By M. Ray Perryman
THE ECONOMIST
Texas Border Business—-In a matter of weeks, tens of thousands of students will graduate from Texas universities. These individuals have invested a hefty sum in acquiring their credentials; college tuition and fees averaging $7,650 per year for four-year public institutions across the state. Add to that the living expenses, foregone earnings if they had jumped directly into the workforce, and potential interest on student loans, and you get a hefty total.
The recent recession weakened the job market overall (though not as bad in Texas as elsewhere), and unemployment and underemployment are still undesirably high. Even so, there are signs that conditions are improving for newly minted college grads, and their prospects for employment remain better than those of other young workers.
A study by economists at the Federal Reserve Bank of New York looked at two decades of data related to new graduates’ employment. Using information from the US Census Bureau, they contrasted employment for recent four-year college graduates (defined as those aged 22 to 27 with a degree) with college grads in general, other young people (also aged 22 to 27), and all workers (aged 16 to 65). Anyone currently enrolled in school was eliminated from the analysis.
The findings confirm that unemployment for recent graduates is high, even when compared to other periods of time when the economy has been in recovery mode. That’s the bad news. However, the unemployment rate for young workers without degrees was even worse. Young people have far higher rates of unemployment than the overall workforce and have for decades. In the wake of the recession, the gap widened, with the percent of young workers out of a job approaching 16% for a period of time. Yes, things have been tough for recent grads, but the unemployment percentage is less than half the rate for their age peers without college credentials.
Another problem is underemployment, which in this case means college graduates taking jobs that really don’t require degrees. The New York Fed study looked at survey data the US Department of Labor maintains where people actually working in jobs answer questions about the skills and education level required. If more than half said a bachelor’s degree would be needed to do the job, that job was considered to require college for purposes of the NY Fed’s analysis. Underemployment of recent college graduates was found to be quite high–about 44%. While it’s common for underemployment for young graduates to jump in the wake of a recession, it’s worse this time.
However, looking at all college graduates (regardless of age) reveals that the percentage is still higher than you might think, holding steady at about 33% for decades. Some of these jobs are pretty good jobs in terms of pay, but others are not. Unfortunately, the percentage of recent graduates landing in low-paying jobs has risen.
Examples of students who worked hard in college (and took out large loans to pay for it) only to end up unable to find anything but a minimum wage job are splashed across the media with unsettling frequency. Some pundits point to underemployment as evidence that there are too many college graduates and that the value of higher education is slipping.
However, many years of data consistently confirm the importance of a college education both in terms of earnings and in the likelihood of employment, something the young people graduating from Texas high schools next month should also keep in mind. In fact, median yearly incomes for people with bachelor’s degrees are essentially double the income for those with high school diplomas only.
It is important to consider that within the broad “college graduates” category is substantial variation, with some fields of study offering far more opportunities than others. Looking at data from the Texas Higher Education Coordinating Board, the first-year earnings for 2011 graduates (the most recent data available) indicates a range of $25,643 for a psychology major to $61,908 for an engineering major. Choosing a field with high demand and growth potential can clearly contribute to better financial outcomes. Of course, there is more to the process of selecting a major and career than income; nonetheless, it is important to consider likely future earnings in decisions regarding the amount spent (and, in particular, borrowed) for college.
It is vital that we continue to make progress toward increasing education levels in the state. Texas lags the US average educational attainment and, more importantly, that of other competing states. Our workforce is relatively less prepared by this measure, reducing our competitiveness for desirable corporate locations. In addition, individuals’ future income streams are typically lower when they opt out of higher education. Even in the midst of a rather gloomy national picture for recent graduates, it is important to maintain this long-term perspective.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.
