What's holding college grads down?

Now that we're moving into systems analysis in our group projects, I thought I'd take a first swing at some of the reasons why I think recent college graduates are having trouble finding meaningful work. Sure, as Norm mentioned in a recent blog post, GDP is up 2% over the last quarter. That's great for those whom it helps, but there are still huge amounts of people who are down and out, even college grads. Let's examine what's keeping them back.

Fewer Jobs

Of course, this is the most obvious reason. Jobs are indeed harder to come by in the current economic climate than they were 10 years ago. This is due to a number of factors. Besides the general economic malaise with its accompanying layoffs and lack of hiring, the nature of the American economy has shifted over the last 50 years, from a manufacturing-based economy to a financialized and monopolized economy, where the presence of large firms and their economies of scale means fewer employees are needed for the same amount of work. Technology, such as computers and robots, has also made some jobs redundant. For instance, significantly fewer workers are needed to make a car than were needed 50 years ago. I think that lots of these traditional jobs are gone and will never come back, and the recent economic depression only hastened that process. 

Lack of Confidence

On an individual and personal level, being out of work, whether after graduation or a layoff, can be extremely damaging to someone's confidence. That lack of confidence can limit the goals one sets and the energy to pursue those goals. One can feel unmotivated and much less willing to take risks, especially when those risks involve spending money. Lack of confidence can also hurt performance in interviews. I think this is a self-reinforcing cycle until a major change helps to break the chain. This is certainly the case for myself. It's been nearly 3 years since I was laid off from a consulting job that I was fortunate to land after college. The hung-ho, confident outlook I had through college is only now starting to return now that I'm at BGI and surrounded by such an amazing community.

Misplaced expectations

On the flipside, the Echo Boom was one of the most privileged generations in the history of the world. We expected things to be easy for us - that college would put us into a stable, well-paying job with a comfortable retirement. We expected convenience and immediate gratification. Perhaps we even expected a hollywood life, because that's what we're bombarded with on TV. We expected an easy life. Perhaps we were too complacent. Perhaps growing up in comfort, we missed out on the do-it-yourself ethic that our great-grandparents knew. But this is changing. We've learned some hard lessons, and a new bottom-up economy is emerging in the vacuum. 

Insufficient Education

Perhaps one of the problems is the degree itself. Or to be more specific, the content of the education. Maybe colleges aren't putting enough resources into preparing college graduates for a changing job market in which things are no longer neatly laid out for us. I was fortunate to have a career-oriented degree in which resumes, cover letters, team-building and conflict resolution were part of my coursework, but many students, particularly in the liberal arts, have no clue as to how to build a career outside of academia, due to no fault of their own. 

These are just a few contributing factors in the underemployment of many college graduates, and I'm excited to explore more soon. 

Week 3: Generational Inequality

Whew! It's been a busy week! 3 team meetings to agree on operating agreements and a problem statement, followed by editing both documents; quizzes and excel problems on Return on Investment; a dozen readings; and 30 hours of work at a very busy Trader Joe's. Add drastically changing weather and noticeably shorter days and it's no wonder that I'm tired!

Fortunately I can now sit back, relax, and blog about one of my pet issues, which my team decided to take on as our official problem statement.

Underemployment of Recent College Graduates

That issue happens to be the problem of an increasing number of college graduates failing to find meaningful employment after graduation. We are just starting to dive into this topic but I am quite excited to begin to sift through the causal relationships and find leverage points where we may be able to make an impact on this problem.

Here's how I see it:

Traditionally, college graduates could expect to find a well-paying, stable job right out of college and plan to buy a house within only a few years. By 2007, that expectation had already become less tenable as the cost of tuition, housing, food, transportation, and numerous other necessities were rising and taking a larger chunk of graduates' incomes, which were remaining flat. And with the financial collapse of 2008 this dream was dashed for an ever larger number of college students.

Here's a few pieces of data to show just how serious this is:

• According to The Atlantic, a whopping 53% of recent college grads are jobless or unemployed in 2012. Ouch!
• According to the same article, 18.4% of all Americans under 25 were unemployed in 2010.
• According to this CNN article, "Among 18- to 24-year-olds, 53% said they live at home or moved in temporarily, compared with 41% among adults ages 25 to 29, and 17% among those ages 30 to 34."

In addition, Norm Becker mentions in his Ab-Norm-al Econ blog that the price of housing in the areas (and states) with high-paying jobs has increased as supply has been constricted, making it difficult for recent college grads to get an economic foothold. Desirability, government regulations, and competition for limited multifamily housing units all contribute to this, in addition to high levels of student debt. While homeownership - or lack thereof - is an important issue for recent college graduates, more pressing is the lack of suitable jobs. What might be some contributing factors?

Causes

Here are just a few ideas to explore as the quarter goes on:

1. The outsourcing of a wide variety of jobs formerly performed by middle-class college graduates to developing economies in Asia. These fields include information technology, software engineering, human resources, and drafting - that is, somewhat technically-oriented jobs in which face-to-face interaction isn't regularly required.
2. Computers. This could be seen as a type of outsourcing, as machines are now easily doing the jobs that humans used to do. Mail carriers, number crunchers, draftsmen, and research assistants have been replaced by email, Excel, AutoCAD, and Google, respectively. Okay, perhaps not completely, but the amount of work that one person can do has grown considerably, meaning less jobs for everyone.
3. Concentration of wealth and a focus on ruthless efficiency. Cutting costs so stockholders and executives can rake in the dough has become something of a religion in our Chicago School-dominated economy. And as companies get bigger and bigger, economies of scale require fewer and fewer workers per unit of revenue.
4. Lack of investment in infrastructure. America now lags behind much of the developed and developing world in transportation and communications infrastructure. Most European and East Asian countries have high speed rail and a well-maintained regional rail system, while the U.S. still depends on an outdated, crumbling, and congested freeway system designed for much lower population densities and different commuting patterns than now exist. In addition, the US has lagged behind in broadband adoption.

