Academic Literature

Skills Gap in US – Skill shortages are not a significant factor impeding current employment growth research finds

Consistent with the view that much of current unemployment must be structural rather than cyclical in nature, even as unemployment has been slow to fall from its recent high level, a number of reports have cited short- ages of skilled workers as a significant barrier to business expansion. A 2011 report by Deloitte and the Manufacturing Institute, for example, found that “[m]ore than 82 percent of manufacturers [who were surveyed] report a moderate or serious shortage in skilled production workers. More than 75 percent of manufacturers say the skill shortage has negatively impacted their ability to expand” (Deloitte and Manufacturing Institute 2011). In the same vein, the 2013 Manpower Talent shortage Report found that some 39% of U.s. employers report “hiring challenges caused by talent shortages” (Manpowergroup 2013).

As the labor market continues its slow return to health following the great Recession, economic policymakers have been concerned that unemployed workers do not have the skills required for the jobs that employers would like to fill.

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The Beveridge Curve

Various stories have been told about the reasons for cyclical looping of the empirical beveridge curve. One common explanation is that because of lags in hiring, vacancies respond more quickly than unemployment to changes in labor market conditions. given the very short time required to fill most vacancies, however, this seems unlikely to be the whole story. The increased generosity of unemployment benefits that is a common response to economic downturns offers another possible explanation for such cycli- cal looping. If the availability of extended unemployment benefits during the initial recovery period leads the typical unemployed worker to search less intensively or hold out for a better job than would otherwise be the case, the result could be higher unemployment at a given level of vacancies, though the best available evidence suggests this effect is small (Rothstein 2011; Farber and valletta 2013). Alternatively (and I believe more likely to be important), during periods when an economy is in the process of recovering from a deep recession, employers may tend to be less aggressive about filling their job openings, searching less intensively or holding out for better workers than would otherwise be the case, again leading to counterclock- wise looping of the empirical beveridge curve.

Employer Recruiting Behavior

A final place to look for evidence of labor shortages is in the recruiting behavior exhibited by employers. In a competitive labor market, if signifi- cant numbers of employers were experiencing real difficulty in finding workers, one would expect to see more intensive recruiting activity, increased willingness to hire less qualified workers, greater provision of on-the-job- training, and so on. While the available information about employer recruit- ing is almost entirely anecdotal, it suggests that employers at present are unusually choosy in hiring rather than the reverse. One frequently reads, for example, about employers who have adopted software tools for screening applicants’ resumes so that only applicants who already have experience doing precisely what the new hire would be doing are even considered (see, for example, cappelli 2012). Once candidates have been identified, the hir- ing process seems to take longer than in the past. Among individuals who reported the length of time it took for them to complete recruiting interviews with prospective employers on the online portal glassdoor, for example, the average elapsed time to complete the interviewing process rose from 13 days in 2009 to 23 days in 2013 (Rampell 2014). This evidence is admittedly sketchy, but the more rigorous analysis carried out by Davis, Faberman, and haltiwanger (2013) is consistent with the same conclusion.

As already noted, employers and politicians talk frequently about the barriers to economic recovery and growth created by skill shortages in the labor market. In many quarters the existence and importance of skill shortages as a barrier to near-term growth are taken as a given, with the only question being how best to address them. yet the data just examined provide little evidence to support this view. Other researchers who have examined recent data generally have reached much the same conclusion, namely, that unemployment is not significantly elevated because of mismatch or other structural problems (see, for example, Lazear and spletzer 2012 and Rothstein 2012). This naturally prompts the question of why the views of business leaders and politicians seem so at odds with the consensus among research- ers who have studied the issue

The idea that the labor market is suffering from structural mismatch is a hardy perennial that often blooms during periods of elevated unemployment. The current period is no exception. Although it is widely understood that broader macroeconomic factors were responsible for the great Recession, as the recovery has dragged on, there has been increasing discussion of skill mismatch as an impediment to hiring and growth. My reading of the evidence, however, is that little support can be found for skill mismatch as an important part of the explanation for current unemployment. The apparent outward shift of the beveridge curve is often cited in support of the mismatch hypothesis, but other plausible explanations can account for this shift. Moreover, in a labor market in which employers were actively competing for scarce workers, we should have seen more upward pressure on wages than has been the case.

Whether the skill mismatch story is right or wrong is of more than academic interest. The belief that employers’ inability to recruit domestic workers has become a pressing constraint on economic growth has the potential to shape policy choices in a number of important areas—how accommodative monetary policy should be moving forward, whether we should admit larger numbers of temporary foreign workers to fill high-skill jobs, and the extent to which federal training dollars should be used for short-term train- ing to meet employers’ immediate skill needs. In my view, it would be a great mistake to premise decisions about these matters on the belief that skill shortages are a significant factor impeding current employment growth.

Chosen excerpts by Job Market Monitor. Read the whole story at Is Skill Mismatch Impeding U.S. Economic Recovery?.

Discussion

4 thoughts on “Skills Gap in US – Skill shortages are not a significant factor impeding current employment growth research finds

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  1. Pingback: US – The rightward shift in the Beveridge curve | Job Market Monitor - August 17, 2015

  2. Pingback: Skills Gap in US – The next generation of workers won’t be able to fill the void | Job Market Monitor - March 5, 2016

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