The pandemic recovery has helped lift up a group of Americans who typically see the worst economic outcomes following crises: those without a college degree.
Generous government support in the early days of the Covid-19 outbreak and intense competition for workers afterward helped boost wages and wealth for workers without a college education at a faster pace than for graduates, according to a report published Thursday by the left-leaning think tank Third Way.
“This outcome is surprising on its face as recessions generally hit non-college families harder,” wrote economist Ernie Tedeschi, who is director of economics at Yale University’s Budget Lab and a former Biden administration official. “The key factors that made the pandemic different for non-college workers are the nature of the shock itself and the magnitude of the policy response.”
While the onset of the pandemic drove up unemployment disproportionately for those without college degrees — as services and retail jobs all but disappeared — the reopening of the economy created such demand for these workers that companies had to significantly raise wages to attract them back.
Earnings for people aged 25 to 64 without a four-year college degree rose 4.6% from the fourth quarter of 2019 through March of this year, compared to a 3.3% increase for workers with a Bachelor’s degree or higher, the analysis showed. Those gains followed years of wage stagnation before and after the financial crisis of 2007-2009 for both groups.
Wealth, too, grew more for non-college households, rising 5.5% over that period compared to a 4.8% increase for households with college graduates, driven by higher savings and rising home values.
The gains for those without a college degree buck the trend seen following previous recessions, when job recovery for lower-wage workers was slow. After the financial crisis, for example, the unemployment rate for those without a college education surged above 10%, whereas joblessness for college graduates never surpassed 5%.
This time, the gap between the unemployment rate of workers with a college degree and those without returned to pre-pandemic levels in less than three years, a faster recovery than in the past three recessions, Tedeschi found.
Even so, a gap of nearly two percentage points persists as the larger economic forces driving better job prospects for college-educated Americans are still at work.
“I don’t think we’re entering an economy where the premium to an education is going away any time soon,” Tedeschi said in an interview. “Non-college Americans will retain the gains in wages and wealth that they made in this pandemic, but what would threaten that would be another recession.”
Despite the wage and wealth gains, Americans without a college degree seem to be more pessimistic on the economy than they were before the pandemic, and more so than their college-graduate counterparts. Consumer sentiment is lower and inflation expectations are substantially higher, potentially indicating that the pressure from higher prices is impacting low-wage earners more, Tedeschi said.
While wage gains are outpacing inflation right now, households have run down their pandemic savings, potentially exposing lower-income households especially to risk should the economy slow down.
This article was provided by Bloomberg News.