Future Skill Shortages in the US Economy? Sorting Out the Evidence

by David Neumark, Hans Johnson, and Marisol Cuellar Mejia © 2011 VoxEU.org

The impending retirement of the baby-boom cohort represents the first time in the history of the US that such a large and well-educated group of workers will exit the labour force. Despite the gloomy outlook of recent research, this column suggests there is little likelihood of large-scale skill shortages emerging by the end of this decade.

Ageing workforces pose challenges to governments around the world. While fiscal issues surrounding pension and social security have been very much in the news, a less well-known issue concerns skills.  The impending retirement of the baby-boom cohort brings with it the potential for skill shortages. The boomers are well-educated, having come into adulthood as the nation was rapidly expanding post-secondary educational opportunities. In earlier decades, younger workers replacing older workers were both much more educated and much more numerous. But the baby boomers are nearly as educated as current younger cohorts (Figure 1) and are large in number. Thus, their retirement will slow the growth of skill levels in the workforce, leading to shortages if skill demands continue to increase.

Figure 1. Number of adults with at least a bachelor’s degree by age group (25-44 and 45-64)


Source: Decennial Census (1990 and 2000); American Community Survey (2008)

Carnevale et al (2010) recently projected large shortages by the end of this decade: “By 2018, the postsecondary system will have produced 3 million fewer college graduates than demanded by the labour market” (p 16). But Harrington and Sum (2010) criticise these projections, instead seeing over-education or “mal-employment” – college workers in jobs that do not require college degrees – as “perhaps the most pressing problem facing college graduates in the nation today….”

Our projections of skill supplies and demands for the US economy stake out a middle ground. We foresee rising demand for highly-educated workers. But in the near term this rising demand will by and large be met by rising education levels among the US population, suggesting little risk of a substantial workforce skills gap. At the same time, there are greater risks of skill shortages in states with large and growing, and less-educated, immigrant populations. And over the longer-term, as more baby boomers retire, there is greater risk of substantial skill shortages nationwide.

Projections of skill supplies and demands through 2018

Our demand projections rest on US Bureau of Labour Statistics (BLS) projections of employment growth by occupation to 2018 (Lacey and Wright 2009). To project the education requirements of future jobs, we could also rely on the BLS, which classifies occupations by educational requirements. However, using data from the American Community Survey (ACS), we find substantial labour market returns, within occupations, to educational levels beyond those that the BLS deems “required” (see Neumark et al 2011). We therefore instead use empirical evidence on employment practices to estimate and project workforce skills needs, starting with the baseline education distribution of workers by occupation in 2008 and applying recent trend growth in education distributions within occupation (using ACS and Decennial Census data). Applying these estimates to the occupational projections, we obtain projected skill (education) demands.

To project supply, we construct new population forecasts that take account of nativity (unlike US Census Bureau population projections), and we project population by education, and labour force participation. Three important factors underlie our projections:

• First, that young adults will continue to experience improvements in educational attainment compared to the preceding cohorts;
• Second, that there will be continued upgrading of educational attainment levels of older workers; and
• Third, that labour force participation rates will continue to rise for more highly-educated older adults, and that past patterns in retirement will prevail for the baby boom as it reaches retirement ages.

In Table 1, we compare our preferred educational attainment projections (supply) with the employment projections (demand), in levels and shares. These projections do not point to significant impending shortages of skilled workers in the US through 2018, as the projected demand and supply shares by education are quite similar. We do see projected shortages for people with an Associate’s degree (356,000), and some excess supply of less-educated workers (those with some college or a high school degree or less). Our comparisons are based on projected total labour force supply of workers, and do not include forecasts of unemployment. If we adjust the 2018 supply projections for unemployment rates by education category as observed in 2008, then the projected shortage of workers with an Associate’s degree or higher expands to around 800,000, still far less than Carnevale et al predict.

Conflicting evidence

We have explored numerous explanations for why Carnevale et al (2010) project much more substantial skill shortages. The difference is primarily attributable to the data they use (the Current Population Survey, or CPS). In particular, the CPS data show a higher share with college degrees at the 2008 baseline, and faster growth of these shares over time, both of which lead to considerably higher projected demand for workers with college degrees in 2018. But the CPS data appear problematic. First, the CPS data appear to overstate the share with Associate’s degrees, because the CPS equates occupational or vocational programmes with college degrees, whereas the ACS data do not. The CPS data also show much faster growth rates in the share with Bachelor’s degrees or higher.

We verified that these data differences explain the differences between our demand projections and theirs. Moreover, in both data sets the shares in each education category in 2008 appear anomalous, whereas education trends through 2007 were much more similar. We therefore redid the demand-side forecasts using data from 2000-2007 (rather than 2000-2008) to estimate the within-occupation trends in education, in which case the entire difference between the projections was attributable to the different baseline educational distribution in the CPS. Finally, because Carnevale et al use a supply projection from a completely different source, it seemed likely that using CPS on both the demand and supply sides of the market should substantially reduce the sensitivity of the projections to the definition of education, which we verified. Using CPS data on both sides of the market leads to much milder projections of skill shortages than the dramatic shortages that Carnevale et al project.

