There are several ways to estimate returns on investments in education, or other types of investments for that matter. One way is to compare wages between jobs using general workforce skills with jobs that need college degree skills. Compare wages for a certified teacher with a college degree to wages for a teaching assistant, for example.
Another way converts college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets. Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above, some below $6,000, but we let $6,000 be a representative tuition for 2007. In the first year $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000. At the end of four years at the time of graduation the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63. The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. Using a forty-hour week and 160 hours a month it is less than $2.00 an hour of extra wage and salary that pays for college. Nothing is a guarantee but expect college to pay.
Our thanks for these calculations go to the built-in spreadsheet functions on MS Excel. Experiment yourself. Use the Excel help file under FV, which is the future value function. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
Tuesday, March 18, 2008
Wednesday, February 27, 2008
Returns to Education
Returns to a College Education
"Seven years of college down the drain."
-John Blutarsky
Mr. Blutarsky, as many will remember, offered the conclusion above to his Delta house frat brothers following their especially memorable meeting with Dean Wormer. The statement is correct. Anyone who attends college for seven years only to be expelled without a degree, and with Mr. Blutarsky's zero point zero GPA will not earn any return on their college investment. Otherwise though, expect college to pay.
Occasionally in the popular press there will be an article discussing the trials and troubles of college graduates in the market place. Someone's promising son with a BA degree in management science cannot find a job and after hundreds and hundreds of unsuccessful applications he takes a job with a gutter cleaning company. He cleans gutters. A quotation from the hang wringing parents usually includes "Our college investment was a waste. It's not like it was in the good old days."
Let’s not be too sure. Remember that graduation from college for the many who attend college right after high school implies entry into the labor force at age 22. The social security retirement age is 67 years. Congress and the country are expecting 45 years of work. One bad year does not assure ruination and a life hanging on the eves. If we can presume that a management science degree means a person with some skills and curiosity, it is quite possible that advancement to gutter crew supervisor and then perhaps gutter manager is in the future. Maybe college skills give him the ability to start a gutter cleaning firm and then a gutter cleaning franchise. Millions earned as a franchise tycoon could be the future, it is hard to tell because figuring an accurate investment return for 45 years requires knowledge of interest rates, inflation and future salaries. Past trends give some ability to know these things, but the key components can only be estimated over such a long period of time. It is better to focus on the near term, which usually gives the correct answer anyway.
There are several ways to estimate returns on investments in education, or other types of investments for that matter. The need for calculations of compound interest gives the impression that investment returns are precise and use only one procedure. However, there are different procedures, even though the actual arithmetic is always precise. Economists, for example, like to include the time in college as time away from work. If time in college is time away from work then lost or foregone wages as well as tuition payments will be a cost of college and included in calculations. Those less devoted to the economist’s way might wonder why time in college is time away from work. Many go to college and work. The time in college might come from leisure or free time instead of work. The matter is in doubt and depends partly on preference.
Despite the need for choice in computing educational return a few comparisons can give meaning and substance to the great American cry "Get some training." High school degree or GED skills are general workforce skills. Millions of America’s jobs need only on the job training and general workforce skills. If we look at wages for some of the jobs with general workforce skills and compare them to other positions requiring college degree skills we can make some easy comparisons.
Suppose a brokerage clerk earns the median wage reported for brokerage clerks, but wants to go to college to become a personal financial advisor. The median wage reported for brokerage clerks is $36,390; the median wage for personal financial advisors is $66,120. If the difference of annual income is more than a year of college tuition, expect college to pay.
Suppose a bookkeeper earns the median wage reported for bookkeepers, but wants to go to college and become an accountant. The median wage for bookkeeping is $30,560; the median wage for accountants and auditors is $54,630.
Suppose a teaching assistant earns the median wage reported for teaching assistants but wants to go to college to become a certified teacher. Teaching assistants earn a median salary of $20,740; certified public and private school teachers have a median wage of $45,000 to $47,000.
Check wages between civil engineers and civil engineering assistants, or architects and architectural and civil drafters, or physical therapists and physical therapists aides and so on. For the many jobs where annual wages jump more than a year’s tuition, compound interest calculations are not important.
Rather than comparing reported wages it is possible to convert college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets. Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above, some below $6,000, but we let $6,000 be a representative tuition for 2007. In the first year $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000. At the end of four years at the time of graduation the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest. Our thanks for the $27,230.82 total goes to the built in spreadsheet functions on MS Excel.
Suppose instead it is necessary to borrow the $6,000 each year to pay tuition. Not every one has $6,000 a year to invest in anything, much less a college education. Borrowing the money does not change the calculation unless interest rates differ between borrowing and investing. To have the college investment pay, a higher income stream from a higher paying job must be equal to, or greater than, monthly earnings on $27,230.82. If we presume the same 5 percent interest rate, then borrowing only changes $27,230.82 of equity investment into $27,230.82 of debt. Either way the college investment amount is $27,230.82 after four years.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63. The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. A lower interest rate will lower the amount of necessary earnings; higher interest rate will raise the amount. Using a forty-hour week and 160 hours a month it is less than $2.00 an hour of extra wage and salary that pays for college. Experiment yourself. Use the Excel help file under FV, which stands for future value. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
The $288.82 a month could go up or down depending on a number of variables and there is some additional risk using debt to pay for college. There is a difference of risk between debt and equity financing college because there can be a delay in getting a better job. Delays leading to missed loan payments mean unpaid interest added to principal, making it quite possible to be overwhelmed with rising payments. This could be true even though a delay may not make the investment unprofitable over the long term.
