Student Debt + Stagnant Real Wages = Colleges Need to Focus On Student Success

Today’s post is an excerpt of something I wrote for another site.  This year, in addition to my teaching duties at the college, I’m leading a project to update our college strategic plan.  As part of that project I’m writing and editing a series of “briefing papers” (long blog posts, actually) about issues of strategic importance to the college’s future.  When those papers cover a topic that I think might be of interest to econproph readers I’ll cross-post them. Last week I wrote the following about the student debt explosion in the U.S., the stagnation in hourly wages for those for with less than college degrees/credentials, and the implications for those of us who work in higher education.  The full original post is here.

America has a student debt problem.

And it’s growing. According to the statistics assembled by the New York Federal Reserve Bank, theU.S. Dept. of Education, and other sources, total student loan debt outstanding is nearing $1 trillion, easily exceeding the $791 billion in total credit card debt.  As disturbing as the total might seem, the growth rate of student debt is even more distressing.  This graph, first published by The Atlantic last summer from NY Federal Reserve Bank statistics shows the relative growth  (not amounts) of outstanding student debt since 1999 compared to total household debt including mortgages. FromThe Atlantic:

The red line shows the cumulative growth in student loans since 1999. The blue line shows the growth of all other household debt except for student loans over the same period.

crazy student loans 2011-q2.png

This chart looks like a mistake, but it’s correct. Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

The chart  is striking for another reason. See that blue line for all other debt but student loans? This wasn’t just any average period in history for household debt. This period included the inflation of a housing bubble so gigantic that it caused the financial sector to collapse and led to the worst recession since the Great Depression. But that other debt growth? It’s dwarfed by student loan growth.

Roots of the Problem

The student loan debt problem has many roots, most of which [colleges] cannot change or directly affect.  Causes of the explosion in student debt include:

  • A long-term shift in U.S. political opinion away from thinking of higher education as a public good with direct funding support from government toward thinking that students should pay for their own educations with loans guaranteed by the government.
  • Tuition and fee increases in higher education (particularly at 4 year schools and especially at private schools) have outpaced inflation for at least 3 decades, driven by cost increases, stagnant productivity, and reduced government direct funding.
  • Middle class real incomes have been largely stagnant or only modestly increasing for those same 3 decades, limiting the ability of families to pay dependent students’ tuitions.
  • The collapse of the housing price and mortgage bubble in 2006-07 which limited the ability of many middle- and working-class families to finance college education through home equity loans.
  • High unemployment rates since 2008 have limited the ability of students to work while in college and have also sent increased numbers of unemployed back to college.

 most community colleges can be a partial solution to the nation’s growing student loan burden.  After all, [community colleges are] one of the most cost-effective providers of the first 2 years of a college education.  Indeed, students can graduate with a bachelors’ degree with less total indebtedness if they take their first two years at community college and then transfer.

But the growing student loan problem when combined with another trend has even more significant implications the community college mission.

The Long Term Trend on Real Incomes – A Closing Middle Class

Long term trends in incomes in the U.S. including increasing income inequality have become a news headline topic in recent months.  …  Cumulative Growth in Hourly Wages, 1979-2009, by Level of EducationAs this graph from  the Congressional Budget Office (via Paul Krugman) shows, over the past 30 years the clear trend in hourly wages for workers with less than high school or only high school education has been negative. A high school graduate now earns 10% less per hour in inflation-adjusted dollars than they did 30 years ago.  Even workers who only have some college but haven’t completed a formal degree or credential are either negative or at best, even with 30 years ago.  The data in the graph is from 2009 and labor market conditions have not improved since then.  Indeed, most labor market economists, myself included, expect little to no improvement in wages or employment rates for many years to come.

So what does this mean?  It’s clear that for young and middle-aged people, the route to a rising income and participation in the middle class requires either a college credential or advanced degree.  Yes, anecdotal exceptions are always possible such as the stellar young person who becomes a big success in sports or entertainment. But the numbers are clear – for virtually all, membership in the middle class in the future requires succeeding at college not just attempting college.

Implications for LCC and It’s Mission

The mission of LCC and community colleges in general since they were created has been to provide access.  The great post-World War II expansion of community colleges in the U.S., of which LCC was a part, was based on the idea that broad, democratic access to higher education was important.  Community colleges provided access to college for millions who otherwise couldn’t attend, either because of costs, lack of family support, family/work obligations, location, lack of preparation, grades, or other circumstances.  Over time community colleges have expanded programs to help  increase access to even more individuals.  Indeed, this open-door, democratic access mission is a large part of the motivation for many who work at LCC.  Providing access is something we could feel good about.