The Harrington and Sum criticism of the projections in Carnevale et al (2010) could equally well be directed at our projections. They argue against using observed educational distributions within occupations to measure educational requirements, and instead believe that the BLS determinations of skill requirements are accurate. Although they do not develop projections, our full paper (Neumark et al, 2011) shows that if we project skill demands based on BLS skill requirements, we project massive oversupply of skilled workers. So Harrington and Sum are right that conclusions about skill shortages depend critically on how one measures skill requirements.

However, the argument that BLS skill requirements are accurate is belied by the evidence that there are substantial economic returns, within occupations, to education levels above those “required” according to the BLS. Although Harrington and Sum (forthcoming) present some evidence that appears to suggest the opposite, their evidence is based on earnings regressions that omit occupation controls, leading to spurious evidence of lower estimated returns to education for those in occupations that use less-educated workers. For example, Harrington and Sum (2010) tell the “story” of bartenders (college degree is not required) and compensation and benefits managers (college degree required). The question is not whether bartenders earn less than compensation and benefits managers, but whether the return to education within for bartenders is less than the return to education for compensation and benefits managers. We therefore conclude that the Harrington and Sum critique of using observed rather than “required” education to capture skill demands is unfounded.

Skill shortages in some states?

Although we do not project significant near-term skill shortages nationwide, the situation could differ in states with large and growing Hispanic immigrant shares in which older adults nearing retirement ages are notably better educated than young adults. States that fit this profile include California, Texas, Florida, Arizona, Colorado, New Mexico, and Nevada. The importance of these demographic changes is illustrated by a simple exercise where we project supply for the nation, but substituting California’s ethnic composition in 2018 for that of the entire US. In other words, we ask the question, would there be a national skill shortage if the country had California’s demographic mix? The answer is yes: we project a deficit of 3.1 million workers with an associate’s degree or higher. Of course, domestic migration could ameliorate some of these shortages.

Skill shortages in the longer term?

The longer-term perspective is also less sanguine. Our projections extend to 2018 because the BLS occupation projections end there. But the majority of boomers (two of every three) will be younger than age 65 in 2018, whereas by 2030 all of the boomers will have passed age 65. We expect that projections of the US economy to 2030 would show a continuation of greater rates of growth in industries and occupations that employ highly-educated workers, consistent with the long-standing trend in the US, and accentuated by the increased demand for healthcare as the baby boomers enter old age. Yet the size of the baby boom cohort coupled with its high education levels imply that the replacement of older with younger cohorts will not lead to rising education levels to anything like the extent to which it did in the past (Figure 1). It is plausible, then, that general skill shortages would be much more evident in projections extended out a couple more decades.

The research on the projections was supported by the Gates Foundation and the AARP Foundation. The views expressed are the authors’, and do not reflect the views of PPIC or the AARP or Gates Foundations.

References

Carnevale, Anthony P, Nicole Smith, and Jeff Strohl (2010), Help Wanted: Projections of Jobs and Education Requirements Through 2018, Centre on Education and the Workforce, Georgetown University.

Harrington, Paul E and Andrew M Sum (2010, November), “College Labour Shortages in 2018?”, New England Journal of Higher Education.

Harrington, Paul E and Andrew M Sum (2011), “Recent Projections of Labour Shortages Through 2018: From Great Recession to Labour Shortages? A Critical Look at the Evidence”, forthcoming in Monthly Labour Review.

Lacey, T Alan, and Benjamin Wright (2009), “Occupational Employment Projections to 2018”, Monthly Labour Review, 132(11), November, 82-123.

Neumark, David, Hans P Johnson, and Marisol Cuellar Mejia (2011), “Future Skill Shortages in the US Economy?”, NBER Working Paper No. 17213.

Republished with permission of VoxEU.org

Fixing Higher Education

Prof Douglas C Bennett, President of Earlham College, has suggested four steps toward "fixing" higher education in America:

1. Fix the broken financing of higher education.
2. Strengthen the focus on assessment of learning outcomes.
3. End intercollegiate athletics as we know it.
4. Build a national open access digital library system.

Change is coming to higher education, and all of the changes proposed by Prof Bennett make complete sense to me as a professional educator. Follow the link below to learn more...

Prof Douglas C Bennett (1947- )

Source: De Vise, D (2011, February 17), How to Fix Higher Education: Doug Bennett, Earlham College, Washington Post.

Can Higher Education Change?

Prof George R Boggs of Inside Higher Ed (2013) argues that higher education needs to refocus its efforts toward its central purpose of student learning instead of acquiescing to the obtuse political demands of external interest groups who often pursue their agenda through accreditors and regulators:

Colleges and universities are too important for educators to deny the challenges and demands of today and too important for policy makers to pass laws because of pressure from special interests or based on their recollection of what college used to be. Decisions cannot be based on past practices when the world is changing so rapidly. The mission of higher education is student learning, and all of our policies, procedures and practices must be aligned with that mission if our institutions are to remain relevant.

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Just as Eastman Kodak was unable to keep pace with the times, I fear that many institutions of higher education in the US are following a similar path. Today's learners deserve better.

