Real College Grad Wages Plummet 5.5%

Posted by: Michael Mandel on July 18

I sure hope that there is a mistake with the data…because if it isn’t, it’s just terrible news. The BLS just came out with its data on usual weekly earnings for wage and salary workers for the second quarter of 2008. The topline number was that median weekly earnings for all workers, adjusted for inflation, were roughly about flat compared to a year earlier.

But when I looked at the details and did some calculations for different subgroups, I saw something that shocked me.

real median weekly earnings, 08II
percentage change over previous year
high school diploma only -0.3%
some college or associated degree -0.9%
bachelor’s degree only -5.5%
advanced degree 2.1%

Yowza. It look like college grads without an advanced degree stepped in a pothole in the second quarter.

Let’s look at the data another way. This is the change in real wages over the previous year, four-quarter moving average, for bachelors degree holders without an advanced degree.

wagesjuly08_24256_image001.gif

Yep, it’s a pothole. Without an advanced degree, you are toast.

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Reader Comments

Gabriel

July 18, 2008 04:52 PM

Why is this a problem again?

Wouldn't we rather have lower wages than unemployment?

Flexible wage and prices being a good thing and all...

Lord

July 18, 2008 05:09 PM

This is really what one should expect from a flatter world. Less opportunity for the educated here, but more opportunity there due to offshoring. More opportunity for the less well educated here, but less opportunity there, due to more manual/menial work that can't be offshored. It's just homogenization.

Kartik

July 18, 2008 05:26 PM

I'm not bothered by this. To get a MS or MA degree, one merely has to be in college 1 year more.

Furthermore, the curricula of many 4-year Bach. degrees is getting watered down with a lot of left-wing BS, which is replacing hard knowledge. Thus, the market value of the BS/BA degree is dropping in response to the grads that know less than previous generations did.
Fewer American students pursue BS degrees of value, such as Engineering or Accounting.

Thirdly, there is a huge supply of BS/BA grads in developing regions driving wages down. There is not a supply of MS/MBA/PhD grads from those regions, and probably won't be for another decade or more.

Thus, I don't see this as bad news, but rather the workings of simple market forces.

Brandon W

July 18, 2008 06:09 PM

No. That's about right. Except that I think it's worse because I believe inflation is much higher than reported.

Wages for workers with less than a Bachelor's degree were pushed down during the 1990s as jobs were eliminated and outsourced to lower-wage nations. American workers were forced to take lower-paying factory jobs or move in to the low-wage service sector. The same is now happening to people with Bachelor's degrees. Many of their jobs are being sent to foreign workers who are increasingly well educated but much lower paid. For example, I'm currently planning a business where I'll be outsourcing MBA's from India or China for $8-10/hr. Why would I pay someone with a Bachelor's degree $15+/hr? The result is that many with Bachelor's degrees are forced to take low-wage retail jobs.

We decided we wanted an economy where we could send work someplace cheaper and instead base our economy on selling Big Macs to one another. We spent two decades working at creating it. Well... we got it. Would you like fries with that?

david foster

July 19, 2008 12:29 AM

Well, Mike, you said in your book a couple of years ago that college degrees had paid a very high ROI for a long time and that it was not likely that such a level could be sustained.

Re that graduate degrees, I bet if you segment them out by field you will find that a few fields (law, business, maybe a couple of others) account for all the growth.

photoncourier.blogspot.com

Dominic

July 19, 2008 07:36 AM

Michael

Brandon is right on the money.
Wages for good paying blue collar jobs already went steadily down since the 80's and during the 90's (factories moving out of the country, automation, etc...) when the jobs didn't disappear altogether.
Whatever is left is no longer "squeezable" or at least not as easily, for example, low wage Mcjobs in retail, extremely niche and specialized manufacturing positions, relatively higher paying service jobs such as car and home repair/construction, etc..
All activities that are impossible to offshore and/or where the low hanging fruits of automation have already been harvested.
Now (actually it's going on for quite few years already) it's time for the bachelor degree holders to go on a salary "diet"....yes probably it is a pothole...
And for once, I agree with Kartik about the fact that the content and value of a bachelor degree has been watered down significantly. However, many kids choose to stay away from engineering degrees (especially IT related) because they do not see the payoff of enrolling in a challenging academic program when eventually they have to deal with a "skill-commodization obsessed" world...the are not stupid...
Activities requiring advanced degrees (for example R&D, marketing, high finance, etc...) offer very little or no potential for automation and are too vital and strategic for corporations to offshore easily.
And when companies do it is more for geographical diversification than only brutal labor arbitrage. At that education level the salary gap for talent between different countries is significantly more limited anyway given the fact that opportunities for mobility are extremely high for these people. Individuals belonging to this category are truly "globalized", they can move almost as easily as capital and goods do....so less opportunity for salary compression...
Finally, the number of advanced degree holders is relatively low everywhere and this offers further negotiating power regardless of where you live.

