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Stephan Whitaker |

Research Economist

Stephan Whitaker

Stephan Whitaker is a research economist in the Research Department at the Federal Reserve Bank of Cleveland. His current work includes research on housing markets and studies of state and local public finance.

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Meet the Author

Mary Zenker |

Research Analyst

Mary Zenker

Mary Zenker is a former research analyst in the Research Department at the Federal Reserve Bank of Cleveland.

07.12.11

Economic Trends

Are Underemployed Graduates Displacing Nongraduates?

Stephan Whitaker and Mary Zenker

The current recovery’s failure to produce robust job growth has focused attention on workers who are temporarily getting by in positions that are not good matches. One mismatch is formally measured in the count of part-time workers who want full-time work. Another frequently discussed, but less measured mismatch is those who hold a college degree but must take a job that does not require their degree because they cannot find employment in their field. For example, we hear anecdotes of recent college graduates serving coffee and stocking shelves.

We looked at data that could reflect this trend and found that college graduates are in fact becoming more prevalent in occupations that do not require a degree. The trend actually started before the recession, though it has, if anything, increased during the slowdown. Also, a few very-low-skilled occupations have seen a jump in college graduates during and after the recession. While other ongoing structural changes in the economy could be driving all of these trends in the data, they are consistent with the stories of educated people rolling down into mismatched positions.

Mismatches are not the only reason that we might see more educated people in some occupations. Employers cutting payrolls during the recession, for example, might intentionally retain their graduates while letting nongraduates go. Or a new technology may require that people have a degree to provide a product or service for which a degree was unnecessary 10 years ago. Within the categories we will examine, the lowest-skill occupations may be declining while the higher-skilled occupations are growing. These shifts in the labor market, combined with the time it takes the workforce to increase education levels, could explain some of the wide spread in unemployment rates that are observed between the college degreed and nondegreed. In 2010, workers without a college degree experienced 10.4 percent unemployment, while those with a bachelor’s degree or greater were unemployed at 4.7 percent.

To begin our analysis, we sorted all the occupations tracked in the Current Population Survey into two groups, those where the majority of workers hold less than a bachelor’s degree (BA) and those where the majority are college graduates. High school drop outs and associate’s degree holders are in the first category, and graduate degree holders are in the second. For the sake of simplicity, we’ll refer to the groups as non-BA occupations and BA occupations. We observe 388 non-BA occupations (for example, secretaries, retail sales workers, and drivers) and 115 BA occupations (such as teachers, nurses, and accountants). Most non-BA occupations have some degree holders working in them. In 198 of these occupations, 10 percent or more of the workers hold a college degree. Many BA occupations also have substantial shares of non-BA holders working in them.

We do have to recognize that some of what appears to be substitution or competition between workers with different education levels could be imprecision in the definitions of the occupations. Occupations such as “medical services manager” have similar percentages of workers with and without college degrees. Perhaps workers with degrees are performing significantly different, higher-skilled tasks, which fit best under the title “medical services manager,” along with simpler management tasks.

The chart below shows the increasing education levels of the American workforce over time. Between 2003 and 2007, when total employment was growing, an increasing share of non-BA occupations were being held by people with BAs. Meanwhile, the share of people without BAs who were working in mainly BA occupations was falling. A roll-down impact of the recession would accelerate these existing trends.

The decline in the percentage of people without a college degree in BA occupations was more rapid before the recession than during and after it. The share of BAs working in non-BA occupations, on the other hand, rose somewhat faster during and after the recession. The 2004-2007 changes suggest that the trends of increasing skill demands within occupations, restructuring toward higher-skilled industries, and employers screening by educational attainment were impacting both types of occupations while economic growth was strong. In the changes from 2007 to 2010, the transitions stall out in the BA occupations but continue in the non-BA occupations. The roll-down phenomenon, which should only occur in a weak economy, could be maintaining the latter trend.

Levels and Changes in the Percent of Workers in Occupations That Mainly Employ People with a Different Level of Education

 

2004

2007

2010

2004–2007 change

2007–2010 change

Less-than-bachelor’s degree holders in college-degree-majority occupations
25.82
23.89
23.70
−1.92
−0.19

Degree holders in less-than-bachelor's degree occupations

16.30
17.12
18.20
0.82
1.08

Source: Authors’ calculations from the CPS data.

To focus our search for the recent college-grad barista, we selected 34 occupations that seemed likely to collect underemployed degree holders. These occupations, mostly in sales and food service, do not require associate’s degrees or extensive on-the-job training. In 2004, 14.7 percent of the employees in these fields held BAs. In 2007, the percentage had climbed to 15.3, and by 2010, it was 17.0 percent. This corresponds to an increase of 0.6 percentage points in the three years before the recession and 1.7 percentage points during and after the recession. The 1.1 percent point change in the trend corresponds to about 356,000 people, 2.6 percent of the unemployed, or two-tenths of the labor force. That is a notable number of college graduates working in occupations that are not on college-degree career paths.

Considering this analysis, a mismatch of college graduates in non-BA occupations cannot be dismissed. We do not observe the ratio of college graduates to nongraduates in either type of occupation to be holding steady or trending toward nongraduates. If we observed trends favoring nongraduates, that would suggest the rolling-down of graduates is not happening, or is too small to matter.

The increasing share of degree holders in non-BA positions both before and after the recession could be driven by trends other than mismatch. However, the substantial increase in degree holders in low-skilled, easily-entered occupations begs further investigation and monitoring. A large increase in underemployed degree holders and an equal number of displaced nongraduates would be a phenomenon worthy of a policy response.