Source: Boggs, G (2013, September 12), Through the Learning Lens, Inside Higher Ed.

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Merlot: A Multimedia Educational Resource for Learning and Online Teaching

Introducing Merlot, a multimedia educational resource for learning and online teaching that will appeal to almost everyone associated with higher education. The stated goal of Merlot is "to improve the effectiveness of teaching and learning by increasing the quantity and quality of peer reviewed online learning materials that can be easily incorporated into faculty designed courses."

According to the Merlot website:

Merlot is a free and open online community of resources designed primarily for faculty, staff and students of higher education from around the world to share their learning materials and pedagogy. Merlot is a leading edge, user-centered, collection of peer reviewed higher education, online learning materials, catalogued by registered members and a set of faculty development support services.

In particular, I commend the Learning Materials available on the Merlot website, which includes over 27,000 resources supporting virtually every academic discipline in higher education. All content on the Merlot website is licensed for open-source access under Creative Commons, which means that Merlot's resource materials can be used freely by most educators. Merlot is also a place to find and meet new colleagues in every academic discipline.

Follow the link below to learn more about Merlot. Membership is free.

Learn More

The Value of Higher Education

For those seeking to evaluate the return of higher education (i.e., academic degrees) in terms of earnings, consider the chart below:

[Click image to enlarge]

According to data from the Bureau of Labor Statistics (BLS), people with higher degrees earn significantly more than co-workers with less education. Moreover, employees with higher degrees appear to be less susceptible to unemployment. From an earnngs standpoint, the case for higher education is compelling.

Source: Thompson, D (2011, January 18), Is College Worth It? Atlantic.

It's All About Skills...

I was recently asked the following question about higher business education: "Does an MBA breed authenticity and humility or arrogance in the name of leadership?" Well, if we can first transcend experience and degrees, and ask instead about skills (both hard and soft), then we begin to ask better questions, such as, "Who has the skills to get the job done?" Of course, skills can be acquired through both experience and higher education (or not). For this reason, I always ask management applicants about their skills, rather than their education or experience. "What skills do you bring to the table?" Responses such as, "I have years of experience," or "I have years of college," evade the question. My advice to everyone is make your experience and higher education translate into more and more skills, and do not assume that simply being "present" in experience or education is the same thing. As for where a person acquires their skills, who cares. If we can all focus on skills, rather than experience and education, then we can be best assured the right people are in leadership.

What Do Professors Want?

by Thomas C Reeves © MercatorNet.com

The shady groves of academe have cachet as a home address, but the pay is lousy, the prestige is negligible, and the power is derisory.

Polls and studies have shown consistently that professors, especially in the humanities and social sciences, side with the Left in political and cultural matters. So do public schoolteachers, whose unions are major contributors to the Democratic Party. This bias contrasts sharply, of course, with the dispassionate search for truth that scholars and teachers claim to revere. There are many reasons, no doubt, for the bent shown by professors in the humanities and social sciences, but the most obvious, it seems to me, is envy. A history professor for 40 years, I have felt this prominent member of the Seven Deadly Sins myself, many times. Let us consider three aspects of this thesis.

Take the issue of money -- always a good place to begin with things American. Academics outside business and the sciences often labor for many long years in college and graduate school in order to obtain a doctorate. More than a few collect their diplomas sporting some gray in their hair along with a briefcase full of debts. If we are lucky enough to land a tenure-track position in higher education, a large "if" over the last four decades, we frequently start at a salary that a skilled blue collar worker might expect a few years out of high school. Don't think about salaries at Harvard; consult the data on most academics published in the Chronicle of Higher Education. A friend's son, a brand new pharmacist, recently started work at a local drug store with a salary that exceeded my University of Wisconsin System salary when I retired as a full professor.

Serious economic problems face the glowing, self-confident scholar with little money. How, for example, is he able to find adequate housing? Even US$300,000, well beyond the reach of most young and many senior professors, won't buy much in Boston, New York, Los Angeles, New Orleans, Atlanta or Chicago, not to mention Madison, Sarasota, Ann Arbor, Palo Alto or Santa Barbara. The affluent suburbs, where the successful in other fields gather, are out of the question, of course. And so many of us move into older, deteriorating, often dangerous areas, telling all who listen that we made the choice deliberately and that we, being humanists, have a natural desire to live among the poor and oppressed. In my experience, some English and anthropology professors actually believe this nonsense, and enjoy dressing as factory workers and displaying furniture obviously purchased at a rummage sale.

Many academic families have two incomes, and some have other sources of private income. These professors can and often do enter the less exclusive suburbs, only to find that they have very little in common with their neighbors. They aren't invited to join the country club, as everyone understands that professors lack the necessary funds. They aren't invited to join the yacht club for the same reason. It's difficult to join a cocktail party discussion on the joys of owning a Lexus when you've just driven up in an older Corolla.

At public gatherings of all sorts, the professor might receive many awkward occupational questions. I was once asked how much professors are paid by the hour. I once gave a talk before a group of Rotarians as a favor for a dentist friend, and was introduced as a writer. The businessman sitting next to me during lunch asked, "What do you do all day beside write?"