But let’s consider how access has traditionally worked.  LCC, like most community colleges, has focused on providing the same basic instruction and learning that was available at 4 year institutions.  The difference was we had an open-door. We provided access.  We provided a chance at college and greater income and success in life. But it was always considered up to the student to succeed. The historical model is the college provides the student a chance at success. If they didn’t succeed that was their problem.  We measured our success by our enrolments as an indicator of the number of people to whom we had provided access.  Thirty years ago, if a student attempted college and didn’t succeed it didn’t carry the consequences it does today.  Thirty and forty years ago, a student who failed at college or simply didn’t complete could always get a job in a factory or a trade. They could still make a middle-class life despite not succeeding at college.

Now the trends tell a different outcome.  If a student doesn’t attempt college at all, they are likely not going to stay in the middle class at all and will likely experience declining real incomes.  The big change is if the student does attempt college but simply doesn’t succeed or complete, today their prospects for staying in the middle class are slim.  Successful completion of a college degree or credential has become a requirement now for a middle class future. It’s necessary for young people in particular to attempt and succeed at college now.

But now let’s add the student loan issue.  Suppose a person attempts college today but doesn’t succeed. Not only are they faced with the prospect of flat to declining real income, they have a significant burden – their student debt. Under current law there are really only two ways to discharge student debt – either pay it or die. Student loans cannot be discharged in bankruptcy. There’s no asset to sell or foreclose. So today’s student is facing a higher risk environment than their predecessors did in previous generations.  Instead of access to college being a chance at a better life, it’s now a high-risk necessity.  So it’s not just access; it’s success that matters.

The governments, both state and federal, are paying increasing attention to success rates.  As mentioned in the first briefing paper, state governments, including Michigan, are increasingly looking at funding for higher education in terms of how many successful credentials or degrees does it produce, not just how many seats in classes were offered.

Beyond what the government is requiring, the success issues pose a challenge to our understanding of our core mission and how we measure our institutional success. In today’s environment, providing access to large numbers of students without regard for their success is playing a cruel joke on them.  It’s teasing them with dreams of a future many of them won’t achieve and then punishing them with a burden of debt.  For those of us in the institution, that’s not the motivator that the original access mission was. We need to adjust our sense of the mission.  Yes, access is important, but it needs to be successful access.  Successful access as a mission changes many things.

It changes our most basic metric of institutional success. Instead of simply enrollment growth showing institutional success at providing access, we now need to consider whether that access was successful. …But measuring success and access are one thing. Improving them is another. The shift to successful access calls for many changes in the organization, it’s processes, systems, the curriculum, teaching methods, support services, and attitudes. It is not easy or simple. It is very challenging.

Rick Snyder Advocates Government Planning to Fix the Labor Market

In recent posts here, here, and here, I’ve been discussing structural vs. cyclical unemployment.  In particular I’ve observed how those who are opposed to government stimulus efforts, either broad-based tax cuts or spending, are desperate to assert that our unemployment is a structural problem and not cyclical.  Yesterday’s post about a story in the Wall Street Journal was one example.  But here in my home state of Michigan, our Governor Rick Snyder has been saying much the same thing.  Since Governor Snyder’s previous claims that the magic jobs genie would create jobs from budget cuts have not worked, he really wants to join the “it’s all structural” brigade.  So last week Snyder announced:

Michigan needs to do better training people for in-demand jobs, and matching skilled workers with potential employers, Gov. Rick Snyder said…

“Today, too few workers have the skills needed to meet the demands of employers in the new economy,” Snyder said, according to an advance copy of his message. “Despite an unemployment rate of 10.6 percent, thousands of jobs remain unfilled in Michigan.”

Snyder said state companies say there is a “talent disconnect,” with baby boomer retirements leading to a loss of skilled workers and increasingly technology-driven economy requires advanced skills that many of our workers do not have.

“Today, talent has surpassed other resources as the driver of economic growth,” he said. “Times have been tough in Michigan. We have failed to think strategically about the relationship between economic development and talent. Job creators are finding it challenging to grow and develop without the right talent and job seekers are struggling to connect with the right opportunities that leverage their skills.”

Among the proposals is a new website, Pure Michigan Talent Connect – – will feature tools for job-seekers and employers to identify labor trends and help people assess their skills, look for the training they need and connect with mentors.

The site is being launched in phases through June 2012. The first phase, features the “Career Matchmaker” and the “Career Investment Calculator.”

