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Declining employment opportunities for graduates – a future disaster

Another day of light blogging. It used to be the case that if you secured a University degree then you were nearly immune from unemployment and enjoyed a fairly quickly growing wage gap on those of the same age who were not so fortunate to attend university. It was always the case that the unskilled are at the back of the jobless queue. This cohort is traditionally forced to endure low wages when they are lucky enough to find work and when they are not so lucky, they have to tolerate the opprobrium that neo-liberal attack dogs impose on them for daring to try to live on the pittances handed out as unemployment benefits. Any time the economy takes a nosedive this group finds itself out of work. But, even in recessions, the possession of a University degree was a fairly good insurance policy against such misfortune. The GFC changed that and in some nations the austerity that has been enforced by mindless and unaccountable bureaucrats has not only had devastating effects on the unskilled but has also undermined the prospects of the higher skilled workers. There is no cost-benefit analysis available that could justify such an arrant waste of productive resources, quite independent of the massive personal cost that the unemployed face upon their exclusion from mainstream society. Those pushing for austerity have a lot to answer for. But most of them will be long retired on their fat superannuation pensions before the full scale of the disaster they have created is revealed.

I am doing some research at the moment as part of a broader project I am involved in examining the way the middle class is being eroded as austerity undermines job markets and housing markets.

There was an article in the Fairfax press this morning (December 31, 2014) – Work and pay prospects for graduates deteriorated in 2014, a survey shows – that bears on this.

The article summarises the latest annual Australian Graduate Survey, which is not yet publicly available.

The survey shows that:

Starting salaries for university graduates have plateaued and full-time employment is proving more elusive … Recent university graduates are more likely to be out of full-time work than ever before and starting salaries for graduates have stagnated … full-time employment rates and the earnings advantage of completing a degree both hit record lows in 2014 for recent graduates.

Thirty-two per cent of university graduates who wanted a full-time job had not found one four months after completing a degree in 2014 – up from 29 per cent last year and topping the previous record set in 1992.

1992 was at the height of the last serious recession in Australia (the worst since the Great Depression).

The problem becomes compound because the deliberate imposition of austerity by the Federal government undermines employment opportunities, which then forces more people back into some form of higher education. This increases the supply of graduates and makes the problem worse in subsequent years.

The Fairfax article tells us that:

The median starting salary for a bachelor degree holder aged under 25 was $52,500 in 2014 or 74 per cent of male average weekly earnings. This is the lowest proportion relative to the average male wage since records began in 1977 and is significantly down from the recent peak of 83 per cent in 2009.

The median graduate starting salary rose by just $50, or 0.1 per cent, from 2013 while the wage of an average male rose by $411 or 0.6 per cent.

It should be noted that both increases – the median graduate starting salary and the average male wage – amounted to real cuts given the inflation rate over the same period.

The following graph is taken from the Fairfax article and shows the median starting salaries for university graduates in full-time employment in Australia from 2000 to 2014 relative to the average salary for all workers.

Australia_Grads_FT_Emp_2000_2014

Things are much worse in Europe, however. Data from Eurostat – Employment rates of recent graduates – shows a more extreme version of the same phenomenon.

The following graph shows the ‘Employment rates of recent graduates’ for the 18 Eurozone nations. Employment rates are defined as:

… the employment rates of persons aged 20 to 34 fulfilling the following conditions: first, being employed according to the ILO definition, second, having attained at least upper secondary education (ISCED 3) as the highest level of education, third, not having received any education or training in the four weeks preceding the survey and four, having successfully completed their highest educational attainment 1, 2 or 3 years before the survey. The indicator is calculated based on data from the EU Labour Force Survey.

So it is a broader measure of a ‘graduate’ in that it includes the ISCED 3 and above group. The – International Standard Classification of Education – Wikipedia is a system managed by the United Nations Educational, Scientific, Cultural Organization (UNESCO) and allows for cross-country comparisons of educational performance. It was introduced in 1976.

The ISCED 3 or “Upper secondary education” level defines an attainment where a person typically “completes secondary education in preparation for tertiary education, or to provide skills relevant to employment, or both”.

