Friday, February 26, 2016

Unemployment By Education

Unemployment by Education
The national unemployment rate is often dissected and compared to show relationships among many different conditions. In this blog, we are looking at the relationship between unemployment and education. It’s intuitive that with more education people should have an easier time at finding work. We look to understand this relationship and examine the possible causes for each  of the groups: those having no high school diploma, high school diploma, bachelor’s degree, and a Ph.D. Unemployment Rate By Education Level.png

No High School Diploma
        At the lowest of the education continuum, Americans that have not completed high school or don’t hold an equivalent degree are most affected by unemployment. According to the US census bureau, only about 12% of the working population doesn’t have a high school diploma. While competing with their more educated counterparts, job security and prospects are bleak for employees without a high school diploma.
        Although, manufacturing jobs seem to still invite people without a formal educational background. However, these jobs are drying up at an increasing rate as the United States economy shifts. It can be inferred that people without a high school diploma disparately fall prey to structural, sectorial and cyclical unemployment. For example, this group was hit harder than any other group during the great recession in 2008, reaching an unemployment rate of 15%. A high school degree is required for an increasing number of positions, so people in this group don’t possess the skills necessary to compete in the new labor environment. The FRED graph above depicts how volatile and high unemployment is among this group and is about 3% higher than those with a diploma.
This group is making up a smaller portion of the American labor force.  According to the department of education, the number of people without a high school degree has decreased 32% over 2006-2011. So as older people without a degree leave the labor force, they are not being replaced by the same amount of workers, resulting in net decrease. Many policy analysts believe that this is due, in part, to the No Child Left Behind policy. Where the NCLB reduced standards for testing, a high school diploma is more accessible than ever.
High School Degree
Out of all the groups we segmented the population, this group contained the largest percentage of the U.S. population with around 30% of working age adults. During a recession, this group is hit heavily and sees the second largest increase in unemployment rate, behind only those without a high school degree. These workers often work lower paying jobs that are easier for firms to cut or stop hiring for. These workers are subsequently displaced more often, resulting in a ballooned unemployment rate. During an expansion however, such as one seen in the late 1990’s in the graph above, this group experiences a fairly strong drop in their unemployment rate as firms are more eager for labor in order to keep up with the increasing needs of consumers.
Although it is unclear exactly what time of unemployment these workers are experiencing, it can be deduced from the graph that it is a combination of all three. As with any segment of workers, industry, or job type, there will always be frictional unemployment as some workers will want to strive for a better job. As the FRED graph shows above, these workers are subject to cyclical changes in wages, because there unemployment rate ebbs and flows with the expansions and recessions in the economy. Finally, because the unemployment level for this group is always above that of workers with a higher education level, it is reasonable to assume they suffer from frictional unemployment. There are simply not enough jobs to go around for workers with this education level, meaning they are suffering from structural unemployment.
Bachelor's Degree
        Americans with a bachelor’s degree make up the second largest educational status in the labor force with 18.88% of the population. This group hovers around 2.5% to 5% unemployment but is always below the general unemployment rate. A bachelor’s degree is  seemingly becoming the standard for Americans to move above the poverty line and into the middle and upper class. There seems to be a strong correlation between wages and a bachelor’s degree, with college graduates making 1 million more over a lifetime than those without a degree. During a recession, people with a bachelor’s degree are affected but it is less than those without a bachelor’s degree. Structural and sectorial unemployment contributes to the group’s overall unemployment. According to the Wall Street journal, bachelor degrees in the humanities are correlated with a high unemployment. People with these degrees don’t possess the skills needed for the current labor environment as opposed to those with STEM degrees. Frictional unemployment is also a considerable factor because they do have enough skills to leave jobs for ones that better suit their skills and interests.
        The FRED data doesn’t extend beyond 1995, so it is hard to draw concrete conclusions about what the effect of a bachelor’s degree is on unemployment over time. However, other metrics support that the conclusion that a bachelor degree is having less impact on staving off unemployment. This fits with the overall narrative that the American public is becoming more educated, so by result more education is needed to compete in the labor market. The underlying factors or possible causes that contribute to the bachelor’s degree affecting unemployment are also cultural. A study conducted by McKinsey and Company found that employers, on average, make a bachelor’s degree a requirement 64% of the time, when having one isn’t essential for the job. Employers look over perfectly capable candidates that don’t have a degree, but this behavior could contribute to the lower unemployment rate among people with a bachelor’s degree.
During both a recession and expansion, the unemployment levels for those with a Ph.D. are virtually unchanged no matter the economic environment. This is most likely due to the fact that people with doctoral degrees have higher-paying jobs that are much more difficult to cut when a business falls on hard economic times. These can be jobs such as those in the medical profession, a research setting, or teaching at a university level. Although the data for this particular group only reaches back until 2000, it appears the overall level of unemployment has not changed much over time. Of all the segments of the population studied for determining unemployment by education level, those with a doctoral degree have continually had the lowest unemployment levels.
It can be seen in the FRED website graph above that the more education a person has, the lower their unemployment rate. This means there is an inverse relationship between unemployment rate and education level. Jobs that require more education are ones that society would have a hard time functioning without such as doctors or professors, leading this group to be more employable, even during times of a recession. Additionally, the more education you have, the more likely you are to fall into the category of skilled labor, as opposed to unskilled labor. Jobs that require skilled labor have a smaller segment of the population that is able to complete those jobs, meaning that they have more job opportunities compared to the average American, and would therefore have a lower unemployment rate.
Although data could not be found as to what percentage of this unemployment was due to frictional, cyclical, or structural unemployment, some inferences could be made. Firms are more likely to hire workers that are more educated and more skilled, as they are able to perform more jobs and generally produce more output per worker. Since workers with a Ph.D. are among the highest educated and most skilled, it stands to reason that firms would almost always hire these workers before any others, making it unlikely these workers are losing jobs to structural unemployment. More than likely, almost all of the unemployment in this group is resulting from frictional unemployment, where workers are unhappy with their current job, and may have quit to look for a job that better suits their skills and interests.

With all of the data and possible causes, it seems that having more education is helpful in staving off unemployment. All things considered, unemployment has a disparate impact with education, favoring the more educated. Thanks for reading! Next time we will tackle the relationship between unemployment and race, so check back in soon.

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