Just How Welcome Is The Job Market To College Grads?

Anyone familiar with the rising gap between the earnings of high school graduates and college grads needs little convincing of the value of a college education. From 1979 to 1990, the earnings premium for full-time workers with college degrees over their high school counterparts widened markedly, from about 36% to 62%.

The most common interpretation of this trend is that demand for college grads rose extremely rapidly during the 1980s, outpacing supply and forcing employers to bid up their wages. But two recent studies by Labor Dept. economists Daniel E. Hecker and Kristina J. Shelley underscore a trend that calls this conclusion into question: the continuing rise in the percentage of college grads employed in jobs that don't normally require a college degree.

In the 1970s, the reason for that trend was clear. In that decade, the baby boomers poured into the labor force, vastly increasing the supply of college graduates relative to demand and sharply reducing the gap between the earnings of college and high school graduates. At the same time, the percent of college grads employed in occupations not requiring a college degree--retail sales, farm work, clerical, assembly-line jobs, mechanics, and many services--rose from about 11% to 18%.

In the 1980s, however, a dramatic widening of the gap between the earnings of college and high school graduates suggested that technological change in the marketplace had vastly increased the demand for college-educated workers. Yet Hecker's analysis and other research studies indicate that the percent of "educationally underutilized" college grads continued to rise (chart) and that many recent college graduates are working in noncollege-level jobs that pay less than positions requiring more schooling.

Hecker concludes that while skill levels in the workplace rose during the past decade, the supply of college grads rose even faster. The main reason for the rising wage differential for college graduates, he notes, was not a bidding war for their services but a decline in the real wages of less-educated workers, as structural change eliminated many high-paying industrial jobs. Indeed, Lawrence Mishel of the Economic Policy Institute notes that the real wages of college-educated workers actually rose less than 2% from 1979 to 1989 and have declined since then.

The outlook for the next dozen years seems even more problematic. Although the percent of new jobs requiring a college degree will continue to rise, Labor's Shelley calculates that the supply of new workers with a college degree will also continue to exceed demand. If current job and educational trends continue, she estimates that 30% of college graduates entering the work force from 1990 to 2005 will work in jobs that don't require a college degree--a trend that could boost the percent of "underemployed" college grads to one out of four.

In short, job trends in the past decade suggest that investing in human capital and increasing the supply of college graduates does not automatically translate into rising living standards for those earning college degrees. Corporations and government policy makers will also need to stress the kind of capital investment that creates jobs that can fully utilize the skills of a more highly educated work force.