Would More Education Reduce Unemployment and Income Inequality?

Some people argue that education is the answer to some of the big current problems the U.S. economy faces. Want to fix the unemployment problem? That's easy: just provide additional educational opportunities for those having difficulty finding jobs. Want to lessen income inequality? That's easy too: if more people have college degrees, they'll qualify for higher wage work. While these arguments appear to make sense, looking at the data over the past several decades provides the opposite answer: more education would solve neither problem.

Lawrence Mishel of the Economics Policy Institute makes this argument in a new paper. While he agrees that a better-educated workforce would ultimately help U.S. growth, he shows pretty convincingly that these two current economic problems can't be solved with more education.

Unemployment

In fact, it's pretty easy to see that education isn't the answer to solving the unemployment problem if you make one key assumption: the unemployment problem is cyclical, not structural. This means that those unemployed today will eventually be able to find jobs in the respective industries, relying on their current skill sets. If the problem was structural, then specific dead industries segments would be responsible for the high unemployment problem, and those workers would need to develop other skills to find new work.

In his paper, Mishel argues at length that the unemployment problem is cyclical. His argument is relatively straightforward, and pretty compelling. In fact, in some ways it resembles a post here a few weeks earlier, which argued that the unemployment problem is only a little bit structural. It's pretty clear that there simply aren't enough job openings at this time to accommodate all of the unemployed Americans. Once the economy improves enough to spur substantial job creation, work should return in almost all industries.

The one notable exception is construction. Mishel disagrees, however, saying that construction is no different than any other industry. For reasons explained in the post on structural unemployment linked above, however, construction does look different. The incredibly large amount of investment in real estate during the boom years will not return. Eventually construction will be needed, but not to the extent it was during the bubble.

But one structural change does not make a structural unemployment problem. Construction workers laid off since the beginning of the recession only make up about 13% of all unemployed Americans. While that's not insignificant, if every other industry recovered but construction, the unemployment rate would drop to about 6%, which is quite close to the natural rate. And as mentioned, some construction jobs will inevitably return once the housing market supply is worked through and businesses begin expanding again. The industry is, by nature, pretty cyclical.

Since the unemployment problem is mostly cyclical, education wouldn't help. The U.S. is not in a situation where jobs are available, but millions of workers have the wrong skills or not enough education to perform the duties those jobs require. Instead, it's just a matter of economic activity increasing to where firms feel the need to hire back already-qualified workers.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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