Bad timing could ruin an otherwise paying investment, but even long delays getting a better job or periods of no additional earnings will probably not eliminate the financial advantage of a college degree. Maybe our management science major above waits 10 years to get a job with a raise. After 10 years he has nothing to compare against the $44,849.42 mentioned above. But suppose he lands the right job and makes extra income for the next twenty years. The $44,849.42 at 5 percent interest will be $121,660.74 after twenty more years, but extra earnings of just $295.98 a month for those same twenty years will equal $121,657.75. Any amount of additional earnings over $295.98 a month at 5 percent interest over those twenty years and college pays.
Suppose interest rates go from 5 to 10 percent in the example above where tuition was $6,000 per year. The same $6,000 per year for four years goes up to $30,975.84 from $27,230.82. The higher principal will increase much faster at 10 percent over the next 10 years and compounding monthly will be equal to $83,852.88 instead of $44,849.42. The minimum monthly wage and salary increase necessary to pay for college tuition at 10 percent over the next 10 years jumps to $409.34 per month instead of $288.82. Higher interest rates make college a less attractive investment, but millions of jobs open up to college graduates that will cover a salary increase of $409.34 a month for 10 years.
In the present circumstance of education, jobs and interest rates, the extra monthly earnings necessary to pay for college is low enough to expect college to pay. It is not a guarantee, but comparing current graduation with job growth and job openings further suggests that college graduates will earn at least the minimum salary increase to make college pay.
Baccalaureate degrees were 1.4 million for the year ending June 2005 with degrees up every year since 1994 when the baccalaureate total was 1.1 million. The Bureau of the Census, Current Population Survey reports educational attainment for adults over age 25. Those employed with a BA degree or higher are up and although the increase has been fluctuating in recent years, the increase averages 1 million to 1.1 million a year in the years leading up to 2007.
The Current Population Survey counts people employed and not specifically their jobs. It does not tell us if the increase of people with new degrees also find jobs using college degree skills, only that they are finding jobs. Other surveys of the Bureau of Labor Statistics count jobs and occupations for establishments. Establishment jobs ended the calendar year 2005 with 2.3 million more jobs than 2004, but we should expect new graduates to be looking for new jobs using their college degree skills. There is help in counting the jobs using college degree skills because the Bureau of Labor Statistics publishes a skills taxonomy that gives a clear assessment of the jobs that need college degree skills, along with those that do not. In 2004, establishment jobs with a Bureau of Labor Statistics skills classification needing a BA degree, masters, doctorate, or professional degree came to 26.4 million. The number of college degree jobs increased an average of 950 thousand for the years from 2004 to 2006, when the new total is 28.3 million.
If you are paying close attention, you noticed new degrees outnumber new jobs using college degree skills, but chances for a new job improve the more current job holders leave the workforce to retire or for other reason. People who retire need to be replaced before there can be growth. Replacing people in addition to job growth is defined by the Bureau of Labor Statistics as job openings. Openings in any occupation that has job growth will be greater than job growth. If jobs are declining, openings will be limited to replacement jobs, but otherwise openings are greater than job growth. Openings for jobs using college degree skills are forecast by BLS to increase at 1.2 million a year through 2016.
Even though college graduates are increasing faster than jobs and openings in the Bureau of Labor Statistics college degree categories, the difference is modest. However, it is not necessary to have a job using college degree skills to make college pay. Moving from a job as bookkeeper to an accountant with a college degree makes it easy to establish cause and effect for higher pay and a college degree. That is important because making college pay depends on a higher wage because of a college degree. Often it is easy to establish cause and effect like the bookkeeper who becomes an accountant, but not always.
Sometimes people with college degrees take jobs that do not need college degree skills. Employers might prefer people with college degrees even though they might be over qualified for the work. They might pay someone with a college degree more than a high school graduate in the same job. Cause and effect is hard to establish, but it would be necessary to have a college graduate in a high school job and earning no more than high school graduates if college does not pay. Making college pay is a financial matter, not a matter of job title or status. As of 2007, the financial evidence is clear enough to predict college will pay.
"Seven years of college down the drain."
-John Blutarsky
Mr. Blutarsky, as many will remember, offered the conclusion above to his Delta house frat brothers following their especially memorable meeting with Dean Wormer. The statement is correct. Anyone who attends college for seven years only to be expelled without a degree, and with Mr. Blutarsky's zero point zero GPA will not earn any return on their college investment. Otherwise though, expect college to pay.
Occasionally in the popular press there will be an article discussing the trials and troubles of college graduates in the market place. Someone's promising son with a BA degree in management science cannot find a job and after hundreds and hundreds of unsuccessful applications he takes a job with a gutter cleaning company. He cleans gutters. A quotation from the hang wringing parents usually includes "Our college investment was a waste. It's not like it was in the good old days."
Let’s not be too sure. Remember that graduation from college for the many who attend college right after high school implies entry into the labor force at age 22. The social security retirement age is 67 years. Congress and the country are expecting 45 years of work. One bad year does not assure ruination and a life hanging on the eves. If we can presume that a management science degree means a person with some skills and curiosity, it is quite possible that advancement to gutter crew supervisor and then perhaps gutter manager is in the future. Maybe college skills give him the ability to start a gutter cleaning firm and then a gutter cleaning franchise. Millions earned as a franchise tycoon could be the future, it is hard to tell because figuring an accurate investment return for 45 years requires knowledge of interest rates, inflation and future salaries. Past trends give some ability to know these things, but the key components can only be estimated over such a long period of time. It is better to focus on the near term, which usually gives the correct answer anyway.