Tom

July 19, 2008 01:00 PM

>> I'm not bothered by this.

Either am i.

The pathetic Bush economy has brought about the death of the republican party.

And with all their lectures about "responsibility" they are out there blaming it on everyone except themselves.

When bad things happen to cheap labor conservatives good things happen to the country.

klaus

July 20, 2008 10:22 AM

Are you people kidding? This is news?

It's hard enough for some people to get a BA/S; now you simply expect them to get an MA/S? And, per supply and demand, what happens when the supply of people with an MA/S increases? The price drops, and the situtation that we're seeing with BA/S degress moves another step up the ladder.

BusinessWeek just reported that attorneys are facing the likelihood of unemployment. Increased unemployment will drive down their wages. An atty is the equivalent (or more) of an MA/S, and yet they're facing decreasing wages. Will MBAs be far behind? So how does getting an MA/S guarantee anything?

The comments first 3 comments here can be summed up as: "I got my advanced degree years ago. This won't affect me. So who cares what happens to anyone else? They should have had the sense to be born 10 years earlier."

Blissex

July 20, 2008 02:25 PM

«Activities requiring advanced degrees (for example R&D, marketing, high finance, etc...) offer very little or no potential for automation and are too vital and strategic for corporations to offshore easily.»

What if they are too vital to be offshored TO THE USA?

That is, companies that are successful are based in China and India, and rightfully think that offshoring their marketing, R&D, high finance to the USA is not strategic, while their USA competitors just die off?

In general corporations move to where the action is, and the action is in China and India, which are growing fast.

What happens when it is the whole industry, not just the production bits, that moves to China and India?

If Huawei thanks to the boom in its home market and excellent local talent takes over from Cisco as the dominant network equipment company, why should it offshore its strategic functions to Silicon Valley?

Brandon W

July 21, 2008 07:54 AM

Dominic,
I'm glad you believe I'm correct, but I have to argue that graduate degree holders are not necessarily safe, either. They may be safer than the average BA holder, but not entirely. MBA's are starting to be outsourced. Accountants are, even lawyers are being outsourced from India. Until recently, I worked for a law school where the faculty and I often discussed the trend to outsource transactional legal work to other countries. In India and other places there are schools where local lawyers can be educated in the U.S. legal system. They won't be arguing in a U.S. court, but they can certainly handle transaction and contract work. The same is being done with accounting, where many major firms are billing clients five-figures and outsourcing the work to Asia for four-figures. There isn't much that's safe from the ability to send work to countries where they will do the work for much less. We've built a society of over-consumption and desire-satiation here, to the point that we require dramatically higher wages to maintain our so-called "standard" of living. That standard is on it's way down, permanently. Particularly if you earn your income from wages.

Kartik

July 21, 2008 02:59 PM

MBA salaries, even for top-10 MBA programs, have definitely stagnated over this decade. Arguably, the levels of 2000 were too high to begin with, and this is just a reversion back to the mean.

However, this still does not bother me, as :
1) US Colleges have watered down the rigor of their curricula, to the extent that it should surprise no one that the market value of a BS degree has fallen.
2) The upliftment of millions of Indians and Chinese out of poverty is a good thing, even if that means Americans have to scale back a bit for a decade.
3) In general, a person will earn a salary relative to the value that they produce. This brings be back to point 1). I saw a 60-Minutes feature a couple of months ago that showed how pampered, unprepared, and impatient modern-day 22-year-old college grads are. I don't having these people being forced to compete with more competent Indians and Chinese.

Kartik

July 21, 2008 03:04 PM

I repeat : it was unnatural for someone who gets a BA degree in some Humanities or Social Science field to earn $35,000 straight out of college. This should naturally correct, and it is.

I don't think BS degrees in Engineering are seeing declining wages.

Furthermore, MS degrees in Engineering (which take 9-12 months to get after a BS degree), are still seeing rising wages.

Market forces, nothing more.

The WW demand for engineers continues to rise, and will outpace the production of engineers in India and China as well. This is already happening as Indian Engineering wages have doubled in the past 5 years, and are rapidly shrinking the delta with US wages.

