Friday, August 24, 2012

A pair of interesting articles on MarketWatch highlights the plight of those graduating from college deep in debt and little prospects of landing a good job in their field.

First consider Why go to college if I can’t get a job? by John Pelletier.
A recent Economic Policy Institute study reports that the unemployment rate is 9.4% for college grads ages 21 to 24 (not currently seeking a post graduate degree), and the underemployment rate for this group is 19.1% (this includes part-time workers who want full-time jobs). In 2011, those grads lucky enough to have a full-time job earned an average of $35,000 a year, a 5.4% inflation adjusted decrease from 2000 average income. Finally, it is estimated that nearly 4 of 10 grads are working in fields that don't require a college degree (the college-grad barista syndrome).

Why you must get that degree

Despite all this gloomy data, getting a bachelor’s degree is still worth the cost and effort. Why? For one simple reason — the alternative of not having a college degree is so much worse:

Recent high school grads’ unemployment rates are frightening. The Economic Policy Institute study shows that the recent unemployment rate for high school graduates between age 17 and 20 who aren't enrolled in additional schooling is 31.1%. And their underemployment rate is 50.4%.
Some People Do Not Belong in College

Pelletier perpetuates the myth everyone belongs in college. Many don't. Arguably at least half don't. In Portland Oregon, ACT scores show less than half of test-takers are ready for college math
ACT scores from the class of 2012 show about 58 percent of Portland Public Schools students who took the ACT college entrance exam aren't prepared to pass college-level algebra courses.
You really want to send those kids to college? To get a degree in what?

Useless Degrees

Pray tell what good is a degree in English, history, PE, or political science other than teaching English, history, PE, or political science? And how many of those teaching jobs are even available?

Yet colleges churn out thousands of graduates, year after year, with perfectly useless degrees.

Is a College Degree Required? Why?

Consider things from the perspective of the employer. With so many college graduates available, why not make a college degree a requirement for a job?

Many companies do just that (or at least prefer those with degrees). Are the results satisfactory?

I was discussing the futility of this situation with a friend, Claude, yesterday evening. Claude tells me of an entry-level position she knows of that requires a degree in chemistry. The main function of the job is to clean test-tubes for the primary researchers.

Cleaning test-tubes does not require a degree in chemistry. Indeed, the position does not seem to require any degree at all. Supposedly, there is room for advancement down the road, but it never happens. People with chemistry degrees get fed up cleaning test-tubes and quit. They cannot keep the position filled.

Notice the waste. A disabled person, perhaps even a severely disabled person may be able to do the job very well, be very happy to have the job, and be very dedicated in performing what others would consider menial duties.

Other companies will not hire those who are over-qualified, and this leads to a setup where PhDs dumb down their resumes in hopes of landing a job.

Trading Caps and Gowns for Mops

Next consider Trading Caps and Gowns for Mops by Quentin Fottrell.
After commencement, a growing number young people say they have no choice but to take low-skilled jobs, according to a survey released this week. And while 63% of “Generation Y” workers — those age 18 to 29 — have a bachelor’s degree, the majority of the jobs taken by graduates don’t require one, according to an online survey of 500,000 young workers carried out between July 2011 and July 2012 by PayScale.com, a company that collects data on salaries.

Another survey by Rutgers University came to the same conclusion: Half of graduates in the past five years say their jobs didn’t require a four-year degree and only 20% said their first job was on their career path. “Our society’s most talented people are unable to find a job that gives them a decent income,” says Cliff Zukin, a professor of political science and public policy at Rutgers.

The jobs that once went to recent college graduates are now more often going to older Americans. Over the past year, workers over 55 accounted for 58% of employment growth, says Dean Baker, a co-director of the Center for Economic and Policy Research, a nonprofit think tank in Washington, D.C. Why? Employers think older workers are a safer bet and more likely to stay, he says. Unemployment hovered at 6.2% in July for workers over 55, according to the Labor Department, but was more than double that rate — 12.7% — for those ages 18 to 29.

As a result, college graduates are finding themselves locked into lower-paid jobs. “The shaky economy has forced many of them into a world of underemployment,” says Katie Bardaro, lead economist for PayScale. The starting salary for a graduate is $27,000, 10% less than five years ago, the Rutgers' study found. “Unlike those who graduated five years ago,” Zukin says, “the long-term expectations of this generation are not being met.”
Older Workers Safer

Some may be surprised to learn that those over 55 have an easier time finding a job. I am not. It makes perfect sense for businesses to hire people with no dependents and even more so those on Medicare so they do not have to pick up health insurance costs.

