This past weekend, Ken Cid from the US Department of Commerce was nice enough to leave us a comment about the administration’s jobs prospects for STEM workers. The link to their blog is here [figure credit] and the actual report can be downloaded from here.
Naturally, this sent us Engineer Bloggers into a tizzy for two reasons. One, They found us! And two, we would actually have to craft some sort of response that might actually be read by government media folks. You’ll probably find a better response from Chris Gammell or FrauTech, who are much better with stats than I am. Sadly, they post later in the week so you’re stuck with me for now.
In Summary: The STEM Jobs Report says that 7.6M people or 5.5% of the workforce is employed in STEM fields and over the past 10 years, STEM fields have had more job growth than non-STEM fields. Also, the report discusses how STEM workers command higher wages than non-STEM workers even for similar education levels. The report also shows historical data for the past two decades showing employment trends.
I suggest you read the full report to get a sense of the data and see some pretty charts. I’ve copied Table 1 and Figure 3-5 here to make it easier to follow the discussion. There’s basically two sub-topics within the report that I will comment on here: employment trends and education level premiums.
Employment Trends: The government report shows two very interesting trends in Figures 3 and 4. In Figure 3, the jobless rate is plotted for the past 15 years (highlighting the two recessions) for STEM and non-STEM workers. Clearly, there is an overall offset between their respective rates; the joblessness of STEM workers is roughly 50% of the overall jobless rate for non-STEM workers. But more importantly (to me), the trends, specifically during the recession, are nearly identical and actually slightly worse for STEM workers after the Dot Com bubble. Yes, STEM worker’s overall unemployment is lower but if you have a job, you have the same likelihood of losing that job if things go south.
In Figure 4, I think a more accurate representation of the joblessness is shown. In this figure, they only account for workers with a Bachelor’s or higher. The reason I think this is more accurate is because it is very difficult to get a STEM job without a Bachelors in something. From Figure 5, 68% of STEM workers have a Bachelors or higher. If you include people with some college education, you’re over 90%. Thus, in my opinion, it’s more useful to look at only people with higher education levels because most STEM folks have higher education levels. Figure 4 then doesn’t paint as rosy a picture as Figure 3. STEM workers are more likely to lose their jobs when the economy goes south than non-STEM workers. That, to me, is a problem. If STEM workers are being let go, then what “thinkers” are left to help economy get out of a recession?
The last trend is the future projection of employment for STEM fields, which deserves something between a snort and a chortle. The same people that project these trends are the same people that say the recession ended 18 months ago. No further explanation is needed.
My conclusions from this part of the report are mostly negative, contrasting the administration’s take on things. But there is some hope. Let’s look at the education level premiums.
Education Level Premiums: One aspect of the report that does show some good news is the higher earning potential of STEM workers. Personally, I’m not shocked by this, but it’s nice to see confirmation of anecdotal evidence. What’s really interesting is the premium placed on having at least some college education. For non-STEM workers, if you’ve completed some college, you’re looking at $39.5k/yr and if you complete your degree, that jumps to $58.8k/yr. But if you’re a STEM worker at that level, you’re looking at a $15.8k/yr bump in salary. As a college professor, that’s evidence enough for me to say “get some technical training for a STEM field and you’re better off in the long run”.
For graduate degree holders, the picture isn’t quite as drastic, $85k/yr for STEM versus $75k/yr for non-STEM. This is probably more indicative of the salary increase dropoff as you put in more time at a company. Chris has blogged about this in the past where payscales tend to follow log profiles rather than linear profiles and Fluxor’s Salary Case Study shows it is at least somewhat true. I’ve also offered some thoughts on the subject when I discussed whether Grad School is worth it. But basically, if you’re highly educated and you’re in a STEM field you’re probably not hurting if you have a job.
In Conclusion: I have mixed feelings and impressions of the jobs report. The salary components describe a situation that I was fairly confident that I already knew. It’s nice to have some numbers but overall, I expected those numbers. But, the trend that highly educated STEM workers have the same odds of being unemployed as non-STEM workers is unsettling. I’ve said this before, but I’ll say it again: We shouldn’t be giving billions in tax breaks for equipment and we should start giving tax breaks for hiring and training employees. That’s one way to add employee knowledge to the balance sheet. Companies and our economy need skilled workers that can create and innovate but our current policies only allow for investing in things rather than people. Reversing that trend is something that with help both STEM and non-STEM workers.
“We shouldn’t be giving billions in tax breaks for equipment and we should start giving tax breaks for hiring and training employees.”
First of all, we should be giving tax breaks (if you want to call them that) for equipment purchases. When a company buys equipment, they should be able to deduct that from their earnings. Otherwise, the money gets taxed twice: once from the supplier who sells the equipment to the company, and again because the company can’t deduct it from its earnings. If you want to see *less* hiring, double-taxation will sure give you that.
