What if demand for graduates falls?

What is university for? I ask this old question because the utilitarian answer which was especially popular in the New Labour years - that the economy needs more graduates - might be becoming less plausible. A new paper by Paul Beaudry and colleagues says (pdf) there has been a "great reversal" in the demand for high cognitive skills in the US since around 2000, and the BLS forecasts that the fastest-growing occupations between now and 2020 will be mostly traditionally non-graduate ones, such as care assistants, fast food workers and truck drivers; Allister Heath thinks a similar thing might be true for the UK.

There are signs of this happening already. ONS data show that employment in professional occupations, having grown 3.1% a year between 2001 and 2007, has grown just 1.2% per year since, whilst overall employment growth hasn't changed much.

And we can tell a futurological story in which high-end work declines: IT could replace accountants and lawyers, not just routine clerical workers; MOOCs could render some college lecturers redundant; a smaller financial and public sector will limit demand for graduates; and the increased supply of graduates from India and China might bid down the wages of their western counterparts.

Now, none of this is at all certain. In 1975 Gary Becker, the founder of human capital theory wrote: "Perhaps the current weak demand for highly skilled manpower is the beginning of a resumption of the earlier [1900-40] decline." (Human Capital, 3rd ed, p9) That was just before a two-decade long increase in demand for graduates.Which tells us that forecasting demand for skills is a mug's game.

Nevertheless,we should ask: what function would universities serve in an economy where demand for higher cognitive skills is declining? There are many possibilities:

- A signaling device. A degree tells prospective employers that its holder is intelligent, hard-working and moderately conventional - all attractive qualities.

- Network effects. University teaches you to associate with the sort of people who might have good jobs in future, and might give you the contacts to get such jobs later.

- A lottery ticket.A degree doesn't guarantee getting a good job. But without one, you have no chance.

- Flexibility. A graduate can stack shelves, and might be more attractive as a shelf-stacker than a non-graduate. Beaudry and colleagues decribe how the falling demand for graduates has caused graduates to displace non-graduates in less skilled jobs.

- Maturation & hidden unemployment. 21-year-olds are more employable than 18-year-olds, simply because they are three years less foolish. In this sense, university lets people pass time without showing up in the unemployment data.

- Consumption benefits. University is a less unpleasant way of spending three years than work. And it can provide a stock of consumption capital which improves the quality of our future leisure. By far the most important thing I learnt at Oxford was a love of Hank Williams and Leonard Cohen.

But are these benefits really worth £27,000. I fear that, in an economy with declining demand for graduates, many will think not. If so, rather than supply much-needed educated workers, universities might merely create a (larger!) mass of disaffected 20-somethings. In this sense, the technical-economic matter of relative demand for skills could have interesting social consequences.

Another thing. It's possible that a society of educated people is likely to be more cultured and scientific-minded than one of non-graduates, and this should have positive externalities in the form of better political discourse and higher culture. There is, however, little evidence of this in practice.

Comments

[Anonymous]

The last point is surprisingly true and disappointing. Three years at university, being exposed to liberal values, should, one would hope, produce graduates imbued with civilised values. Not any longer, or so it seems.

Perhaps the £9k p.a. tuition fees have been set to ration university places in anticipation of the skivvy economy into which the UK is moving.

Skivvy or Skiver? What great life choices the current and succeeding generations are being offered.

[Karl Wilding]

Very interesting post Chris. Thank you.

The point I've thought about before is what will happen to all the accommodation that universities have been building since the expansion of the 1990s? A dimension of the issue you lay out is that more students might choose to live at home. I cant but help wonder if this accommodation might be one potential solution to the poorly functioning housing market in this country.

[broilster]

Isn't this post simply a reiteration of Paul Mason's 'graduate with no hope' schtick and as such, well covered ground? Just asking.

[Ralph Musgrave]

Always be wary of studies that claim to show a relationship between getting a degree and subsequent earnings. Such studies always “discover” the entirely predictable, namely that there is an association between having a degree and earnings. Those studies sometimes then jump to the conclusion that the degree CAUSES the increased earnings.

But that conclusion is not necessarily valid because it tends to be those from stable middle class families who go to university: and they’re the sort of people who would earn more than average even if they didn’t have a degree. I.e. it is essential to control for family background.

I’ve come across more than one study making that mistake. Those studies are always carried out by people with degrees, which of course demonstrates that a degree teaches you to think – or perhaps not.

[FromArseToElbow]

A problem with Beaudry et al (and the BLS and ONS data) is the reliance on the traditional job categoriation scheme that separates management, professional and technical roles into a pot labelled "non-routine, cognitive". This obscures a lot.

There is invariably a lag between a job taxonomy and the organisational reality. The current scheme is probably 30 years out of date. Two examples of this are the increase in the number of "management" jobs that involve no people management (i.e. highly-paid machine-minders), and the migration of marketing from "routine, clerical" to "professional, technical". This structural change can exaggerate category growth, such as in the 90s.

IT has been replacing accountants since the 1960s, yet the number of accountants continues to grow, notably in "cognitive" roles such as management accountants and internal auditors. In the good times, when money is available and there are empires to be built, pseudo-cognitive roles tend to multiple like topsy (CSR managers, marketing interns etc). So GDP growth, as much as skill-biased change, can also amplify category growth.

There are also temporary factors. Beaudry fails to consider how the congruence of new technology and Y2K led to a temporary surge in cognitive roles in the late 90s (think of all the IT contractors who subsequently retired to become buy-to-let landlords). Allied to the dampening effect of the dotcom bust, it should be no surprise to see a dip in such employment in the early 00s.

