“In one of the richest nations on earth, the path to prosperity has narrowed significantly in recent decades — especially for those without a college education,” wrote the NY Times in its January 28 editorial, “See Workers as Workers, Not as a College Credential.” “More than 62 percent of Americans ages 25 and up do not hold bachelor’s degrees, and the earnings gap between those with a college education and those without one has never been wider,” it said. “That’s happening even as the cost of college spirals upward, putting it out of reach for many. This has fueled anxiety, bitterness and a sense of alienation among the millions who see themselves as shut out of an economy that does not value them.”
The editorial cites data from the Federal Reserve Bank of NY showing that the wage gap between recent college and high school graduates hit a record high in 2021. In 1990 the median annual earnings of recent college graduates ages 22 to 27 with a full-time job was $48,900 for those with a bachelor’s degree and $35,300 for those with a high school diploma, a difference of $13,600. But in 2021, the median annual earnings for similar recent college graduates was $52,000 and $30,000 for those with a high school diploma, a difference of $22,000. Not only was the difference in earnings over 60% higher in 2021 than in 1990, but the median earnings for those with a high school diploma has decreased by 15% in the intervening three decades.
This is a stark example of the so-called great divergence of the past four decades. In the 30 years between 1948 and 1978, US productivity as measured by output per hour rose by 108%, an annual growth rate of 2.4%, while the average compensation of production workers increased in lock-step by 95%. But, between 1978 and 2016, productivity rose by 66%, an annual growth rate of 1.3%, while the median compensation of workers increased by only 9%. In other words, while the U.S. witnessed major technological innovations and productivity gains in the past four decades, the wages of workers in the middle have barely changed, with most of the wage benefits of higher productivity going to high earners. Other advanced economies have experienced similar economic, technological and global forces but their workers have fared much better.
MIT economist David Autor has written extensively about the evolution of US job opportunities over the past few decades that’s led to this widening earnings gap. In a 2010 paper, “The Polarization of Job Opportunities in the US Labor Market,” he examined the changing dynamics of the US labor market by looking at three broad occupation groups:
- high skill, high wage jobs, - professionals, technicians, managers: opportunities have significantly expanded, with the earnings of the college educated workers needed to fill them steadily rising;
- mid skill, mid wage jobs, - production, office, administration, sales: these jobs have sharply declined, while their wage growth has also declined over the past four decades; and
- low skill, low wage jobs, - cleaning, security, gardeners, health aides, fast-food restaurants: these jobs have seen rising employment, while their wage growth has been flat to negative.
Autor identified two key challenges facing US workers. The first is that for the past few decades the US labor market has experienced increased demand for high skilled, college educated workers. At the same time, job opportunities have significantly declined for both middle-skill, blue-collar production, craft, and manufacturing occupations, as well as for middle-skill, white-collar clerical, administrative, and sales occupations. “The decline in middle-skill jobs has been detrimental to the earnings and labor force participation rates of workers without a four-year college education. … The result has been a sharp rise in the inequality of wages.”
In a more recent paper Autor noted that between 1970 and the 2019, high-skill employment rose from 30.2% of total hours worked to 46.2%; mid-skill employment declined from 38.4% to 23.3%; and low skill occupations were fairly flat, from 31.4% to 30.6%. Among mid-skill workers who lost their jobs, those with college degrees or some college were generally able to move to high-skill jobs, and those with no post high school education or training generally ended up in lower skill, low-wage jobs.
These changing labor dynamics have been generally driven by two related factors. First, mid-tasks jobs that generally follow a set of well-defined rules and have been prime candidates for technology-based automation. And second, these mid-skills tasks have also been prime candidates for offshoring to lower-cost countries.
According to the NY Times editorial, a third major factor has emerged over the past decade that’s been further undermining the job prospects of workers without college degrees. Following the US Great Recession of the late 2000’s, it took several years for the economy to recover to pre-crisis levels of employment. “Unemployment was high, and many employers responded with degree inflation — larding college education requirements onto jobs that previously had not called for them — even though the work involved remained the same,” noted the editorial.
The editorial referenced “The Emerging Degree Reset,” a 2022 report by The Burning Class Institute in collaboration with the labor market analytics firm Emsi Burning Glass and the Harvard Business School (HBS) Managing the Future of Work initiative.
“Jobs do not require four-year college degrees,” said the report. “Employers do. The last decade was characterized by a widespread phenomenon of degree inflation. Employers who had not asked for a four-year college degree historically started adding college degrees as minimum education requirements even for jobs that had not materially changed. The widespread increase in demand for degrees concentrated itself among the 15.7 million jobs that represent a middle ground between the roughly 25% of jobs, like physicians, civil engineers, and marketing managers, that have universal degree requirements and the 39% of jobs like short-order cooks, retail workers, and truck drivers that operate out of the scope of higher education.”
Degree inflation has been quite detrimental for both employers and workers. “At a time when employers struggle to find talent, including a degree requirement immediately eliminates from consideration the 64% of working-aged adults who do not hold a bachelor’s degree. At the same time, traditional middle-skilled jobs, defined as positions requiring some education or training beyond high-school, but short of a college degree, have long served as an important stepping stone to the middle class. As more and more of these jobs closed to workers without a bachelor’s degree, key avenues for upward mobility were closed to roughly 80 million prime working age Americans at a time when income inequality was already widening.”
Why have companies been focused on degrees instead of skills? A recent study led by HBS researchers, “Dismissed by Degrees,” conducted a survey of 600 business and HR leaders that showed that “degree inflation is driven by two key factors: the fast-changing nature of many middle-skills jobs and employers’ misperceptions of the economics of investing in quality talent at the non-graduate level.”
“Over time, employers defaulted to using college degrees as a proxy for a candidate’s range and depth of skills. That caused degree inflation to spread to more and more middle-skills jobs. That has had negative repercussions on aspiring workers, as well as experienced workers seeking a new position but who lack a degree. More important, our survey indicates that most employers incur substantial, often hidden, costs by inflating degree requirements, while enjoying few of the benefits they were seeking.”
The NYT editorial noted that degree inflation has started to recede in the last few years. The private sector has been gradually eliminating degree requirements in order to attract workers. “Major players to embrace skill-based hiring include General Motors, Bank of America, Google, Apple and Accenture. IBM is recognized as a particular leader; about half of its U.S. job openings no longer require a four-year degree.” Government agencies have also been moving in this direction. “With an executive order issued on Jan. 18, his first full day as governor, Josh Shapiro of Pennsylvania used one of them: He eliminated the requirement of a four-year college degree for the vast majority of jobs in the state government, a change similar to one that Maryland and Utah made last year.”
“If this degree reset continues, an additional 1.4 million jobs would be opened to workers without college degrees over the next five years. This could also help make the American work force more diverse and inclusive in several ways. Black and Hispanic job-seekers are less likely to have bachelor’s degrees than non-Hispanic whites and Asian Americans. Rural Americans would also benefit; only 25 percent of them hold a bachelor’s degree or higher.”
“Expanding the terms for who can get hired is a change that would reverberate far beyond individual jobs and job seekers,” said the NYT editorial in conclusion. “It would bring a greater degree of openness and fairness into the labor market and send a message about government’s ability to adapt and respond to the concerns of its citizens. In a country where a majority of people do not have bachelor’s degrees, policies that automatically close off jobs to so many people contribute to the perception that the system is rigged against them.”
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