There are several ways to estimate returns on investments in education, or other types of investments for that matter. The need for calculations of compound interest gives the impression that investment returns are precise and use only one procedure. However, there are different procedures, even though the actual arithmetic is always precise. Economists, for example, like to include the time in college as time away from work. If time in college is time away from work then lost or foregone wages as well as tuition payments will be a cost of college and included in calculations. Those less devoted to the economist’s way might wonder why time in college is time away from work. Many go to college and work. The time in college might come from leisure or free time instead of work. The matter is in doubt and depends partly on preference.
Despite the need for choice in computing educational return a few comparisons can give meaning and substance to the great American cry "Get some training." High school degree or GED skills are general workforce skills. Millions of America’s jobs need only on the job training and general workforce skills. If we look at wages for some of the jobs with general workforce skills and compare them to other positions requiring college degree skills we can make some easy comparisons.
Suppose a brokerage clerk earns the median wage reported for brokerage clerks, but wants to go to college to become a personal financial advisor. The median wage reported for brokerage clerks is $36,390; the median wage for personal financial advisors is $66,120. If the difference of annual income is more than a year of college tuition, expect college to pay.
Suppose a bookkeeper earns the median wage reported for bookkeepers, but wants to go to college and become an accountant. The median wage for bookkeeping is $30,560; the median wage for accountants and auditors is $54,630.
Suppose a teaching assistant earns the median wage reported for teaching assistants but wants to go to college to become a certified teacher. Teaching assistants earn a median salary of $20,740; certified public and private school teachers have a median wage of $45,000 to $47,000.
Check wages between civil engineers and civil engineering assistants, or architects and architectural and civil drafters, or physical therapists and physical therapists aides and so on. For the many jobs where annual wages jump more than a year’s tuition, compound interest calculations are not important.
Rather than comparing reported wages it is possible to convert college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets. Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above, some below $6,000, but we let $6,000 be a representative tuition for 2007. In the first year $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000. At the end of four years at the time of graduation the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest. Our thanks for the $27,230.82 total goes to the built in spreadsheet functions on MS Excel.
Suppose instead it is necessary to borrow the $6,000 each year to pay tuition. Not every one has $6,000 a year to invest in anything, much less a college education. Borrowing the money does not change the calculation unless interest rates differ between borrowing and investing. To have the college investment pay, a higher income stream from a higher paying job must be equal to, or greater than, monthly earnings on $27,230.82. If we presume the same 5 percent interest rate, then borrowing only changes $27,230.82 of equity investment into $27,230.82 of debt. Either way the college investment amount is $27,230.82 after four years.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63. The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. A lower interest rate will lower the amount of necessary earnings; higher interest rate will raise the amount. Using a forty-hour week and 160 hours a month it is less than $2.00 an hour of extra wage and salary that pays for college. Experiment yourself. Use the Excel help file under FV, which stands for future value. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
The $288.82 a month could go up or down depending on a number of variables and there is some additional risk using debt to pay for college. There is a difference of risk between debt and equity financing college because there can be a delay in getting a better job. Delays leading to missed loan payments mean unpaid interest added to principal, making it quite possible to be overwhelmed with rising payments. This could be true even though a delay may not make the investment unprofitable over the long term.
Bad timing could ruin an otherwise paying investment, but even long delays getting a better job or periods of no additional earnings will probably not eliminate the financial advantage of a college degree. Maybe our management science major above waits 10 years to get a job with a raise. After 10 years he has nothing to compare against the $44,849.42 mentioned above. But suppose he lands the right job and makes extra income for the next twenty years. The $44,849.42 at 5 percent interest will be $121,660.74 after twenty more years, but extra earnings of just $295.98 a month for those same twenty years will equal $121,657.75. Any amount of additional earnings over $295.98 a month at 5 percent interest over those twenty years and college pays.
Suppose interest rates go from 5 to 10 percent in the example above where tuition was $6,000 per year. The same $6,000 per year for four years goes up to $30,975.84 from $27,230.82. The higher principal will increase much faster at 10 percent over the next 10 years and compounding monthly will be equal to $83,852.88 instead of $44,849.42. The minimum monthly wage and salary increase necessary to pay for college tuition at 10 percent over the next 10 years jumps to $409.34 per month instead of $288.82. Higher interest rates make college a less attractive investment, but millions of jobs open up to college graduates that will cover a salary increase of $409.34 a month for 10 years.
In the present circumstance of education, jobs and interest rates, the extra monthly earnings necessary to pay for college is low enough to expect college to pay. It is not a guarantee, but comparing current graduation with job growth and job openings further suggests that college graduates will earn at least the minimum salary increase to make college pay.
Baccalaureate degrees were 1.4 million for the year ending June 2005 with degrees up every year since 1994 when the baccalaureate total was 1.1 million. The Bureau of the Census, Current Population Survey reports educational attainment for adults over age 25. Those employed with a BA degree or higher are up and although the increase has been fluctuating in recent years, the increase averages 1 million to 1.1 million a year in the years leading up to 2007.
