A reasoned perspective on the importance of increasing the number of Americans with postsecondary degrees and certificates requires a clear understanding of the labor market and its evolving demands. A number of different approaches to developing educated guesses about the future provide insights. Here are two.
We call the first approach the “manpower approach.” In (overly) simple terms, this approach pictures the labor market as a set of boxes called “occupations” nested inside collections of businesses called industries. Each box has certain “requirements” attached, which are sets of skills and dispositions. In its extreme form, fitting into the boxes is a “yes-no” proposition: if you don’t meet the requirements, you just can’t do the job, and if you have the requirements, further skills don’t enable you to do the job better. Nobody takes this literally but that is the starting point. Needed skills can be effectively captured in levels of education—this job “requires” a college education—and/or specific programs, certificates, or majors. Understanding the evolution of the labor market and forecasting its future is essentially a matter, on the demand side, of examining the sizes of the various boxes and projecting their growth, building up the picture from particular industries into a global forecast. On the supply side, it’s about projecting the number of different kinds of degrees and credentials.
Just as the manpower approach emphasizes rigidities, so the approach we will call “ the human capital outlook” pictures markets as fluid and continually adjusting. Human capital is seen as more like a substance that you can have more or less of, and less as a list of specific skills and certifications. On the education side, the basic measure of how much human capital you have is educational attainment, the number of years you have been in school. (Human capital is also produced by health improvement, job training, experience, etc.) Over time, the labor market will adjust in a variety of ways to the availability of workers who offer more or less of this human capital substance. Market signals steer workers toward jobs where their human capital can be most productive and—importantly—the work content of any particular job or occupation will be adjusted through market forces to take advantage of the human capital that is available.
Just as manpower folks don’t believe the job structure is completely rigid, human capital people understand that the economy isn’t completely fluid, especially in the relatively near term, but again we are talking about starting points. Any sensible person attempting to make a forecast of the future of the labor market while looking at the past will conclude that people with more education should expect substantially better results than people with less. This basic conclusion doesn’t differ between these perspectives—the differences are more subtle than that.
Analysts with a human capital perspective tend not to put much stock in ten or twenty year forecasts of employment in specific occupations, picturing adjustments as too complex and fluid for projections to really pay off over that time frame. They put more emphasis on broad trends in investments in new technology, changes in the structure of demand, and national investments in education. The manpower team, while not denying the impact of such forces, will put more stock in detailed forecasts, take more interest in investments in particular skills, and worry more about potential mismatches between particular skill requirements and particular types of training.
Both of these perspectives are valuable. But the best planning for the future will rely on more than a count of educational credentials. It requires a more nuanced understanding of both labor markets and the role of education in equipping people to participate productively.
4 Responses to Education and the Labor Market: Two Perspectives
ellenschrecker - November 11, 2010 at 8:27 am
Very useful discussion. Can the authors recommend any further reading?
currie1 - November 11, 2010 at 12:05 pm
Mike,
This is a case where a simple descriptive model is a great help in thinking about a complex problem. The different perspectives of time help explain why the leadership of organizations, who think in thrms of the human captial model are constantly frustrated by the decisions made by the the line managers who actually do the organization’s hiring based on the skills model.
Dean Currie
mbelvadi - November 11, 2010 at 12:15 pm
It seems to me that rather than being two opposing views, you could view these as being microeconomic and macroeconomic levels of analyses. Just as microeconomics can be usefully applied to a given business, the manpower level of analysis can be applied to help individual people make decisions about how to maximize their personal earnings (e.g. by using tools like the federally published Occupational Outlook Handbook). And just as macroeconomics should guide top level policy makers but is mostly useless to the average specific small business, the “human capital” approach should be guiding state and federal policy making for long term economic health but does nothing to help guide individuals’ decisions about what they should do in their own lives.
mam5mc - November 11, 2010 at 2:05 pm
The critics of the need of the labor market for college credentials call into question some of the a priori assumptions that characterize the two approaches. Alison Wolf (Change, July/August 2009), for instance challenges the view that “needed skills can be effectively captured in levels of education — this job ‘requires’ a college education — and/or specific programs, certificates, or majors.” She says it is not at all clear that a college degree is a proxy for those skills. She also says that employers may require a college degree for jobs that don’t in fact call for the competencies that those degrees supposedly signal. Paul Barton (Change, Jan./Feb. 2008) challenges the assumption that the labor market will increasing need people with greater skill levels by pointing out that growth in percentages is not the same as growth in raw numbers: the fastest-growing occupations are not the ones where the growth is greatest, since their base is smaller. He also would not agree with the assumption that “the work content of any particular job or occupation will be adjusted through market forces to take advantage of the human capital that is available.” Both do think that on the whole, an INDIVIDUAL is better off for having a college degree, however (although Wolfe points out that that advantage varies widely by major, and she thinks that the more people have degrees at questionable levels of attainment, the less it will be seen as a good proxy for competence by employers). The question in dispute is whether the LABOR MARKET needs a lot people with college degrees.