The Skills Gap

Report
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

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