The Education Gap: Helping Explain Unemployment Trends Across U.S. Cities

The rate of recovery from the recent recession has varied considerably across the U.S. Among the 100 largest U.S. metropolitan areas, about 20 percent have recovered to within two percentage points of their pre-recession unemployment rates, while about 30 percent remain more than four percentage points above their pre-recession levels.

The slow rate of recovery in some areas has led to speculation that the recession exacerbated structural issues in the labor market, particularly a shortage in the supply of workers with higher levels of education. A study released in August by the Brookings Institution seeks to clarify how workers education levels have affected the variation in employment across U.S. metro areas relative to other cyclical or structural issues that could also have a role in extending the recession, particularly housing prices and industry-specific growth trends.

The study examined the labor markets in the 100 largest U.S. metro areas between 2006 and 2012. Not surprisingly, researchers found that falling housing prices and reduced industry demand had the strongest effects in driving cyclical unemployment. But the study also found that the difference between a metro area’s supply of educated workers and its demand for educated workers – known as the education gap – was by far the most influential factor affecting structural unemployment. The education gap, additionally, had a considerable, though relatively less important, effect on cyclical unemployment.

In metro areas with a large education gap, unemployment rates were, on average, at least two percentage points higher than metros with below average gaps, a trend that has been consistent since before the recession. Metros with the highest gaps included McAllen, Texas; Bakersfield, California; and El Paso, Texas, while Madison, Wisconsin; Honolulu, Hawaii; and Provo, Utah had the lowest gaps.

Cities with low education gaps also had the lowest unemployment rates for less educated and less experienced workers. Less educated workers seem to complement the work of more educated workers by providing local services (food services, administration, etc.). Without more educated workers, however, there is less demand for these services and fewer jobs for less educated workers.

In the short run, this research suggests that strengthening industry demand and housing prices through efforts such as fiscal and monetary stimulus can help combat short-term unemployment. In the long run, however, education gaps will remain a significant obstacle to employment.

Since the 1980s, the growth rate of college degrees has declined in the U.S. while new jobs increasingly require higher levels of education. Today, job vacancies require more education than the average worker in the U.S. has attained. In cities where education gaps are pronounced, governments should be concerned that their unemployment rates will stay high, relative to other cities with smaller education gaps, even after industry demand has returned and housing prices have stabilized.

For cities with troublesome education gaps, however, there is good news: metros can help to reduce their education gap by ensuring the availability of appropriate education opportunities. Sixty-one percent of college graduates tend to stay in the state where they attended school and 45 percent of the founders of large companies build their businesses in the state where they were educated, so investments that increase access to higher education are likely to stay within the states that made them. Metros can also help close the education gap by encouraging residents to get associate degrees that equip students with skills demanded by employers and improving K-12 education to prepare low-income and minority students to participate in post-secondary schooling.

As metro areas continue the climb back from the depths of recession, those with an educated workforce have the brightest road ahead. The rest may need to go back to school.

Feature Photo: cc/Werner Kunz