Count on the ‘College Premium’

Predicting dim futures for the American worker is a national pastime. The automation scare in the 1950s, the stagflation of the 1970s, the Japanese challenge in the 1980s and Ross Perot’s “giant sucking sound" of jobs leaving the country if Nafta passed all predicted declining employment levels.

Over the last 50 years, the American economy has shown a remarkable ability to generate jobs for returning World War II veterans, baby boomers, women and immigrants. In the 1980s and 1990s, when the trade deficit was persistently high, there was strong job growth. The simple mercantilist notion that a country will lose jobs if its citizens buy more from foreigners than they sell to them has not held up.

Despite claims to the contrary, our current high unemployment rate is caused by the recession and is not a long-run trend. The disruption of our financial system has led to the longest running downturn since the Great Depression. Many forecasters believe that in the next three to five years, employment will grow to replace all of the lost jobs, and the unemployment rate will fall to 6 percent or lower.

At the same time, the economy is shifting, as the share of the workforce with some post-secondary education rose from 20 percent in 1960 to 60 percent today, while the share of workers with a bachelor’s degree tripled from 10 percent to 30 percent.

While some think that there are too many college-educated people out there for the jobs available to them, the changes in pay don’t reflect this. In 1979, those with a four-year degree earned 40 percent more than high school-educated workers; in the last decade, this “college premium” rose to nearly 75 percent. This jump in relative price suggests that there has been a shortage of college-educated workers.

In the long term, however, we need to align our workforce with the changing needs of the economy. According to the Center on Education and the Workforce’s Help Wanted report, the fastest-growing job clusters are those found in the occupations that demand the highest levels of education: managerial and professional, education, health care professional and technical, and science, technical, engineering, and mathematics (STEM), and community service and arts occupations.

Together, these career paths will account for 31 percent of jobs in 2018. In the economy as a whole, 63 percent of all jobs will require some form of post-secondary education.

While the American economy will continue to create jobs, the structure of the economy is continuing to shift in favor of workers with more than a high school diploma. It is increasingly important that young people and working adults are educationally prepared to succeed.