This Freakonomics Marketplace podcast: Our latest podcast, “Crowded at the Top,” presents a surprising explanation for why the U.S. unemployment rate is still relatively high. (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.)
It features a conversation with the University of British Columbia economist Paul Beaudry, one of the authors (along with David Green and Benjamin Sand) of a new paper called “The Great Reversal in the Demand for Skill and Cognitive Tasks“:
What explains the current low rate of employment in the U.S.? While there has substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labour market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we offer a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the trends in the data that we present, and offers a novel interpretation of the current employment situation in the U.S.
Kai RYSSDAL: Time now for a little Freakonomics Radio. It’s that moment every couple of weeks we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is “the hidden side of everything.” Dubner, how are you man?
Stephen J. DUBNER: Hey Kai. I’m great. I bet you can’t wait to see the new unemployment numbers on Friday. That’s kinda like catnip for you, huh?
RYSSDAL: It makes my day, pal! Come on. I live for that stuff.
DUBNER: Let me say this: whatever the numbers say on Friday, the general picture is pretty clear, which is that unemployment remains relatively high. Everyone has a pet theory, but I’m here to tell you today about a trio of economists who have a new research paper out with a pretty interesting angle to explain the unemployment.
RYSSDAL: Three economists, three times as much fun, Dubner. What do you got?
DUBNER: Let’s start with something we know to be true – that, on average, the more education you get, the better you do in the labor market. There’s no question about that, right?
RYSSDAL: Yeah. It’s “ROE,” baby — it’s “Return On Education,” much like Return On Investment.
DUBNER: Exactly right. And that’s thought to be especially true for “knowledge workers,” people who primarily use their brains for their job — managers and tech jobs, things like that. But one author of this new paper, Paul Beaudry, looked at 30 years worth of hiring data and he found that demand for knowledge workers actually stopped growing quite a while ago.
Paul BEAUDRY “Then you start noticing that it has plateaued in 2000 — even though more and more people are getting educated. It should have kept on going.”
RYSSDAL: So Dubner, you know 2000 was like 13 years ago, right? That’s before the recession. The whole deal. What happened?
DUBNER: Well, what happened is the tech boom. In the 1990’s, the tech boom led to much higher demand for knowledge workers. So more and more people started getting the appropriate college degrees. But in 2000, remember, we had the tech bust. Which meant that demand for knowledge jobs fell, and fast. Beaudry and his colleagues call it “The Great Reversal.”
RYSSDAL: So wait — let me try this one more time. 2000 was 13 years ago, man. Make this make sense in the unemployment situation today.
DUBNER: Here’s the thing: all those highly-educated workers who educated themselves up from what was supposed to be the everlasting tech boom, they didn’t get the jobs that they thought. But those workers don’t go away, and then there are new graduates in the pipeline every year. But there still aren’t nearly enough high-end jobs to suit them. So what happens? Here’s Paul Beaudry again:
BEAUDRY: “If these educated people aren’t getting their jobs in that sector, they must be pushing down. That’s when we started noticing all this cascading. I wouldn’t want to exaggerate. It’s not like everyone is getting a barista job. But that’s exactly the feeling. It’s kind of like this pushing down.”
DUBNER: So that’s a pretty word – “cascading” – to describe a pretty ugly effect: too many highly-educated workers aren’t able to find the jobs they’re expecting. As a result, they get shoved down the labor ladder a couple rungs. Here’s a fellow named Clayton Thomas. He’s a software consultant in Salt Lake City. When he graduated from Duke a few years back — he studied life sciences — he was expecting to have no trouble finding a good research job.
Clayton THOMAS “I went to job fairs where I would discuss openings with companies and I found that I was competing with people who had masters degree, even PhD’s for basically entry level positions, which was pretty scary.”
RYSSDAL: All right, so Dubner, what’s that saying? I heard it in the service a lot. “Stuff,” shall we say, “rolls downhill.” What happens to the people on the bottom rungs of those ladders?
DUBNER: Exactly right. As the top pushes the middle, the middle pushes the bottom. The crowding at the top pushes everybody down. But let me stay on the top for a minute. As much as we hear about needing to educate more STEM workers – “STEM” stands for science, technology, engineering, and math – there’s another new research paper out which argues that there is, in fact, no shortage of STEM workers and that only half of U.S. STEM graduates end up with a STEM job already.
RYSSDAL: This is the most depressed you have ever made me, my friend. There must be some silver lining here. You gotta hit me with that.
DUBNER: Let me try: if you go back several decades, you’ll find that a huge share of the college-educated women in the U.S. labor force worked as schoolteachers. Right? So even though it didn’t pay that well, a lot of the best and brightest women in the country were teachers, because they didn’t have as many opportunities as they do now. When the feminist revolution opened up those opportunities, it was great news for women, who became doctors and lawyers and radio show hosts, on and on. But bad news for the classrooms. So, see what you think of this idea.
RYSSDAL: Is this the “hidden side?” Is that where we’re going?
DUBNER: This is so hidden. This “cascading” that we’re seeing now, with the top pushing down — what it means is that it might be good news for a field like education, because more and more highly-educated people — women and men — could end up working as, say, teachers, or elsewhere in education. So this year for instance, Teach for America, which recruits from elite college campuses, had the most applications in its 20-year history. It accepted only 17 percent of the applicants – which means that on some campuses, it’s almost as hard to get into Teach for America as it was to get into the college itself. So, if selectivity is any measure, that means that the corps of potential teachers, at least, is drawn from a very, very talented pool.
RYSSDAL: All right. I think we can say silver lining found there. Stephen Dubner. Freakonomics dot-com is the web site. He’s back in a couple of weeks. See ya, man.
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