Oregon Office of Economic Analysis

The Great Recession has damaged the labor market. Of that there is no question. However, has it given rise to the educated service class? Those workers with a college degree that are stuck in jobs that don’t require a degree. This is a true fear out there, that it is happening, particularly in places like Portland. However, as I’ll show below, it really doesn’t seem to be the case. Yes, younger, even college educated workers, tend to be underemployed more than 30 and 40 year olds, however in both good times and bad these shares tend to even out with age. With that being said, graduating during a recession does negatively impact your wages and earnings and recent research shows that underemployment impacts earnings and career prospects as well. However, it does not appear that the Great Recession has given rise to a new, larger and permanent educated service class that many fear. At least not any more so than we have seen in the past decade.

Overall, in both good times and bad about half of young, college educated Americans work in a job that requires a degree*. Another 35 percent, or so, work in jobs that do not require a degree, while the remainder are either unemployed or not in the labor force at all. What is surprising here, at least to me, is that these shares appear to be remarkably steady over the past decade. Wages and earnings may suffer or gain with the business cycle but occupational sorting does not appear to do so.

However, the manner in which individuals move within these categories in any give year depends a great deal upon which portion you are in to begin with. Since the ultimate goal is the best fit for each worker (labor matching) it is no real surprise to see that over 90% of those in a degree job, remain in a degree job the next year. However the percentages are drastically different in you are in a non degree job and presumably underemployed. Here, even though 2/3 of such workers remain in a non degree job, this share is considerably lower than for the other group. Furthermore, a worker with a college degree and working in a non degree job has nearly 4 times the probability of leaving the labor force entirely than transitioning into a job that does require a degree.

What is similarly surprising here, is that these relationships and transition probabilities are stable over time as well. The bright side is that the probability of a worker moving from a non degree job to a degree job is consistently higher and about double that of a worker moving in the opposite direction. Additionally, these transitions from a non degree job to a degree job happen more frequently at a younger age, which makes sense given they may still be working their college job and/or recently relocated to a new city and the like.

Even as these shares and transition probabilities have been pretty stable over time, they are not perfectly equal each year. Overall the share of degree holding individuals employed in degree jobs is down from the housing boom peak, however this adjustment has come entirely among the youngest workers. This is where the potential concern ultimately rests. Do these patterns hold moving forward? Does this permanently impact the careers and earnings of the Millennials? Unfortunately, the Clark et al research (linked above) shows that it likely will, based on workers entering the workforce in the 1980s and 1990s. However their work focuses on the underemployed. However that’s not where the adjustments have been made in recent years. The share in non degree jobs is roughly the same; the adjustment has been made in higher rates of unemployment and those not in the labor force. How exactly will this impact the Millennials’ careers? It’s certainly not going to help, although the silver lining for the medium term is that much of the increase in NILF is due to going back to school, in this case graduate school. That should be a good thing, ultimately.

Ultimately it does not appear that the Great Recession ushered in a new, larger educated service class. That’s the good news. Younger, college educated, individuals are somewhat less likely to be in a degree requiring job today, however their rate of underemployment does not appear to be substantially higher either. That’s the OK news. The adjustment has come in higher unemployment and less labor force participation, which isn’t good either. It will certainly be important to monitor these developments moving forward, particularly as peak Millennials are about 22 and 23 years old today. That is, the largest bulge of Millennials are currently aging out of their college age years and into the start of their prime working years. Overall, as the economy continues to grow, and as the Baby Boomers continue their march into retirement, more job openings will occur, into which the Millennials and Gen Xers will step. The research on earnings for those graduating in recessionary times and those underemployed paint a bleak picture for wages. That’s the bad news. However in terms of labor matching in a big picture, it will likely even out as the Millennials move into their 30s.

Notes: I cross reference BLS education requirements by individual occupation with the Current Population Survey data from the Annual Social and Economic Supplement (March). There is a series break as 2003-2010 is based on one set of occupational definitions and I use a 2010 BLS educational requirement definition for these years. 2011-2014 is based on slightly different/updated occupational definitions and I use a 2012 BLS educational requirement definition for these years. Overall just minor differences, but they do exist.