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June 27, 2013 11:37 AM Why Are So Many College Graduates Driving Taxis?

By Peter Orszag

It’s a parent’s nightmare: shelling out big money for college, then seeing the graduate unable to land a job that requires high-level skills. This situation may be growing more common, unfortunately, because the demand for cognitive skills associated with higher education, after rising sharply until 2000, has since been in decline.

So concludes new research by economists Paul Beaudry and David Green of the University of British Columbia and Benjamin Sand of York University in Toronto. This reversal in demand has caused high-skilled workers to accept lower-level jobs, pushing lower-skilled people even further down the occupational ladder or out of work altogether. If the researchers are right (which is not yet clear), the consequences are huge and troubling — and not just for college grads and their parents.

Let’s start with some basic facts. There have always been some graduates who wind up in jobs that don’t require a college degree. But the share seems to be growing. In 1970, only 1 in 100 taxi drivers and chauffeurs in the U.S. had a college degree, according to an analysis of labor statistics by Ohio University’s Richard Vedder, Christopher Denhart and Jonathan Robe. Today, 15 of 100 do.

It’s hard to believe this is because the skill required to drive a taxi has risen substantially since 1970. If anything, GPS technology may have had the opposite effect. (Acquiring “the knowledge” of London streets, as taxi drivers there are required to do, is cognitively challenging, but it may no longer be necessary.)

Educated Firefighters

Similarly, in 1970, only about 2 percent of firefighters had a college degree, compared with more than 15 percent now, Vedder and his colleagues found. And, according to research by economists Paul Harrington and Andrew Sum of Northeastern University, about 1 in 4 bartenders has some sort of degree.

Beaudry and his colleagues say that such change has been driven by a decline in the demand for highly skilled work — the opposite of the conventional wisdom about such demand. The employment rate in “cognitive” occupations — managerial, professional and technical jobs — increased markedly from 1980 to 2000, their research found, but it has since stagnated, even as the supply of skilled workers has continued to grow.

What has changed? One possibility, as I’ve previously written, is that the effects of a globalizing workforce are creeping up the income scale. Many jobs that once required cognitive skill can be automated. Anything that can be digitized can be done either by computer or by workers abroad. While the “winner take all” phenomenon may still mean extremely high returns for workers at the very top, that may be relevant for a shrinking share of college graduates.

Whatever the explanation, the Beaudry team argues that an excess of skilled workers has led them into the “routine” job market — such as sales and clerical jobs — reducing wages there and pushing less skilled workers into “manual” jobs in construction, farming and so on.

What’s puzzling here is that it seems inconsistent with evidence that the wage premium enjoyed by college graduates has persisted. For example, a recent paper by Philip Oreopoulos and Uros Petronijevic of the University of Toronto (yes, Canadian economists seem to dominate this aspect of the U.S. labor market) found that the earnings premium for college graduates has risen substantially over the past several decades and that investment in college “appears to pay off for both the average and marginal student.”

The still-strong earnings premium strongly suggests that the demand for skill has not collapsed. After all, if cognitive skills became less valuable in the labor market, wouldn’t one expect wages to fall more for college graduates than for others?

Falling Wages

Not necessarily, Beaudry and his colleagues argue. They find that while wages for jobs requiring cognitive skills have declined, the shift of high-skilled workers into those jobs has depressed wages for manual workers even more.

That’s a provocative argument. Still, it may be that the Beaudry team’s results are sensitive to the way they define “cognitive” jobs and “manual” ones. Also, it’s not entirely clear how much the recent recession has influenced their results.

In any case, the findings will do little to calm the nerves of graduates who are anxious to find jobs.

The cold comfort I can offer is this: Going to college may still be worthwhile — if not to be sure of qualifying for skilled jobs, then at least to avoid the even worse prospects of those who don’t get a degree.

Peter Orszag , an occasional Bloomberg View columnist, is vice chairman of corporate and investment banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.

Comments

  • Paula on June 27, 2013 2:53 PM:

    I think the plight of college grads is just one strand in the larger upheaval that is happening to the way our economy works and doesn't work. We're seeing a deadly collision of 2 forces: automation/computerization reducing the need for bodies to do a whole range of jobs, which reduces the number of needed administrators, etc.

    However, there are whole swathes of new jobs that need to be done in the realm of new energy (solar, wind, etc.) and the clean-up/remediation of 150 years of rampant pollution damaging water, land, air, etc. We have all sorts of contaminated military sites, a bunch of ticking bombs re: accumulating nuclear waste, etc. We also have an aging infrastructure and bad internet services compared to much of the world. But what we don't have is any money to spend on those things because all the money is getting sucked up to the 1 percenters who are not investing any of it in the real economy. So long as they can cook their books and be on the inside of the world casino they operate in, they can continue to "make money/make profits" that result purely from inside fixes and not from any actual contributions to the economy in the forms of tangible producst and services.

    So long as taxes are low for the 1 percent; so long as big companies are evaluated by specious numbers resulting from complex constructions of the tax code and successful tax evasions; so long as CEO's are awarded salaries some 100's of times larger than their workers, and so long as the Pres and Congress allow those conditions to continue, more kids will graduate to a crappy, dwindling job market.

    To big to fail has to go; taxes on the top have to go up, the Government has to jump start the economy by getting to work on projects that need to be undertaken, in support of which lots of new companies would spring up and existing companies could migrate to.

    What we also need to do is teach a lot more entrepreneurship in colleges and a lot less MBA bull that is nearly always oriented toward large enterprises. We need a lot more thriving smaller companies and fewer mega-companies. We need, honestly, fewer public companies because once they go public they become subject to the "financialization" incentives that Wall Street has cursed our economy with.

    What we don't need is for people to continually look backwards and think that we can "return" to anything. We need to deal with new conditions with new eyes. Old prescriptions no longer fit.