Fogg/Harrington: Fear ‘mal-employment,’ not grad shortage

July 7th, 2011 at 7:00 am by under Nesi's Notes

By Neeta P. Fogg and Paul E. Harrington

The recovery from the Great Recession of 2007-09 that began in June 2009 has seen the nation’s level of economic output rebound back to its pre-recession peak, rising from $12.8 trillion at the trough of the recession to $13.4 trillion by the first quarter of this year. But there has been no such recovery in the job market.

At the beginning of the recession the nation had 137.9 million jobs. That fell to just 130.9 million through the second quarter of 2009, as GDP declined. But since the GDP recovery, the nation has been unable to create any new jobs. By the first quarter of this year, nonfarm payroll employment stood at 130.5 million – slightly lower than when GDP bottomed in mid-2009.

Our colleague Andy Sum found [pdf] that most of the rise in output and income in the nation since the recession ended went to business profits – with no job creation or pay increases that could help American workers.

Last year at this time, Georgetown University released a report suggesting that very large college graduate labor shortages could develop between now and 2020. This man-bites-dog report caught the media’s attention thanks to its argument that a shortage was imminent, even in the face of high unemployment, because of postsecondary institutions graduating too few students.

A year later, with the national unemployment rate at 9.1%, the labor force underutilization rate hovering at the 15% to 17% range, and the number of officially unemployed workers outnumbering available job openings by more than 4.5 to 1, Georgetown has doubled down on its forecast of labor shortages, this time extending the shortage period through 2025.

We recently analyzed the employment experiences of young people who have earned a college degree to gain some insight into the supposed college graduate shortage. Young college graduates experience problems in the labor market in a variety of ways.

Poor job prospects cause some new grads – those who can afford the expense – to withdraw from the labor market and enroll in graduate and professional programs. Others simply become unemployed. But a third option in the face of slack labor demand conditions is for the new graduate to choose “mal-employment” over unemployment.

Mal-employment simply means college graduates take jobs that don’t use the knowledge, skills and abilities that are thought to be developed in college; examples would be a nursing graduate taking a job as a retail clerk at a shopping mall, or a political science graduate working as an orderly in a nursing home.

This mal-employment means that college graduates can’t find work in professional, technical, managerial and high-level sales occupations that are organized to take advantage of the abilities developed in college – and this means sharp earnings losses. If nurses work as retail clerks they earn mall wages, and thus lose much of the economic benefit of a college degree. Our analysis revealed that by 2010, only 61% of employed recent college graduates were able to find work in a college labor market occupation, down from more than 70% in 2000.

An equally severe problem associated with mal-employment is the displacement that takes place in the labor market for high school graduates. With lots of young college grads trying to avoid unemployment and settling for high school labor market jobs, young high school graduates experience a sharp increase in joblessness as employers opt to hire better-educated workers. Such behavior is commonplace; during the Great Depression of the 1930s, elevator operators in Manhattan’s finest buildings were required to have a college degree.

We spoke with one of the most respected observers of American labor markets to get his views of the projected labor shortage. In his 40 years of experience, he told us, he’s learned that “those who project don’t know, and those who don’t know project.”

Projecting college labor shortages when the nation is now two years into a jobless recovery strikes us as an unhelpful diversion from the real problem of an American economy unable to create new jobs. We need educators, elected officials and business leaders focused on the real challenges of today’s job market, and not on fanciful and – we think – deeply flawed speculation about 2025.

Neeta P. Fogg is a senior economist at the Center for Labor Market Studies at Northeastern University. Paul E. Harrington is director of the Center for Labor Markets and Policy at Drexel University.

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