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Tom Barkin

Will Employers Cast a Wider Net?

Tom Barkin

Sept. 2, 2021

Tom Barkin

President, Federal Reserve Bank of Richmond

An economic recovery has the potential to define the labor market for years. It can shut workers out, leaving them on the sidelines while the labor market heals without them, or it can bring them in, ultimately boosting long-term economic growth.

Following the Great Recession, we saw the great majority of jobs go to college graduates. College graduates made up less than 40 percent of the workforce between 2010 and 2016, but as many as 8.4 million jobs of the 11.6 million jobs created during that time went to those with a college degree.1

The skewed nature of the recovery reflected how different industries fared. For example, the recession pummeled manufacturing and jobs in that industry, and the less-educated workers who filled them were left behind. However, it also reflected an ongoing shift in employer expectations. Jobs that had previously been available to those without a college education increasingly required a degree. For example, in 2014, more than 60 percent of job postings for supervisors of production and operation workers required a college degree, while fewer than 20 percent of workers in those positions held degrees.2

Why did employers expect more from candidates?

Even prior to the recession, employers were losing confidence in the quality of non-degree candidates, perhaps because of increased complexity in the skills required to successfully execute tasks in a world of technological innovation.3

But labor market dynamics also played a role. Labor supply outweighed labor demand, meaning employers could be pickier and recruit more qualified workers. Unemployment among the college educated was elevated. Even in jobs that typically did not require a college degree, employers had the ability to select candidates with more formal education. Underemployment among recent college graduates increased about 15 percent (from 40.6 percent to 46.6 percent) between January 2008 and 2012.4

Years into the economic expansion, as the available talent pool shrank, we saw some employers start to widen their search parameters. In the tech space, for example, we saw companies such as Google, Apple, and IBM emphasize openness to and new pathways for non-degree holders. But for many employers, degree requirements remain. Hiring processes likely play a role. Automated resume screens, for example, mean candidates who do not meet basic requirements, such as a bachelor’s degree, can get filtered out before a human ever sees their resume.

The COVID-19 recession had the potential to cause a repeat of what we saw a decade ago. With so much job loss and rapid technology adoption in the face of lockdowns and social distancing, the conditions seemed ripe for employers to raise their expectations and be choosier with job candidates.

But this time, labor market dynamics have shifted. Labor demand is strong, with the number of job openings already surpassing pre-pandemic levels. This time, it is labor supply that seems suppressed. Even though there are millions more people without jobs than before the pandemic, the number of unemployed individuals per job opening has fallen below one. There are more openings than people looking for work.

Employers likely won’t be able to fill vacancies by recruiting overqualified candidates. College-educated workers saw less severe job loss than lower-educated workers — thanks to remote work — and they have now recovered to their February 2020 employment levels. More important, that recovery does not seem to be predicated on graduates accepting jobs for which they are overqualified; the share of recent graduates who are underemployed is below February 2020 levels.

That leaves employers looking for ways to recruit workers with less formal education. But this group isn’t an easy hire either. The Great Recession led employers to raise their expectations; the dynamics in the COVID-19 recovery have led workers to raise theirs. It is now workers holding out for a better match. The reservation wage for workers with less than a college degree has increased 26 percent since March 2020.

Employers are already responding to these expectations with wage increases. In 2021, workers with a high school education or less have seen stronger wage growth than college-educated workers.

It is possible that the start of the school year and the end of enhanced unemployment benefits will naturally bring people back into the labor force. But if they don’t return, then employers may need to change their recruitment strategy to widen their eligible candidate pool and pull in workers from the sidelines. Those changes could define our labor market for years to come.

Employers may open roles to job candidates that previously lacked necessary credentials. CVS announced in early August that they would be dropping their requirement for a high school diploma or GED diploma for entry-level roles. Similarly, a big transportation company recently replaced its base education requirement with basic skills requirements, as profiled in a recent piece published by the Atlanta Fed.

Employers may revisit policies that by nature shrink the eligible candidate pool, such as drug testing or background check policies. In a recent survey of 40 manufacturers, labor and employment law firm Ogletree Deakins’ Manufacturing Industry Group found that 37 percent have stopped screening for marijuana in preemployment drug tests, and 32 percent narrowed their definition of a disqualifying conviction.5

Employers may provide their own training to candidates who otherwise would be unqualified. Food distributor Sysco recently announced a driver training school to help tackle the shortage of drivers. They pay trainees to complete the training, cover their licensing and certification fees, and recruit current warehouse associates to join the pipeline. Employers may alternatively build their workforce through partnerships with community colleges.

Employers may invest in work enablers, such as child or elder care support, to help recruit candidates who are qualified for a position but unable to pursue it. McDonald’s, for example, recently introduced a pilot for an emergency child care program. And it’s not alone. At least 75 companies have started offering similar benefits through Bright Horizons Family Solutions (an employer-based child care company) this year, according to the company.6

Coming out of the Great Recession, we saw labor market dynamics have a lasting impact. Employers’ expectations of who and how they recruit became engrained in hiring processes. Coming out of the COVID-19 recession, we could see labor market pressures lead employers to open doors to new populations — which would be good news for our future workforce and economy. If that happens, then what has started out as yet another divided recovery has the potential to leave behind an entirely different legacy.

 
1

Carnevale, Anthony P., Tamara Jayasundera, and Artem Gulish. “America’s Divided Recovery: College Haves and Have-Nots.” Georgetown University Center on Education and the Workforce, 2016.

2

“Moving the Goalposts: How Demand for a Bachelor’s Degree is Reshaping the Workforce.” Burning Glass Technologies, September 2014.

3

Fuller, Joseph B., and Manjari Raman. “Dismissed by Degrees: How Degree Inflation Is Undermining U.S. Competitiveness and Hurting America’s Middle Class.” Harvard Business School, October 2017.

4

Underemployment Rates for College Graduates, Federal Reserve Bank of New York. Underemployment rate is defined as the share of graduates working in jobs that typically do not require a college degree. A job is classified as a college job if 50 percent or more of the people working in that job indicate that at least a bachelor’s degree is necessary.

5

Bobber, Bernard J. “Manufacturing During a Labor Shortage: How Manufacturers Have Been Innovating on Ways to Attract New Employees.” Ogletree Deakins, Aug. 22, 2021.

6

Cain Miller, Claire. “Return to Work? Not With Child Care Still in Limbo, Some Parents Say.” The New York Times, Aug. 5, 2021.

Related

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