The Current Population Survey counts people employed and not specifically their jobs. It does not tell us if the increase of people with new degrees also find jobs using college degree skills, only that they are finding jobs. Other surveys of the Bureau of Labor Statistics count jobs and occupations for establishments. Establishment jobs ended the calendar year 2005 with 2.3 million more jobs than 2004, but we should expect new graduates to be looking for new jobs using their college degree skills. There is help in counting the jobs using college degree skills because the Bureau of Labor Statistics publishes a skills taxonomy that gives a clear assessment of the jobs that need college degree skills, along with those that do not. In 2004, establishment jobs with a Bureau of Labor Statistics skills classification needing a BA degree, masters, doctorate, or professional degree came to 26.4 million. The number of college degree jobs increased an average of 950 thousand for the years from 2004 to 2006, when the new total is 28.3 million.
If you are paying close attention, you noticed new degrees outnumber new jobs using college degree skills, but chances for a new job improve the more current job holders leave the workforce to retire or for other reason. People who retire need to be replaced before there can be growth. Replacing people in addition to job growth is defined by the Bureau of Labor Statistics as job openings. Openings in any occupation that has job growth will be greater than job growth. If jobs are declining, openings will be limited to replacement jobs, but otherwise openings are greater than job growth. Openings for jobs using college degree skills are forecast by BLS to increase at 1.2 million a year through 2016.
Even though college graduates are increasing faster than jobs and openings in the Bureau of Labor Statistics college degree categories, the difference is modest. However, it is not necessary to have a job using college degree skills to make college pay. Moving from a job as bookkeeper to an accountant with a college degree makes it easy to establish cause and effect for higher pay and a college degree. That is important because making college pay depends on a higher wage because of a college degree. Often it is easy to establish cause and effect like the bookkeeper who becomes an accountant, but not always.
Sometimes people with college degrees take jobs that do not need college degree skills. Employers might prefer people with college degrees even though they might be over qualified for the work. They might pay someone with a college degree more than a high school graduate in the same job. Cause and effect is hard to establish, but it would be necessary to have a college graduate in a high school job and earning no more than high school graduates if college does not pay. Making college pay is a financial matter, not a matter of job title or status. As of 2007, the financial evidence is clear enough to predict college will pay.
Friday, January 25, 2008
Ten Year Change Report
Ten Year job Change Report
When the BLS situation report comes out each month job totals go up. An increase in jobs is an easy forecast because the population is growing. In 1990 the Bureau of the Census reported 189 million in the civilian population older than 16. After 17 years of continuous increase the civilian population reached 231 million in 2007. Population and jobs go together because people have to have jobs. Large scale unemployment in an urban society guarantees untenable social, economic and political conditions. Politicians will do whatever is necessary to keep spending high enough to generate new jobs, but it is not enough to ask if jobs are increasing. It is more important to ask if they are increasing enough to sustain a society that relies on jobs for self support?
One way to look at job growth is to make a chart of job differences over a long period like 10 years. Suppose we take monthly data for employment for December 2007 and subtract it from monthly data from December 1997, exactly 10 years before. The difference gives the increase or decrease for the decade from December 2007 to December 1997. Suppose further we back up a month and take the difference of November 2007 and November 1997 and so on. That way there is a number that equals the increase, or possible decrease, over ten years that can be paired with its date and plotted on a chart. Fellow bloggers are invited to review the series of charts below and make up their own mind about jobs.
Pictures Worth a Thousand Words
Chart 1 below has a plot of monthly 10 year change for the civilian labor force plotted from January 2000. Notice among the ups and downs that Chart 1 starts out on the left side with a number just under 17 million. Therefore, the labor force in January 2000 is about 17 million more than January 1990. Notice on the right side of the chart that 2007 ends with a number just under 17 million making the current labor force about 17 million more than January 1997. Even though the Chart gyrates there is no overall trend of differences. It remains roughly flat with an average 10 year monthly gain around 17 million a month over month.
Chart 1 - Civilian Labor Force 10 Year Change
Chart 2 plots 10 year changes for non-farm establishment employment. Around May 2001 there were 24 million more establishment jobs than May 1991. After that the ten year change of new jobs starts to decline and keeps declining month after month after month until around March 2005. It levels off some and then declines further up to the end of 2007. The decline contrasts with continued growth of population and steady change in the labor force. The last month on the Chart is Decmber 2007 with an increase of 14.1 million.
Chart 2 - All of Non-Farm Establishment Employment 10 Year Change
The remaining charts, Charts 3 through 11, show 10 Year job changes in the same way but for broad industry categories. Chart 3, goods production jobs in natural resources, construction and manufacturing helps show America's transition to a service economy. The remaining charts are all service charts and we have to hope there are enough good jobs in services to make a smooth transition to that well publicized service economy.
Scroll down to Chart 4 with Wholesale and Retail Trade, Transportation and Utilities, and Chart 5 Information Services. Keep scrolling to find the profile for financial activities, business and professional services, public and private education, health care, leisure and hospitality, which is mostly restaurants, and government employment excluding education. Remember the government the great engine of employment.
