:

    The real reason for structural unemployment is so simple that you should be ashamed of yourselves -the rampant exporting of American jobs to other countries is the reason for unemployment. You can’t simply erase 20 million jobs out of our economy of the last 13 years (from off shoring) and ignore how that can create structural unemployment. For evey 1000 factory jobs off-shored, we lose around 7000 total jobs. We wouldn’t be having this conversation right now if we had made a concerted effort to focus on trade balance 13 years ago. Trad deficit is what is causing structural unemployment. To blame over education is silly.

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    • Kevin Shmevin says:

      They didn’t blame over education.

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    • James says:

      The off-shoring is something of a straw man, because those factory jobs are going away regardless. The only reason they’re being off-shored is because Chinese are cheaper than robots.

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  2. Vera Keatings says:

    As an educator, I disagree that the higher qualifications for teaching is a silver lining for education. Schools need career teachers who are inspiring educators and who understand the complexities of learning and how to explain subject to students who do not have a natural flair for it.. Having the highest qualification in a subject in my view does not help in this and results in resentment by the teacher who may feel he did not achieve his potential, and disenfranchisement of many students. Vera

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  3. Fred Fisher says:

    Another upside – if there’s no shortage of STEM grads, then increased government spending on scientific research will :

    (a) Speed technological progress (and long-run growth).
    (b) WITHOUT increasing scientists wages.
    (c) AND reducing unemployment amongst all skill levels RIGHT NOW.

    Many of the same people who argue that government should spend more on science also argue we should be educating more scientists. In light of these findings, there might not be such a strong argument for educating more scientists.

    However, if there really *was* a shortage of STEM grads, then more funding for research would benefit society at large only in the long-run. Since there isn’t a shortage, funding research will benefit workers of all skill-levels, by expanding employment and boosting growth RIGHT NOW.

    If no STEM shortage means government science boosts employment today AS WELL AS growth tomorrow – there is hope for us yet.

    If my policy goal were to boost employment amongst low-skill workers, and my options were :

    (a) Building unnecessary infrastructure ( ‘ bridges to nowhere ‘ ).
    (b) Funding the science of tomorrow.

    I’d be glad to have science funding as a choice!

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  4. GLK says:

    During the Vietnam war many available young men were swept from the job market, those remaining had an easy time finding gainful employment. Meanwhile college enrollment swelled because of draft deferments. By the time the war ended women had begun entering the workplace in unprecedented numbers, the young men no longer being drafted were now vying for jobs, and the glut of college graduates now in the workplace were making biased hiring decisions that froze out high school graduates. This was all during a time our manufacturing based economy was beginning its paradigm shift into robotic/computer automation, foreign competition and outsourcing was erasing market share, and the service based economy was on the rise. What we have today is simply the decades long fallout from those processes.

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  5. Quin says:

    Once piece of data missing from your pessimism: “over the next decades, the retirement of the baby-boomer generation will open up a large number of positions, especially atop the labor force.”

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  6. Jen Hacking says:

    Ok, this one was really obvious. I’ve taught at college & have seen grads fail to find jobs, leaving their field of study, or underemployed since 2000. The sad thing about it is that a lot of them are assuming that now they will need a master’s or PhD to get hired, but there’s way too many of those grads now as well.

    2008 crash didn’t help the situation since many older workers in managerial positions pushed their retirement date farther away, and the backlog continues to grow.

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  7. Mark P says:

    I think the positive note at the end of the segment about the number of people going into Teach for America (TFA) is misleading. Relatively few TFA graduates actually end up in teaching professions. It’s mainly used as a resume-building for other careers. Even Teach for America says “few people are estimated to remain in … the profession beyond five or six years” [1]. For instance, according to the same article, 85% of NYC TFA teachers had left by their fourth year.


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  8. Kate says:

    This isn’t news to me or anyone in the STEM or Legal fields. We’ve all known this for years. Yet people buy this malarkey that companies put out about a ‘skill gap.’

    Translation: we don’t want to pay domestic workers so we need more HB1-visas to ship in people who will work for considerably less until we don’t need them. Then we can send them back to their home countries. As an engineer, this is the reality I live with everyday. My job is never secure because I know that some Indian worker import could steal it out from under me at anytime because he will work for 24k a year.

    The cascading is happening because people need to eat. Honestly sometimes I wonder what Ivory tower you need to be living in to not be able to connect the dots. My husband is an attorney and he hasn’t been able to find steady work since he graduated. We’re both highly educated, carry debt from that education, and we’re struggling. American Dream indeed.

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