Mar 01, 2013

Underemployed College Graduates: A Talent Demand and Supply Mismatch

The rise in the importance of a college education proves the wisdom of Say’s Law that says, “Supply creates its own demand.”

Suppose in 1970, a bar owner advertised for a bartender and received 15 applicants, most or all of whom had high school diplomas. He would most likely choose the bartender on criteria unrelated to educational credentials. Today, however, if a bar owner likewise advertises for a bartender, and gets 15 applicants, it is probable that at least four of them have bachelors degrees. 

Say’s Law is relevant because the supply of college graduates has soared. In 1970, only ten percent of the population over the age of 25 had college degrees; that proportion has nearly tripled to over 30 percent today.

Empolyement by ratio

The employment population ratio is higher in the case of higher degrees, where the national population of college graduates is relatively higher during the last one year as compared to high school graduates or those with less than high school diploma. Beside there being shortage in jobs, which really requires graduates, there are other factors which influence appropriate placements such as:

  • Overproduction of graduates with degrees which are not high in demand, such as social work, arts, literature, etc., as compared with highly-sought after majors such as engineering and economics. 
  • Not all colleges are equal – that is, the typical graduates of elite private schools earn higher wages than graduates of state universities.  However, state university graduates still have higher incomes that those attending relatively non-selective private institutions.
  • Rising college costs and perceived declines in economic benefits may well lead to declining enrollments and market share for traditional schools, and new methods are developing for certifying occupational competence.
  • Comparing average college and high-school earnings is highly misleading as a guide for vocational success, given the high college dropout rates and the fact that the surplus of college graduates lowers recent earnings of those with a higher degree, especially when compared to collage graduates of previous years. 
"Supply creates its own demand" ~Say's Law