Education and demographics: how do they affect unemployment rates?(EXCERPT), Monthly Labor Online, Jan. 1988

Education and demographics: how do they affect unemployment rates?

Wayne J. Howe

The 20-year period between 1967 and 1987 was one of enormous expansion in the number of high school and college graduates in the labor force. This was attributed primarily to the entry of the post-World War II baby-boom generation into the labor force, whose educational levels were much higher than those of earlier generations.¹ As a result, about 1 of 4 current members of the labor force ages 25 to 64 has completed 4 or more years of college—twice the ratio of 2 decades earlier.² Similarly, the proportion with 1 to 3 years of college has more than doubled to 20 percent, whereas the proportion who completed 4 years of high school (who did not go on to college) rose from 35 to 40 percent. As a consequence, the proportion of the adult labor force with less than 4 years of high school plummeted 26 percentage points—from 41 to 15 percent. See table 1

Despite those educational gains, the jobless rate for 25- to 64-year-olds doubled to about 6 percent. Because the economy was in the midst of an expansionary phase both in 1967 and 1987, any explanation of changes in aggregate unemployment between the two periods must focus on structural developments.³ Structural unemployment arises from a fundamental mismatch between supply and demand, including skill or locational mismatches in the labor market.

This articles concentrates on the relationship between the changing demographic composition and educational level of the labor force the impact of those factors on the structural rise in unemployment. Its focus is on how the labor market has adjusted to the increased supply of relatively young and inexperienced but well-educated workers, with particular emphasis given to the job market experiences of high school and college graduates. It will be shown that the labor market's response to the rising educational level of an expanding labor force was a relative weakening of the labor market position for high school graduates, compared with those with higher levels of education.⁴

The article also provides a brief analysis of the effect of cyclical trends on the job market performance of workers with varying levels of education between January 1967 and December 1986. Although unemployment rises and falls for all educational groups over the course of the business cycle, the degree of cyclical movement is generally smaller for the higher educated groups.

This excerpt is from an article published in the January 1988 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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Footnotes

1 The fastest growing groups in the adult labor force between 1967 and 1987 were 25- to 34-year-old college and high school graduates. Their numbers increased by 268 and 132 percent, respectively, while the overall labor force grew by only 56 percent.

2 Data relate to persons 25 to 64 years old, unless otherwise specified. Because the emphasis of the articles is on structural unemployment problems, age 25 was selected for a lower age cutoff because of the greater likelihood that workers that age had completed their schooling and formed a more permanent attachment to the labor force. Workers 16 to 24 and 65 years and older were excluded because they exhibit labor market behavior distinct from prime-age workers.

3 Sar A. Levitan, Garth L. Mangum, and Ray Marshall, Human Resources and Labor Markets (New York, Harper and Row, 1981), pp. 35-39.

4 Data in the secular trends section are based on tabulations from the March supplement to the Current Population Survey (CPS). CPS data on educational attainment actually refer to years of school completed in regular public or private schools and colleges of the United States or in equivalent schools of other countries. Additionally, the measure of educational attainment includes only schooling which may lead to a high school diploma or degree. The data do not provide a strict estimate of degrees earned, but do provide a reasonable proxy. Therefore, those who attend high school for 4 years only will sometimes be referred to as high school graduates, and those who attended college for 4 or more years will be designated as college graduates.

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