In the latest IECD classification (2011), there are five more levels above the ISCED 3 status:

  • “Post-secondary non-tertiary education” (ISCED 4)
  • “Short-cycle tertiary education” (ISCED 5 – these are pre-degree programs)
  • “Bachelor or equivalent” (ISCED 6)
  • “Master or equivalent” (ISCED 7)
  • “Doctoral or equivalent” (ISCED 8)

Eurostat still publish data using the ISCED 1997 levels of education. Within this system, there are three above the ISCED 3 level:

  • “Post-secondary non-tertiary education” (ISCED 4)
  • “First stage of tertiary education” (ISCED 5 – non-degree programs)
  • “Second stage of tertiary education” (ISCED 6 – degree programs)

The blue line in the graph are the combined ISCED 3 and 4 classifications and the red line aggregates the ISCED 5 and 6 levels.

The graph shows that the GFC damaged the employment prospects for these higher skilled groups. For the two tertiary levels the slight recovery (prior to the imposition of the harsh austerity) showed a rise a employment rates.

Once the mindless austerity was imposed, both skill groups (ISCED 3 and 4 and ISCED 5 and 6) saw their employment prospects fall dramatically.

EA_Employment_Rates_Skilled_Euro18_2000_2013

The next graph shows the employment rates for ISCED levels 3 and 4 in Greece, Italy and Spain.

It is clear how damaging the GFC and subsequent austerity has been for this mid-skill cohort. The decline in opportunities has been particularly severe in Spain. In Greece, the employment rates for this cohort fell to 25.3 per cent in 2013.

EA_Employment_Rates_ISCED34_GRE_ITA_SPA_2000_2013

The next graph shows the employment rates for ISCED levels 5 and 6 in Greece, Italy and Spain – that is, their successful tertiary graduates.

The early participation in the Euro clearly saw slight improvements in the prospects for Greek tertiary graduates. But the GFC and the immediate imposition of policy austerity has seen those prospects plunge to alarmingly low levels.

Both Italy and Spain have been similarly affected although the slump in employment prospects have not been as stark.

These groups represent the higher skilled workforce which should provide material prosperity to the nation for the next 4 decades or so.

The state has invested heavily in their capacities. It takes 16 to 22 years of nurture to get to the ISCED 3 or above stage, longer if a doctoral qualification is involved.

The longer this group remain unemployed or not counted in the labour force the more likely it is that the skills they developed during their education years will deteriorate and, perhaps, be lost forever (in some more specific cases).

The cost of austerity thus will definitely span generations and there is no calculus that I have ever seen (it doesn’t exist) that justifies such a policy stance in terms of the benefits exceeding the costs.

The costs are enormous if not monumental and the benefits are negligible. Unless, of course, you tilt the analysis by redefining the costs and benefits in terms of the top-end-of-town cohort. Then austerity starts to make sense.

By depriving some of access to income, a higher proportion can be taken by the others.

EA_Employment_Rates_ISCED56_GRE_ITA_SPA_2000_2013

Conclusion

I will spare you any New Year resolutions – I have none – just keep keeping on. I will spare you a list of the best of 2014 (on a non-economics level the Rolling Stones concert was pretty good though).

I will spare you are list of the worst of 2014. You can basically pen in any item about Europe, almost any statement from a European politician in government, any Brussels bureaucrat, every IMF statement, most of what the OECD pumped out and more. It has been a very dismal year for economics and socio-economic policy.

The number of persons interested in Modern Monetary Theory (MMT) grew throughout 2014 and that is both good and bad. The good is obvious. The bad is that a lot of misinformation about what MMT is now gets pumped around comment sites on various pages in various languages. Enthusiasm is good, knowledge is better. Both are perfect.

But as we approach 2015, I just wish everyone who would like such a wish – Happy New Year and I mean happiness in the broadest sense. Take care.

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.

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    This Post Has 19 Comments
    1. Obviously unnecessary austerity contributes to unemployment and low pay amongst graduates. But another contributor (at least in the UK) is the large numbers going to university compared to 30-60 years ago. There was at least one study done before the crisis which showed that vocational and science degrees for both sexes paid for themselves in terms of increased post-degree earnings. However, arts degrees for men did not pay for themselves.

      That sort of study adopts strictly commercial criteria in judging the worth of university education, and there are of course other criteria.

    2. Similar story here in Canada. Lot’s of Phd’s driving taxis. I saw an add the other day for a retail sales job requiring the applicant have a university degree, be a strong team player with an excellent work ethic etc all for the amazing wage of $14 an hour. In other words only those with a parents basement to live in need apply.