Chart 3 - Goods Production - Natural Resources, Construction, Mfg 10 Year Change
Chart 4 - Wholesale and Retail Trade, Transportation and Utilities 10 Year Change
Chart 5 - Information Services 10 Year Change
Chart 6 - Financial Activities - Banking, Credit and Real Estate 10 Year Change
Chart 7 - Business and Professional Services 10 Year Change
Chart 8 - Public and Private Education 10 Year Change
Chart 9 - Health Care 10 Year Change
Chart 10 - Leisure and Hospitality 10 Year Change
Chart 11 - Government excluding Education 10 Year Change
When the BLS situation report comes out each month job totals go up. An increase in jobs is an easy forecast because the population is growing. In 1990 the Bureau of the Census reported 189 million in the civilian population older than 16. After 17 years of continuous increase the civilian population reached 231 million in 2007. Population and jobs go together because people have to have jobs. Large scale unemployment in an urban society guarantees untenable social, economic and political conditions. Politicians will do whatever is necessary to keep spending high enough to generate new jobs, but it is not enough to ask if jobs are increasing. It is more important to ask if they are increasing enough to sustain a society that relies on jobs for self support?
One way to look at job growth is to make a chart of job differences over a long period like 10 years. Suppose we take monthly data for employment for December 2007 and subtract it from monthly data from December 1997, exactly 10 years before. The difference gives the increase or decrease for the decade from December 2007 to December 1997. Suppose further we back up a month and take the difference of November 2007 and November 1997 and so on. That way there is a number that equals the increase, or possible decrease, over ten years that can be paired with its date and plotted on a chart. Fellow bloggers are invited to review the series of charts below and make up their own mind about jobs.
Pictures Worth a Thousand Words
Chart 1 below has a plot of monthly 10 year change for the civilian labor force plotted from January 2000. Notice among the ups and downs that Chart 1 starts out on the left side with a number just under 17 million. Therefore, the labor force in January 2000 is about 17 million more than January 1990. Notice on the right side of the chart that 2007 ends with a number just under 17 million making the current labor force about 17 million more than January 1997. Even though the Chart gyrates there is no overall trend of differences. It remains roughly flat with an average 10 year monthly gain around 17 million a month over month.
Chart 1 - Civilian Labor Force 10 Year Change
Chart 2 plots 10 year changes for non-farm establishment employment. Around May 2001 there were 24 million more establishment jobs than May 1991. After that the ten year change of new jobs starts to decline and keeps declining month after month after month until around March 2005. It levels off some and then declines further up to the end of 2007. The decline contrasts with continued growth of population and steady change in the labor force. The last month on the Chart is Decmber 2007 with an increase of 14.1 million.
Chart 2 - All of Non-Farm Establishment Employment 10 Year Change
The remaining charts, Charts 3 through 11, show 10 Year job changes in the same way but for broad industry categories. Chart 3, goods production jobs in natural resources, construction and manufacturing helps show America's transition to a service economy. The remaining charts are all service charts and we have to hope there are enough good jobs in services to make a smooth transition to that well publicized service economy.
Scroll down to Chart 4 with Wholesale and Retail Trade, Transportation and Utilities, and Chart 5 Information Services. Keep scrolling to find the profile for financial activities, business and professional services, public and private education, health care, leisure and hospitality, which is mostly restaurants, and government employment excluding education. Remember the government the great engine of employment.
Chart 3 - Goods Production - Natural Resources, Construction, Mfg 10 Year Change
Chart 4 - Wholesale and Retail Trade, Transportation and Utilities 10 Year Change
Chart 5 - Information Services 10 Year Change
Chart 6 - Financial Activities - Banking, Credit and Real Estate 10 Year Change
Chart 7 - Business and Professional Services 10 Year Change
Chart 8 - Public and Private Education 10 Year Change
Chart 9 - Health Care 10 Year Change
Chart 10 - Leisure and Hospitality 10 Year Change
Chart 11 - Government excluding Education 10 Year Change
Saturday, December 29, 2007
Service Jobs - Summary
On this post we want to summarize the big picture of changes to service providing jobs from 1990 through 2024. The table below highlights sector job counts detailed from the sector job posts above. Remember it does not count people employed, which averaged 168.3 million for 2024. People employed counts wage and salary employment and the self employed both in and out of agriculture. The table below counts jobs, otherwise known as establishment employment without any self employed, which had a monthly average total of 156.1 million jobs in 2024. Jobs do not equal people employed because one person can have two or more jobs. One person with two jobs is counted twice in the jobs data, but once in the people employed data.
Summary of Service Industry Employment with pie charts below
Columns (2) and (4) in the table have annual average establishment employment by North American Industry Classification for 1990 and 2024. Columns (3) and (5) have their respective percentage shares of establishment employment with column (6) showing the gain or loss of jobs from 1990 to 2024. Column (7) has the difference of the percentage of sector employment for 2024 from the percentage for 1990. As a computation it is column (5) minus column (3). For example, row (2) shows changes and percentage shifts in goods production. Goods production employment declined 7.90 percent.
Column(8) translates the share changes into jobs from a share loss. For example row (2) shows 2.126 million jobs lost for goods production employment. If good production had maintained its share of employment as it was in 1990 there would be 10.568 million more goods production jobs than there are in 2024. The number is the product of total establishment employment in row (1) and column (4) and the percentage gain or loss in column (7). Notice that the loss of goods producing employment exactly equals the gain of service providing employment. The other rows in column (8) are computed the same way and distribute the share gains and losses between different industries.
The gain for service providing employment is not evenly distributed across service industries. The gainers are grouped at the top of service providers and together they have an 11.53 percent gain. The losers are grouped at the bottom of service providers and together than have a 3.63 percent loss. Their combination equals 7.90 percent.
The table also highlights the shift of employment within service providing industries, where there are 15.240 million new jobs that resulted from an industry's percentage increase of all jobs. This contrasts with 4.853 million jobs lost that resulted from an industry's share decreases. The combination exactly equals the 10.568 million gain for service providing industries and the equivalent loss for goods production.
