Are U.S. Colleges Failing to Meet the Demands of the Labor Market?

Jan 06, 2010

A paper that was presented at the American Economic Association conference seems to indicate that American colleges are only 'moderately responsive' to the labor market's changing needs.

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From Education to Career

Higher education has historically walked a delicate line between academic and career-oriented study. Members of the ivory tower often claim that what they have to offer transcends job training, but that argument doesn't do much for students with steep loans in a tough job market and struggling economy. In the last few years, both students and businesses have stepped up their demand for a clear path from degree to career.

Even the government sees college as a crucial factor in contributing to the American economy. Obama's famous goal of seeing the U.S. lead the world in number of college students by 2020 is predicated on the theory that advanced education leads to innovation, which leads to competitiveness in the workforce and the global market.

Or so the story goes. A working paper presented this week at the American Economic Association's annual meeting suggests that American colleges and universities aren't keeping up with labor market demands.

American Economic Association

How Responsive is Higher Education? Linkages Between Higher Education & the Labor Market is a preliminary study by Daniel L. Hicks from the University of Oklahoma's Economics Department and Ashok D. Bardhan and Dwight M. Jaffee from UC Berkeley's Haas School of Business. The authors took data from the Integrated Postsecondary Education Data System of the National Center for Educational Statistics on postsecondary degrees completed in the U.S. from 1984 to 2008 and compared it to concurrent occupational statistics from the Bureau of Labor Statistics and the Current Population Surveys. Their goal was to find out what, if any, relationship there was between growth in employment opportunities and increases in degree completion.

The study found that an increase in the demands of the workforce and specific jobs generally led to an increase in completion of postsecondary degrees. However, there's a significant lag. The strongest correlations happened with a four to seven year delay, or the average time it takes to earn a degree. The authors theorize that this failure to respond quickly to changes in the demands of the labor market may be one of the reasons for inequality in wages across occupations and in the economy as a whole.

Figure 7

Figure 7 from 'How Responsive is Higher Education?'

The picture isn't all bleak. The study also found variation between fields in the degree of responsiveness to changing labor demands. The number of medical degrees completed in the U.S. stayed constant for 20 years in spite of growth in both wages and demand, but degree programs for computer scientists, insurance adjusters and physician's assistants were all much more responsive to labor market shifts. The tech boom offers a great example - the number of computer science degrees doubled from 1998 to 2002, just as both jobs and wages were skyrocketing in the field.

The paper suggests that the difference from one industry to another may be caused by significantly greater obstacles to entry in fields like medicine. The industry is more restrictively regulated, requires students to pass difficult entry exams and typically demands years of specialization and on-the-job training. Going into medicine may simply be so daunting that no one becomes a medical student just because there's increasing demand for doctors.

Computer Scientist

The study's authors do acknowledge certain limitations in their findings. The study cannot fully account for the role mid-career-switching may play in filling demand in the labor market. Also, because their research required matching specific occupations to fields of study, they were only able to explore a relatively narrow range of careers that require highly specialized training.

Nevertheless, they suggest that their results could have an important implication for public policy. The U.S. economy stands to gain from a more flexible higher education system that is more responsive to the labor market, especially in fields where jobs are being outsourced. They suggest various measures to encourage education where jobs are needed, including making it easier to create specialty schools and offering incentives like fellowships to increase enrollment at existing institutions.

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