Arnold Kling  

Too many smart people?

Over-qualified?... The Economics of Woody Allen...

In a comment on the preceding post, Andrew Whitacre, who wrote the original rant, speculates,

There are too many smart people for too few smarts-required jobs, just like there've never been enough English professorships for all the English majors who want to teach.

My instinct is to say that this cannot happen, because wages would adjust. With English professorships, I think I can tell a story in which the cartel/guild of English professors is able to earn economic rents (excess wages), which creates an excess supply. Control over the tenure process is what does the trick.

But the problem of twenty-somethings doing jobs that are beneath their level of intelligence seems like a market failure of sorts. So, In Tyler Cowen-like fashion, let me toss out a few hypotheses.

1. Perhaps the labor market matching process works poorly when you first go on the job market. It could be that the errors are symmetric: there may be as many twenty-somethings who are too dumb for their jobs as vice-versa.

2. College courses provide few useful job skills, and employers know this. That is why they bring college students in at low wages. Those who actually turn out to have job skills (e.g., because they are adept with computers) are exceptions, and they either get quickly promoted internally or move on to better things elsewhere.

3. New employees over-rate their computer skills and under-rate information technology bureaucracies. I did find in my career that developing a computer system for multiple types of users that can be modified by several people is a very different problem than writing a program to solve a problem for yourself.

4. The wage distribution is shifting, because of what Dan Pink calls the three A's: abundance, Asia, and automation. We need more super-smart people and more not-so-smart people, but not so many medium-smart people. I've never bought this story, but there's a book about it (or two, if you count Dan's). And even if it's true, it should lead to lower wages for medium-smart people, but not to under-utilization of their abilities.

5. There are more dumb bosses nowadays, because technology has passed them by. In a ruthlessly competitive market, they should get winnowed out. But not everybody is in a ruthlessly competitive market--my daughter's job was with a nonprofit.

6. It takes a lot of effort to challenge employees. It's less risky and less time-consuming to give them scut work. Although giving an employee an opportunity for growth and challenge increases the probability that the employee will stay, it does not eliminate turnover altogether. Young people are notoriously unstable, so that it may not pay to invest in someone unless they prove they are going to stick around.

By the way, I forgot to thank Future Tense for the pointer to the post that started this topic.

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The author at Future Tense in a related article titled The Time Conundrum for Managers writes:
    Arnold Kling at Econolog offers a few hypotheses on why 20 somethings aren't being used to their full intelligence level (see posts here and here to follow along) His last one struck me: It takes a lot of effort to... [Tracked on July 6, 2005 7:14 AM]
COMMENTS (19 to date)
Randy writes:

I take some solace in the fact that the world is quick to change and hope the invisible hand might exert its influence to change the way things are. Thanks for the post. Fantastic blog to read. This is why blogging is a good thing.

Robert Schwartz writes:

A couple of thoughts. There are no more smart people than there ever were. Its just that a lot more peolpe, smart and otherwise, are in college.

Second, who said life is an IQ test? It isn't. This is not news.

Ecclesiastes 9:11 "I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."

jaimito writes:

Statistically speaking, the Eccl. (The Teacher) is wrong. Battles, in general, go to the strong; riches, in general, avoid the dumb.

The problem is not that there are more smart people. In fact, is Galton is right, there me less than a century ago. And the positions requiring intelligence are more numerous then ever before and they are paying better. The problem is that the market is more efficient: good jobs are open to almost anyone having a minimum of qualifications, less good jobs are reserved to the boss's son or to male WASPs of the right age group. An ad for World Bank consultant get 10,000 answers from all over the world.

spencer writes:

This is a great example of my biggest problem with how main stream economics is taught and what is wrong with your approach.

Free markets are not efficient. They are highly inefficient and overshoot on both sides all the time.

The biggest problem is that the way we teach intro economics the student come out with this belief that the perfectly competitive model is efficient and explains the real world. Neither assumption is correct.

Take the stock market. A couple of decades ago economists believed in the efficient market thesis until 1987 and other real world examples
shows how bad the efficient market thesis worked.

Do you really believe all the massive excess high tech capacity we build in the 1990s and the mass of unemployeed IT workers is an efficient solution?

As an investor I spend my time looking for ways to determine when markets overshoot and are ready to reverse-- that is the way the world really works and the perfectly competitive model does not explain that at all.

Your model is only a first approximation. As churchill said about democracy, free market economics is the worse system invented, except for every thing else we have tried.

Trevor writes:

Hypothesis 6 is closest to my view. You have to demonstrate some accomplishment before an employer is willing to trust you with a lot of responsibility. Earning an undergraduate degree with a decent GPA isn't much of an accomplishment anymore; it requires little more than a willingness to just keep showing up.

When I worked as a recruiter of college grads, in interviews I rarely discussed their academics unless I was hiring for a research job. I wanted to hear what they did with their summers & free time and examples of creative problem solving.

Roger McKinney writes:

Unfortunately, the market for college degrees is not a free market, as I wrote in the preceding post. Thanks to government subsidies, there is an oversupply of degreed workers. It's called diploma inflation; your diploma buys a smaller salary than it used to. But I think much of what people are complaining about used to be called the Peter Principle: Managers promote employees to their level of greatest incompetency. The longer I work, the more I'm convinced that companies succeed inspite of management, not because of. Really good managers are extremely rare. That's why the list of the best companies to work for is so short.

Greg N writes:

After reading the the last post on the subject and the comment section, it seems to me that the BA is becoming a signalling mechanism. Many more people are opting to get BAs than in the past. But employers know what schools are better than others.