Partnering with public colleges and universities to provide a post-secondary education that is marketable and transferable. Snyder noted that the Center for Michigan concluded that colleges graduated 20 percent too few computer and math professionals, 14 percent too few health care professionals, and 3 percent too few engineers in 2009-2010.

“We need to stop overproducing in areas where there is little or no occupational demand and encourage students and educational institutions to invest in programs where the market is demanding a greater investment in talent,” Snyder said. “The current imbalance creates a population of young talent that cannot find work in Michigan, is saddled with debt and is ultimately forced to leave the state. This is an outcome we cannot afford.”…

“The simple truth is that tomorrow’s opportunities cannot be realized with yesterday’s skills,” he said. “The challenge we face is to align the aptitudes and career passions of job seekers with the current and evolving needs of employers. The solution is to reinvent the way in which we prepare our children for successful, fulfilling careers; reshape the manner in which Michiganders look for work; and redesign the way in which employers obtain the skills they need.”

Basically, Snyder is now asserting that Michigan’s high unemployment rate is primarily structural – it has nothing to do with Snyder’s jobs cuts and spending cuts in the state or with the present contractionary federal fiscal policy.  Instead he blames the unemployed – they have the wrong skills and the wrong education.  What’s particularly interesting here is that normally Snyder, like most Republican governors, is very pro “free market” and “private sector”.  But apparently the free market and the private sector haven’t performed well in the labor market according to Snyder.  Snyder seems to be saying we need government planning and direction to tell people what skills and education to get.  Apparently Snyder also doesn’t think private employment agencies or employers do a very good job of identifying trends or make connections.

I think the problem is not that Michiganders don’t know the right way to look for work.  There simply aren’t enough jobs at reasonable wages when they look.  It seems strange to hear calls for such fancy government economic planning coming from a so-called advocate of free markets and the private sector.  But when you’re desperate to justify spending cuts instead of stimulus, I guess that’s what you say.

Below Market Wages Belies Claims of Structural Unemployment

Continuing what has turned into a short series on unemployment and structural unemployment in particular (see Monday and yesterday’s posts), let us look at some of the claims that structural unemployment.

First up, Brad Delong points us to Kevin Drum who tells the following story:

Kevin Drum:

Skilled Jobs Go Begging? Not Quite: The Wall Street Journal has a piece up this weekend about the difficulty that many companies are having hiring skilled workers in certain areas…. Here’s a description of some skilled job openings at Union Pacific railroad:

When the railroad had openings for diesel electricians earlier this year, it took [Ferrie] Bailey 10 hiring sessions to fill 24 jobs….Known as “installation technicians,” the workers are responsible for putting in and maintaining a sprawling network of cable, microwave relays and related equipment that enables the railroad to monitor 850 trains running daily along its 32,000 miles of track.

This doesn’t require a bachelor’s degree but demands technical skills gained either through an associates’ degree or four years of experience in electronics. And it is grueling work. Technicians have to climb 50-foot communications towers, clamber up utility poles and work outdoors through Wyoming winters and Kansas summers. They put in 10-hour days, in clusters of eight or ten days, and are routinely away from home more than half of each month.

….Standing at the front of the room, Ms. Bailey described the deal. As installation technicians, they would earn $21.64 an hour, or close to $48,000 a year for the railroad’s regular work schedule.

Then there’s this:

After a website job posting, Ms. Bailey initially drew 58 applicants. Of them, she deemed about two dozen sufficiently qualified so that she invited them to take a $25 aptitude test, at their own expense.

Let me get this straight. Union Pacific is supposedly desperate for candidates and can barely fill all their open positions. And yet, when they identify 24 qualified applicants, they aren’t even willing to maximize their hiring pool by ponying up $600 to make sure they all take the aptitude test. Then, later in the story, there’s this:

Ms. Bailey faced more stiff competition at a job fair the next day, because then she was up against several other employers looking for the same sort skilled people as she was. “Make $70,000 – $80,000 the first year with FULL BENEFITS,” read a sign at a booth right across from Ms. Bailey’s at the job fair, put on by the U.S. Army in Fort Carson, Colo., largely to help departing soldiers ease back to civilian life.

So here’s the story. Union Pacific is offering $48,000 per year for skilled, highly specialized, journeyman work that’s physically grueling and requires workers to be away from home about half of each month. The competition is offering 50% more, but not only is UP not willing to increase their starting wage, they’re so certain they can fill all their positions that they make qualified candidates pay for their own aptitude test. And despite all this, they filled all 24 of their positions in ten hiring sessions.

