Tuesday, June 16, 2015

Unpacking "over-education" claims (Michael Simkovic)

Tom Friedman's latest New York Times column uses the labor market for executive assistants and executive secretaries to illustrate dubious claims about credentialing and over-education.  Friedman argues that since most current executive assistants and executive secretaries don't have bachelor's degrees, employers should not try to upgrade the workforce by hiring new executive assistants and secretaries with bachelor's degrees.  After all, executive assistants without bachelor's degrees can do the job, so who needs a bachelor's degree?

The problems with this reasoning should be obvious.  

First, education is only one of many factors that are valued in the labor market.  Some individuals who are smart, hardworking, personable, physically attractive, or fortunate, but have limited education, will inevitably be as successful or more successful than other individuals who are highly educated but less gifted in other respects.  This does not in any way challenge the extremely strong evidence that a bachelor's degree can improve labor market outcomes.  It simply means that we are dealing with a heterogeneous population.  

If two homogenous groups who were initially equally strong on non-education factors were given different amounts of education, the more educated group would typically be more successful in the labor market.  Labor economists who have studied identical twins routinely find that twins with more education are more successful than their less educated counterparts.  When labor economists control for unobserved heterogeneity within education levels using fixed effects models rather than OLS regression, "over-education" effects on earnings diminish or disappear.  In other words, highly educated folks who are about as successful as those with less education--and end up in the same occupations as the less educated--tend to be weak on factors other than level of education.  But even within occupations that combine the worst of the more-educated with the best of the less-educated, those who are more educated still tend to earn more.  Since profit-maximizing employers are not in the habit of handing out money for nothing, this suggests that the more educated are better at their jobs.

In sum, education many not always be enough to make you more successful than your neighbor or coworker, but it can make you more successful than a less educated version of yourself.  

Second, the fact that something was "good enough" at some point in the past does not mean it is good enough today.  Rising standards typically involve both increases in quality and commensurate increases in cost.  In inflation adjusted terms, the average new car today costs about 10 times as much as a Ford Model-T in the late 1920s.  But the average new car is faster, safer, more reliable, and easier to operate. Similarly, as education increases, so does the productivity of labor and the cost of labor--wages or earnings.  Highly educated workers today are far more productive than their counterparts decades ago, and as a result, they earn more.

It is interesting that Friedman chose executive assistants and executive secretaries--a field where most workers have less than a bachelor's degree--as an example of supposed "over-education."  According to the Bureau of Labor Statistics Occupational Employment Statistics, employment of executive assistants and executive secretaries is collapsing.  Employment fell by more than half between 2007 and 2014, from over 1,500,000 workers to barely more than 700,000.  In other words, the level of education that most executive assistants and secretaries had in 2007 was not enough to make it in the labor market of 2014.

Among secretaries, those with higher levels of education still earn more than their less educated counterparts after controlling for race.  Employer hiring priorities cited by Friedman suggest that those who are more educated are more likely to keep their jobs or find new ones.  

This is consistent with general trends in the labor market.  Low and middle skill workers with limited educations are the hardest hit by automation, outsourcing and layoffs, while their more educated counterparts are navigating the recession and changes in the labor market more successfully. (During the 2007-2014 period, employment of a group of highly educated workers, lawyers--supposedly the victims of job-destroying structural change--continued to grow faster than overall employment).  

For another angle on Friedman's column, readers may be interested in Frank Pasquale's critique. Pasquale discusses apparent bias in the New York Times' Higher Education coverage and argues that as newspapers struggle to adapt to a world replete with free online content and greater competition for advertising dollars, business priorities may be overriding traditional news values.  Given the nearly 20 percent decline in employment for reporters and correspondents between 2007 and 2014, journalism does appear to be under serious financial pressure.


Guest Blogger: Michael Simkovic, Of Academic Interest, Professional Advice, Science, Student Advice, Web/Tech, Weblogs | Permalink