Second, I believe companies do get tax breaks (again, if you want to call them that) for training employees. I would assume they can deduct any classes or outside training for their employees from their earnings. As for internal training, they can deduct the equipment and employee time it takes to provide these.
As for giving tax breaks for hiring employees, let’s not. Require the government to provide a stable, lean regulatory environment to encourage business growth and hiring instead of having us send money to Washington and then having them disburse it to companies to encourage their vision of appropriate hiring. It’s more cost-efficient and flexible that way.
I fundamentally do not think it’s a “double tax” because the same company is not getting taxed twice. Plus, following your train of thought, we currently send money to Washington for companies to buy things base on their definition of “appropriate equipment”. I don’t see a difference between that and “appropriate hiring”.
And while companies may get some incentives to train employees, in the days of Monster, company just sift through resumes rather than taking the time to train people for a position. The current incentives aren’t good enough to spur that sort of growth within a company.
Also, way to sneak in the “stable, lean regulatory environment” line. When the appropriate filter is applied, that translates to “toothless, paper-thin regulatory environment”, which is what led to two recessions in the past decade (that and some wars, but who’s counting anyway?). I’d much rather prefer a “consistent and robust regulatory environment”.
===>I fundamentally do not think it’s a “double tax” because the same company is not getting taxed twice. Plus, following your train of thought, we currently send money to Washington for companies to buy things base on their definition of “appropriate equipment”. I don’t see a difference between that and “appropriate hiring”.And while companies may get some incentives to train employees, in the days of Monster, company just sift through resumes rather than taking the time to train people for a position. The current incentives aren’t good enough to spur that sort of growth within a company.Also, way to sneak in the “stable, lean regulatory environment” line. When the appropriate filter is applied, that translates to “toothless, paper-thin regulatory environment”, which is what led to two recessions in the past decade (that and some wars, but who’s counting anyway?). I’d much rather prefer a “consistent and robust regulatory environment”.<===
Wow, you caught that! Jeez, I've got to be more careful around you college guys. (I'm not quite sure how our domestic regulatory environment leads to our foreign wars. Is Libya unionized? Are we fighting to free Afghan children from Nike factories?)
I, too, would prefer a consistent regulatory environment. We certainly don't have that now. Look at drilling moratoriums that are slapped on, repealed, re-applied and so on between the executive and judicial branches.
As for "robust", let me apply my "filter" and translate that to "overweening". You can gauge the effects of regulation by visiting small businesses and seeing how many have just 24 employees because adding one more brings a slew of regulations upon them.
I believe Gears was saying that a toothless regulatory environment led to a recession. And that foreign wars might be another cause of the recession. Not that the regulatory environment contributed to the wars.
On that minor point Gears and I disagree, I think the wars actually acted as a stimulus (though a very expensive one, given how much money was concentrated overseas) and buoyed mechanical engineering employment which I talked about on my blog here: http://frautech.blogspot.com/2011/06/mechanical-engineering-employment-and.html
However, per the other points:
Tax incentives to train employees: As these are now implemented, most companies do not pay directly to train employees. Employees are asked to front the cost of the training (usually on their own time as well) and the employer will reimburse up to the amount they receive a tax benefit for. This is generally how most tuition programs work nowadays.
Tax incentives to hire employees: We already have a pretty “clean” regulatory environment. In fact, employers do more regulatory work and “pay” taxes for every US employee they have on the books via the payroll tax.
http://en.wikipedia.org/wiki/Payroll_tax
Thereby we’re encouraging them to hire non-US workers where they won’t have to pay these taxes or keep the required records. We’re also taxing them on corporate profits. So they can write off up to x amount for any number of things(like purchasnig equipment), and then they pay a tax on what’s on top of that. I think what I’d like to see (and hopefully Gears agrees with me) is we let the number of employees hired count towards a way they can reduce their taxed income. We’re letting them write off capital and a lot of other things, let’s let them write off MORE income if they hire more people every year.
Their incentive now is to make profits for shareholders and increase dividends. But employees don’t benefit from that. So let’s let them pay fewer taxes if they keep increasing their work force. Won’t be any more or less regulatory paperwork than what they already do to get write offs in other areas.
One problem with correction of salary for education levels: a STEM college degree is arguably a higher level of education than a non-STEM one, given the difference in workload in college. For the same amount of work as getting a BS in engineering, one can earn an MBA and a couple of other degrees.
Still, I think that Figure 4 fairly convincingly shows that STEM employment is more volatile than non-STEM employment, subject to wilder swings in the boom-and-bust economy than other white-collar work.