Two pie charts give a visual look at the changes in shares. The first chart has the percentage split of the nearly 42.266 million jobs in share gaining service sectors. The second chart has the percentage of 6.740 million jobs in share losing service sectors.
Distribution of 42.266 million Job Share Gains by Service Sector 1990-2024
Distribution of 6.740 million Job Share Losses by Service Sector 1990-2024
Saturday, December 22, 2007
Service Jobs - Government
Government (revised fall 2024)
Total government employment for federal, state and local government equals 22.782 million as of 2024. Government, excluding education and public hospital employment has 11.113 million jobs, which is the difference of 22.782 million and 10.549 million jobs in public education and 1.120 million public hospital jobs.
Jobs in government excluding education and hospitals include office work for executive offices, regulatory and legislative bodies, and the judiciary, but also all the rest of the jobs in parks, recreation, public health excluding public hospitals, public works, corrections and a few more. Federal employment includes the postal service and defense department among others.
Government produces valuable services. Valuable production should be added to Gross Domestic Product to reflect our hard work and productive capacity, but government’s valuable services are rarely sold so there is no market value to record as production. What is it worth to have Congress spend months passing environmental legislation, then to have executive bureaucracies write regulations to administer the law, and then to have courts hear law suits to interpret the law?
There is no ready measure of values to include in GDP so the practice is to value government services at cost. Government cost of production though is labor cost only. When the government buys computers and reams of paper it is recorded as a final sale from business to government. Since the goods and services government buys are already included in GDP as part of business final sales, they are not added again. Government’s cost of labor to provide services represents its contribution to GDP. It guarantees that more government jobs mean more Gross Domestic Product.
The decision to use labor cost as government’s addition to GDP is a sensible compromise in the computation of GDP. Since the objective of computing GDP is to measure our productive capacity, government work should not be ignored. No attempt is made to differentiate between one type of government labor and another. When services are bought in common as they are with government they could be for anything.
On April 1, 2005 the Washington Post published an article about a Congressional investigation: “Cost of Cisneros Probe Nears $21 million Over 10 years.” Cisneros was President Clinton’s Secretary of Housing and Urban Development way back in 1995. Congress authorized an independent counsel investigation after allegations that Cisneros lied about payments to his mistress. After 4 years and $10.3 million dollars of investigation, Cisneros pleaded guilty. That was in 1999, but the Washington Post reported the investigation continued in order to investigate if anyone attempted to obstruct justice. The continued probe added another $10.7 million to the expense, hence the caption “$21 million over 10 years”.
We could say America would be better off if the money used on the Cisneros probe went into medical research or highway construction, but that is different from saying government should reduce its total expenditures, or even that it wasted money. Either expenditure pumps $21 million into the economy and any cut in government spending whether it is for medical research, highway construction or Cisneros probes will reduce GDP and harm employment. Government is a major employer and even though the government has money to pursue what appears like a political vendetta America needs government that is actively creating or inventing jobs.
Current production by our federal, state and local government add up to $5.321 trillion in 2024 or nearly 10.6 percent of Gross Domestic Product. It is a big enough share to think that government production by all levels of government provides a mighty engine of employment. All this spending is supported by taxes and borrowing. Taxes reduce private spending and job creation, but those in government are experts at spending all their revenue as fast as they can. They run deficits and make debt finance a way to pep up employment and put off higher taxes. The federal government can borrow but also controls the money supply so it can create money to cover its spending and put off collecting taxes. Local governments can use bond-funded projects to speed up and enlarge spending in the near term and let the growth in property values and higher property taxes pay for capital projects in the future.
The decision to do Cisneros probes or build roads and highways is the decision of government. Builders and developers build a few roads in their new developments, but the roads that get people from here to there are planned and funded by a government. The actual building takes place through contracts to private firms in the highway, street and bridge construction industry. The people who work in this industry are counted as part of employment in private business and not counted as government employees. Government employment is already large, but undercounts employment that is the result of government taxing and spending such as employment in the highway, street and bridge construction industry since they are on private payrolls even though their jobs are really the result of government spending. The terms government contractor, outsourcing and privatization all connote private businesses, but they are private businesses doing government funded and government sponsored work. Government employment added to government sponsored employment is more than a mere 22.782 million: much more.
Government creates many jobs both in and out of government but the jobs it has for those on government payrolls has lots of work that develop and support specialized skills and careers in life science, physical science, social science, finance, law, corrections, and transportation. Some of the work is not done anywhere else and requires government funding. We are excluding the jobs in education or public hospitals.
Many of the government’s specialized and professional jobs require college degree training but especially baccalaureate degree training, and that is without mention of the millions of jobs in education, since we are only discussing government excluding education. Nearly 34.3 percent of jobs in the federal government require BA degree skills or higher; 44.8 percent in state government; 21.7 in local government.
Among financial occupations budget analysts have 52 percent of 47.3 thousand jobs are in government and for financial examiners 19.7 percent of 63.4 thousand jobs are in government. All of tax examiners, collectors and revenue agents work for government, 54 thousand strong, and they support thousands more jobs at accounting firms and tax services.
In life science occupations, conservation scientists, zoologists, foresters, epidemiologists, soil and plant scientists have 22 percent of jobs in government. In physical science occupations, astronomers, atmospheric and space scientists, environmental scientists and hydrologists 31 percent of the jobs depend on government to maintain their work and support jobs. In social science occupations, geographers, historians, political scientists have 36 percent of jobs in government. In economics, 52 percent of economists work in government jobs, although the percentage applies to those actually working as economists and not those teaching at public schools and universities. They are counted as faculty in education totals.
