Recession means a lot of unemployed. But is the jobs and the education quagmire permanent?
Already, universities are experiencing a serious drop in the number of applicants, and to make matters worse, the number of students that drop out are increasing every year. One factor that people like to cite is the ongoing recession, mainly unemployment.
Unemployment is on the rise across the board, not just in the developed countries. With the ongoing recession, many believe that this trend is temporal and essentially cyclic in nature. Once the jobs are back it is being believed that more students will opt for higher education.
While one can only hope that this is the case, certain unprecedented factors have raised the stakes against the higher education system. In fact, there might be a time not too distant in the future, when the educated will find it difficult to get jobs, even the with an alphabet-soup of degrees and accomplishments behind their names.
Yes, unemployment is a factor as it leaves people with lesser money to spend on education. Also, a depressed job market only strengthens the barriers against education. While this is a simplistic argument, a lot depends on the kind of unemployment.
If the unemployment is cyclical, jobs and the demand for higher education will return as the economy recovers. Simply put, when people start consuming more, more will be need to be produced and more will need to be employed. With the jobs, higher education will make a comeback.
However, not all unemployment is cyclical. This time around many economists fear a larger structural component in unemployment numbers.
To further understand what is happening, it is important to understand the very nature of unemployment, both cyclic and structural. And, the best way to do it is to create a mock economy with simples rules.
Let us consider an economy of book-publishers, readers and candle-stick makers. Assuming everyone reads for career advancement, the book-publishers’ market is huge. Now there might be a few who like reading so much, that they may carry their reading activities well into the night, thus creating an opportunity for the candle-stick makers. If one studies a lot, one can join book-publishing, or be banished to tedious candle-stick making.
Whenever the book publishers do a good job, a lot of people want to consume their produce and the economy hums along perfectly. The books publishers publish, people read – sometimes well into the night, and the candle-stick makers make candles.
When book-publishers run out of new stuff to publish, the economy dulls. Some book-publishers and candle-stick makers will be out of a job, but they know things will change once a couple of bestsellers come along. This is a typical cyclical unemployment, where some limiting factor, in our case fresh material to publish, slows the entire economic engine down.
That is, as long as people have the desire to read, and the book-publishers do a reasonably good job, the economy carries on through its ups and downs. But only till Mr Edison comes along…
Now history tells us Mr Edison wasn’t studious and preferred trying things out on his own rather than reading about them, but we’ll assume otherwise for our example’s sake. So, Mr Edison, after a lot of reading and research, invents the lightbulb and also finds out ways in which every candle-stick user can afford one, cheaply.
What happens to the candle-stick makers? Obviously, they’ll be out of their jobs. If a candle-stick maker wants to survive, he’ll have to be well-read enough to become a a book-publisher, or find other profitable ways to compete with Mr Edison, or maybe even join him. This is a case of structural unemployment. There are jobs in the economy, at Mr Edison’s new lightbulb factory for instance, but there aren’t enough people with the skills to fill them.
To ensure that our economy picks up speed again, we’ll have to train people in trades required to make lightbulbs. Of course, some candle-stick makers may still be required – for the times when electricity becomes more expensive than burning wax, or when there’s a power outage.
As the world changes and newer technologies become available, unemployment becomes a more pointed and painful thorn. And, the propensity for an economy to land itself in the soup of structural unemployment becomes higher.
Assuming there are no social benefits, to be able to survive an individual needs skills that are valuable in the marketplace. And, to be able to hold immense value, one’s skills must not be easily replicable. Simply put, one needs to be a specialist. To get there, one requires to spend a good amount of time in education and training. Think doctors and lawyers.
People who opt for specialization presume that the skills and trades they’ve specialized in will be in demand for a long time to come. For some trades, this presumption is a growing fallacy. What makes things worse is that specialization and careers in general are path-dependent. When one travels far down a particular fork in the road in trying to be a book-publisher or a candle-stick maker, one is generally not easily willing to pony-up the time, and the resources required to learn things all over again on the onset of change. A candle-stick maker may be able to tolerate and live with the heat in the vicinity of the glass furnace at Edison’s factory, but a book-publisher might not. Specialists from the old economy will simply find themselves out of place in Edison’s factory.
Consider this: It took mankind many generations to transition from a hunting and gathering being, to an agrarian one. On a comparative scale, the industrial age peaked fairly quickly as manufacturing gave way to the information age. Like Alvin Toffler suggests in his book Future Shock, the next age may come and go within one’s lifetime. It is as if the changes in skills required to make a living have been put on a treadmill, and the treadmill itself is speeding up.
By the time one puts in the years required to gain an academic degree and requisite skills, the markets would have changed. For example, before the dot-com bubble, despite the demand, computer programmers were hard to come by. Many mechanical engineers left their their trades and trained to become computer programers. The problems began soon after the bubble burst and core industry made a comeback. There weren’t be enough mechanical engineers to go around, only computer programmers.
