Education as a cure for joblessness

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We hear it time and time again, and it is true: Get an education if you want to get a job. Still, does it follow that if more people get an education then there will be fewer people unemployed? "Maybe not" seems to be the conclusion, if you look at what is going on in the U.S. economy these days.

There are actually two possible things that a more educated population can affect the labour market:

1) If the unemployment rate is too high because the jobs that are available require "educated" workers, then increasing the number of educated workers will force the unemployment rate down.

This scenario suggests the unemployment problem is due to a mismatch of workers and positions, and can be fixed by supporting training and education programs. In this case, then, policies to stimulate the economy – such as through quantitative easing, the drug of choice of the U.S. Federal Reserve – will not be particularly effective, since they deal with business cycle issues, not structural ones.

2) If the unemployment rate is too high because there is simply not enough demand across the board, then increasing the number of educated workers will not force the unemployment rate down.

In this scenario, there is not a mismatch of positions and workers, but simply not enough jobs to go around. If you educate more workers, that's fine; they will simply be able to snag the available work. The less-educated workers will see their unemployment rate go higher, however, and there will be little improvement in the overall unemployment rate. In this case, policies to stimulate the overall economy might be the more effective choice.

Admittedly, I have always favoured scenario (1). It seems that the world is moving toward being a place where there is not a ton of demand for less-educated workers, and that the best bet is still to support education. But a new study by three Canadian economists suggests that that might not be the case.

According to the research, the jobs currently available in the U.S. do not require more "cognitive content" than the jobs available in 2000. The fact that there is a big gap between the unemployment rate for university graduates (3.9 per cent as of April, 2013) and high-school graduates (7.4 per cent) apparently speaks more to the fact that it is buyers' market than to anything else. So using education to fix the U.S. unemployment situation (the unemployment rate, even at a four-year low of 7.5 per cent as of April, is still higher than the 4.6 per cent experienced in 2007) is only going to be of limited use.

Of course, the problem of unemployment – in the U.S., Canada or anywhere else – is not as simple as choosing between two scenarios. Companies (and governments, for that matter) are under serious cost pressures, and sometimes just choose to hire fewer people. Outsourcing is a tempting possibility as a way to keep costs down. And, as previously discussed in this blog, hiring people with more education to fill simple jobs can benefit the economy, since the more-educated workers can bring more to the party anyway.

One thing is clear however: Eschewing education because job prospects are dim is not a good choice. Whichever scenario you pick – one of the two above, or another one altogether – those with the lowest level of education are going to have the slimmest pickings, whatever the reason.

Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute.