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Monday, December 08, 2008

College-Educated Drop Outs

College graduates are dropping out of the labor force:

The Job Market for College Graduates, by Alan B. Krueger, Economix: On Friday, David Leonhardt pointed out that the increase in the unemployment rate in November understated the weakening of the job market because many workers have given up looking for work. ... There is even more to the story. ...

Last month, the number of college graduates who were working fell by 282,000, while only 2,000 more college graduates were classified as unemployed. ...

Since March 2008, college-educated workers have been abandoning the labor force...

The tables below show the change in employment status by education level from the official start of the recession in December 2007 to March 2008 and from March 2008 to last month. ...

It is clear that there is a twist in these measures after March 2008. The beginning of the recession looked like a typical downturn, with jobs shrinking more and unemployment rising more for the less educated. After March, however, employment has declined more for college graduates while unemployment has continued to rise more for less-educated workers.

Why is March apparently a turning point? I had previously written here that the collapse of Bear Stearns in March 2008 and ensuing financial market crisis meant that this downturn “is likely to be more democratic than the norm because of the severity of the credit crunch. Research indicates that employers hire relatively more skilled workers when they invest in new plant and equipment. … If funds for investment are not available because of the financial crisis, however, companies will hire fewer skilled workers.”

This scenario seems to be playing out — in terms of employment losses but not in terms of unemployment.

The job situation is likely to weaken considerably for less-educated workers as the downturn persists, however, because employers are likely to raise skill requirements. Employers tend to be more selective in downturns..., more college graduates should be working at Starbucks in the months ahead.

Because jobless college-educated workers appear unlikely to be classified as unemployed and because it is likely that well-educated workers will be taking jobs for which they are overqualified, the depths of this recession should not be measured only by the official unemployment rate. The fraction of the population that is employed is probably a better indicator of the strength of the job market, even though it does not reflect the underutilization of skills by workers who do find jobs.

Unexpectedly, however, Grad School Testing Goes … Down?.

    Posted by on Monday, December 8, 2008 at 11:16 AM in Economics, Unemployment | Permalink  TrackBack (0)  Comments (90)

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