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.

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.

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."

Read more...

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.

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?