In engineering occupations, engineers have 12 percent of jobs in government with 23 percent of nuclear engineers, 16 percent of aerospace engineers and 31 percent of environmental engineers have jobs in government. Government employs 26 percent of statisticians and 49 percent of cartographers that hold jobs outside of teaching.
Counselors and social workers have 524.3 thousand jobs on government payrolls for those working as practitioners, but many work in health care where government supported or subsidized health care supports another 1.261 million jobs. Those totals do not count those teaching and working at schools and universities where there are 475.4 thousand more jobs. Counselors and social workers owe their employment to government.
Then there are courts that employ 100 percent of judges, magistrates, administrative law judges, adjudicators, hearing officers and law clerks and more than 21 percent of lawyers, or 155 thousand jobs. The courts enforce laws but law enforcement has more than 648.7 thousand government jobs as police and sheriffs patrol officers, another 113 thousand work as detectives and investigators, but more jobs are as fish and game wardens, parking enforcement officers, railroad and transit police, crossing guards, lifeguards and a few more. Law enforcement generates prisoners. American needs jobs and millions of prisoners create lots of jobs: 351.4 thousand reported jobs as correctional officers and jailors, 52.3 thousand jobs as first line managers of correctional officers and jailors and 85.9 thousand jobs as probation officers and correctional treatment specialists.
Outside of government office bureaucracies there are 178.2 thousand jobs like agricultural inspector, construction and building inspector, highway maintenance worker, power plant operator, water and sewage treatment plant operator where jobs are on government payrolls. Over 185.1 thousand work in government transportation jobs such as air traffic controllers, ambulance drivers, transit and intercity bus drivers, subway and street car drivers, bridge and lock tenders, and traffic inspectors among other jobs.
Finally, there are postal service occupations where 502.5 thousand work in specialized postal occupations as postmasters, postal clerks, mail carriers, mail sorters, processors and machine operators, production, planning and expediting clerks, and shipping, receiving and inventory clerks. Remember too we are talking about civilian employment so the armed forces are not included here.
Government service,
excluding education and hospital employment, has 11.113
million jobs, but that is only 7.1 percent of
establishment employment. There are no more service jobs left and we have
distributed all 134.453 million of them by their NAICS sector categories. It is time to make a summary of service
employment changes, which comes up next.
Wednesday, December 19, 2007
Service Jobs - Food-Accommodation
Accommodation and Food Services (revised fall 2024)
Accommodation and Food Services jobs total 14.075 million by
2024. The accommodation part has traveler accommodations, not residential
accommodation. Include hotels, motels, bed and breakfast inns, casino hotels,
RV parks, campgrounds and rooming and boarding houses. Rooming and Boarding
houses include dormitories, fraternity and sorority houses.
Establishments primarily engaged in preparing food to order for immediate consumption go in this sector as full and limited service restaurants but the key words are preparing food and immediate consumption. Food services have to have both and the definition also fits fast food outlets, cafeterias, pizza delivery, snack bars, takeout, catering, ice cream parlors, and beverage bars. Establishments primarily selling food prepared elsewhere and not packaged for immediate consumption are counted with grocery stores.
Accommodations have 13.4 percent, or 1.891 million of the jobs, where as foodservices has the other 86.6 percent, or 12.184 million of the jobs. However, other sectors have restaurant jobs. For example, a hotel could run a restaurant even though it is primarily engaged in running a hotel. There is one establishment with hotel workers and food service workers. The same hotel might lease their first floor to an independent restaurateur so there might be two establishments, a hotel and a restaurant. In the former the jobs are counted in the accommodation sub sector, and in the latter, food jobs are split between accommodation and food services.
Food service occupations like cooks, bartenders, hosts and hostesses, waiters and waitresses, counter attendants, bartenders, dishwashers make up 88 percent of restaurant staffing. Cashiers have 346.3 thousand jobs but only 2.8 percent of staffing. Drivers have another 224.2 thousand jobs, but only 1.8 percent of staffing. Around 20 percent of food service jobs are scattered in accommodations, in health care where hospitals run food services, at schools which have cafeterias, at ball parks and theatres which run restaurants and sell fast food.
The accommodation industry has 23 percent of staffing in food service occupations and significant building and grounds maintenance occupations that include 406.5 thousand maids and housekeeping cleaners, almost 22 percent of jobs in hotel-motel employment. Desk clerks have another 253.8 thousand jobs or 13.4 percent of jobs at hotels, motels and resorts. Managerial occupations have 116.7 thousand jobs including lodging managers with 38.8 thousand of the jobs and general and operations managers having 30.7 thousand more. Managerial positions make up a little over 6 percent accommodations staffing. Only a few jobs or occupations use college degree skills and not too many stay around to make restaurant work a career. The net separation rate for an occupation measures the percentage of new entrants needed to replace people who permanently leave an occupation.
Add the 12.183 million jobs in restaurants mentioned above to the other food service workers in accommodations, schools, hospitals, retail stores or ball parks, museums and other recreation facilities and the total comes to a little over 13.248 million food service jobs in the whole economy.
