A recent report shows that over half of college recent college graduates are working in jobs where they donât use their degrees. As if that werenât bad enough, such âunderemployedâ college graduates face massive salary penalties relative to their peers who work in college-level jobs. The data paint a troubling picture. Either colleges arenât teaching the skills students require to succeed, or America is producing too many college graduates for too few college-level jobs. Itâs probably a bit of both.
The findings provide an interesting juxtaposition with another recent report on âskills-based hiring.â Over the last several years, many employers, including several state governments, made much noise about dropping bachelorâs degree requirements from job listings and committing to hire based on applicantsâ skills, not their degrees. But the new report shows that most employers have not followed through on that promise. Hiring of candidates without degrees is up only modestly.
This flurry of new research highlights two aspects of the same problem: the slow creep of college graduates into jobs that donât require college degrees. Degree inflation, which has been on a slow burn in the labor market for decades, is not a great state of affairs for anyone. It reduces the financial return to college for graduates, while closing job opportunities to people with only a high school diploma.
Most college graduates arenât using their skills
The first of the two reports, from the Burning Glass Institute and the Strada Education Foundation, analyzes the work histories of millions of college graduates. A year after completing their bachelor’s degrees, 52% of graduates work in a job where a four-year degree is not typically necessary. One might think that as recent graduates gain labor force experience, they can move up to college-level jobs. But this isnât the case. Ten years after graduation, the vast majority of those underemployed graduates remain in noncollege jobs.
(The authors take a multi-pronged approach to defining whether a job ârequiresâ a degree, looking both at the education levels of workers currently in the job, and the education levels employers seek from applicants. Even these metrics may overstate how much the examined jobs really ârequireâ degrees.)
Underemployment has serious consequences for economic mobility. The report finds that recent college graduates employed in a college-level job earn about $60,000 per yearâalmost twice as much as high school graduates of a similar age. But underemployed college graduates earn just $40,000. Thatâs only modestly better than what people with just a high school diploma earn.
These outcomes raise questions about how much underemployed college graduates really got out of college at all, at least from a financial perspective. While a bachelor’s degree tends to pay off on average, a large minority of college students fail to earn back the cost of their education. This group has more trouble repaying their student loans, among other things. Underemployment is a key reason why the promise of college often falls short.
The Burning Glass-Strada report identifies steps students can take to boost their chances of landing a college-level job after graduation. Choosing the right major is one place to start. Majors with a large quantitative component, such as engineering, computer science, and finance, tend to have lower underemployment rates. The same is true for majors with obvious college-level career paths such as education and nursing.
Perhaps the most important single factor, however, is completing an internship. As the authors write, âinternships provide valuable hands-on experience, enabling students to apply their knowledge in real-world contexts, develop industry-specific skills, and gain exposure to the professional environment.â An internship doesnât just improve a rĂ©sumĂ© in the eyes of potential employers. It also equips students with the professional skills to succeed in their first jobs. Controlling for other factors, college graduates who completed an internship were half as likely to be underemployed.
While students have some control over their future economic prospects, the second report reveals that solving the problem requires more than changing student behavior. Employers also have a role to play.
But employers still prefer college graduates for non-college jobs
Many observers, including myself, have celebrated the apparent renaissance of skills-based hiring. After decades in which employers blithely slapped bachelor’s degree requirements on jobs where degrees have not historically been necessary, those requirements have now started disappearing. Along with hundreds of private employers, over a dozen state governments across the political spectrum have announced that college degrees will no longer be a requirement for most jobs.
The second report, a partnership between the Burning Glass Institute and Harvard Business School, combines data on job postings and work histories to test whether employers have kept their word. The report identifies firms that dropped degree requirements for specific occupations over the last ten years, then measures whether the hiring of workers without bachelorâs degrees has increased.
After a firm scraps a degree requirement for a certain role, hiring of workers without college degrees for that role increases by 3.5 percentage points. Thatâs not nothing: it translates to about 97,000 workers without degrees per year who now have access to career opportunities they would otherwise have missed. But compared to the overall size of the labor market, itâs a drop in the bucket.
Despite this disappointing progress, the authors show that skills-based hiring remains a great deal for workers and employers alike. When a worker without a degree lands a job that formerly carried a degree requirement, her salary increases by over $12,000 (25%) on average. Such workers are also 20% more likely to stay with the company for two years or more, reducing the employerâs turnover costs. Far from branding skills-based hiring as a failure, the report demonstrates that itâs a promising concept whose benefits have yet to spread.
Degree inflation continues to plague the U.S. labor market
The new research describes two aspects of the same problem: degree inflation, or the slow transformation of professions that were once open to people with only a high school diploma into occupations where a college degree is the norm.
If the number of Americans with a bachelorâs degree rises and the number of college-level jobs fails to keep up, the excess college graduates must necessarily fill jobs where college degrees have historically not been needed. This generates the underemployment problem the first report highlights.
But employers have also taken advantage of this situation to demand college degrees from job applicants in these historically noncollege occupations. This could be down to an irrational preference for college graduatesâhiring managers themselves are likelier to have degrees, so they may place undue weight on this qualification. Employers could also see the bachelor’s degree as a useful signal of preexisting competence (smart, hardworking high school students usually go on to college), though not skills learned in school. These phenomena explain the finding of the second report that employers havenât shaken their preferences for college graduates, despite public pronouncements to the contrary.
It’s not difficult to understand why degree inflation has happened. But it remains detrimental to workers with and without a college degree. Underemployed college graduates earn less than their peers, and sometimes cannot even recover the cost of college. But as long as employers maintain implicit or explicit requirements for job applicants to hold degrees, workers with only a high school diploma will see their pool of job opportunities shrink.
As a result, the average American worker must spend more time and money pursuing postsecondary education for a salary that does not rise at a commensurate rate. Students and employers have the power to fix this: students by taking college courses with more labor market value, and employers by reconsidering their preferences for candidates with college degrees. Above all, though, policymakers ought to rethink whether the unconditional subsidies given to higher educationâfuel for the degree inflation treadmillâare really the right way to help workers get ahead.