Education Credential Inflation

As economic opportunities for many young people are becoming ever more restricted in many developed countries, and job competition for the ever fewer nice jobs becoming fiercer, what should the young generation do? The answer usually is to go to college, as experts argue (e.g. Reich 2014). But what is going to help individuals does nothing to solve fundamental problems in the labor market. There is an important difference between advice for individuals and tackling policy problems. My advice to individuals if they were to ask me what they should do, is also to recommend them to go to college. You can either pay a life coach a lot of money to tell you the same thing, or take my advice for free. College graduates do have a higher wage and a lower unemployment rate than high school graduates. The college wage premium, which is the wage advantage of college graduates, has risen from 64% in the early-1980s to 98% on average in 2013 (Leonhardt 2014). Those numbers tell us that we should give the advice to all young people to attend college and give the impression that it will solve problems of inequality and poverty.

But there are other things that are hidden in this data: A Fed study shows that 46% of recent college graduates work in jobs that do not require a college degree. They are classified as underemployed. Since the early-2000s, the proportion of recent college graduates with high-wage jobs has dropped by over 10 percentage points and now hovers somewhat above 35%, while the proportion of low-wage has nearly doubled to about 20%. (Abel et al. 2014). The average wage of college graduates has increased by a mere $1 an hour over the last decade, and the only reason why the college wage gap had increased was because wages for non-college graduates dropped (Leonhardt 2014). But if we only take inflation-adjusted dollars, then recent college graduates income has dropped by 6.9% between 2007 and 2014 (Wething and Kimball 2014). In terms of unemployment, high school graduates are facing a brutal job market with 22.9% being unemployed in 2014 as compared to 15.9% in 2007. College graduates are better off in that their current unemployment rate is only 8.5% as compared to 5.5% in 2007. The big recession had a brutal impact among all young people, as the number of the “missing workers” under age 25 (workers, who are neither employed nor seeking for work) had tripled from about 500,000 to 1.5 million (Shierholz et al. 2014).

The data suggests that college graduates are better off than high school graduates, but we have wage stagnation among all educational groups,. We have a very tough labor market for college graduates belying the claim of wonderful opportunities that supposedly awaits college graduates. It is not enough to insist on individual advice and derive reasonable policies from that. We have to set aside individual advice giving, and worry about the macro-structural and societal challenge that a lot of people won’t be able to find good jobs regardless of whether they have a degree or not. The poor labor market, even for college graduates, is reflected in employers’ decision toward up-credentialing or credential inflation, which means that the degree requirements for the same job increase. Jobs that needed a high school diplomat now need a bachelor’s degree. Many of us have heard the anecdote from people that now we need a master’s degree to get jobs, and that the bachelor’s degree has become the new high school diploma. A survey by Burning Glass shows that the proportion of dental lab technician openings that required a bacehlor’s degree increased from 12% in 2007 to 33% in 2012 (Rampell 2012). That is a 21 percentage point increase in only 5 years!

Sociologists like Randall Collins (1979) and Ivar Berg (1970) had described this up-credentialing or credential inflation which has come to pervade contemporary education policy. There is no correlation between educational attainment and productivity on the job. Job skills are acquired on the job and not in college. Besides, the increase in the supply of college workers is not necessarily matched by an increase in the demand for college workers. If we can agree that credential inflation has become a pervasive problem in contemporary society, then the question becomes why it exists and how it came into being.

Credential inflation is the result of government policies to encourage higher education among more young people given the poor labor market. Before World War II, college was the preserve of the upper-class, who pursued liberal arts studies in order to become educated in the manners and mores of the ruling class. Since the 1940s, huge government investments in the form of the GI Bill and college Pell grants have transformed education from the elite preserve to a middle class entitlement. Colleges and universities were grateful for this development and themselves became important sources of national employment. During the early postwar years of full employment it was quite understandable to have more people access college, since employment opportunities were plentiful for everyone, and one could still make the point that education was for the building of responsible citizens in a democratic society.

But higher education also contained the purpose to give some middle class kids an edge over other students in the same age category that did not attend college, and as the labor market began to take a turn for the worse beginning in the 1970s, it became more and more important to receive a college degree just to even get the foot in the door in decent professional and middle class jobs. What was individually rational was a collective irrationality. People are spending more money to get a piece of paper so they can work the same job that their parents used to work for without any degree. It is not surprising that this situation creates inequality between people with affluent parents, who can get their children the additional credential, while working class children have fewer access to higher education. When many low-income kids did attend college, it was with a combination of a huge loan debt burden. This loan burden in combination with their low social networks, which are essential for attaining jobs in a very competitive economy, and their greater likelihood of getting low-wage jobs create a very burdensome situation for working class college graduates.

