Underemployment among college grads

                                                      Comments due by Nov.8, 2014

Federal Reserve policymakers are missing important information as they assess the health of the labor market: data that might answer whether those employed full-time are overqualified for their jobs or would like to work more hours. As a result, the slack in the labor market that Fed officials on Oct. 29 said is “gradually diminishing” is probably still greater than estimated.

The information gap about slack—the number of workers who aren’t realizing their full potential in the labor market—means the central bank may have more difficulty gauging the right moment to raise rates. “Because it’s difficult to measure underutilization, there’s still a lot of uncertainty as to how much slack remains,” says Michelle Meyer, a Bank of America (BAC) economist, “which means there’s uncertainty as to the appropriate stance of monetary policy.” If the Federal Reserve raises borrowing costs too soon, it risks slowing growth before it has wrung all the labor market slack out of the system. Already the Fed has ended its program of quantitative easing.

The U.S. Department of Labor can put its finger on how many people are working part-time because full-time jobs aren’t available, and how many Americans of working age are so discouraged that they’re not even looking for a job. Other forms of underemployment—the college graduate with an English degree who’s working as a barista, for example—are harder to pinpoint, though they’re just as important in trying to measure whether the labor market has improved.

In a survey of 1,000 workers who graduated from college in 2012 or 2013, released in May by Accenture, 46 percent said they were in a job that didn’t require their degree. That’s a 5 percentage point increase from the 2013 survey, the management consultant reported. Earlier this year the Federal Reserve Bank of New York found that 44 percent of working recent grads were underemployed in 2012. The bank defined underemployed for these workers as holding a job that doesn’t require a bachelor’s degree. That was up from 34 percent in 2001 and near levels last seen during the 1990-91 recession.The data shortfall sparked a discussion at a Peterson Institute for International Economics conference on Sept. 24 in Washington. Erica Groshen, commissioner of the Bureau of Labor Statistics, asked what additional data would be needed to measure labor market slack more accurately. Betsey Stevenson, a member of President Obama’s Council of Economic Advisers, pointed out that it was possible with current data to determine whether people working fewer than 35 hours a week are underused: The Census Bureau survey simply asks if the worker would prefer to be working full-time. Those putting in a longer workweek fall off the radar. The BLS considers anyone working at least 35 hours a week to be full-time. The Census Bureau, which surveys households to get the information the Labor Department needs to crunch the monthly jobs data, doesn’t ask full-timers whether they’d prefer a different job or more hours. As far as anyone knows, those workers are fully employed and content. “If you’re a college graduate working at Starbucks, and you work 32 hours, we know you’re in the wrong job,” Stevenson said at the conference. “If you work 35 hours, we don’t know.”

Mario Mendoza says he works as many as 70 hours a week driving a taxi in Miami. The 34-year-old has a bachelor’s in sociology and anthropology and a master’s in global sociocultural studies from Florida International University. He says finding an entry-level job where he could do social or market research would put his driving days behind him. “I’ve applied for many of those jobs. I just haven’t been called up for the position,” Mendoza says. “If you spend so many years in school preparing yourself and studying, you want to use those skills to work, not do something like be a waiter or drive a cab or work at Starbucks.”

Another sign of slack may be the number of full-time workers who want more hours, says David Blanchflower, a professor of economics at Dartmouth College and a former member of the Bank of England’s Monetary Policy Committee. The U.K.’s Labour Force Survey asks those who aren’t seeking different or additional jobs whether they’d like to work longer hours at their current wage if given the chance. In the U.K., 6.3 percent of full-time workers said they’d like more hours, Blanchflower and David Bell, an economics professor at the University of Stirling in Britain, wrote in a paper published last year.

Employees’ willingness to work longer for the same pay also explains stagnant wages. Bosses know they can extend hours for current staff without bidding up salaries to lure more help. Hourly earnings in the U.S. rose 2 percent in September from the year before, compared with a 3.1 percent increase in 2007, when the last recession began. In time, an improving economy will take up some of the slack. “You have square pegs in round holes,” Blanchflower says. But as conditions get better, “people can move where they want.”

Rob Newton, 25 and living with his parents in Rhode Island, says he’d happily exchange his full-time landscaping job for one where he can apply his degree in occupational health and safety from Keene State College in New Hampshire. As winter approaches, he faces the prospect of seasonal unemployment. “I really don’t want to get to the point where I’m 28 or 29 and still not finding work,” Newton says. “I don’t want to be living in my parents’ basement for that much longer—for their sake and for mine.”

The bottom line: The Federal Reserve Bank of New York estimates that in 2012, 44 percent of working recent grads were underemployed.