      Austerity is a disaster in the making! Society is folding from the lower income end upward and very few understand why. It’s as if their were some hidden magic surrounding aggegate demand that cloaks it’s importance to the economic well being of society.

      The small business owners in the middle class are just beginning to feel the pinch, while the best educated proffesionals we depend on raise their fees to make up for disappearing lower middle class clients. Their relative wealth provides them a false sense of being immune to hardship for the moment.

      Those working in the non federal public sector are getting worried about budget cuts due to growing government debt loads as mindless politically motivated cuts are made to the federal publc sector itself.

      Here’s hoping 2015 brings a breath of fresh air to political debate.

      Happy New Year!

    3. Happy New Year to all, and thank you Prof for all the countless hours of work you put in providing daily content for the rest of us to enjoy.

    4. Happy new year to all and a special thanks to you professor for the countless hours you spend providing daily content for the rest of us to enjoy.

    5. Happy New Year Bill. Keep up the good work.

      What do people think is an optimal way to proceed with educating public about the ‘tool box’ of functionality provided by Modern Money Techniques? (not really theory anymore is it ;) )

      My thoughts from the gamut of people whom should know more about MMT: Work in the sciences, working in government as public servants and obviously people whom design any kind of process/system.

      Nothing says failure of the EU employment more than talking with a young italian/spanish person.
      Degree = YES
      Masters = YES (more often now)
      Stage(unpaid) = YES
      Employed = NO || YES Working in a supermarket.

      *note: this ESPECIALLY includes all the subjects which were thought to be ‘safe’ careers and guaranteed employment including: LAW, IT, Medecine, Business, Engineering and the Sciences.

      Just to come at this issue from a systems efficiency design point of view what is happening now is a joke.
      All the ‘energy’ required to equip a person to expert level with knowledge then to let that all go to waste. In parallel with the often obvious need for the skilled person in many of these areas.
      (before adding the human dignity component)

    6. HAPPY NEW YEAR!

      As for the problem of unemployed graduates, I think crowdsourcing is the best solution. There’s enormous potential for governments to crowdsource improvements and solutions, and an irregular income from that is still preferable to a the dead end jobs that graduates would otherwise have to resort to.

    7. What is happy about the New Year? What is there to celebrate in our society? Each year, the idiotic, wasteful and polluting fireworks displays get larger and consumerist trash fills our bins. What are we celebrating exactly?

      Our murdering of refugees?
      Our murdering of Middle Eastern peoples?
      Our rising unemployment?
      Our waste of intelligent young graduates?
      Our destruction of the climate?
      Our killing of the oceans? and
      The fastest mass extinction ever to occur on this planet?

      I can see nothing to celebrate.

    8. Dear ikonoclast (at 2015/01/01 at 11:28)

      What is happy about the New Year? What is there to celebrate in our society? Each year, the idiotic, wasteful and polluting fireworks displays get larger and consumerist trash fills our bins. What are we celebrating exactly?

      Being alive.
      Having some friends.
      Having loved ones.
      Being generous to others …

      I could go on.

      Notwithstanding all the correct things you point out. You will also note I didn’t impose HNY on all – only those that wanted to be wished such!

      best wishes
      bill

    9. Sorry Bill,

      Not directed against you. Directed against the consumerist propaganda. I find it diagnostic that more and more is spent on fireworks and sport each year whilst unemployment and inequity increase.

      PANEM ET CIRCENSES.

    10. Whilst agreeing with the substance I think there is an important political/class aspect to this which is always ignored – the fact that the present position is a result of the “middle classes” abandoning class solidarity and egalitarianism. The middle classes have sought self-enrichment even as they knew it was detrimental to the unskilled and impoverished.

      Such sentiment was popularly encapsulated in the phrase “I’m alright Jack!” Seems everyone has forgotten.

      Following the GFC and falling house prices, the middle suddenly acquired a conscience and the political and business class spoke of “the Nation” and how we are “all in it together”. Grotesque.

      The poor had nothing to do with it (GFC) and were essentially ignored before it. Now that it’s time to dish some pain the poor have a role center-stage.

      The fact Degrees have for so long been a yellow-brick-road is a deep problem, not something to necessarily mourn should it be lost. Declining privilege anywhere surely shatters a few illusions.

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