There’s No “Skills Shortage”

There are plenty of reasons why higher education in the US needs to change. There are plenty of good reasons why community colleges in particular deserve greater investment. But the American Association of Community Colleges (AACC) gets it wrong when they claim

There is a skills gap in our country, causing employers to have unfilled positions and too
many Americans unable to find family wage supporting jobs.

Wrong. Wrong. Wrong.  This is a zombie economic idea.  It’s enormously disappointing when leaders in higher education can’t even get the basic economic thinking straight.  First, let’s just apply some basic economic thinking to it.  Although there are good heterodox reasons for not thinking of the labor market is not an ordinary market (i.e. it’s institutional, not transaction-based), but let’s roll with the idea since so many purveyors of the “skills shortage” myth act like it is.  The implication is that there are multiple “job markets” and that many, perhaps, most are suffering a “shortage”.

So what’s a “job market”.  A simple definition would identify the nexus of potential workers and potential employers in a specific geographic region in a particular occupation.  For example, “welders in metro Chicago” or “CNC machine operators in SE Michigan” or “software developers in Houston” would be examples. Now if there’s a “shortage” in one of these job markets, it means there are fewer sellers (smaller quantity offered, to be technical) and more buyers demanding a larger quantity at the going market price.  Now what happens in both theory and practice when a market has a persistent shortage? Anybody? Yes, the price rises.  Price goes up to attract more sellers and discourage buyers.  And the price keeps going up until equilibrium between quantity offered for sale and quantity demanded become equal and eliminate the shortage. If there were shortages in job markets we should see wages going up!  We should see companies tripping over themselves to offer more and better benefits.  But we don’t see that do we? Wages are stagnant across the board.  That’s because there really isn’t any widespread “skills shortage”.

What we have is business owners and managers reporting a shortage of highly skilled workers who would be willing to work for below-equilibrium and falling wages.  Remember as a nation we’ve drastically cut back on public funding of education and over the last generation  companies have drastically cut their spending on training and apprenticeships.  Those businesses now expect a free-ride from others.  They want workers to pay for their own education and training without paying the wages needed to make that human capital investment worthwhile.  If there were truly a skills shortage, not only would we see rising wages but we’d also see rising college enrolments as the rising market wage encouraged students to invest.  But we don’t see either rising wages or rising enrolments.  In fact for the last couple (few?) years, enrolments have been declining.

I’m not the only one pointing out how bad this zombie “skills shortage” myth is.  Paul Krugman pointed out recently:

    …this new EPI report is a useful reminder of the extent to which another doctrine that sounds serious retains a grip on discourse — namely, the notion that we have big problems because our work force lacks essential skills.

This is very much a zombie doctrine — that is, a doctrine that should be dead by now, having been repeatedly refuted by evidence, but just keeps on shambling along. EPI presents some very interesting evidence from a survey of manufacturing, but they’re hardly the first to show that the data don’t at all support the skills-shortage hypothesis.

But it’s not just Paul Krugman and progressives saying that the “skills shortage” idea is bunk, its leading conservative economists too, like Ed Lazear in this 2012 paper.   Even the Boston Consulting Group, who we might expect to take push the “skills shortage” idea since business owners like to push the idea, seems constrained to follow the data and their data show that:

So what accounts for the high and lingering unemployment?  The Economic Policy Institute looked at the whole issue and surveyed the literature and research in this January EPI report.

There is a sizeable literature on whether a skills mismatch is a driver of today’s weak jobs recovery, and the strong consensus is that the weak labor market recovery is not due to skills mismatch (or any other structural factors). Instead, it is due to weakness in aggregate demand.

That’s it.  We have a shortage of aggregate demand. We have a shortage of customers who spend. We have a shortage of spending. We don’t have a shortage of skills.

Higher education leaders who position their plans based on the false premise of a skills shortage do themselves and their institutions a dis-service, so we may have a shortage of higher education leaders willing to do their own critical thinking and rely on research instead of parroting politically popular zombie ideas. I can understand the temptation of many higher education leaders to use push the idea because they think it will help them get funding. But that’s a losing strategy. By embracing such zombie ideas, they destroy their own credibility with the faculty, the very people they need to implement the changes they’re advocating.

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.