The Credentialization Domino Effect
What is credentialization and what does it mean for the workers of New York City?
Since the 2008 recession, policymakers have been split on the reasons behind weak labor markets—periods with high unemployment, underemployment and/or slow wage growth. Some say a skills gap is to blame. Meaning, the skills that employers seek simply aren’t available in the labor market. Other experts, however, suggest that something else is at play: a process called credentialization, our topic here today.
What is Credentialization?
Credentialization is when employers raise the educational requirements for a given job—for example, deciding that a bachelor’s degree is now required, when a high school diploma used to be enough—even when the required skills for the job remain the same. This can happen in periods of high unemployment and increased monopsony (when a single buyer controls the market), resulting in a stronger bargaining power of firms and their ability to demand a higher level of education for the same job and pay.
Credentialization is happening. A 2014 Burning Glass report found that in certain occupations, the share of job listings asking for bachelor’s degrees vastly exceeded the share of current workers in that occupation with a degree, even when skills requirements had not changed. And an analysis of NYC job listings from 2016 indicates that credentialization has been most pronounced in sales and office/administrative occupations.
Education and Pay are Up…
The primary result of credentialization is what you’d expect: job seekers are placing a higher premium on education and now pursuing degrees they didn’t necessarily need before. The city’s population has, in fact, become more educated since the recession (from 33% of adults holding at least a bachelor’s degree in 2008 to 37% in 2017). And wages for holders of bachelor’s degrees are up.
Real Median Earnings Growth by Educational Attainment, NYC Residents (2017 dollars)
Less than High School
*does not include Graduate or Advanced degree holders
Source: American Community Survey 1-year estimates
… But at a Cost
Several costs, in fact. First, those in NYC without a bachelor’s degree are being left behind when it comes to earnings.
Second, as more New Yorkers are pursuing and obtaining bachelor’s degrees—and pay for bachelor’s-holders is going up (to a degree)—this pursuit of opportunity leads to a new burden for a growing share of New Yorkers: student debt.
In New York City alone, student debt now totals $34.8 billion, and the burden of this debt has glaring short-term effects and long-term implications for economic mobility. Homeownership is down in the 25–34 age group in New York City, because student debt makes wealth accumulation difficult. (In 2017, 12.8% of housing units with a 25–34-year-old head of household were owner-occupied, down from 17.3% in 2008.) And when it comes to career trajectory, student debt can discourage people from taking certain short-term career risks (out of fear of defaulting on their debts), even if those risks would lead to higher expected lifetime earnings.
And these burdens of student debt are especially heavy in low-income neighborhoods, which feature delinquency and default rates nearly double those of higher-income neighborhoods.
What Can Be Done?
A range of policies have been proposed that could lessen the effects—and reduce the costs—of credentialization. Some involve improving the bargaining power of labor; others call for facilitating closer coordination between educational institutions and employers; and many lie in the realm of alleviating the debt burden. These too, vary greatly, in the size of the relief, size of the target population, and cost to the government… but they all share one goal: making the cost and benefit of college more equitable and reducing the burden of student debt for those who can’t afford it.
Burning Glass, “Moving the Goalposts: how demand for a bachelor’s degree is reshaping the workforce”, September 2014
Federal Reserve Bank of New York, “Student Loan Borrowing Across NYC Neighborhoods”, December 2017
Mapping Student Debt (https://mappingstudentdebt.org)
Roosevelt Institute, “The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality: how the current debate gets the economics wrong”, October 2018
U.S. Census Bureau, American Community Survey, 2008-2017 1-year estimates