The Skills Gap

Steve Hine, Research Director Minnesota Department of Employment and Economic Development

One Definition:  A difference between the skills applicants for a job have

and the skills deemed necessary for the job  Recent concerns have been over a perceived increase in a skill shortage: applicant skills < necessary skills  Note the tempered language: ‘applicants’, not all job seekers, and ‘deemed’, not known to be.

An Important Distinction - Between Current and Future Gaps  Current Skill Shortage – exemplified by The

Manufacturing Institute’s 2011 Skills Gap report claiming “that as many as 600,000 [manufacturing] jobs are going unfilled” due to lack of proper skills.  Future Skill Shortage – exemplified by Carnevale et

al’s Help Wanted report claiming that “[b]y 2018, the postsecondary system will have produced 3 million fewer college graduates than demanded by the labor market.”

Current Skill Shortage – the Econ 101 view Wage Supply

Upward Wage Pressure Vacancies Pressure on Hours

Demand

Employment

Expected evidence consistent with a shortage: A large and increasing number of openings 2. Increasing hours by incumbent workers 3. Upward pressure on wages 1.

Focusing on manufacturing and some of the specific areas within that have been identified as prone to shortages, does such evidence exist?

Openings are up, but still lower than before recession

So are hours, but comparable to ‘90’s

Wages having been growing more slowly than ever Rate of annual average hourly earnings growth – Manufacturing production workers (CES, National, SA)

Wages offered in skilled prod occs show some improvements – but so does productivity

FRB NY Measure of Mismatch

What About Claims of a Growing Gap by 2018?  Most oft-cited (and critiqued) study is the Georgetown

Center of Education and the Workforce study Help Wanted by Carnevale et al  Based on their projections of growth in demand for educational requirements by occupation, and NCES projections of degrees conferred through 2018, we face a large and growing shortage of post-secondary attainment.  Results are derived from the methods and assumptions used to project this growing demand  Findings aren’t robust to changes in these assumtions

What drives this growing gap?  In Help Wanted case, these stem from the following

criticism’s of BLS education classification:  BLS educational requirements for entry into an occupation

understate true requirements as evidenced by actual CPS-based attainment of incumbent workers  “the present distribution of education among the employed prime-age population is the best single indicator of present demand for education.” (p. 130)  BLS classification of entry-level ed requirements is static – doesn’t reflect growing requirements over time  Carnevale et al use ed attainment through 2008 to project trends through 2018, claiming that two-thirds of growth in ed is through this ‘upskilling’ channel.

Criticisms of this approach:  Educational attainment of incumbents may not reflect

requirements of the job but rather ‘mal-employment’ of those incumbents – e.g. ACS data show that 46.6% of wait-staff in MN have PS ed, 13.4% have bachelor or more  Projecting ed ‘requirements’ through 2008 overstates rate of ‘upskilling’ that is occurring; evidence suggests dropping 2008 (using thru 2007) reduces rate significantly  Study uses CPS on demand side but not on supply side (NCES forecasts), and assumes 48% of 25-54 year olds will leave the workforce by 2018 – these may overstate demand growth and understate supply

In fact, we already have enough educated workers  Regardless of the many demand-side criticisms,

Carnevale predicts a need for 101,600,000 individuals with some PS education by 2018 (app. 3, p. 125), the 2011 ACS reveals that we already have 114,600,000 such individuals (http://www.census.gov/hhes/socdemo/education/dat a/cps/2011/tables.html).

Table 2. Educational Attainment of the Population 25 Years and Over, by Selected Characteristics: 2011 (Numbers in thousands. Civilian noninstitutionalized population /1.) (leading dot indicates sub-part)

Both Sexes Total

Educational Attainment Some None - 8th 9th grade - High school college no Associate's Bachelor's Total grade 11th grade /2 graduate degree degree degree 201,543 10,277 14,763 61,911 34,203 19,047 39,286

Master's Professional degree degree 16,015 2,980

Doctoral degree 3,062

So should we not worry?  Of course not – skill mismatches have long been

recognized as a source of labor market inefficiency  It may not be as severe a concern through 2018 as some portray, but through the 2020’s does look worse  Need ‘better’ measurement of the education/employment nexus and properly calibrated policy response, not a blind acceptance of any single study, or reliance on anecdotes

Thank you