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February 3, 1978
Idle Minds
According to government statistics,
there is little reason to be concerned
about joblessness among society's
more highly trained people. For one
thing, there is a general tendency for
unemployment rates to decline as one
moves up the educational ladder . Last
March, for example, the jobless rate
was only 3.3 percent for workers with
at least a college degree, compared
with 7.5 percent for high-school
graduates and 10.3 percent for primary-school graduates. Again, the unemployment rate for professional and
technical workers - generally the
most highly-educated occupational
group - has averaged about 3 V2 percentage points below the overall unemployment rate for the past two
decades.
Unemployment, Underemployment
In contrast to this statistical picture, one
often hears of the employment difficulties faced by holders of graduate
degrees. Actually, the problem among
such individuals is probably more of
underemployment than of unemployment. Everyone knows (or knows
someone who knows) a Ph.D. in History or English who is driving a taxi
while awaiting that teaching position
to turn up. Anecdotes are more abundant than statistics in this area, but
there are a few studies which suggest
the dimensions of the problem. For
example, a survey by the Modern Language Association found that 39
percent of last year's Ph.D.s in English
were unable to find teaching positions. Also, Professor Ernest May of
Harvard reports that roughly 90
percent of all new Ph.D.'s in the hu-
manities found academic jobs over
the past several decades, but that only
10 percent of similar graduates in the
next two decades may find academic
jobs.
The problem does not seem to affect
all disciplines equally I but appears to
be concentrated in the humanities and
a few social sciences - those fields
which traditionally recycle most of
their graduates back into the university. The physical sciences are much less
troubled by this type of problem, as
evidenced by the National Science
Foundation finding that the unemployment rate for Ph.D. scientists and engineers was just under one percent in
the recession year 1975.
With considerably more dramatic unemployment problems faced by other
groups, such as the 35-40 percent
rate among black teenagers, why
should we be concerned with the job
problems of such a seemingly privileged group as advanced-degree receivers? For one reason, society has
made a sizable investment in this
group. Practically all education in the
United States involves. a substantial
subsidy to the student, since tuition at
most covers only a fraction of the true
cost of the student's education. The
further the student treads up the educational hill, the larger is the public investment embodied in his "human
capital,'" and it can average more than
$20,000for the college graduate who
decides to go on for a Ph.D. When this
individual is found in the unemployment lines, the large public investment
is not reaping any social benefits. And
(continued on page 2)
C"ij.lJ,L\'.';-·Ll!.,
when he or she is underemployed, the
return on this social investment becomes less than was originally anticipated.
. Causes
What are the causes of unemployment among the highly educated? First
there is apparently a lack of useful jobmarket information. When people decide to enter advanced-degree programs, they typically have some
impressions concerning future employment opportunities. These impressions are generally based upon
information gleaned from newspapers,
magazines, and conversations with
knowledgeable people. However,
such information may not be very
helpful, because it is typically based on
individual cases rather than on overall
surveys of the relevant field. Again,
even when the quality of the information is high, it may not be a very good
guide to the state of the market three
to six years hence, when the student
will be completing his or her degree.
Even in cases where there is sufficient
information and a relatively stable job
market, the graduate may become unemployed because he doesn't give
proper weight to the available information. If a student enjoys his field, his
decision to remain in graduate school
may have a large consumption component and a relatively small investment component. In other words, he
may not really care very much whether he gets a job when he graduates,
because of his intense interest in
French literature or whatever else he
may be studying at the time. The pursuit of any sort of knowledge can easily become an end in itself.
2
Some evidence suggests that those
who choose the humanities - the field
in which the unemployment!
underemployment problem is the
greatest - give the least weight to the
state of the job market. Thus, between
1971 and 1973, long after the job market had begun to send signals back to
the universities, graduate enrollments
in physics declined 11 percent while
graduate enrollments in the humanities expanded by 15 percent.
Even when the individual does have
some interest in post-degree job prospects, the university atmosphere
doesn't always promote full disclosure
of employment opportunities. University departments, like other bureaucracies, resemble biological organismsthey are interested in growth, or at the
very least, in survival. When the market for a particular field is expanding,
university departments are happy to
grow with the increased student demand for instruction. However, when
the market for that field begins to contract, university departments are reluctant to join in the downturn. In
order to maintain their jobs, professors need students. And while altruism
may lead departments to inform potential students of the dim job prospects at the other end of the
educational tunnel, self-preservation
may lead them to downplay the employment problem.
Another cause of Ph.D. unemployment involves the values held by new
degree-holders. Typically, most Ph.D.
graduates desire university research
and teaching positions more than anything else. This is understandable, because for several years the student has
interacted largely with university pro-
fessors, who become increasingly important role models. Graduate school
is really an apprenticeship program,
and like any other apprentice, the
graduate student wants someday to
become a journeyman like the professor under whom he or she has
worked. To accept any sort of nonacademic employment is often considered a second-rate choice.
