Where I mix career information and career decision making in a test tube and see what happens

Thursday, December 6, 2012

When Entry Requirements Are Raised, Is Pay?

One career trend that seems to be here to stay is the up-credentialing of occupations. By this I mean that occupational entry requirements keep going up, whether they are set by licensure requirements or by employers’ expectations. Compared to past job applicants, new candidates need more schooling, more training, perhaps having passed a new exam. One might expect that the boost in occupational credentials may give a boost to the occupation’s prestige, but does it result in increased earnings? I recently found a small data set to help answer this question.

First, let’s step back and look at the factors that contribute to the up-credentialing trend. In some occupations, workers may be raising credential requirements (for example, by forming an association that develops a certification exam) as a way of erecting barriers to the entry of new workers, with the goal of restraining competition. This is sometimes called “professionalizing,” and workers justify it on the grounds that they are safeguarding the public by ensuring that only highly skilled people are allowed to practice the occupation.

In other occupations, the set of skills required for mastery or even competency in the work may have ramped up, especially because of scientific and technological advances, and thus a longer period of study—in other words, a more advanced degree—is necessary. For example, when I prepared the third edition of the College Majors Handbook, I found that pharmacy could no longer be described as a four-year degree, as it had been in the previous edition. Audiology became a doctoral-level program a few years ago, and physical therapy is now following suit.

In still other occupations, employers may be trying to simplify hiring decisions by eliminating low-credentialed applicants. Perhaps certain academic or training programs have diminished in rigor and thus have lost their meaning as a signifier of skill mastery. Or perhaps a recession has made the ratio of resumes to job openings so great that recruiters feel it necessary to raise credential requirements to cope with the flood of applicants.

What might be the effect of up-credentialing on pay?

It seems reasonable to suppose that if up-credentialing happens because of increased skill requirements, workers should enjoy a commensurate increase in pay. This is not just a matter of fairness; in a field where the professionals are highly skilled, they often can enlist the help of less-skilled paraprofessionals and thus boost their productivity. For example, think of how physical therapists use assistants and aides to do much of the work of preparing patients and equipment so that a therapist can serve many more patients. Highly-skilled workers may also be more adept at using technology or outsourcing to be more productive and thus earn more.

It also seems likely that workers should reap higher salaries when they “professionalize” an occupation by creating credentialing barriers to competition from new entrants. I’ve blogged about one study that found that licensure provides a pay boost roughly equivalent to that of union membership: about 15 percent. Probably certification has a similar effect.

When employers require higher credentials simply to cut down the number of application letters that must be read and interviews that must be conducted, we should not expect them to increase higher-credentialed workers’ pay.

I decided to investigate the effect of raised employers’ demands by analyzing the results of a study by the labor-market researchers at Burning Glass. These researchers analyzed job ads from more than 20,000 online sources, including both job boards and employer sites. Catherine Rampell, a blogger on The New York Times Economix page, asked Burning Glass to compile a list of the occupations that have shown the most up-credentialing in the past five years—specifically, those that have seen the greatest percentage increase in percentage of advertisements specifying the bachelor’s degree compared to those not specifying this degree.

The list of 40 most-up-credentialed occupations ranges from Dental Laboratory Technicians, which experienced a 175% increase in the percentage of ads requiring the bachelor’s (from 12% to 33%), down to Sound Engineering Technicians, which experienced an 8% increase (from 60% to 65%). From this list, I was able to identify 33 occupations for which the Department of Labor publishes earnings figures. The figures for up-credentialing apply to the period from 2007 to November 2011, and for comparison I looked at the earnings figures from May 2007 and May 2011.

It turns out that, on average, a 1 percent increase in bachelor’s-requiring advertisements results in a $483 increase in average earnings. (This is a weighted average, in which the differences in the number of jobs advertised have been figured into the calculations to give greater weight to more-widely-advertised occupations.) Now, if $483 seems a small figure, consider that a 1 percent increase is also a very small amount of up-credentialing. Also consider that this earnings difference is averaged out across everyone in the occupation, not just the new, up-credentialed recruits.

On closer inspection, however, this apparent earnings effect proves illusory. I calculated the correlation between the percentage increase in bachelor’s-requiring advertisements and the percentage increase in earnings over the same period and got –0.15. This figure is too small to suggest the existence of a relationship. That negative finding, in turn, suggests that up-credentialing over the past five years was not caused primarily by the up-skilling of the occupations.

On the other hand, if recruiters were using up-credentialing mainly as a quick way of tossing out most of the resumes that crossed their desks, one would expect a decrease, or at best a below-average increase, in earnings within up-credentialed occupations. That is, if up-credentialing is the recruiters’ response to an oversupply of job applicants, then employers shouldn’t need to increase incentives for applicants to these occupations.
In fact, the (weighted) average pay increase for the most-up-credentialed occupations, about $6,000,  is almost exactly the same as the average increase in pay of all associate-degree-level occupations over the same time period, also about $6,000.

So I conclude that up-credentialing probably occurred for a mixture of reasons: actual up-skilling of some occupations mixed with oversupply of applicants for other occupations. However, I should point out that the data set I’ve been working with is quite small. Burning Glass provided figures for only the 40 occupations with the largest increases in up-credentialing. I could calculate more confident correlations if I had access to credentialing shifts, both upward and downward, for the full range of occupations.

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