Thursday, December 24, 2015

Over Price Education, Getting a Job and Wages

On December 21st, Yahoo Finance had an article from Business Insider by Abby Jackson where a 35-year-old was suing his law school for his inability to get a job (1). The legal notion is that the school falsely advertised the resultants of what a college education will provide in income. In short its advertising created the illusion that he would get a great job earning a bunch of money upon graduation. Okay the article goes on to say he couldn’t pass the bar exam. A legal degree without passing the bar is sort of useless which makes one really question not the degree but the process of getting into the law field overall. Sort of begs the question, why even have a degree when the key thing is just passing the bar exam?

Meanwhile, back in 2011 a paper was published by and that talked about the need for greater consumer protections where Private Education Loans are concerned through the new powers granted to the Consumer Financial Protection Bureau under Dodd-Frank (2). The paper suggests a series of to do lists most of which deal with providing loan education to students and families, but also the notion of restoring bankruptcy protections for borrowers of private loans (a really good idea and something that would probably help our law student) (2).

Okay the ideas in the 2011 paper are great, but this doesn’t help those who have went to the Bank of Ed (i.e. education loans provided by the Federal Government). These loans are basically what the Street would call junk bonds or penny stocks. They have no collateral under writing them and there is nothing ensuring that they can be paid except the premise that people with college education get more money.

While I do not disagree with the statistical fact that higher education has historically provided greater income then lower amounts of education these facts are based on observations mostly of the 20th Century where the bulk of our populace shifted from lower amounts of education to higher amounts as society and technology shifted to the modern era. In my opinion most of what accounts for the higher incomes is the social wage construct that the work associated with higher education should earn more.

When we started the 20th Century society we pretty much had a three tiered system of wages. The base wage which pretty much everyone got, the middle wage for managers and the like, and the top wage which was given to owners of businesses and socially elite. But once the minimum wage was legally created this created a new fourth and bottom tier. Since that point educational attainment has been imprinted greater on to these four tiers. The minimum wage tier is for the non-educated which has shifted to include now high school diploma holding individuals, the next tier is for bachelor degree holding people, the next tier is for masters and doctoral degree individuals, the highest tier is reserved pretty much for the socially elite or 1% as they have come to be known.

With our law student, he complains about being in the minimum wage tier and inability to support his college loans, which is a big duh since in the social construct of wage distribution he should be at least in the next tier up but he isn’t. Here we have the inherent problem of socially constructed wage distributions -- they are not guaranteed except for the lowest tier currently. There is nothing in the law to automatically provide for support of college loans based on educational attainment.

Currently there is a great focus and talk about raising the minimum wage, and no doubt some of it would be coming from those 20 and 30 somethings saddled with college debt and no way out. A lot of the talk these days is focused on how raising the minimum wage will kill jobs (3). While I do not doubt that on a micro-economic level raising the minimum wage will impact certain localities and particular businesses, overall all in the macro-economic sense this impact doesn’t seem to be as big. Below is chart I created from ALFRED showing two major industries typically where minimum wage work is found and the change in the Federal Minimum wage over the last 75 years or so (4-6).

What you will really note is the fact most declines in employment with these two industries appears to be more related to the up and downs of business cycles than increases in the minimum wage. If the Federal Minimum Wage was linked to a COLA adjustment then we might see a greater macro influence on these employment numbers, but it seems to me the raise in the minimum wage is more impacted by political pressure during tougher times economically. In fact, during periods of business expansion one tends to see the cost of goods and services rise since usually during these expansion periods inflation can occur eroding the value of income. This could explain some of the political pressure during certain periods of time. There also appears to be politically the idea of raising the minimum wage during declining business cycles will somehow improve the economy overall (note the changes during recession periods marked in grey). Although I think this is more politicians catering to a voting public than actual economic policy.

My point is we may be forced to raise the minimum wage politically to ensure the Federal Government is not saddled with a large amount of unpaid student debt. The minimum wage is the only tool the Federal Government has to ensure there is enough income to pay these loans off when the labor pool for higher education work is over crowded with too much supply. This is what one gets for years of promoting higher education will lead to economic prosperity, not unlike that early 20th Century idea that owning a home will do the same thing and look where that got us in 2008.


(1) Jackson, Abby. (Dec. 21, 2015). A guy with $170,000 in student loans who can’t find a job in the legal profession is suing his law school and working full time for Uber. By Business Insider published on YahooFinance. Retrieved from

(2) Kantrowitz, Mark. (2011). Education Lending Suggestions for the Consumer Financial Protection Bureau (CFPB). Published by and FinAid.Org.

(3) Soergel, Andrew. (Dec. 22, 2015). Fight for $15 Not All It’s Cracked Up to Be- Research suggests a higher minimum wage could increase costs for consumers and weigh on job growth. U.S. News & World Report. Retrieved from

(4) US. Bureau of Labor Statistics, All Employees: Service-Providing Industries [SRVPRD], retrieved from FRED, Federal Reserve Bank of St. Louis, December 24, 2015.

(5) US. Bureau of Labor Statistics, All Employees: Retail Trade [USTRADE], retrieved from FRED, Federal Reserve Bank of St. Louis, December 24, 2015.

(6) US. Department of Labor, Federal Minimum Hourly Wage for Nonfarm Workers for the United States [FEDMINNFRWG], retrieved from FRED, Federal Reserve Bank of St. Louis, December 24, 2015.

Tuesday, December 22, 2015

Ashley Fleming’s Story

Okay below is a link to video of 24-year-old (Ashley Fleming) up to her eyeballs in debt (1). It is a pretty sad story if you think about it, and no doubt also one that is more than likely common with those of her generation.