Neighbors often assume that professors spend their summers in indolence and revelry. Thus they conclude that such people are not actually professionals and shouldn't make much money. Tell them you're writing a book and you might be asked what its chances are of being approved by Oprah. If it's a university press sort of topic, you might face such questions as "Who would read that?" and "How much could that make?" These inquiries are often followed by a wan smile or patronizing chuckle.

The education of the professor's children is another sticky point. Good private schools are out of reach financially, and religious schools are, well, religious. That leaves the public schools, which all good humanists officially champion. Those who know better feel obligated to remind colleagues and neighbors that young people learn a lot about "real life" while evading bullies, drug dealers, and gangs, and being instructed by teachers whose true calling in life was employment at Wal-Mart.

As for higher education, the low income professor faces an even greater obstacle to happiness. Tuition and expenses in even the mediocre private institutions are absurdly high, and public colleges and universities have been steadily raising their tuition for years. Few if any want to send their young people to the open-admissions College for Dummies across town, even if that would save some money. One wants to boast to a sniffy neighbor at a cocktail party that junior attends Brown, not Damp Valley State. Scholarships, grants, and federal student jobs are hoped for. Large loans increase the frustration.

Many academics not only envy people with money, but also those who enjoy political authority. Professors are more confident than most that they have the truth and are convinced that, if given the opportunity, they would rule with intelligence, justice, and compassion. The trouble is that few Americans, at least since the time of Andrew Jackson, will vote for intellectuals. (The widespread assumption that Presidents who have Ivy League degrees are intellectuals is highly debatable. The Left declared consistently that George W. Bush, who had diplomas from Yale and Harvard, was mentally challenged. Barak Obama, who was not really a professor, has sealed his academic records.) How many professors run City Hall anywhere? How many would like to? How many humanities and social science professors are consulted when great civic issues are discussed and decided? Who would even invite them to join the Elks?

Instead of steering the machinery of local, state, and national politics, academics are relegated to writing angry articles in journals and websites read by the already converted and pouring their well-considered opinions into the ears of young people who are mostly eager to get drunk, listen to rap, watch ESPN, and find a suitable, or at least willing, bed partner for the night.

On the Left and Right money means power, and we "pointy heads" and "eggheads" are on the outside looking in. One thinks of Arthur Schlesinger Jr swooning over the Kennedys for the rest of his life because they gave him a title and a silent seat in some White House deliberations. Those making as much money as, say, an experienced furnace repairman account for little in this world, despite the PhD. How many academics even sit on the governing board that sets policies for their campus? It is all most humiliating. (To see how intelligently and objectively academics use the authority they have, examine the political correctness the suffocates the employment practices and intellectual lives of almost all American campuses. Aberlour's Fifth Law: "Political correctness is totalitarianism with a diploma.")

Thirdly, there is the issue of occupational mobility and professional advancement. High income neighborhoods have constant turnover because of promotions and advancement. Professors, on the other hand, are more often than not (especially the white males) stuck on a campus for many years without a prayer of moving up or out. They have little or no control over their annual salary increases, if any, and having attained the rank of full professor have only "more of the same" and retirement to look forward to. Watching their former students scale the heights of prosperity and power can cause considerable chagrin.

A few professors will attempt to become campus administrators. Chancellors and top level bureaucrats often have very high incomes and command real authority. But most faculty choose not to become politicians. Many lack the necessary cynicism.

One way to compensate for this bleak and futureless existence is to become involved in left-wing causes. They give us a sense of identity in a world seemingly owned and operated by Rotarians. And they provide us with hope. In big government we trust, for with the election of sufficiently enlightened officials, we might gain full medical coverage, employment for our children, and good pensions. These same leftist leaders might redistribute income "fairly," by taking wealth from the "greedy" and giving it to those of us who want more of everything. A "just" world might be created in which sociologists, political scientists, botanists, and romance language professors would achieve the greatness that should be theirs. It's all a matter of educating the public. And hurling anathemas at people of position and affluence we deeply envy.

Thomas C Reeves writes from Wisconsin. Among his dozen books are Twentieth Century America: A Brief History, and biographies of John F Kennedy, Joseph R McCarthy, Fulton Sheen, Walter J Kohler, Jr and Chester A Arthur.

Republished with permission of MercatorNet.com

Back to School

Along with my colleagues, I am back to school fully engaged in facilitating and encouraging active learning, thinking, and scholarship. Of course, with each new year comes changes in the nature of the college experience for both learners and educators. I suppose that higher education is incrementally "reinvented" in very subtle ways as each year passes.

This year, students and faculty alike are returning to the halls of higher education in an environment of economic uncertainty, both for the economy and for capitalism. Clearly, the world has changed since last year as unemployment and human suffering have reached levels not seen since the peak of the Great Depression in 1933. For these reasons, researchers and students have become increasingly anxious to consider and understand what is happening economically, including implications for the future.