Kartik

July 21, 2008 03:20 PM

Some unofficial data :

Senior Engineer = BS Degree with 5 years of experience or MS Degree with 3-4 years Experience.

US : $100,000 (varys by specialty).
India : $40,000 to $50,000
China : $40,000

The delta is closing. In 2002, the Indian Senior Engineer earned just $20,000.

Brandon W

July 21, 2008 10:53 PM

Kartik,
I wonder how much of that "increase" is due to dollar devaluation, rather than "market forces".

Dominic

July 22, 2008 06:01 AM

Some good points

Blissex

You are right. In my post there is a bias toward American multinationals doing the outsourcing.
Of course, a Japanese, European or even Chinese company performs its own risk/opportunity analysis regarding offshoring.
Yes, as you said, the corporations in the long run will gravitate "where the action is".

Brandon

What is you say is correct. A higher degree, in general, is not a bulletproof guarantee that you will avoid the downward pressure of globalization on wages and job opportunities, however, on average, it tends to protects you more.
Of course there are always exceptions related to your particular industry and skillset.
At the moment, for example, an oil worker out of vocational school with a specific skillset has more opportunities and probably a higher starting salary than an accountant out of college....still I would strongly advice any high school graduate to go to college.
The hope here is that social conditions between different countries may equalize sooner rather than later (vigorously helped by the depreciation of our dollar) and outsourcing will increasingly become economically unattractive at least in some areas...this is already happening.

I agree with you and Kartik, our salaries, especially for some professions, have been unrealistically high, we do not need to have a car, a cellphone or a bedroom for every member of the family, 2 or 3 vacations per year and so on..Hey I'm for it, let's take a 50% wage cut or more if, at the same time, the cost of living for
necessary items drops too.

Kartik

The data about production of "engineers" from China and India it is something to take with a grain of salt.....actually with a ton of salt.
The skill level of many if these engineers are way below western standards and they are basically unemployable. I had some personal experiences on this.

Mike Reardon

July 22, 2008 02:29 PM

If you see flat earth globalization as reflected in the relative flat portion of the chart (05 to 07), then the steep downturn can be seen as showing a real national demand destruction caused by slowing construction activity and other domestic economic issues. Its not necessarily a direct continuation of the globalization effect.

Kartik

July 22, 2008 03:23 PM

Brandon W,

Some is due to dollar devaluation, but domestically, in Rupees, Indian Engineer salaries have risen 15% a year for 5 years.

Domininc,

"The skill level of many if these engineers are way below western standards and they are basically unemployable. I had some personal experiences on this."

So this would mean that Outsourcing would dwindle, and would be good for US engineering wages, no?


Sophist

July 22, 2008 04:44 PM

Kartik:

Clearly the academic standard at American Universities is in danger, as evidenced by your use of the term "upliftment." In all seriousness though, I am troubled by your disdain for Humanities and the Social Sciences degrees. Your penchant for making up words tells me you didn't spend much time around these departments when you were in school, but perhaps you could have benefited from a little more exposure to these fields.

As I'm sure you are aware, our economy is increasingly dynamic, and composed of individuals who will change career paths many times over the course of their productive lives. The Humanities and Social Sciences teach skills that apply across disciplines, such as critical thinking, logic, writing and research capabilities, etc. These skills are easily as valuable as any of the "hard knowledge" (??) degrees that you cite in your initial post, such as Accounting or Engineering, precisely because they are higher order cognitive processes that can not be automated or outsourced.

Moreover, the people who study in the Social Sciences are the same that go on to pursue advanced degrees in other areas such as Law, Civil Service/Public Policy, International Relations, Journalism etc. These are the people that operate our Judicial system, run our Government at all levels, write our newspapers and magazines, staff our think tanks, NGO's and social service organizations... the list goes on and on.

I haven't even mentioned the fact that Humanities graduates (I'm using a loose definition that includes the Arts here) also produce the media, art and entertainment that not only make life worthwhile, but also provide the raw materials for one of the largest and fastest growing segments of the consumer economy. The entertainment sector is one of the few, if not the only, areas of production where the US still enjoys unassailable global dominance (if you've ever walked through a third world country and seen people wearing Britney Spears shirts and talking about Hollywood movies, you'll know exactly what I mean). All of this generates demand for American goods and services, not just at home, but throughout the globe.

P.S.: I'm sorry if this was long winded, but I felt compelled to defend an often (and unfairly) maligned segment of academia from narrow minded econocentrism. My bad for bursting your bubble.