Please consider Demographics of Jobless Claims written May 1, 2008.
Structural Demographics Poor

Structural demographic effects imply that prospects in the full-time labor market will be poor for those over age 50-55 and workers under age 30. Teen and college-age employment could suffer a great deal from (1) a dramatic slowdown in discretionary spending and (2) part-time Boomer reentrants into the low-paying service sector; workers who will be competing with younger workers.

Ironically, older part-time workers remaining in or reentering the labor force will be cheaper to hire in many cases than younger workers. The reason is Boomers 65 and older will be covered by Medicare (as long as it lasts) and will not require as many benefits as will younger workers, especially those with families. In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages.
Chasing the American Dream

I commend Quentin Fottrell (or the editor) for putting in that link to the Rutgers' study. Far too often, writers cite studies or the work of others without putting in links. In this case, the Rutgers' study, Chasing the American Dream: Recent College Graduates and the Great Recession is well worth a closer look.

click on any chart that follows for a sharper image

The report describes the findings of a nationally representative sample of 444 recent college graduates from the class of 2006 through 2011. The authors claim the survey has a sampling error of +/- 5 percentage points.

FIGURE 2. RELATIONSHIP OF DEGREE TO FIRST JOB



Mish Comments: Note that 35% of graduates land in a job that is not related at all or not closely related to what they studied. However, even if they did land a job in their field, did their job require a degree? The question is an important one. Someone studying to be a chef and landing a job at Wendy's flipping burgers is in a related job.

FIGURE 5. DID THIS JOB REQUIRE A FOUR-YEAR COLLEGE DEGREE?



FIGURE 7. WHAT DO YOU THINK OF YOUR CURRENT JOB AS:



Mish Comments: Only 30% think they are in a career. Of those who think they are in a "stepping stone", I have to ask, how realistic is that view?

Progress in Paying off Debt

The article notes ... One to five years since graduation, most of the students in our survey have made very little progress in paying down their debt. Only 13% have paid off all of their debts for their college education; one in four has not paid off any of it, thus far. Four in ten who graduated in 2009, 2010, and 2011 reported that they had yet to pay off any of their debt. Compounding their financial challenges is the fact that nearly half (46%) reported that they also have other financial debts, such as credit cards.

FIGURE 11. THE EFFECT OF COLLEGE DEBT ON BEHAVIOR (OF THOSE WHO HAVE COLLEGE DEBT)



Mish comments: Note that 40% delayed buying a house or making other major purchases. 27% moved back home. If you are looking for a reason for a weak housing market there you have it. Graduates deep in debt with a job not in their field, or no job at all are unlikely to be buying houses and cars. Boomers facing retirement want to downsize, but there are few capable buyers able to make purchases. Housing is going to be structurally weak for years to come as a result of student debt and demographics.

Debt Slaves

President Obama promotes education as the answer to the unemployment problem. Other presidents have done the same thing. However, throwing money at the problem has done nothing but raise the cost of education for everyone, leaving many graduates debt-slaves for life, with totally useless degrees.

Here are some charts and comments from my post What Role Does Government Play in Price Inflation?

Inflation Comparison - Select Components Since 1978



Inflation Comparison - Current CPI Components Since 2000



The above charts are from Doug Short at Advisor Perspectives. Doug creates excellent charts every month on various CPI components. Rather than reinvent the wheel, I asked Doug for a set of custom charts.

Specifically, I had asked Doug to go back to 1971 for both charts.

Unfortunately, data for components in the first chart only goes back to 1978, and in the second chart not even that far.

The reason I asked for a starting year of 1971 is that's when I started college.

Tuition at the University of Illinois in Fall of 1971 was $250 a semester for engineers (My degree is in civil engineering). Current University of Illinois Tuition is $8,278 per semester for Illinois residents, $15,349 for non-residents.

Note that tuition difference: $250 in 1971 vs. $8,278 today.

Note Areas of Highest and Lowest Price Inflation

The least government interference is in apparel and recreation. The most government interference in the free market is education and health care.

Education is rife with "no child left behind" madness, free tuition for veterans, and for-profit school scams that flourish only because student loans cannot be discharged in bankruptcy. The student loan and Pell Grant  programs should be abolished.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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