Prof Walter Russell Mead, Bard College

I came across a very interesting article by Prof Walter Russell Mead entitled, Back to School, which includes some useful guidance for everyone engaged in higher education. Here's a taste of Prof Mead's advice for college students, today:

Choosing the right college is over-rated. Just about every college in the United States has more talented and interesting students than you will have time to get to know in four years. At every college in America you will not be able to take all the great courses from great faculty, read every worthwhile book in the library, or participate in all the rewarding extracurricular activities.... Choosing the right courses, on the other hand, is under-rated. In the old days you could take a lot of silly courses and guts and get away with it. But your generation is going to have to scramble and you need every edge you can get.

You can read Prof Mead's entire article by following the link below:

Source: Mead, W R (2010, August 31), Back to School, The American Interest Online.

Higher Education, Experience, and Skills

One of the questions I regularly pose to my economics students is whether a college education is a contributor to productivity. Intriguingly, what I get in response often parallels the views of Greg Ip of the Wall Street Journal (2008, “The Declining Value Of Your College Degree”), who argues “college-educated workers are more plentiful, more commoditized and more subject to the downsizings that used to be the purview of blue-collar workers only. What employers want from workers nowadays is more narrow, more abstract and less easily learned in college.” In essence, the value of a college degree is said to be “not what it was.”

Nonetheless, a college education remains an important predictor of productivity (and earnings) in the marketplace. Even Ip concedes that “the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed.” Given these facts, how can it be that students are so vexed by the value proposition of their education?

I have previously written about our new economy, the need for good people in our society, as well as the importance of polyvalence in the workplace. I argue here that there exists today a crying need for people with versatile skills sets in what is a transforming global economy and that the university offers the best opportunity to acquire the knowledge required to succeed in this environment.

This leads to the next contention I often hear from students, that “experience counts more than education?” My response to this view is, “not really,” because what is paramount is neither experience nor education, but skills, and if one is complacent in acquiring new skills experientially, embedded knowledge eventually becomes obsolete. The good news is that experience often translates into new more refined skills. The bad news is that breadth and depth of knowledge are not assured through experiential learning. Hence, attention is required to ensure one’s career track includes a multiplicity of experiences in organization and management across a diversity of functions, and eventually industries. In my view, the university offers the most efficient place to acquire breadth and depth of knowledge, as opposed to the workplace, where resources and opportunities for the same are typically limited. Experience that does not result in additional skills has little value in the workplace.

Finally, there is the matter of college graduates who are anomalously incompetent. This happens, and when it does, these people are released for cause. Those who finish a college degree program while somehow avoiding skill acquisition, do so at their peril. Acquiring new skills is the responsibility of all workers who wish to enhance or expand their careers, but especially college graduates. To attend a college or university and not acquire new knowledge along the way is a bewildering and perplexing outcome that defies good judgment.

Concluding, a college education is the most reliable track to improving skills, productivity, and earnings. And while experience can certainly result in new skills, the typical worker will find acquiring the breadth and depth of knowledge necessary to enhance or expand a career through experience alone, challenging. A college degree is still the most profound symbol of embedded knowledge available in our society today.

The Future of Tenure at Public Universities

According to Prof James D Miller:

Many governors face enormous fiscal shortfalls, forcing them to choose which public employees to anger. Tenured professors, I suspect, have a lot less political clout in most states than do policeman, nurses, prison guards and public school teachers. If online education keeps improving, then I predict that some governor is going to propose firing most of the tenured faculty at his public colleges and replacing the high-priced teachers with online courses. Since Republicans consider academia to be a creature of the far left, many Republican governors would undoubtedly take joy in decimating the traditional higher education market.

Embodied knowledge (technology) is beginning to trump embedded knowledge (professors) in higher education -- the future of tenure at public colleges and universities is at best, unclear.

A Typical Faculty Processional at a College Graduation Ceremony

Source: Miller, J D (2011, August 19), Get Out While You Can, Inside Higher Ed.

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Teaching Students to Show, Not Tell

According to Prof Mark Spitzer in the Chronicle of Higher Education (2012):

Writing teachers from all disciplines and at all levels have been struggling with the issue of show not tell for centuries. I can't comment on how my colleagues encourage students to cast this demon out, but I can definitely remark on my own approach in introductory creative-writing courses. Basically, for the first half of the semester, I put my students through a drill in which they write "portraits" of people, places, and things. I tell them that what I'm looking for are physical details, and that I'm not interested in anything else. I don't care what their subject matter is, I don't want to see any clever summaries to put anything in perspective for the reader. I just want pure description in the realm of 150 words. Then, after they hand in their portraits, I come along with my red pen, circling words that "tell not show" like a tough-love tyrant.

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Prof Spitzer's observations apply as well to statistics. Too often, students are eager to "tell" the reader their conclusions, completely skipping the duty to "show" their reader how one reached a given conclusion statistically. For example, a learner may be tempted to conclude that a "strong correlation exists between x and y." This statement "tells" the reader that x and y are somehow related. However, the student is failing to "show" how x and y are related, as in a "strong correlation exists between x and y (r = .99; p < .01)" [note the statistically descriptive parenthetical extension to the sentence].

Good writing is good thinking, and while "telling" a story has its place, being able to "show" a reader the basis for one's reasoning is fundamental to good scholarship.

Source: Spitzer, M (2012, September 26), Teaching Students to Show, Not Tell, Chronicle of Higher Education.

