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.


Harriet Kline

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.

Ryan

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.

Caleb B

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.

John

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.

Harriet

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.

someguy

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.

hmt

@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.

Reese

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.

ReeseTipton

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.

Mike B

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.

Ruthmarie

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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Luis Augusto Fretes Cuevas

The obvious problem with this hypothesis is that the unemployment for college graduates is much, much, much lower than the unemployment rate of people with less education, you can't explain the current unemployment rate with that.

And... Obviously the economy had enough jobs in 2006, so there was enough demand...

Still interesting stuff.

Kevin Shmevin

How is that a problem? That's part of the cascade. The top college educated people take the few cognitive jobs. The other college graduates take more unskilled jobs, and the less educated are squeezed out.

Luis Augusto Fretes Cuevas

Except, of course, there's no data that suggests that college graduates are taking low skill jobs out of the cold hands of low skill workers.

Not to mention it's obviously flawed, the economy certainly had enough jobs for college graduates between 2002 and 2007.

Doug

Also important to remember is that older workers are refusing to retire and vacate positions that would allow middle shred workers to step into. If the middle level workers can't move up then neither will the rung below then or below them...

Seminymous Coward

Well, given the retirement situation, I find it hard to blame them.

Ross Brown

This is a good paper and addresses a real shift in our economy, but it isn't nuanced enough to tease out what I am seeing as an employer as a real long term shift in how prospective employees are evaluated.

I think it is really important to distinguish two different skill sets - having the skills to do a cognitive task well (get complex or specialized tasks done) vs. the skills to solve problems and frame problems well to be solved. The first is really an advanced form of a vocational degree - there is little difference between getting an AA in air conditioner repair vs. a BS in Accounting - both educational approaches teach the person HOW to do a task, just the level of abstraction is different (compressors vs. double-entry accounting). You are still teaching someone to do something.

The second are the degrees that teach people how to frame a problem and approaches to problem-solving where there is no set method or best practice. These degrees are usually considered 'soft-skill' education in that you graduate with a strong mind, but no demonstrated ability to 'do anything'.

In the past 25 years of my career, I've watched what were considered professional, middle class jobs held by people who were trained to do things fall apart because of automation. It's not just the factory that is being replaced with robots, it's the CPA (Turbotax and Quickbooks), the realtor (Redfin, Zillow, etc), the stockbroker (E-Trade, Fidelity), the corporate accountant (SAP, Oracle), etc. etc.

The hollowing out of our middle class is both the wholesale re-engineering of our financial system to benefit the wealthy AND the loss of jobs to automation - technology by definition creates a 'winner take all' model - Intuit shifted the CPA business to themselves, online brokers from stock brokers, etc.

As a result, the demand for people with 20 years experience as a CPA is rapidly diminishing. As an employer, I am specifically hiring people graduating from the top of their program with degrees that taught them to think (philosophy, theoretical math, biosciences, etc.) from secondary schools (Whitman College, Harvey Mudd, etc). These students are orthogonal thinkers who can approach problems not with a toolset, but an open mind.

So, I firmly believe and have experienced that there is a glut of 'skilled' workers at the upper end of the employment scale, but there is a strong desert of 'thinking' workers who can solve problems that didn't exist 5 years ago. Looks like the old joke of "What does a philosophy major say after graduation" is changing from "You want fries with that?" to "Here is a new way to think about this problem."

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Joe Dokes

Ross,

Your analysis is spot on, until the final paragraph. I do think employers THINK they are looking for problem solvers, but based upon my very anecdotal evidence I still think most employers who are maleable, fungible, and expendable.

Joe Dokes

The second sentence is unclear it should read:

Ross,

Your analysis is spot on, until the final paragraph. I do think employers THINK they are looking for problem solvers, but based upon my very anecdotal evidence I still think most employers are looking for employees who are maleable, fungible, and expendable.

Seminymous Coward

Too many educated workers is a "good problem" from society's perspective. Adjusting the labor market to suit the workers seems like a good solution to the issues it causes from the individuals' perspectives.

If only there were a way to increase the proportion of high-skill jobs in the USA... Perhaps American firms could even export low-skill jobs to other countries with a lack of attractive employment opportunities, thus improving everyone's fortunes? Wait, no, I heard that was bad because... uh...