Besides credential inflation, the increase of college enrollment also results in the delayed entry of young people into the labor market. This outcome is actually fairly positive, and needs to be explained. The current problem in the labor market is that very few employers in middle-class industries want to hire workers, so the demand for college workers is by far less than the supply of college workers, which are churned out of colleges in large numbers on an annual basis. In order to improve the labor market situation for workers, the demand for college workers either has to increase or the supply has to decrease. By delaying entry into the labor market from an average age of 18 to an average age of 22 or even 24, many young workers are removed from the labor market. While one may complain about so many unemployed and underemployed graduates, one can imagine how much worse it would be without so many people going to college. This is what Randall Collins meant by college having the function of “mopping up surplus labor”. Having young people go to college instead of joining the labor market early certainly beats other options to reduce the labor supply such as increasing social welfare for long-term unemployed people, prison (very popular US solution), and early retirement. The last one is probably the least objectionable, though pensions are an expense that many politicians and businesses are reluctant to make (though it is certainly feasible economically).

From that angle, it is a good idea to encourage more young people to go to college as a means to alleviate pressures in the very poor labor market. But the major obstacle to that is that a college education is really expensive, and colleges do not bear the risk of handling so many underemployed but overindebted students. The $1.2 trillion student loan bubble is the major threat that is hanging over the entire higher education industry, and just like any debt bubble it has to collapse at some point. College inflation still runs at twice the rate of inflation, and many parents will want to see tangible results for the expensive college degree. The education department recently began to require colleges to publish annual reports on what proportion of their recent graduates were able to get good jobs.

I do not share the conservative argument that a college education has become so expensive because of the loan guarantees of the federal government which has given colleges the incentive to raise their tuition and face no accountability with respect to the proportion of their graduates getting good jobs. Conservatives are pretending to take the sides of the students, when, in fact, all they want to do is to reduce public investments in higher education, and leave people with more barriers to enter college. They are not interested at all in either the interests of college graduates or of workers in general.

Even if a college education can not solve the fundamental problems of the labor market, it can at least buy some more time and alleviate a little bit of job pressure. In the words of Collins (2013), who sees education as one way to avert unemployment and capitalist crisis, a higher education system that is extensively financed by the government “amounts to socialism in the guise of education” (p.56). But for that to stay this way, college needs to be for free. I am aware that free college education will simply make the credential inflation problem worse, because as the poor have fewer barriers to college, they will attend it in even greater numbers and in the absence of good jobs, it won’t help many people. John Chaffee (1985) had written about the Sung dynasty in China, which had reduced the number of civil service positions as a result of austerity policies. Many scholars were then competing for ever fewer positions, so it became a common sight to have people in their 40s and 50s, who were still competing for the few coveted official positions.

We have to recognize college for what it is: a means to buy time and to delay the crisis of unemployment, which is very much with us. To address the disconnect between the lack of jobs and the abundance of college graduates, the only policy that can help is a massive New Deal program, where the federal government actually goes out and hires poets, painters, sculptors, filmmakers, actors, musicians, historians, writers and engineers. These are scarcely useless jobs, and obviously some people in society are deriving value from it,. But they are currently under-appreciated and do not allow those people to make a living from it. If the government were to tax wealthy assets, which is derived from either financial speculation or the collection of monopoly rents and monopoly profits (which is hardly productive in itself), then it could simply reallocate the resources to currently underemployed college graduates, who are sure to have the creativity to use the funds wisely.

In the absence of discussions of a New Deal, we likely have to muddle through. I should add perhaps that an unemployed educated population is preferable to an unemployed uneducated population. Intrinsically, it is better to have people, who tend to be more health-conscious and value thought than people that live unhealthy and value e.g. violence. The uneducated are good in riots, the educated are good in organizing systemic protests. In Egypt, during the Arab Spring, 80% of young people attended college, and half of all of them had no job. Unfortunately, in the US in an environment of austerity, even the gates toward college access are becoming smaller.

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One Response to Education Credential Inflation

  1. Pingback: Picking A Career - Rex St John

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