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The Great Stratification (of Professionals)

According to Prof Jeffrey J Williams (2013) in the Chronicle of Higher Education:

The spread of academic labor follows the trend of other professions. The idea of the professional usually evokes a generic image—the old-fashioned family doctor, for instance, who hung out his shingle—but now we have a much more variegated system of alpha and beta practitioners. And rather than the ideal of being independent and roughly equivalent to their peers, most professionals now work in hierarchical bureaucratic structures.

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No one should doubt that the future landscape for all professionals, including university professors, is shifting with the times. The "good old days" of earning an advanced degree and then joining the ranks of other aspiring professionals in a given cohort are ending. Yet, the global demand for "alpha" professionals with world-class skills has never been greater. As for the "beta" practitioners, the great stratification now underway globally will likely mean less career opportunity, reduced job security, lower salaries, and ultimately, diminished fulfillment. Understanding the essential qualitative differences between "alpha" and "beta" professionals carries currency in the 21st century.

Source: Williams, J J (2013, December 2), The Great Stratification, Chronicle of Higher Education.

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The Economic Value of College Majors

The economic value of higher education has been well-documented over the years. However, the value of a college education by major has been less studied. To fill this gap in the literature, the Georgetown Center on Education and the Workforce (Carnevale, Strohl, & Melton, 2011) has released a detailed study that specifically addresses the economic value of college degrees by major field of study.

According to the authors:

We’ve always been able to say how much a Bachelor’s degree is worth in general. Now, we show what each Bachelor’s degree major is worth.... The report finds that different undergraduate majors result in very different earnings. At the low end, median earnings for Counseling Psychology majors are $29,000, while Petroleum Engineering majors see median earnings of $120,000.

Follow the link below to download copies of the full report.

What's It Worth? The Economic Value of College Majors

Source: Carnevale, A P; Strohl, J & Melton, M (2011), What's It Worth: The Economic Value of College Majors, Georgetown Center on Education and the Workforce, Washington, DC.

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How to Save the Euro? Lessons from the US

by Jacques Melitz © VoxEU.org

Earlier this year, the fiscal situation in Greece caused turmoil across Europe. This column examines why the financial difficulties of several state governments in the US are not having similar impacts on its economy.

The problems of the Eurozone this year brought to light some failures of the system. Nevertheless, the resulting drop in confidence in the system has gone further than we might have expected. Questions have even arisen about the survival of the system (see Baldwin 2010 and Blejer and Levy-Yeyati 2010 for discussions). Yet monetary systems do not tend to dissolve simply because of faulty performance. On the contrary, as a rule they endure even when they function very badly. It takes a political force majeure to bring about the break-up of a single currency area, typically without connection to monetary performance. Why, then, has the possible default of a country engaged in irresponsible fiscal policy and accounting for only 3% of the Eurozone’s GDP raised questions about ‘saving the euro’ and the survival of the Eurozone?

The issue has not received the attention it deserves. It is often simply taken for granted that the departures from the Stability and Growth Pact provide a sufficient reason for the earthquake that has shaken the whole currency area. Yet if we look around the world past and present, the mismanagement of finances by regional governments has no particular tendency to bring down entire monetary systems, far from it. In line with the usual – I think superficial – diagnosis of the ailment, proposed remedies for the Eurozone centre on strengthening the Pact, increasing joint political control over fiscal policy, and providing joint insurance against government default, or some mixture of the three. But what if a vital element of the problem is really the official doctrine that sovereign default is incompatible with the euro? What if the scale of the crisis that took place this year has resulted from financial markets’ conviction, based on this doctrine, that the future of the euro was at stake? What if assuring the long-run sustainability of the euro means convincing those markets, quite differently, that nothing as manageable as a Greek default can upset the Eurozone?

Lessons from the US

That is precisely what the US example would suggest and what I will defend. With this idea governing beliefs, the right road ahead looks quite different. It means shifting the emphasis away from avoiding government defaults toward assuring the stability and the solvency of the banking system at all times, regardless of the financial difficulties of some member governments.

In the US, default on state and municipal contractual obligations is very much a possibility whenever lower-level governments are in financial trouble; bailout cannot be taken for granted. New York City defaulted in 1975, the biggest default of all by a lower-level government unit since World War II took place in 1983 when the Washington Public Power Supply System went into bankruptcy, and Orange County defaulted in 1995. Various municipal governments have been on the verge of default at times in the last few decades, including Philadelphia and Cleveland. There is also no Stability and Growth Pact in the US. Yet financial discipline is considerably higher in the US at the state government level than in the Eurozone at the national level. All states except Vermont have balanced-budget rules; but these rules are self-imposed. It is easy to argue that this difference in fiscal discipline on the two sides of the Atlantic is related to the fact that when push comes to shove in the US and a lower-level government unit cannot or will not meet its debt obligations, the lenders can expect to take a big part of the hit.

