As automation, robotics, and artificial intelligence continue to reshape the labor market, it’s imperative that the nation’s higher education system successfully prepare students to keep up with this rapid pace of change. But as our new research paper shows, the United States has a labor force that is increasingly overeducated and underskilled, a mismatch that many colleges and universities are not adequately prepared to remedy.
A Growing Skills and Jobs Mismatch
Not all the news is bad: our analysis of survey data and education statistics reveals that the payoff, or wage premium, for investing in a college education is still relatively high. In other words, people who complete a four-year degree or better are still more likely than those who don’t to have higher lifetime earnings and better employment opportunities.
However, since 2002, there has been some slowing or flattening of the college wage premium. Indeed, while the earnings of bachelor’s and master’s graduates continue to outpace the earnings of high school graduates, dramatic increases in the cost of college in the past 17 years have made higher education a worse investment for the average student. This divergence between cost and earnings highlights the importance of choosing a high-earnings major when enrolling in college to reap the largest returns on a college investment.
At the same time, simply enrolling in college may not be enough to reap the benefits of a wage premium. For starters, around a quarter of students enrolled in four-year degrees do not complete their degrees.
But even for college graduates, the situation is not entirely positive: our analysis reveals that the top-down push from government to drive up college enrollment rates in recent decades has resulted in the most gains in graduate employment taking place in low-skilled, low-paid jobs. These underemployed graduates, who work in jobs that require skills below their qualifications, make up about two in five graduates working in their first job. Moreover, these underemployed graduates make around $10,000 less than appropriately employed graduates.
Whether a recent graduate ends up underemployed varies significantly based on the choice of major. Those who study subjects that emphasize general skills (e.g., liberal arts) experience a mismatch in employment almost two-thirds of the time. But only one-third of STEM graduates with occupation-specific skills (e.g., engineering) are underemployed.
An Evolving Employment Landscape
Americans constantly read about how the rise of artificial intelligence and automation will in the future reduce the number of workers needed. People are told that whole classes of jobs will no longer be necessary. But rather than displacing workers, technological innovation creates opportunities to redesign jobs around human-machine collaboration and enhance workers’ capacities. This changing landscape means that the existing skills mismatch between graduates and the labor market will likely only get worse if not adequately addressed.
Workers will require continual training and regularly updated work experience if they’re going to thrive in this evolving labor market. With this in mind, educators and students should increasingly consider nontraditional education options as viable alternatives to college.
How Nontraditional Education Options Like Apprenticeships Can Help
In fact, rather than being the exception, apprenticeships should increasingly become the norm. Because apprenticeships involve continual on-the-job training, they will often be better than universities at equipping students with needed skills and, after they become workers, with the ability to learn new skills throughout their careers. Apprenticeships also tend to be much less expensive than colleges and universities.
Fixing the mismatch between higher education and labor market skills will not be simple, but policymakers could start by considering reforms that make apprenticeships more attractive to both employers and students.
One obvious problem involves the current US system for accrediting colleges and universities, which focuses too heavily on institutional resources such as school facilities, equipment, and supplies, and largely ignores outcomes. Removing regulations that focus on processes and replacing them with a “chartering” model, where providers of higher education submit to accountability for outcomes in return for autonomy in developing and running their programs, would compel educators to focus more acutely on preparing students for the evolving labor market.
In addition, policymakers could encourage states to offer students some kind of on-the-job training while they’re still in high school. Known as career-connected learning (CCL), this practical training can effectively combine classroom instruction with work-related experience, as small-scale CCL projects in the states of Washington and Colorado demonstrate.
There also are a number of easy ways to make financing available for apprenticeships. For instance, income-share agreements (ISAs) allow investors to fund students’ higher education in exchange for a fixed share of their future income for a defined period of time after the student graduates. But currently, there is no established regulatory apparatus for ISAs. As a result, investors are reluctant to provide students with ISAs because legal enforcement and protections have not been fully established. Providing greater legal and regulatory clarity on the status of ISAs would allow for more innovative career training models without putting taxpayers’ money at risk for those students who end up defaulting. Policymakers could also explore the possibility of making employer investments in worker training tax deductible.
The US government needs to rethink higher education policy, particularly federal financial aid and other provisions that treat college enrollment as an end in itself without examining whether students ultimately are benefiting. As our analysis shows, a good first step would be to remove barriers to vocational, skill-based alternatives to college. Moving to a more outcome-based higher education policy will help ensure that tomorrow’s students are able to thrive in the challenging and ever-changing labor market.