The Skills Gap – What Is It and Does It Exist?

Steve Hine, Research DirectorMinnesota 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 GapsCurrent 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 viewWage

Supply

UpwardWagePressure

Vacancies Pressure on Hours Demand

Employment

Expected evidence consistent with a shortage:1. A large and increasing number of openings2. Increasing hours by incumbent workers3. Upward pressure on wages

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 workersRegardless 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/data/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)

None - 8th grade

9th grade -

11th grade /2High school graduate

Some college no

degreeAssociate's

degreeBachelor's

degreeMaster's degree

Professional degree

Doctoral degree

Total 201,543 10,277 14,763 61,911 34,203 19,047 39,286 16,015 2,980 3,062

Educational Attainment

TotalBoth Sexes

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