It doesn’t sound to me like there’s a huge shortage of qualified workers here. It sounds to me like Union Pacific is whining about the fact that it took them all of ten hiring sessions to fill their quota even though this is a really tough job and they aren’t paying market rates for workers. It’s as if they think that actually having to make a modest effort to attract job candidates is an inversion of the natural order or something. Speaking for myself, I think I’ll hold off on breaking out the violins.

Kevin has done an excellent job of taking the structural claims apart, but I’ll pile on anyway.  The claim that unemployment is structural is a claim that the labor market is segmented into different labor markets for jobs with different skills.  Further it asserts that there is no elasticity of supply between these different labor markets – in other words, if either have the skills or you don’t, there’s no on-the-job training or adaptable skills possible.  Finally, if unemployment is structural then we are saying that there’s a shortage (lack of supply) of workers in that skill category in that geographic area.  The Wall Street Journal is claiming that because Union Pacific cannot find enough willing sellers (workers) at the price (wage) Union Pacific is offering then there must be a shortage of qualified sellers.  Umm, how do I put this?  No.  Rather it’s evidence that the Union Pacific simply wants to pay below-market prices to labor.  That’s all.  Saying this is evidence of structural unemployment is like me claiming there’s a structural supply shortage of new automobiles because no dealer will sell me a new Porsche for $15,000.


Fixes for Unemployment Depend on Whether It’s Cyclical (It Is) or Structural (It Isn’t)

Yesterday I recapped the November employment report. The employment picture remains grim.  The workers depression continues.

As my favorite graph from Calculated Risk shows here, regardless of what happens to the unemployment rate, our recovery from the jobs lost in the recession is incredibly slow.  At the pace we have been on for the last 2-3 years, we won’t recover the jobs lost in the recession until around 2018 – a full lost decade.

Thanks partly to the #OccupyWallStreet movement, these 14 million unemployed aren’t so invisible as they seemed last summer when the policy debates were all about debt and deficits.  Since denial of a problem has failed, folks who argue against any attempts by the government to stimulate the economy need a different pitch.

That revised pitch is that the unemployment problem is “structural”, not “cyclical”.  Now before I move on to show the problem is not structural, let me explain the difference. I’ve looked at structural vs. cyclical before here and here, but I’ll summarize.  In economist-talk, “unemployed” means you are part of the labor force but you don’t have a job.  To be part of the labor force, you must be actively looking (“willing and able”) to work.  Those numbers come from government surveys. Economists unofficially classify those unemployed workers according to why they don’t have a  job.  There’s four possibilities:

  1. Frictional – there’s a job for them, they simply haven’t been matched with it yet.
  2. Seasonal – the job will exist again next year when the season is right (think downhill ski instructors in July)
  3. Structural – empty jobs exist but the unemployed workers either don’t have the right skills or aren’t in the right location.  Train the workers or move them and unemployment disappears.
  4. Cyclical – there simply aren’t enough empty jobs for the number of unemployed workers.  If the GDP were larger and spending greater, then jobs would be created and the people put back to work.

For policy reasons we aren’t concerned with frictional or seasonal. Time cures those individual unemployment situations. But if we only had frictional or seasonal unemployment, our unemployment rate would be much, much lower – 4% or even lower.  Clearly we have either have a lot of structural or cyclical or both.

Which we have matters for policy reasons. If unemployment is structural, then we can effectively blame the unemployed for their fate.  They didn’t get the right skills. They chose to live in the wrong place. From a policy standpoint, the government might adopt policies that support re-training but that’s about it.   If, however, unemployment is cyclical, then government has plenty of room to reduce unemployment through stimulus programs, either effective tax cuts and/or increased government direct spending.

Brad Delong points us to David Wessel of The Wall Street Journal who tells us how and why today’s high unemployment is not structural. In other words, we could bring down the unemployment very dramatically and very quickly if we chose to.  Politicians in Washington simply choose not to do so. (bold emphases are mine)


Untangling Long-Term Unemployment: Herman Cain, the Republican presidential candidate, avoids carefully calibrated talking points. “If you don’t have a job and you’re not rich, blame yourself,” he said in a Wall Street Journal interview.

Beneath Mr. Cain’s blunt words lurks an economic hypothesis: that there’s nothing much government policy can do to bring unemployment down from today’s 9.1% rate…. [I]f the unemployed aren’t willing or able to fill jobs that muscular stimulus might produce then there’s little wisdom in borrowing more money or chancing inflation. We just have to suck it up.

