Tuesday, March 18, 2014

Studying for Employment: A Lesson In Marketing and Statstics

A billboard that I pass quite often in my travels advertises the local applied technology college. In huge bold letters it boasts, "90% of our grads are working. Are you?" The marketing is clearly aimed at the unemployed. But might it actually be aimed at those that are bad at math?

It was recently reported (see D-News article) that Utah's unemployment rate has hit a five-year low of 3.9%. Turning the math around on the college's billboard we can see that the college is proudly stating that the unemployment rate among its graduates is about 10%. That's more than 250% higher than the state average. Can someone explain to me how this is supposed to be a good thing?

It's like the college saying, "You can more than double your chances of being unemployed by spending a lot of time and money to get a certificate from us!" Well, by golly, who wouldn't want to take them up on a deal like that?

To be fair, the numbers are actually far more complex than can be conveyed in sound bite statistics. While it is true — according to government accounting — that Utah's official unemployment rate has dropped to 3.9%, unemployment is not evenly spread across demographic groups. Besides, political accounting machinations don't mean nearly as much to people as do the financial realities they face every day.

To understand what the unemployment rate is actually counting, you must first understand the labor force participation rate. That is the percentage of people in the 16-64 age range that are either a) employed or that are  b) unemployed, are available to work, and have actively looked for work in the past four weeks. The unemployment rate is b (unemployed) divided by a (employed + unemployed).

Most people likely assume that a 3.9% unemployment rate means that only 3.9% of those that could be working are unable to find jobs at the moment. But that's not accurate. The unemployment rate does not count people that are willing to work but that have quit looking for a job. That number is harder to calculate because it is difficult to know whether people that aren't actively seeking work are available to work or not.

We try to get a feel for this by looking at the change in the labor force participation rate. This rate recently hit a 35-year low nationally (see MarketWatch article). While this number can be heavily influenced by fluctuating retirement rates, the recent decline seems to mostly involve those under age 35. Moreover, Utah has seen the nation's largest drop in labor force participation over the past half decade (see Governing article), exceeding the national average decline by more than 230%.

This tells us that a lot of Utahns would work if they could but that the job market is so lean they have simply quit looking for work. The state's rosy unemployment rate paints an overly optimistic picture because it fails to address thousands of real unemployed folks.

In Utah these would-be workers are more highly concentrated in the 16-24 age demographic (see LocalInsights publication). This group's labor participation rate is only 81% of the demographic's national average. Given Utah's high youth population, this age group's poor performance is enough to make Utah's overall labor force participation rate look dismal. (The Governor boasts in the linked D-News article about the recent jump in Utah's labor participation rate, but this was only possible because the rate had fallen off so badly. Even with the recent improvement the state's rate is poor.)

When you add the 44.8% of Utah teens and young adults that aren't looking for work to those that are (11.9% unemployment rate), the total rate of those without jobs in this age category is pretty high. Since the main demographic for applied technology students is the 16-24 age bracket, perhaps the college's billboard is an apt advertisement after all. 10% unemployment sure beats 50%+ unemployment.

Youth jobs in Utah have dried up due to multiple factors. The lean economy means that a lot of jobs simply aren't available any longer due to business contraction and the transition of some jobs to technology. Also, adults in the next higher age group have increasingly accepted jobs that formerly went to younger workers. (This is true all the way up the line of ages.)

Even the labor participation rate is inadequate for capturing job quality. The number of workers that want full-time employment but that are working in part-time jobs has risen dramatically. Well meaning government sponsored efforts to "help" workers but that also add costs to employers can only make the overall employment situation worse.

What this means is that, despite all of the rhetoric about an improving economy, the job market is a much tougher place than it once was. Training that might have been unnecessary in the past may turn out to make the difference between having a job and not having a job. So school can be valuable. But it's no panacea.

If your goal is to get a job, it pays to do a little research before plunging dollars and hours into education. You want to make sure that your investment will pay off. This is historically difficult, especially if you are chasing a field that has a lot of hot jobs today. Those jobs might not be there by the time you graduate. Or you may graduate with so many competitors that your group swamps the market.

College doesn't necessarily beat vocational training either. Record numbers of college graduates are working in jobs that don't require a degree (see CNN Money, LA Times articles). Much of this is because people have spent their time getting degrees that don't have much value in the job market or that they have ended up hating.

The moral is to get real about what you choose to study. Colleges are increasingly facing pressure to prove the market worth of the degrees they offer (see Wall Street Jounral article), but many have no idea how to accomplish this feat.

It is also good to remember that in a tight labor market you can't expect your ideal job to be available. Successful job candidates often settle for conditions they would prefer to avoid.

It is entirely appropriate to pursue an education to improve your job prospects. But do your homework before committing yourself. And be realistic about what your certificate or degree can do for you.

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