Are graduates really immune from U.S. unemployment misery?
A lot has been written about the U.S.’s stubbornly high unemployment rate. Although it fell below 9 percent to 8.9 percent in February, this is unlikely to placate the Federal Reserve who wants to see unemployment drop back to 5-6 percent before it feels comfortable that the economy does not need any more policy support.
But one sector of the U.S. population that doesn’t need more policy support is college graduates. According to U.S. Department of Labor, people over 25 years old with a Bachelor’s degree or higher academic qualification had an unemployment rate of a mere 4.3 percent in February. Although this is roughly 1.5 percent higher than it was before the recession, there is no doubt that graduates have had an easier time than other workers in recent years. For example, for those who didn’t graduate high school nearly 14 percent are without work, which has barely improved over the past year.
The benefits of education are clear and the data shows that your employment prospects improve the longer you stay in school. 9.5 percent of High school graduates are out of work, compared with 7.8 percent of college drop-outs. And wages are also better. Research from the Cleveland Fed notes that while wages of high school drop-outs have been falling since the 1970’s they have risen for college graduates.
This makes sense. If you study for longer then you should be rewarded for it with higher pay packets and higher skilled employees should remain in demand even if there is a general economic downturn.
But for those workers who have degrees but are laid off the playing field becomes more level. The Cleveland Fed found that there was very little difference in the duration of unemployment between those with a college degree and those who were high school drop-outs. Right now unemployment is averaging 40 weeks for all workers, regardless of their academic achievement.
This is a shift from the norm. Back in the 1990’s the average time graduates were laid off was 20 weeks and typically graduates were without work for less time than other employees.
Two reasons for this shift immediately come to mind. Firstly, much has been written about the skills/ jobs mis-match in the U.S. during this recovery. Jobs are out there, but workers can’t move to them because of the housing crisis. House prices still remain at extremely depressed levels across most of the U.S., according to the Case-Shiller house price index, and this affects graduates just as much as it does manual workers.
Secondly, corporate confidence has yet to recover in the U.S. It collapsed during the recession and although it started to trend higher in mid 2009 it has failed to return to anything like its peak back in 2006. This may be due to uncertainty caused by changes to regulation, especially in the financial sector, which makes firms unwilling to commit to hire new workers whatever their education level.
This new labour market phenomenon will be the topic of countless research for years to come. But the increasing length of time workers find themselves without a job today may reflect the depth of damage caused to the U.S. economy by the recent recession. It adds to the argument that the U.S.’s natural unemployment rate could be higher than it was pre-recession, and instead of being 5-6 percent, may well be 6-7 percent. This has implications for monetary policy as it suggests there is less slack the U.S. economy, which could fuel inflation pressure sooner than some people think.