Joe Cushing

July 22, 2008 05:33 PM

It's simple supply and Demand. There are so many more people with BS/BA degrees today than there were a few decades ago.

At one time you did not need a high school education to get a job. Then that became a basic requirement even for jobs that don't require skills taught in high school. This was the start of a trend. In order to stand out in the work force you needed to go to college because everyone had a high school diploma and even the most basic mundane jobs required high school diplomas.

Now there is a massive push to get people to go to college and we are by the millions. Now in order to be an administrative assistant; a job that could be done with an 8th grade education; you need to have a bachelors degree. So the trend continues.

In order to stand out in the work place, the way people with BS degrees once did, you need to get an advanced degree. I'm sure it's only a matter of time before having an masters degree is a requirement for becoming a secretary.

Someone pointed out that certain degrees used are more valuable than others. It used to be that you could land a good job with any degree. A college degree was not intended to be your vocational training. That, you got from your job.

cm

July 23, 2008 02:17 AM

Kartik, all: While wages offered by business correlate somewhat with workers' qualifications, they are mostly a function of demand/supply and business need (where the latter includes "ROI" and urgency of completing the business transactions).

The Y2K/dotcom boom that is usually cited in evidence of "unrealistic" wage levels illustrates this well -- there was ample and limited opportunity to cut a nice slice from a big money pie, if one could act quickly.

That in the "primary" IT business, and also in all the "multiplier" businesses and services in which the "primary" money makers would spend their bucks.

A lot of people were extended opportunities to start/build a career which companies wouldn't touch in a "normal" economy, e.g. for lack of "premium" formal credentials. The motto was, hire staff today, or forgo today's opportunity to get today's bucks from some guy's pocket.

As a result, a number of good people and a number of marginal people (in their respective fields) were hired to execute all the business opportunity, e.g. cobble together websites as long as the VC didn't have a second thought about writing all those checks. I doubt that 10 years ago entry-level employees and career-restarters were significantly superior to today's, considering the stark difference in hiring patterns.

cm

July 23, 2008 02:35 AM

Dominic: If they are so unemployable, why are Western companies hiring them so aggressively? They have other things besides superior skills going for them that employers prize. (And their skills are not universally *that* bad -- every population produces a certain spectrum in any regard. Their best are on par with the best Westerners, the overall distribution probably has a longer tail at the low end which corresponds to the people who wouldn't pursue a tech career in the West as there are better opportunities for them -- hopefully no offense anybody.)

While skill is always an important consideration in employment, "soft skills", i.e. well-presented enthusiasm and "team playing" (subservience and keeping your interlocutors comfortable) are weighted at least equally and probably higher.

Mike Mandel

July 24, 2008 09:14 PM

Sorry for the delay in comment approval...I was temporarily out of internet contact.

cm

July 25, 2008 03:16 AM

Joe Cushing: In the "good old days" of white collar careers and at least some skilled blue collar occupations, the "prime" employers secured the loyalty of their workforces by the golden handcuff of a company pension, which gave them the confidence to expect a payoff from in-house training and in-house skill upgrades. Furthermore, union shops had another stabilizing effect on staff retention.

Then they decided it was a good idea to cut the pensions and bust the unions. Now there is little to hold workers back from seeking greener pastures.

