Yesterday’s post featured Ray Dalio’s analysis of the economic plight of the bottom 60% of the U.S. income distribution. This morning, we’re highlighting a new study from Harvard Business School, Accenture, and Year Up that reveals one reason for that plight: degree inflation.
Degree inflation is the increasing tendency of employers to demand four-year college degrees for jobs that haven’t traditionally required them. The study analyzed 26 million job postings, and found as many as 6 million that were “at risk” of degree inflation. For instance, 67% of job listings for production supervisor asked for a college degree, even though only 16% of employed production supervisors actually had one. “This is one of several factors crushing the middle of the income distribution,” said Harvard’s Joe Fuller, lead author of the study.
Why is it happening? Because employers use the college degree as a proxy for certain basic hard skills—proficiency in Microsoft Excel, for instance—as well as soft skills—such as the ability to communicate effectively, show up on time, work well in groups, etc. But interestingly, the study shows employers are paying a hefty price for this proxy practice. College graduates get paid significantly more, it takes longer to hire them, and they don’t stay on the job as long. Moreover, with unemployment among college graduates now below 3%, we are running out of them. “Employers aren’t seeing the economics clearly,” Fuller says.
A better approach would be to work with community colleges or other programs that provide non-college graduates with requisite hard and soft skills. Year Up, which I wrote about in January, is one example. Such programs can both lower costs for business and help bridge Dalio’s widening chasm between the bottom 60% and the top 40%.
Hiring based on credentials, rather than on a college “pedigree,” was one of the solutions highlighted by the two dozen CEOs who participated in the training workshop at last month’s Fortune CEO Initiative. It’s a topic that deserves more attention. You can read the full Harvard study here.
More news below.
• Flake Crumbles Before Bannon’s Onslaught
The civil war in the GOP took another dramatic turn as Arizona Senator Jeff Flake announced his intention not to run in 2019, while Tennessee’s Bob Corker and President Trump escalated their war of words in another undignified exchange that distracted from an otherwise encouraging meeting on tax reform. Corker and Flake both appear to have given up in the fight with Trump and Steve Bannon for the soul of the GOP. Whether their dissent will extend to blocking any more policy initiatives is still to be seen.
• Ford Revamped, Toyota Chastened, VW & Daimler Raided
A busy day for the auto industry. Ford’s new CEO Jim Hackett shook up the company’s top management, axing strategy head John Casesa and rewarding Kumar Galhotra for his performance with Lincoln by making him group chief marketing officer. Fiat Chrysler shares jumped 3% on strong third-quarter earnings that defied a weak performance in the U.S.. Toyota confirmed rumors that it will scale back investment in a planned factory in Guanajato, Mexico, having chosen two months ago to build its new Corolla at a new plant in the U.S. jointly owned with Mazda. In Europe, EU antitrust cops raided the offices of VW and Daimler in connection with recent allegations of cartelling.
• Delphi Bolsters Autonomous Driving Business
Auto suppliers were busy yesterday too. Delphi bought Boston-based NuTonomy, the developer of a driverless taxi project that was successfully piloted last year in Singapore, for $450 million. That will nearly double Delphi’s autonomous driving team to around 200 people, and leave it with around 60 self-driving cars on three continents by year-end. In addition to staff, Delphi is also getting its hands on strategic partnerships with Peugeot (the new owner of Opel and Vauxhall) and with Lyft.
• Nothing Succeeds Likes a Lack of Succession Planning
Suspicions that Xi Jinping has ambitions beyond his second term were further strengthened as China’s Communist Party unveiled a new Politburo Standing Committee without any obvious successor. An orderly succession process has been one of China’s defining characteristics in the last 20 years, one that set it apart from other non-free emerging markets. Abandoning it would create risks the country hasn’t faced since Mao Zedong’s death. But fears of a drift to one-man rule shouldn’t (for now) get out of hand: the Committee did reportedly include members from a cross-section of factions.
Around the Water Cooler
• AMD Gets A Reality Check
Shares in AMD fell over 10% after a third-quarter report that, while it beat expectations for revenue and earnings, unsettled investors with its lack of clarity. Investors feared that the accounts, which were pepped by some one-off effects, may have exaggerated the underlying strength of the business. Such issues should become clearer this quarter as AMD launches a new generation of chips that combine its Ryzen line of processors with its Vega graphics design.
• Wall Street Rejoices at the Death of Class Actions
The Senate killed an Obama-era rule guaranteeing the right of consumers to join class action suits against banks, credit card companies, and other financial companies. It’s arguably the most significant roll-back of Obama-era regulation of the financial sector. The House had already passed the bill.
• Chipotle’s Sea of Troubles
Chipotle scaled back its schedule for restaurant openings as it struggled with a raft of problems ranging from food safety and data breaches to hurricane damage. Its shares fell 11.2% in after-hours trading.
• HBC’s Fifth Avenue Freeze-Out
As a metaphor for trends in the commercial real estate market, it couldn’t be bettered. Hudson’s Bay Co., which ousted long-time CEO Jerry Storch last week, said it’s selling the flagship Lord & Taylor building on 5th Avenue to WeWork for $850 million. HBC is also getting a $500 million equity investment from Rhone Capital, in a deal that will allow it to cut its debt load by $1.2 billion. As with print media, it seems that department stores’ most valuable assets these days are the buildings.
Summaries by Geoffrey Smith; email@example.com