Another day of light blogging. It used to be the case that if you secured a University degree then you were nearly immune from unemployment and enjoyed a fairly quickly growing wage gap on those of the same age who were not so fortunate to attend university. It was always the case that the unskilled are at the back of the jobless queue. This cohort is traditionally forced to endure low wages when they are lucky enough to find work and when they are not so lucky, they have to tolerate the opprobrium that neo-liberal attack dogs impose on them for daring to try to live on the pittances handed out as unemployment benefits. Any time the economy takes a nosedive this group finds itself out of work. But, even in recessions, the possession of a University degree was a fairly good insurance policy against such misfortune. The GFC changed that and in some nations the austerity that has been enforced by mindless and unaccountable bureaucrats has not only had devastating effects on the unskilled but has also undermined the prospects of the higher skilled workers. There is no cost-benefit analysis available that could justify such an arrant waste of productive resources, quite independent of the massive personal cost that the unemployed face upon their exclusion from mainstream society. Those pushing for austerity have a lot to answer for. But most of them will be long retired on their fat superannuation pensions before the full scale of the disaster they have created is revealed.



I am doing some research at the moment as part of a broader project I am involved in examining the way the middle class is being eroded as austerity undermines job markets and housing markets.

There was an article in the Fairfax press this morning (December 31, 2014) – Work and pay prospects for graduates deteriorated in 2014, a survey shows – that bears on this.

The article summarises the latest annual Australian Graduate Survey, which is not yet publicly available.

The survey shows that:

Starting salaries for university graduates have plateaued and full-time employment is proving more elusive … Recent university graduates are more likely to be out of full-time work than ever before and starting salaries for graduates have stagnated … full-time employment rates and the earnings advantage of completing a degree both hit record lows in 2014 for recent graduates. Thirty-two per cent of university graduates who wanted a full-time job had not found one four months after completing a degree in 2014 – up from 29 per cent last year and topping the previous record set in 1992.

1992 was at the height of the last serious recession in Australia (the worst since the Great Depression).

The problem becomes compound because the deliberate imposition of austerity by the Federal government undermines employment opportunities, which then forces more people back into some form of higher education. This increases the supply of graduates and makes the problem worse in subsequent years.

The Fairfax article tells us that:

The median starting salary for a bachelor degree holder aged under 25 was $52,500 in 2014 or 74 per cent of male average weekly earnings. This is the lowest proportion relative to the average male wage since records began in 1977 and is significantly down from the recent peak of 83 per cent in 2009. The median graduate starting salary rose by just $50, or 0.1 per cent, from 2013 while the wage of an average male rose by $411 or 0.6 per cent.

It should be noted that both increases – the median graduate starting salary and the average male wage – amounted to real cuts given the inflation rate over the same period.

The following graph is taken from the Fairfax article and shows the median starting salaries for university graduates in full-time employment in Australia from 2000 to 2014 relative to the average salary for all workers.

Things are much worse in Europe, however. Data from Eurostat – Employment rates of recent graduates – shows a more extreme version of the same phenomenon.

The following graph shows the ‘Employment rates of recent graduates’ for the 18 Eurozone nations. Employment rates are defined as:

… the employment rates of persons aged 20 to 34 fulfilling the following conditions: first, being employed according to the ILO definition, second, having attained at least upper secondary education (ISCED 3) as the highest level of education, third, not having received any education or training in the four weeks preceding the survey and four, having successfully completed their highest educational attainment 1, 2 or 3 years before the survey. The indicator is calculated based on data from the EU Labour Force Survey.

So it is a broader measure of a ‘graduate’ in that it includes the ISCED 3 and above group. The – International Standard Classification of Education – Wikipedia is a system managed by the United Nations Educational, Scientific, Cultural Organization (UNESCO) and allows for cross-country comparisons of educational performance. It was introduced in 1976.

The ISCED 3 or “Upper secondary education” level defines an attainment where a person typically “completes secondary education in preparation for tertiary education, or to provide skills relevant to employment, or both”.

In the latest IECD classification (2011), there are five more levels above the ISCED 3 status:

“Post-secondary non-tertiary education” (ISCED 4)

“Short-cycle tertiary education” (ISCED 5 – these are pre-degree programs)

“Bachelor or equivalent” (ISCED 6)

“Master or equivalent” (ISCED 7)

“Doctoral or equivalent” (ISCED 8)

Eurostat still publish data using the ISCED 1997 levels of education. Within this system, there are three above the ISCED 3 level:

“Post-secondary non-tertiary education” (ISCED 4)

“First stage of tertiary education” (ISCED 5 – non-degree programs)

“Second stage of tertiary education” (ISCED 6 – degree programs)

The blue line in the graph are the combined ISCED 3 and 4 classifications and the red line aggregates the ISCED 5 and 6 levels.

The graph shows that the GFC damaged the employment prospects for these higher skilled groups. For the two tertiary levels the slight recovery (prior to the imposition of the harsh austerity) showed a rise a employment rates.

Once the mindless austerity was imposed, both skill groups (ISCED 3 and 4 and ISCED 5 and 6) saw their employment prospects fall dramatically.

The next graph shows the employment rates for ISCED levels 3 and 4 in Greece, Italy and Spain.

It is clear how damaging the GFC and subsequent austerity has been for this mid-skill cohort. The decline in opportunities has been particularly severe in Spain. In Greece, the employment rates for this cohort fell to 25.3 per cent in 2013.

The next graph shows the employment rates for ISCED levels 5 and 6 in Greece, Italy and Spain – that is, their successful tertiary graduates.

The early participation in the Euro clearly saw slight improvements in the prospects for Greek tertiary graduates. But the GFC and the immediate imposition of policy austerity has seen those prospects plunge to alarmingly low levels.

Both Italy and Spain have been similarly affected although the slump in employment prospects have not been as stark.

These groups represent the higher skilled workforce which should provide material prosperity to the nation for the next 4 decades or so.

The state has invested heavily in their capacities. It takes 16 to 22 years of nurture to get to the ISCED 3 or above stage, longer if a doctoral qualification is involved.

The longer this group remain unemployed or not counted in the labour force the more likely it is that the skills they developed during their education years will deteriorate and, perhaps, be lost forever (in some more specific cases).

The cost of austerity thus will definitely span generations and there is no calculus that I have ever seen (it doesn’t exist) that justifies such a policy stance in terms of the benefits exceeding the costs.

The costs are enormous if not monumental and the benefits are negligible. Unless, of course, you tilt the analysis by redefining the costs and benefits in terms of the top-end-of-town cohort. Then austerity starts to make sense.

By depriving some of access to income, a higher proportion can be taken by the others.

Conclusion

I will spare you any New Year resolutions – I have none – just keep keeping on. I will spare you a list of the best of 2014 (on a non-economics level the Rolling Stones concert was pretty good though).

I will spare you are list of the worst of 2014. You can basically pen in any item about Europe, almost any statement from a European politician in government, any Brussels bureaucrat, every IMF statement, most of what the OECD pumped out and more. It has been a very dismal year for economics and socio-economic policy.

The number of persons interested in Modern Monetary Theory (MMT) grew throughout 2014 and that is both good and bad. The good is obvious. The bad is that a lot of misinformation about what MMT is now gets pumped around comment sites on various pages in various languages. Enthusiasm is good, knowledge is better. Both are perfect.

But as we approach 2015, I just wish everyone who would like such a wish – Happy New Year and I mean happiness in the broadest sense. Take care.

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.