Does anyone know the literature on education as a signalling mechanism and could point me in the right direction?

I agree with spencer. It isn't that markets are perfect--nothing that humans do, is--it's simply that they clear markets better than any alternative of which we are aware.

That every English grad can't find work teaching English isn't evidence of market failure any more than that I can't find a paying job playing shortstop, even though I know how to do it. The fact is that no one wants to pay to watch me when they can pay to watch Derek Jeter.

ChrisW writes:

I think that an important element of this story is the supply of college graduates. Clearly the number of people with 4 year degrees is higher than ever. If supply increases faster than demand....

Consider the game theoretic approach to education and wages. In the signalling model of education, first proposed my Michael Spence, high-ability individuals get an education because it's less costly for them. Then, when an employer sees a fresh college graduate, the employer infers that the graduate is high ability. Wages for college graduates are high.

Now, if the government is going to heavily subsidize education and preach that EVERYONE should get a degree, then this makes that signal much less meaningful. Now when the employer sees a fresh college graduate, the employer has less idea what the ability of the student is becasue everyone goes to college. This means that the starting wage represents the average productivity of the entire population instead of the productivity of high ability individuals (wages go down).

Arnold Kling writes:
Does anyone know the literature on education as a signalling mechanism and could point me in the right direction?

The classic work is by Michael Spence. See his Nobel Prize citation here:

Randy writes:

I also wanted to mention the Peter Principle, but could not come up with the name. Glad to see Roger threw it out there for me.

Tom Kaminski writes:

It seems to me that there is an awful lot of vanity in those who think they are over qualified for their jobs. They have been hired at a rate of pay that the owners of the company believe is commensurate with the contribution they make towards the company's profit. Quite frankly, it has always seemed to me that making money is a lot harder than most people think--that is, you have to have a product or service that other people are going to give you money for. Now, if you're hired by a company, someone else has already done 99 percent of the hard work; you are simply doing a job that the proprietors believe has to de done. If you think you're over-qualified for your job, here's my advice: decide which of your skills is worth something to other people, then start your own business and see if people will give you money in exchange for it. If your education did you any good, your intelligence and learning should increase the kinds of satisfactions you can get from life; but just because you're smart doesn't mean that you "deserve" something special.

I, by the way, am a member of the guild of English Professors, and I am the happy recipient of economic rents given me by the system of tenure. In general we're not paid as much as people who work for banks or insurance companies or software companies, but there are other satisfactions. Whenever I think of how hard it is to make a real buck, first I shudder, then I heave a sigh of relief, and then I turn to whatever I am reading and smile. tk

Tom Kaminski writes:

One more point: if Randy takes solace in the idea that the world is quick to change, he is likely to be very disappointed as life goes on (but then, who isn't?). Technology has changed many things very rapidly, but overall, the world isn't very different since Ecclesiates. I assure you, 3,000 years ago people were complaining that their merit wasn't recognized and that the political or religious or tribal hierarchy did things bass-ackwards. tk

Academician writes:

Not to be flip, but I was suddenly reminded of a Bob the Angry Flower cartoon.

Andrew Whitacre writes:

The discussion continues too back over at Fungible Convictions (

In Boston, where I live and work, there seems to be this bleeding of talent from inflexible organizations to more accomodating ones. Specifically, young people look for their second jobs at one of the many universities here: Harvard and B.U. pay better, have better benefits, and offer move vacation time. The job openings, of course, are incredibly competitive, but that only ensures they get (if H.R. does its job) the best talent in the city.

Regular ol' companies don't have the cushion of Harvard's endowment of course, but for the three years I've lived here, while Harvard has been slashing its budget, the smartest people still flock from less satisfying jobs to work there. One incredibly talented friend in particular left a suffocating job at a medical company to work at the Business School's development office, and she's absolutely loved it.

The question that's sticking with me now is this: if every generation has been dissatisfied with their first jobs, why is this a big story for my generation? Is it because things are actually starting to change?

Bob Knaus writes:

How curious that no one has mentioned what I'd call the "Marine Biology Major" problem. Lots of kids grow up with aspirations of a career working with dolphins and whales. Thus the popularity of Marine Biology courses, despite the fact that there never will be very many job openings in the field. Similar forces at work result in Park Ranger being the lowest-paid job requiring a 4-year degree.

I'd wager that most of what people think of as "smarts-required" jobs are in fact more like "smarts-apparent" jobs. That is, they don't really take an extra-high IQ, just the cultural trappings and aspirations of one. So, just like the nature lovers, there are lots of people who'd love to have a "smart" career. As opposed to, say, a productive one.

Or as opposed to, say, an enjoyable and/or agreeable one!

Eric Tarkman writes:

I simply believe that smarts, especially super-smarts, are not very valuable in the workplace.

I'm getting a PhD in engineering from a top 5 university, I'm flexible about what I end up doing and where I work (as long as I don't have to be in academics), I'm not a freak, and I've had an awful time trying to find a PhD-level job.

I agree with Kaminski - making money is hard and I have no idea how to make $80,000/yr on my own. I certainly don't feel like I deserve such a job, and I've come to terms with the fact that what I've learned isn't particularly valuable to employers. I do feel a bit unwise for having chosen this career path, and I am annoyed when I hear things like "we need more smart people in science" - as if we need to artificially inflate the supply even more.

David writes:

If the average age of first marriage and child bearing among the educated dropped back to under 25 years, it would have two benefits. First, the number of college educated workers with limited skills and experience would be reduced as many stayed home to raise the kids. Second, faced with real responsibility for the first time in their lives, they wouldn't whine as much!

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