Monday, March 07, 2011

Education Level, Degrees & Unemployment

One of the things that strikes you with U.S. unemployment statistics is the large gap between the unemployment rate of the highly educated and those with little education.

For high school drop outs, the unemployment rate was 13.9%, for people with only a high school diploma, the unemployment rate was 9.5%, for people with "some college" the unemployment rate was 7.8% and for people with bachelor's degrees or less, the unemployment rate was 4.3%.

The difference is even more dramatic if you look at the employment rate, suggesting that there is a lot more "hidden unemployment" for people with little education. For high school drop outs, the employment rate was only 39.2%, for people with only a high school diploma, the employment rate was 54.6%, for people with "some college", the employment rate was 64.1% and for people with a bachelor's degree or more, the employment rate was 73.6%.

But must such large differences exist? No.People with a lot of education may appear to have an advantage over those with little education because they can both work within their field and take low skilled jobs. A person with a college degree are capable of working as a hotel cleaner or "flip burgers" at McDonald's, but a high school drop out can't take a job as a plastic surgeon. However, people with a long education might not be willing to apply for low skilled jobs. Furthermore, some employers within sectors where little education is needed might view them as "over-qualified" and fear that they will soon quit, and therefore they might prefer people with only little education.

That the large unemployment gap between different educational levels isn't a law of economics is confirmed by the fact that it doesn't exist in all countries. Most countries don't have statistics over educational differences in unemployment, but many of those that do have little or no such differences.

In South Korea for example, people with less than a high school education actually have a lower unemployment rate than those with only a high school diploma (3.8% versus 4.4%). And while people with college education have a lower unemployment rate, it is only slightly lower (3.2%). These differences are so small that they are within the statistical margin of error. Indeed, the previous month, people with less than a high school diploma had a slightly lower unemployment rate than those with a college diploma.

And in Taiwan, there seems to be a weak and opposite relation between education and unemployment. People with college education had a 6% unemployment rate compared with 4.9% for those who only finished senior high school, 5.3% for those who only finished junior high school and 2.8% for those classified as "illiterate and self-educated".

But why does the United States have this large gap when it doesn't exist in South Korea and Taiwan and probably many other countries as well? I'm not quite sure, actually. One reason is probably that wage flexibility is lower in the United States preventing the adjustment needed to get people with little education into work.

Another reason could be that in America formal education levels is for various reasons deemed more important when choosing workers, with the rule being that the higher level the better, while in other countries employers focus more on other indicators of how qualified people are for jobs.

Still, the gap in America seems too large to be explained by these factors alone, so part of it remains a mystery.