Why does this all matter?

While the answers may seem obvious, I believe it is also important to ask, "why does this all matter?"

• College graduates who haven't established a career will be stuck behind their peers for years, and may never recover their economic confidence.
• Related to this is the larger prevalence of psychological issues such as depression, and associated healthcare costs.
• The reputation of our higher education system is at risk.
• It will take much longer for college graduates without a job to begin saving, which will severely affect their retirement comfort.
• Lower income often means delayed family formation and other potential social effects.
• As unemployment rises, crime often grows alongside it since people become desperate to find a way to get ahead.

To finish, I'd like to invite my lovely readers to give me any feedback (critical or creative) that they might have, as the more information and insight I can gather, the more likely it is that we'll be able to start to put a dent in this issue. Thanks for reading!

Introduction

About me

Hello everyone. My name is Chris Shotwell. This is my first post for my Bainbridge Graduate Institute blog. I just started the program and I'm super excited to explore the many ways in which business can make the world a better place.

First, I want to introduce myself. I was born in Seattle and moved around quite a bit as a kid - to suburbs of Phoenix, Portland, and, finally Sacramento at age 11. After high school I attended California Polytechnic State University, where I proceeded to change my major several times, finally settling on City and Regional Planning. this major exposed my to quite a few new ideas and influenced my desire to protect the environment. Indeed, a major part of the urban planning profession is a dedication to protect our natural resources through responsible land use and transportation policies.

After gradation, I took the first job that was offered to me: a "planner" position with a multinational engineering and architecture firm with an office in Seattle. Unfortunately, while most of the work the firm did contributed positively to society, I found that the focus was often on pleasing the clients and shareholders rather than on making the best products possible. In addition, a sink-or-swim attitude towards recent college graduates left many of us barely treading water, and when the recession hit most of us were laid off after a few months of twiddling our thumbs. I took a few odd jobs during unemployment and eventually found a fit at Trader Joe's, where I could make enough to pay the bills while I reconsidered my path, which led me to BGI.

Inequality

But enough about me for now. This first post, I'd like to focus on a topic that has gained a ton of attention over the last few years and has launched a political and social movement: inequality. Specifically, income inequality. A lot of heated rhetoric is thrown around by both sides of the American political spectrum, and it takes some courage to step back and examine the issues with a cool head.

First, some of the facts: According to the congressional budget office, the income of the top 1% of households grew by 275% from 1979 to 2007, while incomes grew much more slowly among other groups. Similarly, while the income share of those top households grew by 10% over that period of time, the income share of the other groups actually fell by 2-3%.

An important question to address is "Why does this even matter?"

Happiness and inequality

According to recent studies an income of $50,000 is the sweet spot for happiness. below that, happiness plummets, above it happiness grows much more slowly. This makes sense, as below a yearly income of $50,000 money becomes something we are always aware of when we make a decision. Above 50,000, we can go out to lunch, head up to the mountains, for a day of skiing, and take a week-long vacation each year without financial worries becoming a burden.

Even more interesting is that studies show a moderate negative correlation between inequality (as measured by the GINI coefficient) and happiness. Why might this be? I would posit that being exposed to people who are significantly wealthier than oneself makes one significantly less satisfied - and more insecure - with one's own lot. Rather than enjoying my nice cottage, suddenly I'm wishing I had a lakefront mansion. And it makes me sad.

I'd also like to point out that while the capitalist economic system has certainly reduced absolute poverty (those living in abject conditions), this has not been uniform or universal, and in many cases, such as urban slums, living conditions have actually deteriorated even as material wealth has increased.

Economics and power imbalances

Now, I'm just starting my studies of economics but I can offer a few nuggets. The political right would argue that the wealthy make the world go round and are the main instigators of economic growth. While many wealthy people are investors, many of these investments mainly serve to make the investor more rich and, in some cases, are actually standing in the way of progress. While Joseph stiglitz's argument for causality (that inequality has been a major contributor in the current economic depression) may or may not be provable, there is little doubt that income inequality in America leads to a lopsided political situation in which the rich have a disproportionate amount of power (consider Rodney's political campaign). The rich can get away with a lot more than the middle class and poor (hire a good lawyer, just pay the speeding ticket, etc.) And as shown during the recent economic depression, when the wealthy and powerful take a risk, it can bring down an entire economy.

Something I'd like to look at in future blog posts is how much the wealthy are saving vs investing, as well as the social and economic benefits (or lack thereof) of those investments. One of the most common arguments (if not the primary argument) for low taxes on the rich is that the rich are: a.) stimulating the economy; and b.) giving large amounts to charities. If we can show that these investments are smaller and less beneficial than the right wing claims then we might be able to gain a foothold. (Is the stock market much more than a glorified gambling parlour?) I will also examine other sides of this debate. For instance, does some amount of inequality lead to greater productivity through motivation, investment, etc? Is there a sweet spot we can aim for?

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