It is the role of educational institutions to create specialists, and it is here that they’ve been rather successful. Whenever the markets changed, these institutions still worked because they quickly adapted and made proper changes in their syllabi, training and sometimes in the methods of training itself.
However these educational institutes don’t work as intended when it comes to retraining existing specialists, simply because they weren’t designed to do so. Higher educational institutes today are in a game of perpetual catch-up with the markets in which the institutions simply cannot win. Without changes that make it easy to retrain existing specialists, it is just another system sooner or later destined to fail.
Unemployment: The unemployed hate it as they’ve no money, the employed hate it because their social contributions get higher, and the leaders hate it too as it makes fighting elections amidst unhappy people more difficult. This presents is an incentive to everyone involved in ignoring and postponing the hate rather than dealing with the underlying reasons. Throughout the past centuries, the tools used to rid unemployment have been to either create employment artificially, or to skillfully ignore technological changes, or to slow these changes down.
Big companies for instance have routinely bought smaller companies that held a potential to challenge their present and future revenues. Unions have rallied against technologies that make their skills obsolete. Governments have passed these demands into law to protect jobs, unions, companies, and sometimes, their own vested interests.
In many places it is already illegal to be a caregiver to cats, dogs and other domestic pets without a license from the city. If value through rarity is desirable, such schemes just create artificial value by creating artificial scarcity. In Paris, for instance there can never be more than 20,000 taxis plying in the city, and no more than a certain number of operational pharmacies per locality. These artificial limits do nothing more than protect the profits of those in indulging in these professions.
However, not all artificial barriers are bad. One wouldn’t trust heart transplants and other complex medical procedures to people who haven’t been trained, certified and have gained sufficient experience under the strictest of supervision. Ditto for airline pilots.
But not all trades have such stringent requirements. For example, one doesn’t require a classrooms and professors to understand literature and history. The downside maybe wildly different perspectives and viewpoints in practitioners to the extent of being plain wrong. However, the risks of being wrong compared to aircrafts that fall out of the sky and improper organ transplants are relatively low. And wherever risks are high, in law-making for instance, things can be sorted out via debates and discussions.
Another place where classrooms, professors, universities and labs are not required is where the equipment to practice and hone one’s skill can be bought on the cheap. Computer programming is a prime candidate. A motivated student will learn more from studying, fixing existing code in Free and Open Source software projects on the Internet from home rather than stay in classrooms to create solitarily code that achieves nothing of practical value.
Jobs for literature, history and philosophy majors are already on the decline. It takes longer for a student of the arts to earn back his tuition fee. In some cases, paying back the education loan may simply be impossible. Computer Engineers on the other hand are quickly absorbed, but only to be painfully retrained by their employers, the likes of TCS and Infosys, for months on technologies and methodologies that were either not present on the academic menu, or improperly taught by professors who had little or no practical experience.
In cases like these, the entire academic system becomes an impediment to productivity. More or less, it is equivalent to imparting skills of making candle-sticks in an era where more and more lightbulbs are required.
Now free markets should dictate that such courses, should have little takers. It is really no wonder that MBA applications throughout the US have been on a decline for a while. And, for the first time in a populous state like Maharashtra in India, there have been fewer takers for engineering.
Clearly, academia hasn’t been able to read the mind of the market.
All this presents a big, and a rather troubling question: Do degrees create artificial scarcities, and thus artificial value?
There is little doubt that our economy wastes good money and time in higher education for imparting skills that are already out of tune from the markets. At the same time, successful application of technology in education to create Wikipedia, Wolfram Alpha and Khan Academy have ensured that knowledge and learning is just not relegated to classrooms, libraries and universities. In fact, for a good number of subjects, these resources are often the shortest and sometimes better paths to mastery compared to colleges and universities.
Historically mandated view by law and convention makes degrees a gauge of one’s competence and employability. Today these assumptions are silly, and no longer true. Surprisingly however, degrees continue to hold value in the job market and amongst the populace. Peter Thiel, an entrepreneur, hedge-fund manager and venture capitalist suggests that this gap of perception vs. reality is now so wide that higher-education is no less than a bubble.
The Economist takes a less dismal view. But in this blog post, they have concluded that the high rent seeking guilds and educational institutions might be finally on their way out, and that the future of white-collared jobs will become less predictable.
In the future, being able to make specialists, and retrain them quickly will become a crying need – a need no university currently satisfies. There is little doubt on whether they’ll be able to successfully cater to speeding changes in the economy and the job market. Without massive changes in the higher-education systems across the world, a reversal of fortunes for higher educational institutions and degree seekers is certain. In such a case, attending college may still be a great idea, but only for the not so gifted.