We should therefore be cautious about assuming there was a steady growth in cognitive roles that went into reverse after 2000, and that this reflects secular trends in employment demand. The current downturn in cognitive roles is real (in a recession you might hoard valuable techies but not fungible marketeers), but the extent is probably exaggerated and there is no good reason to believe it cannot reverse.

The signal of £27k fees (and the message of the likes of Allister Heath) is clear: education is an elite positional good and not for the likes of you.

[chris]

@ broilster - I don't think so. A lot of "graduates with no hope" recently have been in a temporary pickle - either coz labour demand is weak coz of the recession, or coz they are temporarily doing a job for which they are over-qualified. I'm talking about a possibly more permanent problem, which brings the entire purpose of universities into question, not just the question of whether some/many people shouldn't go to college.

[Curmudgeon]

The jobs that have a guaranteed future are those that can't be automated and need physical hands on - care workers, hairdressers, plumbers, gardeners etc.

[Laban]

"the increased supply of graduates from India and China might bid down the wages of their western counterparts"

What do you mean "might" ?

Google "Intra-Company Transfer"

[Tim Almond]

chris,

"What is university for" is an excellent question.

The problem with governments in recent years has been the assumption that universities produced a skilled population (and I'm not including vague "life skills), and in some cases, that's true. But with most of the people learning art history, philosophy or english, we're just really burning money.

Until 15-20 years ago, this at least gave employers a signal. Get a degree, you've proved your smart and worth investing in. Trouble is that if you massively inflate the numbers, you're not going to have enough jobs requiring that "signal". The new "signal" is getting a degree with a better grade.

But we're also seeing new, more efficient ways of learning starting to come along. In software development, we're replacing classroom teaching (£1200/wk) with e-learning (£20/month) because it scales globally.

[Churm Rincewind]

I guess I'm with Plato on this one...

[Churm Rincewind]

...the unexamined life is not worth living. And that, in the end of the day, is what universities are for.

[Staberinde]

It's nice to have a well-educated workforce, but HE in the UK is a muddle.

If the emphasis is in academic education, we clearly don't need 200+ HEIs when employers are only interested in the output of the top 50.

The time-lag in HE means that labour market signals are pretty poor. It's much, much easier to get into a university to study Arts and Humanities than it is to study STEM subjects - largely because you need to have achieved an A in GCSE Maths and then chosen to take it at A-level. So when we need more engineers, that signal takes 5-6 years to get through rather than three.

The 'lottery' effect is pernicious. People are essentially being compelled to get into £27K of debt in order to have a shot at what would otherwise be a non-graduate job. In other words, they're paying through the nose to make it easier for employers to sift applications.

[rogerh]

Perhaps there is an analogy between the graduate market and laboratory rats who become overcrowded. But instead of fighting and cannibalism we see those who can afford it going up-market to the private schools and the post graduate courses whilst those who cannot afford it swell the ranks of office workers and lorry
drivers. Pull up the ladder Jack. I sense that in the UK we have accumulated a bloated middle class who's main skill is rent-seeking, how long can that continue?

An unanswered difficulty is that most of us are average and manufacture was a good way to leverage the skills of the average person. The elite have failed to discover a replacement form of leverage and the sticking plaster that was finance just fell off.

I have tried hard and I cannot see how short of cutting our real wage rates we can compete - to out-intellect the rest of the world does not seem credible. Worse, our middle class (but not the elites) will resist to the electoral death any such move. Herein lies the bugbear, I just cannot get away from the idea of manufacture as a value multiplier, nothing else seems to work on a credible scale - or is immoral.

Perhaps the elites have no duty to create work for Jo & Joan Average, let the market prevail and Jo & Joan can starve if necessary. America follows this model and up to a point it works but produces a pretty unattractive society.

[Dave]

Not one comment about the devaluation of the degree? When only the very brightest went to grammar school and then only the very best of those went on to uni- the degree meant something. Now anyone can go to a jumped up poly and get a degree, not to mention the student loan, the airs of arrogance and sense of entitlement that seem to accompany them like a bad smell. I'd take common sense, a willingness to learn and start at the bottom anyday. I've encountered too many graduates who are frankly unemployable for all the above reasons

[Paulb20]

But, graduates are not just in professional jobs. Actually, what ONS described as professions in the quoted figures excludes some graduate-only professions (particularly in health) plus lots of IT jobs that are basically graduate only. The wider Professional plus associate professional and managerial group is at its all-time peak proportion.

There does not seem to be much UK evidence of growth in demand for intermediate and lower skilled workers. Therefore, if the graduate premium remains, because there is decline lower down, the case for degrees remains.

[Tammly]

rogerh

With your comments you have put your finger on the problem of the age. I think this condition has lead directly to the international economic crisis. A lack of manufacturing strength means our current society swelled by the average, employed in too many unproductive jobs. Only Germany has bucked the trend a little with their superior rationale. 'The knowledge economy' painted by our intellectually inferior politicians as a desired future economic advantage is a fiction. But far eastern wage competitiveness can't last forever.

[Laban]

"lots of IT jobs that are basically graduate only"

There are very few IT jobs that NEED a degree. My TOPS course in the 80s took in clever drop-outs. In the States you can buy a place on an intensive six-month Web/database course which will get you a job at the end of it.

The catch is that you have to pass the IQ tests to get offered a place.

[john malpas]

A career in crime can seem quite attractive at times.
Though some technical knowledge may be a useful foundation.

[Greta Rossi]

Thanks for this blog post, very insightful! I actually mention it in my last blog post :) Here's the link: http://bloggingthechange.wordpress.com/2013/04/24/when-the-key-word-is-mediocrity/

[transports]

Great post, keep up with the hard work, you’re doing it right!

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