But according to Fed governor Daniel Tarullo, a veteran of the Clinton White House and Obama presidential campaign who has spent the past few months consulting with Fed and other labor economists for a speech on the job market he is to deliver Thursday at Columbia University, there is little evidence that the bulk of today’s unemployed would still be unemployed if the economy were growing faster or that the bulk of today’s unemployment is, in the jargon of economists, “structural.”…

The Labor Department counts 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per job opening. Before the recession, the ratio was 1.5. If every opening were filled instantly, there would still be many unemployed.

Wages aren’t rising. “We don’t see rapid wage growth almost anywhere, which is what you would expect if firms were bidding up the wages of qualified workers and were unable to find qualified workers among the unemployed,” said Harvard University’s Lawrence Katz.

Unemployment is up across ages, occupations, industries and years of schooling. “We had a fast-advancing economic decline with layoffs and hiring freezes in a broad range of sectors of the economy. That is not consistent with an increase in structural unemployment being the big explanation,” Mr. Tarullo said…


November Employment and Revised 3rd Qtr 2011 GDP

I’m a few days late but I wanted to note the latest employment (jobs) report and the first revision to 3rd quarter GDP.  There’s really not much news here – it’s the same old story. The economy continues to move along somewhat like  a zombie.  Not really dead, but definitely not anything you could call “living”.  That’s particularly true if you’re one of millions of unemployed who need a job to “make a living” but can’t get one.

CalculatedRisk Blog tells us:

From MarketWatch: U.S. economy adds 120,000 jobs in November

The U.S. gained 120,000 jobs in November and the unemployment rate fell to 8.6% from 9.0%, the Labor Department said Friday. The government also revised jobs data for October and September to show that 72,000 additional jobs were created. … Hiring in October was revised up to 100,000 from 80,000 and the job gains in September were revised up to 210,00 from 158,000. In November, companies in the private sector hired 140,000 workers … Government cut 20,000 jobs

Employment Pop Ratio, participation and unemployment ratesClick on graph for larger image.

The following graph shows the unemployment rate. The unemployment rate declined to 8.6%.

Some of the decline in the unemployment rate was related to a decline in the number of workers in the labor force.

Percent Job Losses During RecessionsThe second graph shows the job losses from the start of the employment recession, in percentage terms. The dotted line is ex-Census hiring.

This was still a weak report, and slightly below consensus.

The headline unemployment rate declining from 9.0% in October to  8.6% in November is deceptive.  It is NOT because economic growth created enough new jobs to start making a significant dent in the millions of unemployed.  Instead it was almost entirely due to the labor force shrinking.  In other words, approximately 300,000 would-be workers abandoned their search in frustration and discouragement.  If the economy starts to grow briskly (not much chance of that happening) then these discouraged and “marginally attached” workers will likely renew their searches and rejoin the work force.

Calculated Risk also tells us how just before Thanksgiving the estimate for 3rd quarter real GDP growth was revised downward.

From the BEA: Gross Domestic Product, Second Quarter 2011 (second estimate

Real gross domestic product — the output of goods and services produced by labor and propertylocated in the United States — increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the “second” estimate released by the Bureau of Economic Analysis.

This was revised down from 2.5% and below the consensus of 2.4%.

The downward revisions was mostly due to a large decline in the “change in real private inventories ” – this subtracted 1.55 percentage points from the third-quarter change in real GDP (second estimate) as opposed to 1.08 percentage points in the advance estimate. Final domestic demand was mostly unchanged (the inventories will probably reverse in Q4). Still sluggish growth …

The relatively large revision came from having better data about the change in business inventories.  In GDP accounting, when a business produces goods it counts as “production” and part of GDP, even if the goods haven’t been sold yet to a final customer.  Additions to inventory then are considered to be a form of “business Investment”.  A decline in inventories tells us that businesses (in aggregate) sold more from their inventories (previous production) than they produced.  A large decline in inventories can be either a good or bad sign.  It’s good if it happens because sales were unexpectedly higher than managements expected.  That would suggest that production would be increased in the next quarter.  On the other hand, a decline in inventories can also be a sign that businesses expect future sales to be weak and so they didn’t produce as much in advance.  We’ll have to see which it is.  Regardless of why the inventory adjustment was so large, a 2.0% real growth rate is unacceptable.  It wouldn’t even be acceptable at full employment, but with 8.6% unemployment it’s totally unacceptable.