College Graduates Face a Permanent Income Loss

collegegradThe payoff of college isn’t what it used to be.

These days, many college-educated workers are struggling to get by with stagnating and falling wages.

This is not to suggest that an “education premium” no longer exists.

But the reality of the country’s educated workforce nevertheless is looking more and more like that of blue-collar workers, who have faced an attack on their living standards for decades.

Media reports abound about how liberal arts degrees—in English, philosophy, anthropology and sociology, to name some—don’t translate into solid jobs. That’s why you can talk to a barista at Starbucks about Hegel’s “Philosophy of Right.”

And sadly, students are graduating with substantial college loan debts, which society-wide amount to more than our collective credit-card debt.

The advantage of a college degree–being able to count on a good job with a solid and growing paycheck—seems to be slipping away as our country becomes more unequal.

A report by the Center for College Affordability and Productivity in January shows that 48 percent of recent college graduates have jobs that don’t require a college degree. And 38 percent are working in jobs that don’t even require a high-school degree.

So, what’s going on?

This trend is another part of the story of the decline of our living standards—disappearing unions, soaring inequality, declining and stagnating wages, the loss of job security, and the erosion of pension and health benefits.

Since the end of Great Recession, the ultra-rich snatched up virtually the entire income gain. Just about everyone else is running in place or falling down. Even college graduates with advanced degrees can no longer be sure that they will be reasonably insulated from the falling and stagnate wages that have hit workers without college degrees for so many years.

The De-skilling of the Workforce

During the 1980s and 1990s, demand was high for college graduates with technological skills. But the demand fell off as the technological revolution evolved, according to a report, “The Great Reversal in the Demand for Skill and Cognitive Tasks,” by economists Paul Beaudry, David A. Green and Benjamin M. Sand.

“In this maturity stage having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less educated workers for the barista or clerical job,” Beaudry, Green and Sand explain.

The three economists say that, “in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditional 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.”

Globalization has, of course, also pushed down the wages of skilled information technology workers, who have seen their jobs shipped off to Bangalore, India.

Rising Underemployment, Dwindling Good Jobs

So, what’s happened to wages of college graduates?

A New York Times editorial in March pointed out that the average pay of workers with bachelor’s degrees rose modesty from 1979 to 1995. Their wages went up an average of 0.46 percent each year, while the pay of workers without college degrees—the majority of workers—declined. The wages of everyone increased from 1995 to 2000. But since 2000, the pay of non-college educated workers has dropped while that of college-educated workers has stagnated.

One third of college-educated workers are working in jobs that don’t require a college degree, according to a recent study by the Federal Reserve Bank of New York.

The January report, “Are Recent College Graduates Finding Good Jobs?,” found that the percentage of recent graduates who are unemployed or underemployed (working a job that does not require a bachelor’s degree) has increased, particularly since the 2001 recession. What’s more, the quality of jobs accepted by underemployed graduates has worsened, leading many of them to accept low-wage jobs or part-time work.

Among the key findings of the report:

• the underemployment rate of recent college graduates is higher than that of college graduates as a whole

• the underemployment rate has been on the rise since 2001.

While the underemployment rate in 2012 (44 percent) is roughly the same as the rate (46 percent) during the 1990-91 recession, the quality of the available jobs has deteriorated over the past couple decades.

Years ago, college graduates working below their educational level could at least reasonably count on finding a good “non-college” job, perhaps as a dental hygienist, mechanic or electrician, with a typical wage equivalent to $45,000 in 2012. The share of underemployed recent graduates with jobs like those has dropped from about half in the early 1990s to 36 percent in 2009 according to the Fed report.

Today, the share of underemployed recent graduates with low-wage jobs is on the rise. This group accounted for 20 percent of the underemployed new graduates in 2009 compared to 15 percent in 1990, according to the Fed report, whose authors are Jaison R. Abel, Richard Deitz and Yaqin Su. The low-wage jobs filled by the college-educated workers include bartenders, food servers and cashiers, whose wages averaged under $25,000 in 2012.

Among 22-year-old graduates, more than half, or 56 percent, were underemployed in 2009-2011, according to the Fed report. For many, it will take years to find a job that matches their educational background. But by then, the damage will have been done.

As the report notes, “recent research suggests that those who begin their careers during such a weak labor market recovery many see permanent negative effects on their wages.”

So, the prospects for the Class of 2014 look bleak. Recent graduates with degrees in business and science face a tough labor market, and the future is less bright for graduates with majors in the humanities.

Tragically, the devaluation of the humanities also means that our educated workforce increasingly lacks analytical and critical thinking skills, a trend that worries business schools, not merely those who appreciate the value of a liberal arts education. But that’s another story.

What’s clear now is—to borrow the title of the 1996 book by former AFL-CIO President John Sweeney—America needs a raise.

Gregory N. Heires is senior associate editor at Public Employee Press, the official publication of District Council 37, which represents 120,000 municipal workers and 50,000 retirees in New York City.  He blogs at The New Crossroads.

Read other Talking Union posts by Gregory Heires.

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