Tyler Cowen: The Economics of Choosing the Right Career

Tyler Cowen: The Economics of Choosing the Right Career

♪ [music] ♪ [Tyler] For individuals entering
the labor market for the first time, there’s some good news
and some bad news. The good news is
that the higher earners, or those with postgraduate degrees,
are earning more than ever before. The bad news is this:
In the year 2000, four-year college grads
actually earned more with their entry jobs
than they’re earning today. Another way to put this problem
is to think about taxi drivers. In the year 1970, only 1 out of 100 taxi drivers
had a college degree. These days it’s
about 15 out of 100. Now having a college degree
means you have a much lower chance of unemployment than if you don’t finish
college at all. But overall, what we see is
a lot of waste of talent, of human capital — people who finish college degrees but don’t have the right skills
to get the best jobs. So there’s good and bad news
from the labor market. How do we think about
what’s been driving it? Well, we should go back
to the core economic concepts of supply and demand. That is, the supply
and demand for labor. To think about how those supplies
and demands have changed, let’s start with the factor
of technology. Technologies have changed, and this has altered
supply and demand. So think about a lot of older jobs.
They were based in manufacturing. You worked in a factory. Maybe you didn’t need
a college degree at all, but you didn’t necessarily need
that much fancy training. A lot of people
could take these jobs and that helped build
the American middle class. Today it’s different. You’re much more likely
to work with computers and work
with information technology. And this will affect both
the supply and demand of different kinds of labor. Let’s think first
about skilled labor. Well, skilled labor —
working with computers — is much more powerful. The computer enhances
the productivity of the skilled laborer. And information technology
makes it possible for skilled labor
to sell their products around the entire world. And that makes it possible
for wages at the top to be higher. At the same time,
with information technology, that can be pretty hard to learn. It can be pretty hard to keep up
with all of the new developments. So the supply there
is more limited. Now let’s think about how computers
interact with less-skilled labor. Well, less-skilled labor
might find it harder to work with computers,
but there’s another factor — the computer actually
might be competing with you. So in the old days,
if you would have gotten a job as a clerk filing papers,
well now we do that with software. If you might have gotten
a job as a travel agent, a lot of those jobs have gone away.
People just book online. So changing technology has made
wages rise more at the top, but has held wages down
for a lot of other jobs. And new college graduates
are experiencing that when they go into the labor market. The second factor
of supply and demand has to do with the growth
in global markets. Over the last 35 years, we’ve seen at least two billion
new workers in global markets, often in China and in India, because those countries are now
wealthier, freer and more open. Think about how
this affects skilled labor. Let’s say you’re a worker really good at working
with computers. Maybe you work at Apple,
and you help design the iPhone. Well, there’s now
a much bigger market — the whole world — you can sell to, and this means
the value of your labor, and thus your wages,
will be higher. At the same time, say you’re
a lesser-skilled worker. Well, there are now more people
in the global economy you have to compete with. And a lot of them work pretty hard and they’re being paid lower wages. So if you don’t have
a special skill, you might find your job prospects
aren’t doing so well, because on the supply side,
there’s more competition for you. A third set of factors has to do
with slower economic growth, slower productivity growth and slower dynamism
in the American economy. For instance, contrary to what
you sometimes might hear or read, the number of start-ups
in the American economy has been declining each decade
since the 1980s. That means there are
fewer new jobs. That means there is less
of a demand for new labor, and that makes it harder
for a new college graduate to get the job he or she wants
at the right wage. When productivity growth is low,
dynamism is lower, there is less turnover in jobs. And that can be fine
if you’re an incumbent who already has a great job,
but if you’re just starting off, that’s going to make
things for you tougher. Another way in which labor markets
have become more static is that more and more jobs
now require what is now called
occupational licensing, namely legal permission
to do the job at all. Right now, over a quarter
of the jobs in the United States require this kind
of legal permission, often coming from a state
or local government. It may make sense for some jobs, but should it really be the case
that you need a legal license to be a barber,
or to be an interior decorator? That increases the cost
of entering those sectors, it means a lot of time
and some money, to get the license. Again, it’s good
for the incumbents, who face less competition, but it’s bad for people
starting off in the labor market. You put all
of those factors together, and then what
we had happen in this country was the Great Recession
starting in 2008. This meant that output
was declining, employment was declining.
People were laid off. There was a financial crisis. What did a lot of employers do?
Well, they froze their hiring. So again, if you were out there
trying to get a new job these years, or immediately thereafter,
it was harder. And we know from the data
that people who start working during bad economic times — it’s slower for them to climb
the future ladder of success. So even 5 years out,10 years out, they’re earning lower wages
or receiving fewer promotions than otherwise
would have been the case. So this has led to a persistent
effect on American labor, which has limited opportunities. So to sum it all up, the labor market is more
about skills than ever before. Yes, finishing college
is a great idea, but these days
it’s no longer enough. What really matters is how much
value you can produce for an employer. Labor markets are ruled
by supply and demand, and supplies and demands
are changing all the time. So the way to think about
how to do well in labor markets is to understand those supplies
and those demands. Take a look at the relative wages
of, say, engineering majors versus psychology
or communications majors. You might be surprised. In today’s world, the momentum
is moving toward people who are trained
in information technology, who work well with computers and who can exploit
growing global markets. When supply and demand
are ruling labor markets, the people who do well are those
who have an economic understanding of where is demand high,
and where is supply scarce. [Narrator] Check out our practice
questions to test your money skills. Next up, we’ll show you
where to find data to help you decide
which career to choose. ♪ [music] ♪

29 thoughts on “Tyler Cowen: The Economics of Choosing the Right Career

  1. Why do you look at supply and demand to explain this but then blindly support more immigration which is a major contributor to labor and a major reason for unemployment, underemployment and stagnant wages?

  2. "Occupational Licensing – might make sense for some jobs… " No. The only way to defend the idea of occupational licensing is with the elitist idea that everyone else is stupid and you are not. And even if that were so, as with most things, reputation becomes more important than licensing. Do I shop at Amazon because they are licensed? Do I buy the care I buy because the manufacturer is licensed? Do I hire the plumber because he is licensed? I buy all of these things for many different reason, the least of which is licensing. Licensing, of course, is not only a major barrier to entry within the professions that do it, it is also a barrier to the poor to get adequate products and services since the cost of licensing can often be astronomical. I certainly hope I don't need to bring up the example of the medical industry to prove my point.

  3. I'm an Electrical Engineering Student. I didn't learn coding in high school and I'm really struggling to catch up.

    LEARN HOW TO CODE! It's super useful for even everyday life, and the edge you have in college will jump-start your career. Check out Project Euler. It's math riddles that are too hard to solve by hand so you code solutions. (Python is easy to begin with)

  4. Go to trade schools, demand is high and supply is getting lower and lower because everybody needs a bachelor degree 😉

  5. great explanation. but of course a likely unfortunate implication of all this is that while some people may be able to adapt and learn the high value skills necessary, most will not. if these trends continue which seems likely, we're going to see more and more workers who simply can't compete in this new economy. i worry about this, and increasingly I'm leaning towards separating the ability to be gainfully employed and a right to a good life. UBI is the best answer for this that I've seen.

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