College Grads See Lower Real Wages

Even if President Obama’s Job’s Plan were to be voted on and passed today, workers everywhere continue to suffer from the economic crisis and jobless “recovery”. Some, however, fare better than others. Since the end of World War II with the advent of the G.I. Bill, higher education has been touted as the means by which working class people can push themselves above the fold and into the fabled “middle-class”. This has resulted in a dramatic increase in the enrollment of students in universities and colleges and these institutions have seen their numbers skyrocket since the recession began in 2008. After sixty years of this trend, one can test whether the hypothesis regarding the benefits of advanced degrees has proven true.

After World War Two the truth of the theory was nearly self-evident. Workers who had bachelor’s degrees in 1975 had an unemployment rate of 2.9% and made an average wage of $15.91 in today’s dollars well above the rate of their uneducated counterparts. In 1979, a male college graduate could expect wages around 20 percent higher than a male high school graduate, a gap that jumped to over 40 percent in 2000. For women, the advantage of a college degree in terms of real wages was significantly more. This trend has held through until 2000’s when it appears the saturation level of advanced degrees seems to have stalled the massive push in employment and wages paid to those who hold them. Today, it appears the trend seems to be the opposite, while still maintaining an edge against other workers in numbers employed (however, most figures do not take into account the percentage those that are underemployed) their wages have taken a significant hit in recent years.

The average pay for those with bachelor’s degrees has fallen from an hourly rate of $22.75 in 2000 to $21.77 in 2010 and struggle with an unemployment rate of 4.3%. As the Economic Policy Institute reports, the average starting salary of young college graduates, adjusted for inflation, has dropped by almost a dollar in the last 10 years but in general American worker’s average wages increased on average only 11.5 cents per hour per year. Compare this to CEO pay which put in real terms, the median pay for an American CEO was $2,436,000 (or $1171.15 per hour!) in 1989 and $10,775,000 by 2010. This means that while the average worker in 2010 makes $21.77 per hour the CEO makes $5180.29! In 1965, CEO pay was 26 times that of their average worker. In 1980, as noted, 40 times. In 1989, it was 72 times. In 1999 it had risen to 310 times, and today, as per the above data from the accounting firm, Towers Perrin, survey it has reached 500 times.

Several factors account for the downward trend in college graduates wage decrease. First, high levels of unemployment mean that as more workers are looking to fill positions, they become more willing to sell their labor to employers at discounted rates. When forced to choose between going to bed hungry and working for discounted wages, any reasonable worker will chose the latter. Employers have exploited this fact all while simultaneously cutting or gutting benefits packages under the guise of “cost savings.”

Many recent graduates have trouble getting into the workforce as the lack adequate experience. The high levels of unemployment disproportionately affect these workers in that they have an advanced degree (which formerly tended itself to higher wages – not a favorable quality to profit-seekers) but little experience. Since there all millions more job seekers than just a few years ago, there may be several less educated workers who have been in the field longer applying for the same position as the college educated. This encourages employers to hire those with more experience in order to continue to pay menial wages. Another alternative for these students is to pursue an advanced degree such as a Master’s, PhD or J.D. Touted as a way to overcome the experience gap, these students suffer from the same issues described herein, yet with even more crushing student loan debt.

My own experience may be valuable here. I graduated with my bachelor’s degree in 2008 just before the housing market collapse.  After hundreds of unaccepted or unreplied applications I decided that an advanced degree would help me to be attractive to potential employers. I enrolled in graduate school and in July of 2010 became a Master of Public Administration. This degree, suited to a job in government soon proved to be a fool’s errand, having incurred more than $25,000 in student loans and forced to endure the same process I had in 2008, with the same results. I only found employment in an unrelated field after moving across country and by sheer luck while having to sell my labor at the “fair market rate” of $10 hour. And, to add insult to injury, after less than a year employed there, I was subsequently laid off and was thrust back into the ranks of the unemployed.

The lethal combination of tens to hundreds of thousands of dollars of student loan debt and the higher rate of unemployment for many means a myriad of tough choices.  For many it means begin forced to default on student loans (for which not even bankruptcy can rid). The national two-year cohort default rate rose to 8.8 percent last year, from 7 percent in fiscal 2008, according to figures released by the Department of Education. Others have had to choose to move back in with their parents. Others are still having to make ends meet at jobs which in no way relate to their degree or field of study. However, stimulus fever House Resolution 365, a bill that seeks to provide student loan debt forgiveness as a means of economic stimulus, has been proposed by Congressman, Hansen Clarke (D-MI) but is sure to go nowhere in today’s Austerity-happy Legislature.

It is important to note that a college education still seems to be the right choice. As David Leonhardt of the New York Times shows:

“Relative to everyone else, college graduates have never done better than they are doing right now. In absolute terms, of course, they too have been hurt by the deep recession that began in late 2007. But they have suffered much less, on average, than workers with less education. They have been less likely to lose their jobs, and their paychecks have survived the downturn much better.”

The main lesson to take from all of this: Go to school, it is still worth it and it is loads of fun.

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