What is sadder I think is the in the December 18th Yahoo article by Vanessa Sanchez, “financial aid expert Mark Kantrowitz” said “if your total student debt is going to be more than your income once you graduate, you should probably look into another school.” (1).

How do you even know what your income will be once you graduate? Okay you might have a rough idea, but it is not like the college is going to guarantee the degree will automatically yield enough to pay for the loan. Let us take Ashley’s situation…she is attending a college with a $43,000 a year tuition.

Okay let us assume for a moment the following-

1. Ashley doesn’t’ start paying the loan until she graduates.

2. She actually just went four years straight (unlike the actual story).

3. The current loan rate is 4.29%.

4. The term of the loan is 10 years.

5. The present value of all debt owed is $172,000 (4 years at $43,000 a year).

This would mean for each of the ten years her annual payment is $21,513.29. Let us assume for a moment that the debt to income ratio should be similar to that of a mortgage which most say is around 28% to 36% (2).

This would mean right of the gate Ashley would need to be earning an annual income of $59.7K to $76.8K.

Could be possible but it is not guaranteed in our U.S. society. In fact, the only legally guaranteed wage is that of the minimum wage.

All the talk we hear of college graduates making $X more dollars than non-college graduates is primarily the resultant of a social construct from the 20th Century. During the 20th Century our U.S. population shifted in educational attainment from basically grade school to high school to then college. In doing so the accepted social construct of higher wages for greater educational attainment pretty much stayed the same (i.e. grade school got you X, high school got you X+1, college got you X+2). But now with pretty much everyone going to college we have leveled the workforce to a common reality which in time will cause everyone’s wages to be basically the same (standard supply/demand economics) if not fall to the lowest common denominator (i.e. minimum wage).

The solution proposed to this economic reality will no doubt be just adding more education to the equation. If people, simply keep getting higher and higher degrees (i.e. more education) we can keep the income growth curve from collapsing. Although how higher can one go than Post-Doc degrees?
And exactly how much debt will all this cost our economy? And exactly how much sales would be required for a business to support all these highly educated Americans? Wow I hope the Chinese are willing to pay a lot for our highly educated workforce.

Now don’t get me wrong. Education is a good thing, but when tied to certain economic realities such as income and debt there becomes a distortion where the haves and haves not become increasingly obvious (as with Ashley’s story).


(1) Sanchez, Vanessa. Dec. 18, 2015. $100K in debt, 1 semester left and no cosigner in sight. Yahoo Finance. Retrieved from

(2) da Costa, Polyana. (2011) Why debt to income matters in mortgages. Bankrate. Retrieved from

Friday, December 18, 2015

Occupational Handbook

The BLS is just released its updated version of the Occupational Handbook. I will admit that this is by far one of the best tools out there concerning defining occupations and can be a great help to those trying figure out what they need to obtain certain kinds of work.

But I have a real problem with the post “How People Use the Occupational Outlook Handbook to Search for Careers” by the BLS Commissioner (2).

This post suggests that 1. Not all young students should use it for college planning, and 2. It is better to use this tool so as to avoid changing majors (and increasing your loan costs) while in college (2).

Here is my rub with this posting—the idea of career. The word career comes from a root that means course or path (1). The word presumes that one’s work has a beginning and an end point. The truth is in today’s economy people change employers so frequently that a career has become a twisted path with dead ends and side tracks (not unlike switching majors while in college).

Yes, people should use the Occupational Handbook for planning purposes, but I think in today’s economy one needs to have more than one degree in their pocket (or at least plan to get second degree later in life). The goal here is to try to avoid adding more debt to the equation. This means you will need to plan to work and pay for education as you go.

A person today needs to be a basic jack-of-all-trades when it comes to education.


(1) Harper, Douglas. (2014). Online Etymology Dictionary. Retrieved from

(2) BLS Commissioner. (2015). How People Use the Occupational Outlook Handbook to Search for Careers. Blog. Retrieved from

Saturday, December 12, 2015

Comments on the BLS release of Jobs from 2014-2024

Take some time to watch this video from the BLS about the near term future of jobs in the US (1).

You will notice in the video that most appear to be jobs that are medically related. Which makes some sense when you think of the fact that the Boomers are aging and with age comes medical needs. But also there are Wind Turbine Technicians. Really Wind Turbines are going to become a big industry with oil being so cheap now? I guess the BLS knows something we do not know.

So here is the dilemma…

You are just getting out of high school, and are planning to go to college but what should you study? Obviously something in the health field right now because for the next twenty years it will have the most jobs and pay the most on average.

But medical school is not cheap. So you will borrow to get the education, but what happens if everyone else is thinking the same? What will happen if a whole generation of students go for the same career only to find themselves not employed due to an overcrowded market.

Right now oil is down because of an economic principle of supply and demand, and this same principal applies to labor as well (both physically in total numbers but also micro-wise in specific fields). So as the supply of graduating students increases in a specific job field, in theory the entry wages of that job field should decline due to oversupply. Going forward since the entry wages are depressed, the future wages will also become depressed since wages tend to increase as a percentage of past wages. Long term resultant is an increase possibility of lower incomes for those who now are up to their eyeballs in educational debt.

Now I am not saying this observation is absolutely true or not, but it seems to me that it does economically make sense.

This is something to ponder as we come closer to the Presidential Election in the U.S. We all should be asking ourselves “What is the plan for dealing with College Debt and ensuring that college graduates can get the income needed to pay that debt off in a timely fashion without jeopardizing the health of the economic overall”.


(1) BLS (2015). Fastest Growing Occupations 2014-24. YouTube Video. Retrieved from