The Portland Press Herald Tilts at Economic Windmills

AS I previously wrote, there is a belief in this state that the key to unlocking Maine’s economic potential is to increase the number of college graduates.  However, those who espouse that view often fail to elaborate on the nuances of that plan; specifically, how increased college grads will boost economic growth.  Moreover, there is often a lack of acknowledgement of the underemployment among recent college grads.  This theme continued in the Portland Press Herald’s editorial yesterday, which suggests that all Augusta need to do to address the state’s slow economic growth is to produce more graduates:

According to a survey of a number of recent studies, done by David Leonhardt of The New York Times, the answer is yes. In fact, it may never have been more valuable.

According to an analysis of Department of Labor statistics by the Economic Policy Institute, Americans with four-year college degrees earned 98 percent more than people without a degree, including those with two-year degrees and certificates. That’s up from 85 percent a decade ago and 64 percent in the early ’80s. The pay gap has continued even as the number of college graduates has increased.

This is more than just encouraging news for individuals – it’s also a call to action for policymakers. Mainers have long known that our low rate of college attainment has held our economy back, but these numbers show just how much.

. . .

College graduates can rest assured this weekend that they have made the right sacrifice that will give them the best chance to succeed. High school graduates should have clarity about what they should do next.

There are two parts to this that I want to address.  First, the Leonhardt piece, which the PPH editors draw heavily from. Second is the PPH’s suggestion that a lack of graduates is constraining Maine’s economy.

As for the Leonhardt piece, it has been addressed by Dean BakerJohn SchmittMatt LeichterAngus (not that Angus), Jordan Weissman, and others, so there is no need for a protracted response.  However, there a few things that should be mentioned here regarding Leonhardt’s analysis.

First, he writes:

 Among four-year college graduates who took out loans,average debt is about $25,000, a sum that is a tiny fraction of the economic benefits of college. (My own student debt, as it happens, was almost identical to this figure, in inflation-adjusted terms.)

The data he refers to shows that student loan debt is rising.  57% of borrowers who graduated in 2011-2012 owed $25,000 in student loan debt, up from the 52% of borrowers who graduated in 1999-2000 who owed $20,800.  In other words, those in debt and the size of the debt are growing for most graduates.

Second, there is this:

And the unemployment rate in April for people between 25 and 34 years old with a bachelor’s degree was a mere 3 percent.

There is no link to the data (a problem found elsewhere in his piece), so it is difficult to verify.  However, Dean Baker has reason to question the validity of that sentence:

Leonhardt also tells readers that the unemployment rate for people with just college degrees (i.e. without advanced degrees) between the ages of 25-34 was just 3.0 percent in April. That seems unlikely. The Bureau of Labor Statistics reported that the unemployment rate for all people over age 25 with college degrees, including those with advanced degrees, was 3.3 percent in April. Since younger grads and those without advanced degrees have higher unemployment rates it is difficult to see how Leonhardt’s assertion can be true. 

Third, and this really is a problem both for Leonhardt’s piece and the PPH’s editorial, is the reliance on the EPI study that both Leonhardt and the PPH refer to.  The problem?  Leonhardt does not provide a link to it, and it’s doubtful that was unintentional.  While the EPI study does note the college wage premium is at its zenith, it also notes several other trends that run counter to Leonhardt and the PPH’s assertions and conclusions.  Here are some of the study’s key findings:

Unemployment of young graduates is extremely high today not because of something unique about the Great Recession and its aftermath that has affected young people in particular. Rather, it is high because young workers always experience disproportionate increases in unemployment during periods of labor market weakness—and the Great Recession and its aftermath is the longest, most severe period of economic weakness in more than seven decades.

. . .

The large increases since 2007 in the unemployment and underemployment rates of young college graduates, and in the share of employed young college graduates working in jobs that do not require a college degree, underscore that the current unemployment crisis among young workers did not arise because today’s young adults lack the right education or skills. Rather, it stems from weak demand for goods and services, which makes it unnecessary for employers to significantly ramp up hiring.

The long-run wage trends for young graduates are bleak, with wages substantially lower today than in 2000. Since 2000, the real (inflation-adjusted) wages of young high school graduates have dropped 10.8 percent, and those of young college graduates have dropped 7.7 percent.

. . .

Graduating in a bad economy has long-lasting economic consequences. For the next 10 to 15 years, those in the Class of 2014 will likely earn less than if they had graduated when job opportunities were plentiful.

The cost of higher education has grown far more rapidly than median family income, leaving students with little choice but to take out loans which, upon graduating into a labor market with limited job opportunities, they may not have the funds to repay.

The findings in the study do not comport with the conclusions drawn by Leonhardt and PPH.  For instance, the following graph shows the upward trend (even removing the economic downturn in 2008) in un-/underemployment among young college grads over a decade plus:

(click image to enlarge)

EPI

The significance of the graph is that as college grads toil in un-/underemployment post-college, their lifetime earnings and the college wage premium decline.  Moreover, if there were such high demand for college graduates, one would expect the long-trends for these two metrics to decline.

Lastly, there is no acknowledgment by either Leonhardt or the PPH of underemployment among graduates.  I’ve trotted this study from the NY Fed regarding underemployment among college graduates previously, but it’s findings make clear that there is a problem with underemployment–something Leonhardt anecdotally tries to downplay in his piece.  From The NY Fed study:

According to numerous accounts, the Great Recession has left many recent college graduates struggling to find jobs that utilize their education. However, a look at the data on the employment outcomes for recent graduates over the past two decades suggests that such difficulties are not a new phenomenon: individuals just beginning their careers often need time to transition into the labor market. Still, the percentage who are unemployed or “underemployed”—working in a job that typically does not require a bachelor’s degree—has risen, particularly since the 2001 recession. Moreover, the quality of the jobs held by the underemployed has declined, with today’s recent graduates increasingly accepting low-wage jobs or working part-time.

What this suggests is the phenomena of credential inflation, where certain jobs previously held by high school grads are now held by college grads even though the job requirements for those positions have gone largely unchanged.  Persons with only some college, an associate’s degree, or high school education very well might be able to perform some of the same jobs currently held by high school graduates.  This phenomena has the effect of skewing the data and inflating the value of college somewhat by a) assuming that the wages earned by some college grads are the result of that education, and b) pushing non-college grads, who could otherwise perform the same job, into lower earning jobs or out of the labor market all together.

Even with those problems, the PPH editorial staff draws heavily from that piece and makes a curious policy suggestion:

This is more than just encouraging news for individuals – it’s also a call to action for policymakers. Mainers have long known that our low rate of college attainment has held our economy back, but these numbers show just how much.

In general, the Leonhardt and PPH are correct that college graduates are likely to earn more than their non-college graduate counterparts.  However, recent trends revealing stagnation in college grad wages and higher under-/unemployment among recent grads all while the cost of tuition and student loan debt continue to rise suggests that the PPH piece blithely ignores the financial risks inherent with attending college.

Lastly, the PPH editorial does not provide any evidence showing a grad shortage or how that shortage is restraining the Maine economy.  The reason for this is that substantive evidence to support such claims is scant.  As noted above, college grad wages are not rising while un-/underemployment is up.  In short, the PPH is simply tilting at economic windmills.

John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.