Just how critical is education to success in the Michigan job market? It turns out that above average levels of education or training are needed for access to high-growth jobs, and wages are enhanced as “the more you learn, the more your earn”. This article will explore the relationship between educational attainment and the corresponding job market success enjoyed by Michigan workers.
What is Job Market Success?
Job market success may be defined in many ways. Regardless of our definition, two fundamental measures of job market success must be considered:
- The probability that a person will successfully find a job
- The relative wage rate associated with that job
Individuals that are exceedingly successful in the job market would have a high probability of finding a job and that job would pay a high wage.
The Role of Skills in the Labor Market
The labor market is competitive. Employment and wages are determined by the degree of labor demand from firms and the relative supply of workers. Firms demand a mix of skill levels in their employment decisions, and workers in the job market have an assortment of skill levels. For example, in the manufacturing sector, a firm may demand both medium skill workers to assemble pieces and higher skilled workers to engineer them. Accordingly, there are people in the economy with skill sets appropriate for assembly and others for engineering.
When a labor shortage exists for a certain skill level, wages will be relatively higher for occupations requiring those skills. This is good news for individuals with the demanded skill set, as they will have an improved likelihood of finding a job. Further, when they find a job, the market wage for the skilled worker will be relatively high.
Education and Skills
According to the American Heritage Dictionary, education is defined as the knowledge or skills obtained or developed by a learning process. In economics, Human Capital Theory suggests that educated persons accumulate knowledge and become increasingly skilled labor market participants. Therefore, it is reasonable to use educational attainment as one proxy for skill levels.
Occupations are assigned a skill level by the US Department of Labor after careful review of the requirements, expectations, duties, conditions, and other aspects of the job. These skill levels include both educational attainment and relevant job experience as measurements of skill. The skill levels considered in this article are shown in Figure 1, and are displayed from highest to lowest:
Figure 1: Educational, Experience, and Training and Corresponding Skill Level
Skills and the Job Search
There are many occupations in the labor market, and all skill levels are utilized in the economy. However, an irrefutable trend in the labor market is the shift in demand for workers with low to moderate skills to those with higher skills. The constantly changing economy – primarily fueled by quickly expanding technology and an increasingly global marketplace – is requiring employers to seek out, and employ, workers with more skills.
Of course, there are still occupations in the labor market that do not require complex skill sets. However, it is important that students and prospective job seekers understand that anticipated job growth in these occupations might not match the expected expansion in occupations requiring more skills.
There is a clear upward trend between educational attainment and employment growth. Forecasts produced by Michigan’s Department of Labor and Economic Growth suggest that occupations requiring higher levels of education are expected to see more growth by 2012. As Figure 2 shows, occupations calling for on-the-job training or related work experience will see the smallest growth rates – ranging from 6.5 percent for moderate-term OJT to 10.8 percent for long-term OJT. The largest growth is forecasted for occupations requiring a bachelor’s degree.
Figure 2: Growth Rates (2002 – 2012) for Occupations by Skill Requirements
Source: Michigan Department of Labor & Economic Growth
Education and Unemployment
Education is not only important in finding a job but also staying employed. Both nationally and in Michigan, education plays an important role in whether or not an individual is unemployed. On average, unemployment rates for individuals with higher levels of education are well below the rates recorded by persons with less education.
Michigandata suggests that persons with less than a high school diploma, and high school graduates with no college experience, have unemployment rates well above the statewide average. Labor force participants with high school diplomas have an unemployment rate more than two times higher than people with bachelor’s degrees. For those without a high school degree, job options are severely limited, as workers have more than three timesthe rate of unemployment when compared to those with bachelor’s degrees.
Individuals with some college education or an associate’s degree are modestly below the statewide average unemployment rate. It follows that people holding a bachelor’s degree or higher have a considerably lower unemployment rate when compared to the statewide average.
Figure 3: Unemployment Rates by Educational Attainment
Source: Current Population Survey – U.S. Department of Labor, 2003 Annual Averages
Skills and Wage Rate
In most instances, there is a strong relationship between skill-level and wages. Occupations requiring the lowest skill level – short-term on-the-job training – pay the lowest average wage at $10.55. In contrast, the occupations requiring the highest level of skill pay the highest average hourly wage at $50.64. Incremental increases in skill level can be associated with increased average hourly wages at even the lower and moderate skill levels. An individual moving from an occupation requiring short-term on-the-job training to one calling for moderate-term on-the-job training, could expect to see a 54 percent increase in average hourly wage. A 24 percent wage premium is observed between jobs requiring moderate on-the-job training and long-term on-the-job training.
This trend continues for occupations requiring relevant work experience. Individuals with related work experience can expect to see a 12 percent wage premium when compared to workers in occupations requiring long-term on-the-job training. This increased wage suggests that there is a pay-off for work experience, as it is one way for a worker to accumulate skills.
The relationship between increased skills and higher wages is most pronounced when comparing occupations calling for college degrees with those that do not. The weighted average hourly wage for occupations requiring some college degree (associate’s degree through professional degree) is measured at $31.42, compared to $14.53 for those requiring types of training other than a college degree. The wage differential between the college graduate and the non-college graduate is $16.89 – or 116 percent.
There are two instances where we observe a variation in the general pattern of higher wages for jobs with increased education. The first occurs between experienced workers and those with vocational training or an associate’s degree. This shows that education and work experience are both skill factors that drive up potential wages.
The second occurrence is seen between occupations requiring bachelor’s degrees and those requiring master’s degrees. This is primarily related to the difference in the industry composition of jobs requiring master’s degrees. For example, social workers, mental health counselors, and rehabilitation counselors, among other occupations, are concentrated in moderate-wage industries, such as the health care and social assistance sectors. It is important to note, however, that many other master’s level occupations do pay above average wages. Another reason for the high wage associated with the bachelor’s degree or higher and related work experience skill level is the number of management occupations within the category. Fifty-two percent of the occupations requiring at least a bachelor’s degree and related work experience are management occupations. These occupations pay an average hourly wage of $43.78. These, along with other very high paying occupations, push up the average wage for this skill level.
Figure 4: Occupational Wages by Skill Requirements
Source: Michigan Department of Labor & Economic Growth
Conclusion
Your teachers weren’t lying to you when they told you staying in school would pay-off. This article has shown there is a definite relationship between educational attainment and job market success. People who have accumulated more skills – be it through formal education or related work experiences – enjoy greater job market success. This is demonstrated through more job opportunities, less unemployment, and higher wages.
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