Frautech, if I understand you correctly, you want to give companies a tax break to compensate them for the increased taxes and regulations they encounter when hiring US vs. non-US employees. I think the govt. would have to pay something close to the difference between the US FICA tax and the equivalent tax in the foreign country before companies would start to shift away from foreign hires. This is substantial and is only going to get worse. If implemented, the govt would probably try to raise revenue (taxes) to do cover what they consider a shortfall. In essence, we would end up paying for our jobs.
If the problem is cause by taxes and regulations, maybe we should deal with that directly. Entitlement and tax reform and leaner regulations would do that. (There’s that word again. I can just hear Professor Gears chewing the leather patches off his tweed jacket!) Creating another tax break that Washington can administer and use to manipulate the composition of the work force probably isn’t.
Anyway, this conversation is getting way off the original topic of the post.
Yes it’s off topic. But if you’re going to tell me lower regulations and lower taxes will somehow lead to more domestic employment you’re going to have to prove that to me. We’re at an all time low for all of those: low taxes, low regulations, and low employment.
Also, why the misplaced anger to the author of this article? He probably only expects the same that I expect: if you’re going to make a claim about what lower taxes will do you need to prove it with data. We have proved we can encourage certain behaviors (i.e., homebuying) with breaks. I’ve yet to see evidence fewer regulations will benefit anyone but shareholders of large corporations. Maybe you can point me to the data!
I have no strong opinions about the tax situation (haha, I do, I’m just not sharing). But I would like to say I love the image of GEARS chewing the leather off his tweed jacket. And GEARS, I know you’re a new professor, but if you don’t have one of these jackets yet…please get one. It’s like the main perk of the job 😉
Dave, I’d love to see a response on your blog. I think there are differences here, but I’d love to see your opinion in long form!
“We’re at an all time low for all of those: low taxes, low regulations, and low employment.”
OK, I’ll take these one at a time:
Low taxes – Examine this document: http://www.taxpolicycenter.org/taxfacts/Content/PDF/corporate_historical_bracket.pdf
The top corporate Federal tax rate has not shifted appreciably since 1988 (34%) to now (35%). The only substantive change was that the threshold income for the top bracket was increased from $335K to $18M in 1993, which would seem to have been a big impetus to small & mid-size business, but not the Fortune 500. From that data, we can’t draw any conclusions about the effect on hiring of increasing or decreasing corporate taxes because the taxes have not changed. But we are not currently in a period with “low taxes” w.r.t. any time within the past 23 years.
Also take a look at the historical FICA rates: http://www.ssa.gov/policy/docs/statcomps/supplement/2010/2a1-2a7.html#table2.a3
While the FICA rates haven’t changed since 1990, the income threshold has been increased about 4% every year since 1997. In essence, this bump in the threshold gives a business a yearly tax increase on every employee making more than $100K (as many STEM employees do). Although the employer’s share of the tax increase is only $250/year, it accumulates each year so it amounts to an increase of $2500/employee/year after a decade. Again, this doesn’t seem like a period of “low taxes”.
Low regulations – Examine these documents: http://archive.sba.gov/advo/research/rs264tot.pdf (2005) and http://www.sba.gov/sites/default/files/rs371.pdf (2010)
The yearly expenditure for complying with Federal regulations increased from $1.17T to $1.75T from 2005 to 2010. And regulatory costs are 36% higher per employee at smaller firms who typically employ most US workers. So we are not currently in a period with “low regulations”.
Low employment: Well, you got this one right!
If you believe that giving companies tax breaks for hiring will cause them to hire more employees, then you have to believe the symmetrical argument: that raising taxes for hiring will cause them to employ fewer people. I showed that FICA is an employment tax that is increasing every year, so it should be contributing to lower employment among higher paid employees (like STEM employees). And since complying with regulations is a real cost to a business, then increasing regulations is equivalent to increasing taxes. And I’ve showed the regulatory burden is increasing, thus acting like an additional employment tax. And I’ve showed that corporate taxes have not been lowered within the past 18 years to offset any of these other effects.
Therefore, I think your contention that we have low taxes and low regulation and it hasn’t led to more employment is wrong because your assumed preconditions are wrong. Whereas, had you said we have higher taxes and more regulations and it hasn’t led to more employment, then you would have been correct.
As for the “misplaced anger”, I’m afraid you have misunderstood. I was merely responding to Professor Gears negative characterization of my use of the word “lean”. Instead of “toothless, paper-thin regulatory environment”, I consider a lean regulatory environment to be one that uses 20% of the money to correct the 20% of the business community that is causing 80% of the damage. I have no desire to see the environment damaged or people injured in unsafe work environments, and I won’t be characterized as such by someone who thinks he can read my mind and extract some pejorative meaning behind such an easy to understand word.