Don’t Sell Yourself Short, or the Value of a Bachelor’s DegreeJuly 6, 2017 According to data from the Pew Research Center, nearly every American feels that college is important. Almost all parents (94%) expect their children to attend college, roughly three quarters (73%) of adults feel that college is “…essential to get ahead in life,” and Americans across the board believe they would have a larger salary with a college degree or a smaller salary without one. Folks are divided, however, on the “mission” of college. Close to 40 percent of Americans feel the main goal of a college education is personal growth while nearly half (47%) feel the main goal is preparation for the labor force. Some people might argue that both missions are essentially the same. Regardless of the purpose of college, from a labor market perspective the value of a bachelor’s degree is revealed in the data.
The Marketplace for Labor
In a relatively recent article, a popular internet columnist brings to light some common perceptions about the labor market. His article recounts the story of a friend who was laid off. His friend was skilled and competent yet finding it extremely difficult to land a new job, even with seven years of on-the-job experience. He was also passed over for several management positions due to his lack of a college education, writes the columnist. He points out that his friend’s lack of education is the main factor in his employment and advancement struggles. He then comments on how unfair this is and ultimately calls on society to stop requiring an extremely expensive education for jobs that have nothing to do with what is taught in college.
This story helps to illustrate a major point of contention in the labor market, the struggle between employers searching for workers and workers searching for employment. In order to see how education fits into this struggle, we need to understand that the labor market functions like a market. There are two positions in a market: the buyer and the seller. The buyer searches out the best available product to suit their needs and hopes to purchase at the lowest price. In this way, the buyer maximizes value. The seller tries to convince the buyer that they have the best available product for the buyer’s needs and hopes to sell at the highest price. In this way, the seller maximizes profit.
It’s common to mistakenly think of the employer as the seller and the worker as the buyer in the labor market. After all, businesses sell products and people buy them. The article mentioned above conveys a perception that the employer is selling a job and the worker cannot buy that job without a specific degree or skillset. From this viewpoint, workers who can afford the price (in this case a degree) can buy the job. In the labor market, however, this relationship is actually flip-flopped. The employer is the buyer and the worker the seller. An employer searching for a worker with a specific skillset enters the labor market seeking to rent this skillset. A worker with a specific skillset enters the labor market hoping to rent out their skillset. In other words, an employer seeks to buy a specific product and a worker seeks to sell a specific product.
Supply and demand influence the price paid in the marketplace, as well as the quality of products available and the ease of sale. A buyer can pay a lower price for a higher quality product when there is abundant supply and limited demand. On the other hand, a seller can charge a higher price for a lower quality product when there is limited supply and high demand. In the marketplace, buyers and sellers haggle over price and quality.
In the labor market, higher educational achievement is often used as a proxy for the quality of workers in a market where employers – buyers – have insufficient information about the quality of the specific product they’re buying. Bachelor’s degree holders spend at least four years obtaining a degree. While college entrants may be prevented from completing a degree for a variety of reasons, completion reflects motivation and an ability to focus, follow through, and finish. College graduates are seen as high quality products that require less time and cost to train for job specific duties. They represent a low risk, high value investment to employers.
Competition for Sales
Data from the Bureau of Labor Statistics shows that slightly more than 21 percent of jobs in the U.S. required a bachelor’s degree in 2014. This data also shows that 36 percent of employment was in occupations where the typical entry-level education was a high school diploma and another 28 percent required less than a high school diploma. The state’s employment situation was similar in 2014: roughly 20 percent of jobs required a bachelor’s degree, 35 percent required a high school diploma, and 28 percent required less than a high school diploma. This means that for almost two-thirds of all jobs, employers sought to rent workers with, at least, either a high school education or less in 2014. However, this was the minimum product (skillset) standard. Buyers are generally willing to purchase a higher quality product if the cost to them is roughly the same as it would be for the lower quality product.
In fall 2016, more than two-thirds (69.7%) of 2016 high school graduates were enrolled in colleges or universities. This was up slightly from 63.0 percent in 2000. The National Student Clearinghouse, reporting on the 2009 high school graduate cohort, reports that among those who entered college, only half (52.9%) had graduated with any kind of credential after six years: this includes associate’s degrees or certificates. In Oregon and at the national level, 28 percent of 18 to 64 year olds held a bachelor’s degree or higher in 2015 according to data from the U.S. Census Bureau: 18 percent held only a bachelor’s degree while another 10 percent held a graduate or professional degree.
A bachelor’s degree makes workers more competitive in the labor market, due to the perception of degree holders as a higher quality product. In contrast to high school graduates who potentially have the minimum skillset for 63 percent of Oregon jobs and non-graduates who have the skillset for 28 percent of jobs, holders of a bachelor’s degree potentially have the skillset for 97 percent of jobs: this includes jobs requiring an associate’s degree and those requiring postsecondary education. Of course, various job specific degree requirements do reduce this number.
Jobs that require a high school diploma or less are predominately found in labor-intensive industries such as manufacturing, construction, and the service industry. They generally involve the repetitive performance of a physical task and require few problem-solving skills. Most often, these jobs are classified as non-skilled or semi-skilled labor. Jobs such as cashiers, waiters, laborers, material movers, and tree trimmers are examples. These jobs pay low wages with low wage growth potential and offer limited advancement opportunities.
Some occupations that require high school or less for entry do offer higher wages with wage growth potential and advancement opportunities. Jobs such as photographers, police and sheriff’s officers, building inspectors, and many supervisor or management jobs are examples. These jobs rely more heavily on problem solving, organization, computer software, and interpersonal skills.
