Squeezing our kids' salaries and sending them into debt

I wondered (in this prior post) why many economists, including Ben Bernanke, propose that the solution to our unemployment crisis is to send our kids to college. Their argument appears to be based on the statistical observation that the unemployment rate for college graduates is markedly lower than that for high school graduates.

That sounds good but must deal with the reality that many college graduates are not finding jobs. See this chart from a survey by Adecco of recent college grads:

Only about 60% have full-time jobs (it's unclear when after graduation these surveys were conducted but based on another question about how long their job search were, I'm imagining up to a year after.). And this is likely to be an over-estimate because of non-responder bias: college grads who failed to find jobs are less likely to respond to such surveys.

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Although I don't have the data, I suspect that the unemployment rate for college graduates, referenced by those economists, can be broken up into unemployment for new college graduates and unemployment for college graduates who have been in the work force for a while. I suspect that the second group, which accounts for a much bigger portion of college grads  by way of accumulation over time, does not suffer from serious unemployment and thus, the overall average for college graduates hides an ugly number for new college graduates.

If your kid listens to these pundits and goes to college, upon graduation, the job market he/she faces will look like the one for new college graduates, not the one for grads who have been working for a while. (In Chapter 3 of Numbers Rule Your World, I call this the "dilemma of being together".)

If the market is not clearing now for new college graduates, encouraging more kids to get college degrees will only worsen the unemployment rate for new college grads. It will also drive down starting salaries for new college graduates. It will also stick many more of our kids with heavy education debt. (This article tells us student loans just exceeded credit card loans.) It will also have a long-term impact on those graduates who eventually find jobs (think value of money and lagging behind one's cohort.)

Comments

[DavidC]

I'd also be interested in the effect of a college education on employment, controlling for other stuff. This stuff is usually reported as raw differences between college-educated and not.

[Jon Peltier]

"I suspect that the second group [older college grads] ... does not suffer from serious unemployment..."

On the other hand, companies are shedding older, experienced, and costlier workers, often in favor of younger, cheaper, but less experienced workers.

It's dangerous to speculate on the components that comprise an aggregate number, without actual data.

[Tommy O'Dell]

There's also a correlation/causation error hiding in the assumption that going to college increases your odds of being employed afterwards by up-skilling you. I believe that much of the effect is explained simply in that colleges attract talented people and talented people fare better in the market place. Another contributor to the observed effect outside the upskilling theory: the social signaling that comes from having been to college.

Kudos to Josh Kaufman of PERSONALMBA.com for opening my eyes to this.

[Kaiser]

Jon: I'm not sure what you said changes my conclusion. If there are sufficient jobs created for young college grads by displacing older workers, then college grads shouldn't be facing a difficult job market.

While I'm concerned that I can't judge the validity of the Adecco survey, their finding says that the unemployment rate for recent college grads is worse than the overall unemployment rate for all college grads. So, it is not mere speculation that if the one part is higher than the average, the other part must be lower.

[Sharon Michaels]

It is a difficult choice to make. Put off college or try to college then try to find a job in a difficult job market. I think either way it will be hard to find a job.

[Consumer Credit Counseling]

I agree with Jon and the older and experienced people are the most affected

[Spencer Hale]

A lot of people end up with thousands of dollars in student loans that they have no way of repaying. They find themselves in need of bankruptcy but the problem is that in almost every single case student loans are considered non-dischargeable.