By Josh Mitchell 

In past recessions, the U.S. higher education system has served as a buffer of sorts by absorbing unemployed workers. The peculiarities of the coronavirus-induced recession present obstacles to colleges playing a similar role this time around, some economists say.

For one, it is unclear how many colleges and universities will reopen or to what extent, or how many people will decide to enroll. Many laid-off workers might lack access to high-speed internet to take online courses. It is also unclear how long unemployment will remain elevated, and whether students will acquire the skills they need in the post-Covid job market.

Workers who lose jobs in a recession often suffer consequences that reverberate for years, through lost wages and delays in career advancement, research shows. Enrolling in college and graduate school can help mitigate or overcome that damage, as newly acquired skills give workers greater earning potential. And a better educated labor force benefits the economy, boosting productivity and growth potential.

"When there are few jobs and the economy's not doing well, that's the best time to go back and get a college degree," said Adam Looney, a nonresident senior fellow at the Brookings Institution who served in the Obama administration's Treasury Department.

A 2005 paper in the Journal of Econometrics found that spending one year in community college increased the long-term earnings of displaced workers by an average of about 9% for men and 13% for women. The paper analyzed workers who had spent significant time with their employer or industry, were permanently laid off in the early 1990s and later found work.

During the 2007-2009 recession and subsequent recovery, the Obama administration made higher education a central theme of its strategy to heal the economy. Officials believed the strategy would lift growth in the long term also providing a short-term boost as students spent money on tuition and living expenses.

In a February 2009 address to Congress, President Obama asked every American to spend at least one year in college or career training. The 2009 stimulus package increased the maximum Pell grant, which helps financially strapped students pay for tuition, and provided a tax credit for tuition. States were encouraged to tell jobless workers they could get federal aid to go to college.

Those efforts may have helped raise enrollment at colleges and universities, which jumped by 2.8 million, or 15%, to 21 million, between 2007 and 2010, according to Education Department figures.

The ability of workers to learn new skills could be crucial if unemployment remains elevated for a long time. While the jobless rate fell to 11.1% in June from 14.7% in April as parts of the economy started to reopen, 17.8 million workers remained unemployed, Labor Department data show. Another 8.2 million were out of the labor force entirely even though they wanted to work.

One big question about the current recession is just how many of the job losses will be permanent, forcing workers to acquire new skills so they can find work in another company or industry and avoid pay cuts. In June, the number of workers reporting being permanently laid off rose sharply to 2.9 million.

Workers without a college degree have been hit the hardest and stand to benefit the most from gaining new skills. Jobs held by workers with only a high school diploma and no college experience were down by 5.5 million in June from February, Labor Department figures show. Jobs held by workers with a four-year degree fell by 1.1 million. The unemployment rate for the first group was 12.1% last month, compared with 6.9% for college graduates.

Some colleges have said most or all courses will be taught online this fall to prevent the spread of the virus. Some have said they will move entirely online. The American Council on Education said this spring that enrollment could fall 15% as a result. Moody's Investors Service said it expects enrollment to rise, but that families will choose lower-cost options.

"At this time the quality of that degree is really uncertain," Mr. Looney said. "I don't think people want to go and take online classes. They're not getting the college experience."

Andrew Barr, an associate professor of economics at Texas A&M University, said the career benefits of college courses vary widely among majors. It isn't clear how effectively instructors will be able to teach certain courses online versus in person, he said. With online courses, workers will have more trouble determining which programs are most beneficial, he said, potentially making it harder to learn new skills in a different trade. "You have this greater uncertainty as all these programs are moving online," Mr. Barr said.

Still, for-profit colleges, which pioneered the use of online courses in the early 2000s, may be a popular option. Earnings reports suggest their enrollment rose in the first three months of the year, said Jeffrey Silber, a managing director at BMO Capital Markets.

That points to a potential risk for workers and the economy. Higher education may not be beneficial if workers take on debt they can ill afford to repay to obtain degrees that don't lead to well-paying jobs.

A 2015 paper released by the Brookings Institution showed that the boom in enrollment during the last recession and the early part of the recovery was driven disproportionately by students at open-admissions schools such as community colleges and for-profit trade schools. Such students were far more likely to drop out and default on student loans than those who attended nonprofit and public four-year colleges, according to the study.

Other research shows student debt during the last recession rose particularly quickly among Black families, many of whom later defaulted on loans. Student-loan defaults often harm borrowers by damaging their credit. The Federal Reserve Bank of New York posted research last week.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

July 12, 2020 10:14 ET (14:14 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.