Labor Markets, Higher Education, and the Race for Talent
When business leaders talk about the ‘race for talent,’ you naturally want to know more about where the contestants in that race are going to come from, and exactly how they are training for the race. The answer, at least in the US, has for a very long time belonged to the higher education sector.
But there’s a significant disconnect here. Come June (graduation season) and then again come September (tuition check writing season), you can pick up any major newspaper and get even odds on finding an article or editorial that asks if a college education is worth the time and cost. If the race for talent were quite so intense, would anyone wonder about the value of college?
Today it’s absolutely fair to wonder. College education is one of the largest expenditures and investments that most people make in the course of their lives, with the possible exception of their primary real estate. These days, of course, a decent college education can cost a lot more than a decent apartment in most cities. And don’t forget the four (or more) years of opportunity cost, when the student is being a student and not something else that could earn him or her a salary.
And yet for a long time, at least in the United States, ‘is college worth it’ wasn’t even a question, or at least not a question you would pose in polite conversation. The economics of higher education seemed definitive: the more schooling you had, the more the labor market valued you and the more money you made over the course of your life (the only exception to that rule being non-professional PhD degrees). For most of the post-World War II period (and it’s still true today) a college degree was one of the best guarantees against unemployment during labor market downturns. And all of this, without even mentioning the inherent value of learning and socialization that happens during those four ‘wonderful’ years. Even electrical engineering students take a philosophy or art history course now and again, and human beings are indeed much more than simply labor market inputs. College was supposed to make them better at both.
Today, there’s quite a bit of doubt. The return on investment from a college education is still positive… but it’s not as big as it used to be and has been declining in the United States for almost 20 years. Just about everyone has now seen the data on college debt — and while it might not be as frightening as mortgage debt was in 2007, it’s also not collateralized the way mortgage debt was. We’ve all heard anecdotes about the educated unemployed or underemployed, and the iconic PhD philosopher driving a cab. We’ve also seen the extraordinarily rapid rise of college tuition, exceeding the cost of inflation even in health care costs. The fraudulent behavior of some for-profit educational institutions has been exposed. There’s the MOOC alternative - why not just take courses for free on the Internet? And finally, there’s a brewing anti-educational ideology put forward by people like Peter Thiel, who are literally paying smart young entrepreneurs to stay away from college and get their businesses started instead.
What does this suggest about the contestants in the race for talent?
If I were 17 or 18 years old, I’d be confused by all this. If I were the parent of a 17 or 18 year old, I’d be confused. Half of our team (Steve) works partially in higher education, and even we are confused. But most importantly, if I were a big employer concerned about my ability to attract the future human talent I’ll need to run my business in 2018, I’d be a little confused as well.
We're not going to try to settle the debate over higher education’s value in this short post. We just want to use it to point to something much more fundamental and of very deep interest to business leaders. This is the deep uncertainty, anxiety, and confusion *on the supply side* about the future of employment. Higher education was supposed to be the ‘silver bullet’ that made you employable, with good confidence, and at a high salary. Now, your future employee prospects are not so sure about that, and they are being sent conflicting signals. They are uncertain because we as a society are uncertain — about what, how, and why to educate people for a future labor market that is being buffeted around like never before by technology, by trade, by unconventional monetary policies, and beyond.
It’s becoming more important for firms to grapple with the uncertainties of the labor market that will accompany the debate over higher education. What if Peter Thiel’s somewhat quixotic program were to become attractive to a very large number of talented 17 year olds? What if a third of today’s potential college entrants end up in skilled vocational training institutes instead? And what if the winners in the talent race start to come from ‘unofficial’ and ‘uncredentialed’ MOOC-takers, not the recruitment fairs at Harvard Business School and the UC Berkeley Computer Science Department? What’s it going to take to be the winner on the labor demand side if the race starts to look that different?
The easy response would be to wait until governments and families solve this education-employment nexus problem. That’s almost certainly not the right response, unless business leaders believe that those ‘solvers’ will get it right and produce the talent they need.
We believe, in contrast, that firms need to speak up clearly and be heard on this issue. Firms, after all, are the demand side of the labor market. And ultimately, helping to make the employment equation clear is a part of most firms, and particularly large firms, license to operate in a modern capitalist society. It may sound strange to say it, but firms make jobs as well as profits.