Monday, May 3, 2010

Educational Achievement and Unemployment

Consider the following charts, which show the unemployment rate and median usual weekly earnings for various groups based on educational achievement:

For high school drop-outs, the unemployment rate never reaches 5% -- a statistical level economists argue is "full employment. Even during periods of economic expansion the rate of unemployment is high. Simply put, high school drop-outs face a difficult time even in good times. When bad times come, this demographic group experiences extreme difficulty.

Let's take a look at weekly wages for high school drop-outs:

The "median usual weekly earnings" of high school drop outs is currently $450, or $23,400/year -- not much money.

The unemployment rate for high school graduates does hit full employment, but only after the expansion is underway. They did fairly well during the 2001 recession, with unemployment rates barely above 5%. But they have been hit hard by the latest recession with unemployment rates of ~10%

The "median usualy weekly earnings" of this group is right around $625, or $32,500/year. This is OK, but still places them at or near the "one bad week and they're in serious economic trouble" camp.

The "some college or associates degree" had done well until this recession. Notice this group has always been near "full employment" of 5% until 2009 when their unemployment rate hit 8%.

The median usual weekly age for this group is around $725, giving them an median usual annual income of $37,700.

The unemployment rate for people who have college degrees and higher has always been below full employment. Even during the Great Recession this number has maxed out at 5% -- full employment.

Finally, this group has better earning power, with median usual weekly earnings (second quintile) of about $1025, or a median usual annual income of $53,300.

The data's results are very clear.

1.) Lower levels of education achievement mean a higher rate of unemployment even in good economic times, and low earning potential.

2.) The higher the educational achievement, the less susceptible to economic events one becomes.

3.) Higher educational achievement means higher earnings.

Let's look a bit deeper into the job loss data. Below are two charts -- the first is total construction employment and the second is total manufacturing employment.

Both of these areas -- which typically attract lower educational attainment employees -- have been hit very hard in the latest recession. Construction has lost ~2 million employees and manufacturing has lost ~ 2.5 million. Neither of these areas is coming back soon. The US is very overbuilt and manufacturing is moving towards higher and higher rates of automation. This means the US has two choices: educate the unemployed so they can find better paying jobs or create jobs that these people can fill (or a combination of both).