Since the supply of non-skilled workers (those able to fill a non-skilled position) is the entire labor force, workers with a bachelor’s degree find it easier to sell their skillset across all non-degree specific occupations in the labor market. So, while many employers may only ask for an associate’s degree, high school diploma, or even less for entry, applicants with any bachelor’s degree are highly competitive for the majority of these positions.
Demand for Skillsets
The unemployment rate for those 25 years or older, with a bachelor’s degree or higher, averaged 3.4 percent from 2007 to 2016 in the United States. For those with only a high school diploma the rate averaged 7.2 percent and for those without a high school diploma the rate averaged 10.7 percent. Oregon rates for the period were similar, though slightly higher: 3.8 percent for those with a degree, 8.5 percent for high school diploma, and 11.2 percent for no diploma.
As a share of the available labor force (those looking for work), the supply of degree holders is lowest during expansion and highest during recession. The supply increases in recession as both degree holders and those without a degree lose jobs. Since degree holders sell a high quality product relative to those without a degree and employers generally choose degree holders when given the choice, those with a bachelor’s degree find it easier than those without to retain employment or sell their skillset and regain employment in tough economic times. However, since the labor pool is saturated with all education levels during these times, and overall demand for workers is low, employers can increase minimum job qualifications and pay lower prices for higher skillsets. This is one reason degree holders may find themselves underemployed (in jobs that don’t require their specific degree). An upside, however, is the unemployment rate for bachelor’s degree holders remains relatively low. When unemployment rates for the degree group topped out at 5.9 percent during the Great Recession, rates for high school graduates hit 13.4 percent, and rates for non-grads hit 18.1 percent.
Educational attainment is also significant when employers add jobs in an oversupplied market during recovery and in a shrinking market during expansion. Since bachelor’s degree holders experience shorter periods of unemployment, they signal to employers a willingness to work that translates to high productivity. For this reason degree holders have a better chance when applying for positions being added and also when applying for advancement opportunities. Unemployment rate gaps between education levels are closest during economic expansion when the herd thins out. Employers searching for workers today find a tight labor market. Low supply means less choice and all workers have an easier time selling, even with a lower skillset. The unemployment rate was 3.1 percent for degree holders, 4.4 percent for high school graduates, and 5.2 percent for non-grads in 2016.
Producing a Product for Consumers
In 2014, the Hamilton Project used data from the American Community Survey to calculate expected annual and career earnings for 80 college majors. Their interactive graphs allow comparison between majors as well as associate’s degree; some college, no degree; high school diploma; and no diploma. Career earnings were $1.39 million (in 2014 dollars) for bachelor’s degree holders in the 50th percentile, $0.74 million for high school graduates, and $0.55 million for non-graduates.
In 2015, according to the American Community Survey, median annual earnings in the U.S. for workers with less than a high school education were $20,361 and for workers with a high school education they were $28,043. At the same time, median annual earnings for workers with a bachelor’s degree were $50,595. In Oregon in 2015, median annual earnings for workers with less than a high school education were $20,237, and for high school they were $26,514. Workers with a bachelor’s degree had median annual earnings of $43,452.
When bachelor’s degree holders compete in the labor market against other degree holders, competition is high. Research by Abel, Deitz, and Su suggests that half of all recent college graduates could be underemployed. Their research found the number decreased dramatically as more time was spent in the labor force. This trend implies that new degree holders entering the labor market may struggle to find the right buyer for their specific skillset. As the degree holder continues to look for work in their field and gains experience over time they eventually match up with a preferred buyer. Degree holders who had high GPAs or those who majored in STEM (Science, Technology, Engineering, and Math) fields find an easier, shorter transition from graduation to preferred employment.
Not all bachelor’s degrees are equal in the labor market. Two of the biggest factors in the value of a degree are choice of degree and choice of where to live. If you choose to pursue Aerospace Engineering, you could fetch a median annual salary of $109,650. However, if you live in Eastern Oregon you won’t find work in your field (predominately aerospace manufacturing). In Eastern Oregon you’re better off with a degree in teaching, nursing, or business. Degrees that offer high monetary return on investment are typically those that translate directly to a specific occupation, which has low supply of qualified workers and high demand from employers. Nursing and accounting are two degrees that offer potentially high returns on investment. These degrees are directly transferable to two high demand occupations in Oregon: registered nurse, which had a median hourly wage of $41.55 in 2016, and accountant, which had a median hourly wage of $29.96. History and performing arts are two degrees that offer potentially low returns on investment. These degrees are very popular so competition is stiff for jobs in their fields (predominately teaching) because supply is high. This means that many holders of these degrees must look outside of their fields for work. When looking outside of their fields they face stiff competition because these degrees lack transferable skills that are in demand. According to the Hamilton Project, the median annual salary for history majors three years after graduation was roughly $29,000.
There are two accompanying tables with this article. One table shows the most popular broad degree fields in the U.S. and the other shows the top 20 high-wage, high-demand jobs in Oregon. One thing that many of these jobs have in common is they require a level of math (at least during college) that many students are unwilling to pursue.
Understanding the labor market is vital to understanding the value of a bachelor’s degree. When the worker views their occupation as directly linked to the product they sell in the marketplace, college is no longer an irrelevant hoop to jump through. College is a manufacturing process used to make a better product to be more competitive in a highly competitive market. Compensation, industry, work environment, employment opportunities, and advancement potential are all related to the quality of and demand for the product sold by the worker.
Due to labor market demand trends, some college majors offer more value than others do. As the supply of specific degree holders grows larger relative to demand for those degrees, the value of the specific degree decreases. STEM degrees are in high demand and should continue to be in high demand as employers rely more on technology. While oversaturated degree fields find increased competition in occupations specific to those degrees, bachelor’s degree holders in general are more competitive across all occupations. It might be tough to say what the mission of college is, but the value of a bachelor’s degree remains high.