Some rudimentary analysis is relevant. Consider any government unit unable to print money and without any prospect of a bailout. Theory tells us that credit rationing is very much a possibility. As the interest rate that such a government offers on its debt goes up, extra lending dries up completely at some point as the expected rate of return on the government debt falls. This must happen because higher nominal interest rates impair the government’s solvability and bring default nearer. Risk aversion simply lowers the interest rate at which credit rationing begins.

Suppose we compare the situation in the US and the Eurozone since the 2007-2009 financial crisis in this light. The crisis brought about dire financing problems for many lower-level government units in the US and some national governments in the Eurozone. According to the spreads on credit default swaps, California and Illinois now have a higher probability of non-performance on public debt than Portugal and Spain. This has been true for months. Consider next the difference in response in the States and Europe. Recently Illinois simply stopped paying $5 billion of bills. In June of last year California issued vouchers for wage payments. In addition, savage cuts in public services have begun and are now threatened in various states in difficulty, not only these two. Nevada has made startling reductions in spending on higher education and welfare. In the case of Portugal and Spain, nothing so drastic has happened thus far. There have been occasional spikes in interest rate spreads over German bunds of 100 to 200 percentage-points above usual levels. Both Spanish and Portuguese governments have also been forced to plan greater austerity and reduced government deficit spending. Meanwhile, they have been able and willing to keep borrowing.

Why the difference between the Eurozone and the US?

Part of the explanation may be that Portugal and Spain are more able to raise tax revenues than US states. But another part is the higher probability of a bailout in Europe. The example of Greece is to the point. Greece has been able to continue borrowing this year at interest rates typically around 200 percentage-points above Portugal and Spain on 10-year government bonds (and since May more than 500 percentage-points higher than German bunds). If you do the math, it is clear that this could never have happened without a high probability of a bailout. In fact, you do not need to do the math: there have been occasions in February/March and particularly May when some Greek issues would clearly have failed without the assurance of public lending and ECB support. If Greece can borrow on the probability of a bailout, so could Portugal and Spain.

Based on this evidence, the current Eurozone strategy of treating government default as anathema permits member governments to sink into deeper waters, weakens the forces that would otherwise exist toward self-imposed budget restraints, and thereby raises the probability of a bailout. But an actual bailout is perhaps the most likely setting for the breakdown of the Eurozone. If taxes ever need to rise all over the Eurozone in order to bail out a member government, one can easily imagine a pullout by Germany, followed by the Netherlands and Austria (if no others), in order to form a separate monetary union.[1]

What are the dangers of the opposite strategy of mimicking the US instead and moving toward heavier reliance on markets to discipline member governments and to price sovereign risk? The answer lies in the external effects of government default on the payment system and the banks, and this problem would be aggravated by contagion. But those dangers exist in the US as well. If the US federal government were to allow Illinois or California to default on state government debt in today’s circumstances of widespread financial difficulties across the states, there is a serious threat that interest premia would go up on the debt of most state governments and a wave of state defaults would follow. For this reason, the federal government might well step in. But if we look at the institutional manner in which the US deals with the problem, we find the answer to lie in country-wide prudential rules for banks and central bank powers of lender of last resort. There is no general announcement that state government default is incompatible with the dollar. Instead there is a strict separation of the issue of joint support of the financial system and joint support of financing by the sub-government units in the country. Would Europe not be wise to adopt the same strategy and to cease to conflate the two issues?

Tweaking the Pact

What this would mean, of course, is adopting Eurozone-wide prudential rules on banks, providing the ECB full powers of lender of last resort, and, very significantly, dismissing the idea that the Stability and Growth Pact is the pillar on which the whole Eurozone project stands. This idea is highly perilous.[2] Markets believe it, and at times of financial precariousness, what markets believe is extremely important. According to my proposal, the Pact could still be upheld as a code of good behaviour which improves public finances in Europe and facilitates the task of the ECB. But the basic philosophy would be that if any individual member government in the Eurozone engages in irresponsible fiscal conduct, contrary to the Pact, the creditors and its taxpayers would bear the brunt of the consequences. Everything would be done to assure the stability of the financial sector in the Eurozone and the lack of repercussions on the risk premiums that the more financially responsible member governments need to pay. Banks might be bailed out but not governments. Any aid to member governments, if it came, would not concern the euro system but the IMF or if any aid did come from the EU it would be part of a programme that could as well have existed had the euro never appeared and would be clearly sealed off.

VoxEU Editors' note: This article will appear as a roundtable discussion in Miroslav Beblavy, David Cobham and Ludovit Odor, eds., The euro area and the financial crisis, Cambridge University Press, forthcoming.

References:

Baldwin, R (2010), A re-cap of Vox columns on the Eurozone crisis” VoxEU.org, 13 May.

Blejer, M and Levy-Yeyati, E (2010), Leaving the euro: What’s in the box, VoxEU.org, 21 July.

Economist (2010), Can pay, won’t pay, June 19.

Poterba, J (1996), Do budget rules work? NBER Working Paper 5550, April.

Public Bonds (2010), Municipal bonds and defaults, downloaded 23 August.

Reinhart, C M and Rogoff, K (2009), This time is different: eight centuries of financial folly, Princeton: Princeton University Press.

Sinn, H-W (2010), Rescuing Europe, CESifo Forum, special issue, August.

