High unemployment and the education deficit

The following is a guest post by Bruce Yandle, distinguished adjunct professor of economics with the Mercatus Center at George Mason University and dean emeritus of the College of Business & Behavioral Science at Clemson University. The opinions expressed here are his own.

Last month’s report on U.S. employment growth brought no cheer to job-seekers with a high school education.

In June 2010, the unemployment rate for adults 25 or older with a high school diploma was 10 percent. Whereas unemployment among college educated adults was 4.4 percent. (Overall unemployment was 9.5 percent.)

Part of what’s making the unemployment number so high, aside from a dismal economy, is an education deficit. The idea of lining up shovel-ready jobs with stimulus money may sound good, but our economy is not a shoveling one. Instead, our economy is calling for a more educated workforce.

The gap between the U.S. unemployment rate for Americans with high school diplomas and those with college degrees shot through the roof with the Great Recession (See figure 1). Because of this education deficit, the overall unemployment rate will not sink anytime soon.

Of course, a four-year degree is not the only route to improving employment prospects. Adults with a two-year technical education do far better than those with just a high school education. The June unemployment rate for that group of adults was 8.2 percent.

Since December 2009, some 593,000 jobs have been filled in the nation’s economy, including 163,000 in manufacturing. While each job is important, the numbers look pale against the 7.9 million jobs that have disappeared since December 2007, when the recession started.

A quick inspection of Bureau of Labor Statistics data tells us where the action is. Employment gains have occurred in professional and business services, partly accounted for by firms that supply temporary workers, and in education and health services. The last two sectors have been recipients of stimulus money. They also generally require knowledge that goes beyond a high school education.

But the churning of labor markets revealed by the unemployment gap between holders of a bachelor degree and those with a high school diploma reflects more than a stimulus. Hard times bring a sharper definition of the U.S. comparative advantage. As we observe the shuttering of some businesses and the stability or expansion of others, we are seeing U.S. economic muscle laid bare. And, what we see is a knowledge-based economy.

America’s economic edge has come partly from having a competitive education system with the freedom of choice at the post-secondary level. Young people can shift fields of study and go for more education, depending on the employment and earnings prospects available to them. Right now, the higher payoffs for staying in school and building human capital are sending a strong signal to young people to get more education. At the same time, wages forgone are the largest element of cost adults face for continuing in school. When there are no wages to lose, education is on sale.

With the unemployment rate for college graduates at 4.4 percent and the rate for high school graduates at 10 percent, the message is clear: As tough as it may seem, this is the time for young people to find the means to become prepared for the new knowledge economy.

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