NY Fed Thinks There’s a Shortage of College-Educated Workers

Michael S. Derby, “Middle-Skill Jobs Are Lagging,” Wall Street Journal, Real Time Economics.

Our buddies at the New York Fed issued a report that the WSJ’s Real Time Economics blog commented on, titled, “Job Polarization and Rising Inequality in the Nation and the New York-Northern New Jersey Region” (PDF), by Jaison R. Abel and Richard Deitz. “Job polarization” is apparently the term economists use to describe how factory workers’ jobs can get outsourced or automated while H&R Block accountants’ and restaurant servers’ jobs stay at home. The accountant reaps a fortune from computer programs that make tax preparation easier, and the server is paid a pittance but is nevertheless irreplaceable because waiting tables can’t be automated.

Derby summarizes the Fed report:

“‘The strong wage growth for high-skill workers reflects their increased productivity as technological advances and globalization have served as a complement to the tasks they perform,’ the report said. High-skill workers also have benefited from a shortage of college-educated workers, further boosting wages.”

I have no idea where economists get this idea of a shortage of college-educated workers from. Actually, I do—I meant figuratively—it’s footnote five on page four of the report, which is prefaced with:

“[T]he supply of college graduates—perhaps the most skilled group of workers—has failed to keep pace with the growing demand for them, a trend that began in the early 1980s.”

(Sources: BLS, Census Bureau (P28-P31) [Edit: The age range is 18 and up])

If you can’t find college grads for your business, you’re not looking very hard. They’re easier to find than ever before and are more common in the workforce than any other education class (for brevity I excluded Associate’s Degrees (~15 percent)).

However, I have to give the Fed researchers some credit for preventing people from going to college and choosing unmarketable majors, and for telling corporate America to get more involved.

“The effectiveness of educational institutions and workforce training programs can be enhanced through close ties with employers. Partnerships of this nature allow firms to communicate their needs to those who are helping people develop the necessary skills to qualify for available jobs. In turn, these collaborations can help educational institutions design relevant programs and identify opportunities for the people they train.” (7)

Other than formalizing higher educators’ roles as job-placement middlemen (no “job polarization” in that field, apparently), the problem with this quote is that employers have no incentive to change the system as it is. They like using the university system as a job-qualifying pyramid and do not want any part in paying to train their workers any more than they already do.

Incidentally, this “job-qualifying pyramid” is echoed by that recent Dealbook article on why there should be vet school scam blogs:

“The problem of law school is one that is ubiquitous to higher education — the current model is inherently expensive but even today, lower-priced alternatives don’t seem to meet the standards or be desired by many students.”

Wrong. So wrong. Applicants want j-o-b-s. Corporate law firms in California can practically mint lawyers out of high school graduates with degrees from online law schools, but they seem to prefer Stanford, Berkeley, UCLA, and USC grads even though there’s no reason to believe that law school improves their ability to pass bar exams beyond their already high LSAT scores. Thus, would-be lawyers sort themselves accordingly. If law firms, judges, and government units changed their hiring practices to cut out the ABA, the system would start failing for real, but firms have no incentive to displace the ABA middlemen, hence the job-qualifying pyramid.

As it is, our Fed researchers are stuck. Not only is the shortage of college-educated workers a fiction, but there’s also no reason to believe their claim that “high-skill workers” are paid because of their educations. Their methodology of looking at the handful of occupations that dominate the top of the income distribution doesn’t mean that:

(a)   everyone in those occupations typically earns those kinds of wages (e.g. small practice lawyers),

(b)  education alone caused the high wages (physicians’ incomes are influenced by a practitioner shortage; middle-income jobs are deliberately off-shored because of the trade deficit not “globalization”), and

(c)   everyone with the same education as high-skill workers are working in high-skill fields (presumably our online law school grads, who are not in biglaw).

Instead, the researchers made the following ideological commitments:

  • The trade deficit is good (it’s not, but we’re not done yet).
  • Productivity gains are good, but such gains are divided between producers and consumers, not workers, who are cut out.
  • Taxing productivity (capital gains) to relieve the income losses of displaced workers is bad because productivity is good.
  • It’s harder to retrain older workers anew than to train them for career jobs from which they are never laid off to begin with.

The ineluctable conclusion? Faced with a future world populated by Eloi lawyers and Morlock maintenance men, the absolute best we can do is try to train as many Eloi lawyers as we can (and deny the existence of any Morlock maintenance men who happen to be law grads). Sorry Morlocks, we tried, but your collective failure to simultaneously beat one another on the SAT is why you’re all poor.

Thus, the problems inherent to the nexus of “globalization,” productivity, poverty, and education are not so neatly solved, and they’re going to worsen without some kind of unredistributionist mechanism. Unfortunately our Fed buddies lack both the willingness to tax capital gains and the imagination from preventing the tax code from becoming more porous going forward. We’ve already been given a taste of these difficulties with how to tax Internet sales, or that one Facebook founder who relinquished his U.S. citizenship to avoid paying income tax. The simple solution is to recognize that one thing that can’t be off-shored, outsourced, or tax-sheltered is the land under our feet, which doesn’t diminish if taxed, almost magically, raises wages and encourages more productivity.

So there’s your choice: pessimistic Fed economists who believe that only higher education can solve the problem of income inequality, or optimists like Henry George who believe that equalizing incomes solves the problem of higher education.


  1. Matt,

    Please refer the waterheads at the New York Fed to this article, written by economics professor Richard Vedder:


    “Over 317,000 waiters and waitresses have college degrees (over 8,000 of them have doctoral or professional degrees), along with over 80,000 bartenders, and over 18,000 parking lot attendants. All told, some 17,000,000 Americans with college degrees are doing jobs that the BLS says require less than the skill levels associated with a bachelor’s degree.”

    I personally know DOZENS of BS, BA, and MS holders who are unable to find anything better than part-time work – or who work in jobs completely unrelated to their degree.

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