Dominic

July 25, 2008 05:43 PM


Kartik and Cm

Some Indian engineers are exceptionally good, some others are very good or just good and a vast number of them are sub-par in terms of skillset and problem solving approach compared to the average western counterpart.
Part of the problem is also because of the somewhat loose definition of "engineer" in India (and China too).
Some academic institutions in these countries bestow the title of engineer to people with a signfificantly reduced coursework.
The pace of outsourcing is slowing down indeed, very different from all the rage of the early 2000's when the general consensus in management was that everything could be offshored.
After the easy pickings and some colossal fiascos (obviously not widely reported in the media) the approach nowadays is significantly more cautious and selective.
Furthwermore, the "best and brightest" offshore workers were harvested early on and there is a bit of barrel bottom spraping right now.
Finally, as Kartik correctly mentioned, wages for real talent in the Enchanted Land are rising fast and the economic advantages versus the logistic and management issues don't look so irresistible anymore, at least not always.
Kartik you ask if this will be good for American engineers salary and work opportunities. I hope so, in the long run, at least things will equalize someday...we will give up some ground and on the other side they will gain lot of ground.
At the moment the amount of quality talent available offshore is stil significant and this put pressure on western wages.
Cm, you ask why western companies hire them so aggressively?? Low cost is the main reason despite the massive amount of PR saying otherwise.
And many corporations still do not offshore real vital processes and functions (or at least not the ones considered vital by the short term obsessed management), so damned the client if quality goes downhill....well Dell, for example, pursued that approach a bit too aggressively and we all know what happened. Sometimes big companies are capable of doing very foolish things....
Cm you are dead right when you say: "A lot of people were extended opportunities to start/build a career which companies wouldn't touch in a "normal" economy, e.g. for lack of "premium" formal credentials"
The late 90's were not the norm, during those crazy times people could get hired by prestigious consulting firms with a resume literally sketched on a napkin during lunch (it happened for real).
Unfortunately IT (at least the corporate side of information technology) is way more "rational innovation", it doesn't have the "wear and tear" component of other industries.....for example, 30 years old COBOL code is currently run in many banks. In absence of useful new products capable of significantly enhance productivity, spending significantly slows down waiting for "the next big thing" to carry over real innovators and snake oil salesmen alike...Software "doesn't go bad".
I witnessed 2 tech recessions, the first in the early 90's was after the "personal computer in every desk" and productivity enhancement software spending binge. The "malaise" lasted more than 5 years and it was over only when the internet wave hit shore and the ERP craze begun followed by the Y2K scare.
At the moment, tech vendors are scraping the bottom of the barrel, many of them struggle to sell the value proposition to companies trying to convince them to open the purse string.
Spending is still very cautious and selective.
Some areas are doing good, other less so, definitely there is not tide to raise all boats at the moment.

cm

July 27, 2008 03:06 AM

Dominic: At the risk of belaboring the obvious ...

My question that you alluded to was rhetorical, and I answered it for myself. Maybe I misunderstood you and you were referring exclusively to offshoring, not visa worker imports.

"In absence of useful new products capable of significantly enhance productivity ..."

I think that is largely the fundamental problem in many areas, at least in "tech". The current, or shall we say 5-10, and in cases 20 year old, state of the art is mostly good enough for what the current economic and technological paradigms require. (This is of course a somewhat circular logic. But let's say something promises a nontrivial productivity increase, but at a cost in transitioning the business model, new "workforce skills", and addressing the "legacy" problem (this is usually the killer -- the legacy system can't be replaced or the cost is prohibitive), and it needs investment to make it from "proof of concept" or "lab sample" to "industrial grade". This presents substantial risk, and in the presence of abundant enough labor (cheap or otherwise) for the current paradigm, the ROI has to be rather compelling, which is difficult considering how high the bar hangs in many areas.)

In other words, the "commodity" stuff out there does it, and its flaws can be papered over and compensated for by an abundant workforce schooled in commodity skills ("here" and abroad).

For example, in many software companies, workers with advanced degrees are hired for what are nominally "R&D" jobs, but in reality they have a large component of maintenance, bug-fixing, porting existing code to new OS versions or software environments, ever new quarterly base software releases (Linux, Java, database, browsers) etc., and similarly mundane tasks. Many truly "R&D" activities are more incremental rather than revolutionary in nature. Likewise for "analyst", "architect", and "engineer" jobs in IT-related occupations.

It is mostly that type of stuff that is (attempted) being offshored.

Maybe there is a related effect of what I would perhaps call "skill compression" -- the holders of the degrees/experience required to do even the mundane work properly are (at least nominally) capable of much more than maintaining software in a "factory paradigm" and their more advanced skills are not utilized, but OTOH I don't see a realistic "lower grade" of educational credential sufficient to do "just" the mundane work (properly).

Kartik

July 28, 2008 03:48 PM

Sophist,

You have merely reconfirmed by opinion that too many people are pursuing the easy fields, and then whining when they find that such fields do not have market value is the workforce.

"in other areas such as Law, Civil Service/Public Policy, International Relations, Journalism etc. ... "

In other words, people who destroy value rather than create it, and who throttle the free market, rather than nurture it.

All engineers, scientists, etc. have to take humanities and social science classes in US universities, so they know what those are about. Rather, it is the 'poets' who are able to avoid hard classes altogether, and thus attempt to sail through life avoiding all rigor.

Someday, you may recognize that market forces don't owe you the privelege of getting highly paid for something that most people consider to be a hobby.

Lacey

December 19, 2008 04:38 PM

This is what happens when people have 3-6 kids. 50% are dropping out of high school and the ones that do make it to college or the university need more years of education just to make ends meet. Stop having so many kids and start being better parents with the ones you have then we will all work.

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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