Month: April 2017

The New Bachelor’s Degree

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According to a 2016 Fast Company article,

Nearly a third (32%) of employers are bumping up education requirements for new hires. According to a new survey from CareerBuilder, 27% are recruiting those who hold master’s degrees for positions that used to only require four-year degrees, and 37% are hiring college grads for positions that had been primarily held by those with high school diplomas.

CareerBuilder conducted a nationwide online survey that culled responses from over 2,300 hiring and human resource managers across different industries in the private sector.

Their responses revealed that employers pushing their education requirements toward higher degrees are doing so across all levels of their companies. The majority of employers (61%) say they are looking for more educated candidates at the mid-level skill level, but 46% are looking to hire better educated candidates at entry level and 43% think the same for higher levels.

This comes at a time when the cost of a four-year college degree is out of reach for the average American family. But employers argue that a tight job market and evolving need for different skills are making it necessary. For example, 60% of employers who were satisfied with hiring high school graduates in the past claimed their work requires the skills held by those who have completed higher education.

But why?

Employers told CareerBuilder that higher education not only increases an applicant’s chance of getting hired, but it helps boost the chance they’ll be promoted down the road. Thirty-six percent of employers reported that they would be unlikely to promote someone who doesn’t have a college degree.

That’s because employers have seen education make a positive impact across the board, from employees’ ability to produce better quality work, to productivity and the ability to boost customer loyalty.

This is likely why a “recent Pew Research study found that high school graduates earn about 62% of what those with four-year degrees earn. That’s evolved since 1979, when people with only high school educations earned 77% of what college graduates made.” But not all is lost:

The good news for current and future workers is that some companies are taking responsibility to bridge the skills gap and overcome the talent shortage. Over a third of employers (35%) said they trained low-skill workers and hired them for high-skill jobs in 2015, and 33% said they’ll do the same this year. A full 64% of employers said they plan to hire people who have the majority of skills they require and provide training for the rest. They’ll do this by paying for training and certifications offered outside the company or sending them back to school. Twenty-three percent said they would fund an advanced degree partially, and 12% would foot the entire bill.

Fast Company recently reported that a small, but growing number of companies are offering employees assistance to pay back their student loans.

This could be an example of business leaders compensating for what they see as a lack of preparation among new college graduates. Furthermore, it may be an argument in favor of greater collaboration between higher education institutions and businesses.

 

The Need for Competition

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Jason Furman, the chair of the Council of Economic Advisors under President Obama and now a senior fellow at the Peterson Institute for International Economics, argues that “both microeconomic and macroeconomic evidence” point to declining competition:

On the micro level, most industries today have fewer players than before. Just think about hospitals or cellphone service providers or beer companies. Throughout our economy you see larger companies, older companies, and, in any given industry, fewer companies. Growth in international trade has been a counterweight — but only within the tradable sector. Most of our economy is not tradable, and so for most of our economy, international trade isn’t a factor.

On the macro level, companies’ rate of return on capital has stayed the same or risen, while the safe rate of return on bonds has fallen precipitously. If there were really vigorous competition, you wouldn’t see increases in return on invested capital. In addition, we see an increase in the share of national income going to capital — that is, to investors — rather than to wages. That income shift has been larger in industries that have seen bigger reductions in competition.

He believes that this lack of competition plays a role in the increasing income inequality within the United States:

Wages aren’t determined strictly by supply and demand; they also depend on institutional arrangements and bargaining power. And with greater industry concentration, the bargaining power of employers rises. If there are four hospitals in your town and you’re a nurse at one of them, you can threaten to leave and go work at another one as a way to get a raise. If there’s only one hospital, it’s a lot harder to advocate for a raise.

This insight complements Brooking’s Jonathan Rothwell’s analysis as well as a 2016 commentary from The Economist:

[O]ne problem with American capitalism has been overlooked: a corrosive lack of competition. The naughty secret of American firms is that life at home is much easier: their returns on equity are 40% higher in the United States than they are abroad. Aggregate domestic profits are at near-record levels relative to GDP. America is meant to be a temple of free enterprise. It isn’t.

…You might think that voters would be happy that their employers are thriving. But if they are not reinvested, or spent by shareholders, high profits can dampen demand. The excess cash generated domestically by American firms beyond their investment budgets is running at $800 billion a year, or 4% of GDP. The tax system encourages them to park foreign profits abroad. Abnormally high profits can worsen inequality if they are the result of persistently high prices or depressed wages. Were America’s firms to cut prices so that their profits were at historically normal levels, consumers’ bills might be 2% lower. If steep earnings are not luring in new entrants, that may mean that firms are abusing monopoly positions, or using lobbying to stifle competition. The game may indeed be rigged.

…Unfortunately the signs are that incumbent firms are becoming more entrenched, not less…A $10 trillion wave of mergers since 2008 has raised levels of concentration further…Having limited working capital and fewer resources, small companies struggle with all the forms, lobbying and red tape. This is one reason why the rate of small-company creation in America has been running at its lowest levels since the 1970s. The ability of large firms to enter new markets and take on lazy incumbents has been muted by an orthodoxy among institutional investors that companies should focus on one activity and keep margins high. Warren Buffett, an investor, says he likes companies with “moats” that protect them from competition. America Inc has dug a giant defensive ditch around itself.

What can be done?:

The first step is to take aim at cosseted incumbents. Modernising the antitrust apparatus would help. Mergers that lead to high market share and too much pricing power still need to be policed. But firms can extract rents in many ways. Copyright and patent laws should be loosened to prevent incumbents milking old discoveries. Big tech platforms such as Google and Facebook need to be watched closely: they might not be rent-extracting monopolies yet, but investors value them as if they will be one day. The role of giant fund managers with crossholdings in rival firms needs careful examination, too.

The second step is to make life easier for startups and small firms. Concerns about the expansion of red tape and of the regulatory state must be recognised as a problem, not dismissed as the mad rambling of anti-government Tea Partiers. The burden placed on small firms by laws like Obamacare has been material. The rules shackling banks have led them to cut back on serving less profitable smaller customers. The pernicious spread of occupational licensing has stifled startups. Some 29% of professions, including hairstylists and most medical workers, require permits, up from 5% in the 1950s.

A blast of competition would mean more disruption for some: firms in the S&P 500 employ about one in ten Americans. But it would create new jobs, encourage more investment and help lower prices. Above all, it would bring about a fairer kind of capitalism. That would lift Americans’ spirits as well as their economy.