Education and Unemployment

by Michael on Jan 7, 2013 · 1 comment

Photo of Man Holding a Job Sign

While reading the latest unemployment report from the Bureau of Labor Statistics (BLS), I was struck by the apparent relationship between education and unemployment rates.

At tail end of 2012, the overall unemployment rate stood at 7.8%, but it actually varied quite widely across educational levels.

What follows are the Dec 2012 unemployment rates for civilians who were 25+ years old, broken down by educational attainment.

Less than high school diploma11.7%
High school grad, no college8.0%
Some college or associate’s degree6.9%
Bachelor’s degree and higher3.9%

While this is just a snapshot from last month, the same pattern has held up over time. The unemployment rate is lower for those with higher levels of education.

Does education reduce unemployment?

Though it makes sense that education would decrease the likelihood of unemployment, it’s important to keep in mind that there are other possible explanations. Educational attainment is correlated with a number of other factors and, as we all know, correlation does not imply causation.

That said, I recently ran across a 1991 study on the relationship between education and unemployment. The conclusion? Education does reduce unemployment.

Interestingly, this study also provided evidence that this effect is due more to the reduced occurrence of unemployment in the first place, as opposed to a reduced duration of unemployment when it happens.

This is due in part to: (1) lower likelihood of separating from an employer, and (2) lower likelihood of entering unemployment when separating from an employer. In other words, you’re less likely to quit or get laid off if you’re more educated, and you’re more likely to find a new job if you do quit or get laid off.

Education and job turnover

The lower frequency of job turnover is partly due to the fact that more educated workers are more likely to engage in on-the-job training. Because the employer invests in this training, and because it tends to be job-specific (so the employee has invested something in the employer), both layoffs and quits are reduced.

There is also evidence that firms with high fixed labor costs will attempt to minimize these costs by screening more intensively, ultimately substituting quality for quantity (resulting in a more educated workforce). Such firms will also tend to incentivize employee retention and provide paths for advancement.

From the employee side, it’s also possible that more educated individuals are better at “job matching” — i.e., finding suitable employment with less searching, thereby reducing future turnover.

Education and finding the next job

At the same time, the ability to change jobs without unemployment implies the ability to search for one job while working another. Why the difference here? Well…

More educated workers are (arguably) better at efficiently acquiring and processing job search info, and they also have more on-the-job flexibility. This makes it possible for them to find the next job before leaving their current position.

Of course, this is still ignoring differences in inherent ability — i.e., not everyone is cut out for college. Thus, post-secondary education isn’t exactly a silver bullet.

Nonetheless, this is pretty interesting stuff.

Source: BLS.org and NBER.org


1 TTMK January 8, 2013 at 12:20 am

I’m a huge proponent of college, as well as graduate degrees for people. It only makes sense that advanced education will more than likely offer greater opportunities over a lifetime than being without. Not surprised at all to see those stats!

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