The Relationship of Unemployment and Education Level and Implication for Economic Recovery

Business leaders, think tanks, government agencies, and other blue chip institutions have worried about the economic impact of too many poorly educated Americans. The day of reckoning may be here.

That is a concern raised by a recent report by economists Daniel Hartley and Beth Mowry of the Federal Reserve Bank of Cleveland. In “Could Low Educational Attainment Be Slowing the Recovery?”, they note that employment in low-degree industries, such as manufacturing and housing, is down sharply over the past 15 years. Manufacturing employment has dropped to about 75 percent of its level in 1995. Construction employment jumped during the late 1990s as the housing boom gathered momentum, but with the subsequent bust, it’s down to 1.15 times its 1995 level. Strong job gains have been recorded over the same period in such high-degree businesses as education and health care, a category the Bureau of Labor Statistics says is up 48 percent. The structural shift from a low-degree to a high-degree economy has the scholars wondering if “we may be in for a period of lower productivity, lower wages, and higher unemployment.”

They may be optimistic. Downturns often accelerate critical underlying economic transformations. Certainly, the shift to jobs that reward a college education is among the most widely publicized trends in the U.S. economy over the past three decades or so. In 1973, 72 percent of the workforce had a high school diploma or less. By 2007, the comparable figure was 41 percent. Similarly, in 1973 only 38 percent of office workers had some kind of postsecondary education vs. 69 percent in 2007. Even factory jobs require more education, with some 36 percent of workers in manufacturing having at least some time in college, triple the number of three decades ago.

So what does the changing makeup of U.S. industry mean for the unemployment rate and the economic recovery in general? Economic research shows that displaced workers who change industries end up with lower paying jobs on average. Furthermore, if a college degree is required for an increasing number of jobs in the U.S. then it may take some time before the labor supply responds to the increased incentives for education. In the meantime, we may be in for a period of lower productivity, lower wages, and higher unemployment.

[Sources: Bloomberg Businessweek; Federal Reserve Bank of Cleveland]

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