James

Seems like there are two places where this analysis is at best over-simplified. First, not all education is created equal: a BA or MBA is not at all the same as a BS or MS, and a BS in Sociology is not at all the same as one in engineering.

Second, there is still a lot of resistance to paying skilled knowledge workers at the same level as semi-skilled managers, so we find a lot of people moving sideways into management just for the money.

SC

@James
Oops, I meant to hit the like button :( I completely agree with your position.

Bob Hammer

If there are so many unemployed or under-employed (below qualifications), highly technically trained people in the US, why do companies claim that they are not enough technically-trained people to hire? Why do companies want so many H1B visa immigrants to fill the plethora of technical jobs? Both things can't be true. So what is the truth?

James

Yeah, I'm involved with a university research project, and one of our best PhD candidate people (US born, too) hasn't been around at all this year, 'cause Google offered him close to six figures to start...

Mark Feldman

I believe that the paper by Salzman, Kuehn and Lowell make a fundamental mistake by confusing DEGREED with EDUCATED. I cannot find that distinction anywhere in the Economic Policy Institute paper. If I am correct that people are mistaking degreed for educated - which the data and my experience as a math professor lead me to believe I am - then there IS a dearth of well educated STEM students.
Here are just two of many pieces of evidence. (For those who want to see more, you can go to my blog inside-higher-ed.com)
First, here is a direct quote from how one of the country's top research universities brags in a magazine that it is working hard to produce STEM graduates:
"In a typical [physics] class, they hear one or more 10-minute lectures over the material, talk about two-minute problems in groups and discuss their answers. Often there is a demonstration that illustrates the material. At last, they go home and rework the original set of homework problems... Students immediately responded to the new format; they were clamoring to get in."
Here are some of the things students (with very high SAT's, probably averaging 740 in math) say about the course.
“His exams have unlimited time and are so easy!.."
“if you ask him questions during exams, he'll answer them for you in full detail. really easy to do well in this class”
“It was touted as the best at [the university], but I just finished the semester, and I feel like I did not learn much ... I am a Physics major and am worried about the voids in my background. Please give more fundamentals”
Almost 90% of the students in this class have historically expected an A.
Now, here is some data (from a totally different source) that I believe show that there is a dearth of well trained STEM graduates and that it shows up in salaries reported by the State of Texas for majors in "Computer and Information Sciences, General" and by Carnegie-Mellon University.
UT, Austin
and UT, Dallas has students with about the same SAT range
Median
Salaries are $71,059 and $65,328, respectively.
Texas State
at San Marcos and UT, Tyler also have about the same SAT range.
Median
Salaries are $58,992 and $45,336, respectively.
Austin
Community College Assoc Deg Median is $57, 395 but
South Texas
College Median for the same degree is $26,597.
Finally, at Carnegie-Mellon University, the median was $95,000.
From all of this, plus much more,I cannot help but conclude that degrees don't always represent ability or education. I also conclude that not enough universities are providing their students with the appropriate skills - though some are, and those students are in high demand. This lack of training is much to the detriment of students and parents that believe they are getting a good education. There are many talented young people who may not be able to attend MIT or CalTech or Carnegie, but, if given a legitimate education could find employment in these STEM fields They have been robbed of their chance by the attitudes of too many people in higher education.
Clark Kerr's statement from 1980 cannot be repeated too much, “…This shift from academic merit to student consumerism is one of the two greatest reversals of direction in all the history of American higher education...” THAT is the problem.

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James

“His exams have unlimited time and are so easy!..”

Just the opposite of one of my graduate physics teachers. If you had had the answers to all the questions written out in front of you, you could not have copied them down in the allotted time. The guy believed in challenges :-)

L.Tisue

As the US has spent less and less on research and given the "Free Market" more tax breaks and less regulation , getting an education is less and less likely to get someone into the middle class. In countries that have not adopted radical captialism such as Sweden, Denmark, and South Korea, one can still get an education and get into the middle class.
As an 40 over Ex-pat with a master's degree I can find better paying jobs in other countries than I can in the U.S. For the countries have natioalized health care and disablity, so it is not a burden to hire a worker that statistically will cost more for health care.

Lou

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.

Kevin Shmevin

They didn't blame over education.

Vera Keatings

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

Fred Fisher

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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GLK

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.