Notes:

[1] Many would say that Greece has already been bailed out. But so far no holder of Greek debt has yet suffered a credit event. Further, no one outside of Greece has yet paid any taxes to fulfil a claim on Greek debt. Thus, according to my usage, no bailout has happened. However, none of the argument hinges on this choice of words.

[2] If we really think that a government default would bring the euro under, we must conclude that the euro has no long-run future ahead – that it is doomed. A reading of Reinhart and Rogoff (2009) should convince anyone.

Republished with permission of VoxEU.org

Learning Statistics Online Recognized

According to David Wessel of the Wall Street Journal, new research has emerged that shows statistics students learn as much in online courses as they can in "bricks and mortar" classes.

In a carefully crafted, foundation-funded experiment that has received less attention than it deserves, Ithaka S+R, a higher-education think tank, enticed 605 undergraduates at six public-university campuses in New York and Maryland to agree to be assigned randomly to one of two courses. Half took a conventional introductory statistics course that met three hours a week. The other half took a computer-assisted course that met once a week and relied on an interactive, online statistics course developed by Carnegie Mellon University's Online Learning Initiative.... To compare outcomes, researchers had students take a standardized statistics test and a final exam that had some of the same questions.... The statistically sound result: Students in the online course did just as well as those who took the conventional course. No better, no worse.

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Online education is increasingly being recognized as a viable cost-effective alternative to more expensive "bricks and mortar" schools in America. At some point, society will have to consider how the advantages of online education might be applied in secondary schools...

Follow the link below to read the original research report produced by Ithaka S+R.

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Source: Wessel, D (2012, July 19), Tapping Technology to Keep Lid on Tuition, Wall Street Journal.

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Are Unions Courting Adjunct Faculty?

The American Federation of Teachers (AFT) recently sponsored a study in which 500 part-time and adjunct faculty members employed at two-year or four-year institutions of higher learning participated in a telephonic job satisifaction survey. The AFT released the report under the title, American Academic: National Survey of Part-Time/Adjunct Faculty (2010).

The report opens by recognizing the growing contribution and importance of adjuncts in US higher education:

Most Americans would be surprised to learn that almost three-quarters of the people employed today to teach undergraduate courses in the nation’s colleges and universities are not full-time permanent professors but, rather, are instructors employed on limited term contracts to teach anything from one course to a full course load. These instructors, most of whom work on a part-time/adjunct basis, now teach the majority of undergraduate courses in US public colleges and universities. Altogether, part-time/adjunct faculty members account for 47 percent of all faculty, not including graduate employees. The percentage is even higher in community colleges, with part-time/adjunct faculty representing nearly 70 percent of the instructional workforce in those institutions.

Yet, the majority of adjuncts teach in work environments where fair wages, job security, and benefits are scarce. According to the study:

There is widespread concern among part-time/adjunct faculty about bread-and-butter conditions. About 57 percent of the survey respondents say their salaries are falling short. Just 28 percent indicate that they receive health insurance on the job. Only 39 percent say they have retirement benefits through their employment. Even among those who receive health or retirement benefits, however, there are significant gaps in coverage. Unionized part-time/adjunct faculty members earn significantly more than their nonunion counterparts and are more likely to have some health and pension coverage.

A significant percentage of part-time/adjunct faculty members are concerned about job security. About 41 percent of those surveyed say that their job security is falling short of expectations. There was greater dissatisfaction among faculty working at public four-year institutions. Faculty teaching humanities and social science courses were about evenly split on job security, with 47 percent saying it was falling short, while only 38 percent of part-time/adjunct faculty members from other concentrations say that job security falls short.

While the above findings are startling, what is particularly interesting is that the AFT (a union of teachers) sponsored the research to begin with. Clearly, the AFT is doing its homework in hopes of expanding its membership amongst part-time and adjunct faculty. Couple this with the Obama administration’s urgings that all Americans seek to acquire a minimum of a year of college, and the prospects for expanded unionization on campuses becomes quite real. If the leaders at our nation’s institutions of higher learning continue to ignore the emerging compensation issues for adjuncts, then no one should be surprised when a reinvigorated labor movement appears on campuses in response.

Source: American Academic: National Survey of Part-Time/Adjunct Faculty, (2010), American Federation of Teachers, AFL-CIO, Washington, DC.

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Lawrence Summers: The Future of Higher Education

Tuition, Healthcare, and the Cost of Living

Does anyone else find this chart troubling…?

Source: Godin, S (2010, April 29), The Coming Melt-Down in Higher Education, Seth Godin’s Blog.

The Minerva Project: An "Elite" Online Education

Online education has been slowly building its reputation in the US over the past decade. Not surprisingly, a new online university program lead by the Minerva Project is now seeking to compete with top-tier institutions for the best students. Here is how the Minerva Project describes its initiative:

The Minerva Project is the first elite American University to be launched in a century. Minerva's philosophy transforms every aspect of the university-student relationship in anticipation of students' changing needs in an evolving world. Across a full life cycle of admission to instruction to post graduation support, The Minerva Project is rethinking the role of an elite institution of higher learning.

Follow the link below to learn more:

Minerva Project

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