Cooking used to be one of America’s biggest do it yourself occupations. Everyone can stay home and cook, but more and more we go out. In the production-marketing chain of food this helps our employment and probably more than most people realize. Start on the farm and let’s count America’s farmers. Next add all the jobs in pesticide, fertilizer and agricultural chemicals, and all of the jobs in agricultural implement manufacturing. Add in the jobs at farm supply wholesalers, and farm raw material wholesalers. Then move on to food manufacturing. Add all the manufacturing jobs milling, canning, freezing, bottling, refining, slaughtering, baking, brewing, distilling, fermenting and packaging. Add them to grocery store merchant wholesaler jobs and all the jobs at grocery stores, convenience stores, liquor stores and food stores. The total comes to 8.811 million jobs by 2024.
Worse, jobs from the farm to the supermarket continue to decline due to productivity growth and imports in the global economy. Restaurants are the only part of the food chain Americans can count on for new jobs. You may like to go to restaurants; you may need to go to restaurants, but America needs jobs, so now you know, you must go to restaurants. It’s your civic duty. Go often.
Maybe a few get rich in the restaurant business but if we look at the wage data reported for the BLS occupational employment survey, then food services median annual wages are dead last among America’s occupations. The median annual wage of $32,240 in May 2023 was last among the 22 categories of America’s Standard Occupational classification. Food service occupations last in 2022 with a median wage of $29,640 as they were last in 2021, 2020, 2019, 2018, 2017 and so forth.
With a 134.453 million
service jobs to divvy up, accommodation and food services employment gives us 14.075
million jobs, but that is only 9.02 percent of establishment employment. Accommodation and food services employment
continues to grow at rates faster than the national average and continues to
provide replacement jobs for the declining share of manufacturing employment.
We have to expect a relative increase in accommodation and food services in
national employment. We only have 1 sector left to go; government with 11.113
million jobs.
Friday, December 14, 2007
Service Jobs - Repair-Main-Personal
The Last Three Services from the Other Sector (revised fall 2024)
There are four sub-sectors that were put into the sector
classification called, Other. One was non-profit organizations discussed
earlier. The other three service sub sectors have little in common with each
other, or non-profit organizations. They are repair and maintenance services,
personal and laundry services, and private households.
Repair and maintenance had 1.453 million jobs by 2024 with 70 percent of jobs in car and truck repair. That total includes 182 thousand employed at car washes along with other jobs at bump shops and auto glass replacement. Car crashes reduce our well-being but create jobs and production adding to the gross domestic product.
The rest of repair and maintenance has 347.7 thousand jobs at establishments fixing or maintaining commercial machinery and electronic equipment, or fixing household goods. More than half of these jobs are in the commercial segment. Establishments doing household repairs for lawnmowers, appliances, shoe repair, watch repair, upholstery and a few more have around 86.1 thousand jobs.
Personal services had 1.536 million jobs by 2024. Beauty parlors and barbershops have 402.1 thousand jobs and continue to grow. The rest of the jobs are at funeral parlors, cemeteries, crematories, laundry and dry cleaning, pet care, photo finishing, and parking lots. Laundry and dry cleaning services and photo finishing jobs continue to drop a few thousand jobs a year. Parking lot jobs had a high of 145.7 thousand jobs in 2018 but dropped in the Covid Pandemic and finished 2023 with 124.6 thousand jobs.
Pet care services employment has increased steadily from just 23.1 thousand jobs in 1990 to 183 thousand by 2024. The only occupation with a large number of jobs in the pet care services industry has the Bureau of Labor Statistics definition of non-farm animal caretaker. Their job description turns out to be a list of down to earth activities: train, feed, water, groom, bathe and exercise animals, and clean, disinfect and repair their cages. There are 135 thousand of these jobs and some work at zoos but quite a few classify as personal services, mostly as kennel workers and dog walkers.
Repair and maintenance and personal service firms have very similar staffing in that they all tend to have a manager, a receptionist, an office clerk, a bookkeeper and maybe a secretary or someone else in office administration. After that it is jobs doing services. Few jobs need college degree skills in any of these sub sectors.
Many jobs here in installation, maintenance and repair require training and experience and the best jobs in these sub sectors are doing these occupations. Automotive service technicians and mechanics have 242.2 thousand jobs just in auto repair shops out of 676.6 thousand total jobs. Other auto mechanics work at auto dealerships or for gasoline stations. About another 129.9 thousand do car body repair or replace broken glass out of independent shops.
Electrical and electronics installation, maintenance and repair occupations have 31.2 thousand out of 666.2 thousand jobs. Many of these occupations also have jobs in manufacturing, retail and the telecommunications industries.
Private households are classified as an industry in the North American Industry Classification System because households employ cooks, maids, butlers and caretakers to produce services at households. These services are transactions and production and so they are counted as part of the GDP and given their own sector. They are not counted as part of establishment employment because households are not establishments for purposes of establishment data. The Bureau of the Census reports 672.2 thousand jobs in non-agricultural households with 336.4 thousand jobs as maids and housekeeping cleaners, and 183.4 thousand child care workers and 112.4 thousand home health and personal care aides, which accounts for almost all of private household employment.
With a 134.453 million service jobs to divvy up, repair and maintenance services and personal services employment gives us a total of 2.988 million jobs, but that is only 1.92 percent of service employment. Repair and maintenance services has growth close to the national average while personal services lags behind at a slower growth rate of .96 percent per year from 1990 to 2024. Personal services will continue to lose share even though they have more jobs. We have two sub sectors left to go: accommodation and food services, and government service, excluding education. These two sectors have 25.189 million jobs.
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