Solutions?
The immediate problem to be solved is
the un- and underemployment of
thousands who have already received
Ph.D.'s in surplus fields. Many of them
have skills (often related to research,
administration or communication)
which are readily transferable to nonacademic jobs. But prejudices must
first be overcome among both potential employees and potential employers. In one such step, the Modern
Language Association has assigned a
full-time staff member to explore nonacademic job opportunities for its unemployed members. On a larger scale,
the Mellon Foundation has developed
a 7-week orientation program at the
N.Y.U. School of Business,to help provide 50 unemployed humanities
Ph.D.'s with a useful introduction to
the business world.
But a long-run solution to the problem
must concentrate on the entry rather
than the exit to graduate education.
Most importantly, complete information on the job market must be made
available to potential students, especially when it is pessimistic. For example, when a student applies for a
graduate program in English, the university could send the applicant a short
statement assessing the current and
future market for English Ph.D.'s. Such
3
a statement might be updated once a
year, simply using information on the
placement of that university's recent
graduates or information from broader
surveys and Department of Labor
studies.
As we've seen, not everyone will put
much weight on such information - especially those individuals who view
education as a consumption good rather than an investment good. Of
course they have every right to do so,
but it doesn't automatically follow that
taxpayers should heavily subsidize
such consumption when it fails to yield
any social payoff. Methods of eliminating unprofitable social subsidies can
become administrative and political
nightmares, but when public funds
have other pressing uses, such education subsidies begin to appear rather
inequitable.
Some thought should be given to reducing the social subsidy to those fields
where the subsidy has contributed to
an oversupply of graduates. This could
be done by setting quotas on entry
(and letting students compete on merit) or raising the tuition in those fields
(and having students compete by income and willingness to pay). Both
methods improve the survivors' job
prospects, their relative salaries, and
the social return to the remaining public subsidy. Whatever methods are
used, either to employ the currently
un- or underemployed or to
restructure incentives to deal with the
problem in the longer run, it is clear
that some creative thinking is necessary to alleviate what could become a
serious social and economic problem
in the decades ahead.
Michael Gorham and John Norton
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BANKING DATA-TWELF TH fEDERALRIESERVIE
OBSTRUCT
(Dollar amounts in millions)
Selected Assets and liabilities
large Commercial Banks
Amount
Outstanding
Change
from
Change from
year ago
Dollar
Percent
1/18/78
1/11178
Loans(gross, adjusted) and investments*
Loans(gross, adjusted)- total
Security loans
Commercial and industrial
Real estate
Consumer instalment
U.s. Treasury securities
Other securities
Deposits (less cash items)- total*
Demand deposits (adjusted)
U.s. Government deposits
Time deposits - total*
Statesand political subdivisions
Savingsdeposits
Other time depositst
Large negotiable CD's
104,707
82,779
1,928
25,168
27,641
14,773
7,571
14,357
103,894
29,596
560
72,205
6,692
31,543
31,421
13,531
- 1,663
- 1,514
- 1,076
- 215
+ 118
56
+
67
+
- 216
450
- 441
+ 199
93
47
+
6
+ 56
- 272
Weekly Averages
of Daily Figures
Week ended
Week ended
1/18178
1/11178
Member Bank Reserve Position
ExcessReserves(+)/Deficiency (-)
Borrowings
Net free(+)/Net borrowed (-)
Federal Funds-Seven large Banks
Interbank Federalfund transactions
Net purchases(+)/Net sales(-)
Transactionswith U.s. security dealers
Net loans (+ )/Net borrowings (-)
\illWJCS
+
14
4
10
+
+
694
426
+
-
+
+
+ 11,908
+ 12,557
431
+
+ 2,248
+ 5,892
+ 2,554
- 2,050
+ 1,401
+ 10,603
+ 3,245
33
+ 7,148
737
+
635
+
+ 5,487
+ '3,586
+ 12.83
+ 17.88
+ -28.79
9.81
+
+ 27.09
+ 20.90
21.31
+ 10.81
+ 11.37
+ 12.31
5.56
+ 10.99
+ 12.38
2.05
+
+ 21.16
+ 36.06
-
Comparable
year-ago period
13
53
66
51
2
53
823
863
+1 )63
+ 351
*Includes items not shown separately. :j:lndividuals,partnerships and corporations.
Editorial comments may be addressed to the editor (William B....
rke) or to the author... .
Information on this and other publications can be obtained by calling or writing the Public Information
Section, Federal ReserveBank of SanFrancisco,P.O. Box 7702, SanFrancisco94120.Phone (415) 544-2184.
@FedFRASER