The Ugly Truth About College-Educated Americans In The Workforce [CHARTS]

College university student graduation commencementREUTERS/Brian SnyderGraduating student Jennifer Lim sits in the shade before the start of the 361st Commencement Exercises at Harvard University in Cambridge, Massachusetts May 24, 2012.

A longstanding platitude still bellows from the family rooms of America’s starry-eyed high school seniors: Go to college, get a job.

The unemployment rate for those with a college diploma is significantly lower than for those without one. The two rates have also fluctuated similarly for a long time. This much we know.

But we also know that the labour force participation rate has been steadily dropping for some time. In August, the rate fell to 63.2%, the lowest figure since August 1978.

When workers exit the labour force en masse, the unemployment rate drops (since the calculation is based on people actively looking for work). That looks nice, but you wouldn’t exactly call the situation “better.”

So it follows, one might think, that the rate of participation is dropping more for those without a college degree because they just have fewer skills than their educated contemporaries. But that’s wrong.

Take a look at these oft-cited charts. First, here is labour force participation for those with a bachelor’s degree or higher.

It’s been falling for some time. So what gives? As Goldman Sachs economist Jan Hatzius wrote to clients in May, “The growth in the absolute number of employed college graduates has been nowhere near enough to offset the increase in the size of the college-educated population.”

Put differently, American universities are churning out so many new college graduates that even as more drop out of the labour force, the unemployment rate has stayed pretty much in line with the unemployment rate for those with less education. You’d have to look beyond the unemployment rate and to the labour force participation rate to see how “go to college, get a job” misses the full picture.

The participation rate for those with less education tells a different story (though it too has suffered since the crisis).

More people going to college is not necessarily a good thing, especially considering America’s youth have fallen out of the labour force and into a student loan securities bubble.

As a backdrop, there is over $US1 trillion in outstanding student loans in America. As CNBC’s John Carney reported, banks backing out of the student loan business are beginning to use language “eerily reminiscent” to what we heard as firms closed subprime units in the runup to the financial crisis.

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