Got the Job, but Did I Need the Degree?

Does higher education have a "value" problem?

A headline that states “Half of College Grads are Working Jobs that Don’t Use Their Degrees” gets your attention.  We’ve looked at earnings, employment, health/social outcomes, and debt in recent posts as we unpack the value of college.  But, here’s another issue to consider: yep, I got the job but I didn’t need the degree.

The headline above and several other recent stories are based on the report Talent Disrupted – College Graduates, Underemployment, and the Way Forward from The Burning Glass Institute and Strada.  In the Burning Glass/Strada study and much of the research on underemployment, a college graduate is underemployed “based on whether the majority of workers in an occupation have or are required to have a bachelor’s degree”.  For example, if more than half of those employed in the occupation “Sales” don’t hold a bachelor’s degree, then a college graduate working in “Sales” is considered underemployed.  (Other studies use the number of people working in an occupation who say you need a college degree to work in that occupation to define underemployment.)  

How do we interpret this?  A causal read might suggest something like ‘if you could have gotten this job without ever going to college, wasn’t college just a waste of time and money?’  

The strongest support for this view is that underemployed college graduates are less likely to capture the wage premium that typically comes with a college degree and may compromise their future earnings potential given their first job does not fully utilize their skills.  In the Strada/Burning Glass study, graduates employed in college-level occupations show an 88% earnings premium over high school graduates, while the earnings premium for underemployed college graduates is 25%.   Beyond earnings, underemployment has been associated with a variety of negative health and social outcomes including depression, mental well-being more broadly, and personal relationship issues.

While some college graduates do end up flipping burgers and staffing coffee bars, was college really a waste of time for half of our graduates?   We’ll dig into this and explore several critical questions. Is underemployment a new phenomenon?  How severe is the problem? Is it persistent? And ultimately, why are college graduates underemployed?

History, Severity, and Persistence of Underemployment

While the recent focus might suggest otherwise, there is nothing new about underemployment.  As defined above, the proportion of recent college graduates underemployed has hovered between 38% and 48% for decades.   Notably, these numbers are considerably lower for all graduates, and the underemployment rate gets worse immediately after a recession.      

Source: Federal Reserve Bank of New York

The Burning Glass/Strada study take a deeper look at the severity and duration of underemployment.  They find 52% of college graduates are employed in a job that has been classified as not needing their degree.  Most disturbing is the finding that almost 9 out of 10 of those underemployed are “severely underemployed” – working in jobs that typically require only a high school education or less.  (The remaining 12% are moderately underemployed - working jobs that require some education beyond high school (associate degree, etc.), but not a bachelor’s degree.) 

The Burning Glass/Strada study finds that underemployment persists for long period, and this state persists for many years after graduation – 73% remain underemployed after 10 years.  But another  study found underemployment was “a temporary phase for recent college graduates as they transition to better jobs after spending some time in the labor force” – a very different situation.

Trying to put the severity of the issue in perspective, we think the technical definition of underemployment is somewhat problematic: while 51% of the jobs in a specific occupation may not require a college degree, the other 49% may!  As an example, a number of job categories including the word ‘sales’ are classified as jobs that do not require a college degree – and we have no doubt that many do not – average salaries for those classified in ‘sales’ positions range from $31,190 for those salespersons working retail sales or in gasoline stations to $146,080 for those selling commodities and financial securities.  While many jobs in ‘sales’ may not require a degree, literally hundreds of students graduating annually from our institution with degrees in engineering, pharmacy, agriculture, science, and business take jobs in highly technical sales positions.

Within the set of occupations that sometimes employ high school graduates and sometimes hire college grads, there is likely an estimable wage gradient for more years of education – the more education, the higher the salary within specific occupations - and there is some evidence for this.  Still, the college wage premium is considerably smaller for graduates in the underemployed category than overall, which suggests that a college degree is less valuable in these cases. 

Why are Grads Underemployed?

First, graduates may not be able to find a first job in the field they studied – or they may not find it immediately upon graduation.  There may be an imbalance between supply and demand, with too many graduates competing for too few jobs in the field.  This problem can be exacerbated when a job search is geographically constrained, or when trying to solve a dual career placement with a spouse/partner. 

Second, employers may post positions as available to either college or high school grads in order to expand search pools (something happening with increasing frequency).   But if given a choice they’ll still hire college grads and pay them somewhat more because they believe the college grad will perform at a higher level.  Why else would an employer ever hire a college graduate into a job that only requires a high school education – and pay a 25% premium for the overqualified college graduate?  In short, using job postings/education requirements to conclude that “workers don’t need a college degree for this job” doesn’t speak to the question of whether employers prefer a college degree holder. 

Do underemployed college grads take just any job available at the time?  The answer appears to be no.  One study found that after the Great Recession, underemployed college graduates took positions that utilized their skills at much higher rates than those without a college degree – 25% of the college graduates technically underemployed were working in physical labor/low-skill service jobs compared to over 50% for those without a college degree.  The real problem here is that when graduates who begin their job search during a recession suffer a lasting employment impact that economists call labor market “scarring”. 

Source: Abel and Dietz, NBER 2016.

A third reason for underemployment is that grads may not have the skills and capabilities needed to take a job in the field they desire due to poor advising, a weak curriculum, or perhaps a lack of effort on the student’s part while in college.  We’ve both had students who didn’t decide what they really wanted to do until they were seniors, and then went to graduate school to get the prep they could have obtained as an undergraduate. 

Looking at the data across college majors, students majoring in more quantitative fields are less likely to be underemployed.  While 23% of the students who majored in the health professions and 26% of the engineering majors are underemployed, 55% of students majoring in humanities and cultural studies and 57% of those in business majors which are not math intensive (management, marketing, HR,...) are working in jobs where more than ½ of the positions don’t require a college degree.

A final point is choice.  Students may choose employment in a field where most jobs don’t require a college degree because the job offers an opportunity to pursue personal values such as social justice or working out-of-doors.  While they may look “underemployed” to a statistician, the graduate who is pursuing a personal passion does not consider themselves underemployed.  Now the evidence is a bit mixed here with some support for the idea that if I chose a particular job because it had meaning for me (helping make the world a better place, …) or brought something else of value to me (geographic location, flexibility, …), I don’t consider myself underemployed no matter the education requirements of the job.  Other work doesn’t find such effects.

Closing Thoughts

Like many questions about college value, underemployment is complicated.   We think it is a real issue, just not one as severe as the raw statistics cited by some recent studies.

The choices students make about where to go to school, what they study, and where they take their first job do have profound implications on the cost of their education and the earnings path they start down.  To this end, the Strada/Gallup study points out the importance of career counseling, more transparency in job outcomes by major, securing an internship, etc.  And, we certainly applaud such interventions. 

That said, stepping back and considering ‘underemployment’ more broadly, while we would tell them their career earnings are likely to be lower than other majors, we aren’t ready to tell a visual and performing arts major that they won’t use what they learned in college when they enter the work world.

Research assistance provided by Marley Heritier

Finding Equilibrium” is coauthored by Jay Akridge, Professor of Agricultural Economics, Trustee Chair in Teaching and Learning Excellence, and Provost Emeritus at Purdue University and David Hummels, Distinguished Professor of Economics and Dean Emeritus at the Daniels School of Business at Purdue.