Freakonomics Radio - 125. It’s Crowded at the Top

Episode Date: May 1, 2013

Why is unemployment still so high? It may be because of something that happened well before the Great Recession.

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Kai Risdahl. Time now for a little bit of Freakonomics Radio, that moment in the broadcast every couple of weeks where we talk to Stephen Dubner, the co-author of the books and the blog of the same name. It is the hidden side of everything. Dubner, how are you, man? Hey, Kai. I'm great. And I bet you just can't wait to see the new unemployment numbers on Friday. That's kind of like catnip for you. It makes my day, pal. Come on. I live for that stuff. Let me say this. Whatever the

numbers say on Friday, the general picture is pretty clear, which is that unemployment remains relatively high. Everyone has a pet theory. But I'm here to tell you today about a trio of economists who have a new research paper out with a pretty interesting angle to explain the unemployment. Three economists, three times as much fun, doesn't it? What do you got? All right. Let's start with something that we know to be true, okay? That on average, the more education you get, the better you do in the labor market. There's no question about that, right? Yeah, it's ROE, baby. It's return on education, much like return on investment.

Exactly right. And that's thought to be especially true for what are called knowledge workers, which are people who primarily use their brains for their job, managers and tech jobs, things like that. But one author of this new paper, his name is Paul Beaudry, looked at 30 years worth of hiring data, and he found that demand for knowledge workers actually stopped growing quite a while ago. But then you start noticing it's plateaued in 2000, even though more and more people are getting educated. It should have kept on going. So, Dubner, you know, 2000 was like 13 years ago, right? That's before the recession, the whole deal. What happened? Well, what happened is the tech boom. In the 1990s, the tech boom led to much higher demand for knowledge workers. So more and more people started getting the appropriate college degrees. But in 2000, remember, we had the tech bust, which meant that that demand for knowledge jobs fell fast. Beaudry and his colleagues actually call it the great reversal.

So wait, Devin, let me try this one more time. 2000 was 13 years ago, man. Make this make sense in the unemployment situation today. Here's the thing. All those highly educated workers who educated themselves up from what was supposed to be the everlasting tech boom, they didn't get jobs that they thought. But those workers don't go away. OK. And then there are new graduates in the pipeline every year. But there still aren't enough high end jobs to suit them.

So what happens? Well, here's Paul Beaudry again. These educated people aren't getting their jobs in that sector. They must be pushing down. And that's when we started noticing all this cascading. I wouldn't want to kind of exaggerate. It's not like everyone's kind of getting a barista job. But that's exactly the feeling.

It's kind of like this pushing down. So that's a pretty word that he uses, cascading, to describe a pretty ugly effect. Too many highly educated workers aren't able to find the jobs they're expecting. And as a result, they get shoved down the labor ladder a couple of rungs. Here's a fellow named Clayton Thomas. He's a software consultant in Salt Lake City. When he graduated from Duke a few years back, he studied life sciences. He was expecting to have no trouble finding a good research job. And I went to job fairs where I would discuss openings with companies, and I found that I was competing with people that had master's degrees, even PhDs, for basically entry-level positions,

which was pretty scary. All right, so Dubner, what's that saying? I heard it in the service a lot. Stuff, shall we say, rolls downhill, right? I mean, what happens to the people on the bottom rungs of those ladders then? Exactly right. As the top pushes the middle, the middle pushes the bottom. The crowding at the top pushes everybody down. But, you know, let me stay on the top for a minute. As much as we hear about needing to educate more STEM workers, STEM stands for science, technology, engineering, and math.

There's another new research paper out which argues that there is, in fact, no shortage of STEM workers and that only half of U.S. STEM graduates end up with a STEM job already. This is the most depressed you have ever made me, my friend. There must be some silver lining here. You've got to hit me with that. Let me try. If you go back several decades, you'll find that a huge share of the college-educated women in the U.S. labor force worked as school teachers. Right. So even though the job didn't pay that well, a lot of the best and brightest women in the country were teachers because they didn't have as many opportunities as they do now. When the feminist revolution opened up those opportunities, it was great news for women who became doctors and lawyers and radio show hosts on and on. That's right. But bad news for the classrooms. Well, see what you think of this idea.

All right. This cascading. Is this the hidden side? Is that where we're going? This is so hidden. All right. This is so hidden. All right.

This cascading that we're seeing now with the top pushing down, what it means is that it might be good news for a field like education because more and more highly educated people, women and men, could end up working as, say, teachers or elsewhere in education. So this year, for instance, Teach for America, which recruits from elite college campuses, had the most applications in its 20-year history. It accepted only 17% of the applicants, which means that on some campuses, it's almost as hard to get into Teach for America as it was to get into the college itself. So if selectivity is any measure, that means that the core of potential teachers, at least, is drawn from a very, very talented pool.

All right. I think we could say silver lining found there in a roundabout way. Stephen Dubner, FreakComics.com is the website. He's back in a couple of weeks. We'll see you, man. Thanks for having me, Kai. Hey, podcast listeners. Next week on Freakonomics Radio, what do a bunch of medieval nuns... The abbess with an heroic spirit took a razor and with it cut off her nose. ...have in common with Bo Jackson? I said, you draft me if you want. You're going to waste a draft pick.

I said, I promise you that. Answer, they cut off their noses to spite their face. Next time on Freakonomics Radio, spite happens.