The issue of skills mismatches, in one form or another, is a continuing focus for debate. One of the problems, in addressing mismatch, is that there is confusion over the meaning of the terms involved; another is that the measurement of some of the forms of mismatch is problematic. The aim of this section is to clarify both concept and measurement, and in so doing point to issues of concern for future policy.
Table 2, adapted from Green (2013), summarises the different concepts that have come under the general term “skills mismatch”. The variety itself makes the point that clarity of meaning is going to be important.
It is useful to think about mismatch in the market for skilled labour explicitly in terms of supply and demand. Thus, some concepts refer to situations where the supply of skilled labour is less than the demand, others the opposite. In both these cases we have a disequilibrium, and concern implicitly arises only when this disequilibrium is long-lasting. Another important concept is a “skills deficit”, where the market is in equilibrium with supply equalling demand, yet both supply and demand are below what they could be.
“Skill shortages” refer to the situation when supply is less than demand on the skilled labour market. Skill shortages are of concern for employers, not least because they are associated with productivity shortfalls (Haskell and Martin, 1993). The main indicator of skill shortage is evidence that employers cannot fill vacancies for skilled workers. The evidence can be easily obtained from surveys, but it is important that the reason for the vacancy being hard to fill is recorded, namely lack of skills (as opposed to poor working conditions that applicants are loathe to accept). The hard-to-fill skills shortage vacancy, which has become the accepted indicator for a skills shortage, has been at the centre of debate about Britain’s skills problems over the years. Typically, the indicator varies pro-cyclically, reflecting the growth of demand for skilled labour in the upswing of the cycle. For a review of indicators of skill shortage, and indeed a range of indicators of skills imbalance that focus on the indicators of insufficient (rather than surplus) skills, see Mavromaras et al., (2014); also see Gambin et al., (2016).
The case of demand exceeding supply internally within a firm or organisation is termed a “skills gap”, which is indicated when employees are perceived by their managers to lack some competencies needed to carry out their tasks and follow management strategies. Skill gaps are also measured in surveys, such as the UK Employer Skills Survey. Often, however, the estimated prevalence is quite low, depending on how the question is phrased – perhaps not surprisingly, since if workers were deemed by managers as not competent one would expect them to either train them to become competent or let them go.
“Undereducation” is where an employee’s education level is less than what would now be required from a new applicant to do a job. Although it has been linked in part to low productivity (Kampelmann and Rycx, 2012) it is not widely deemed an issue for concern, because it is quite feasible for incumbent workers to have acquired the necessary skills in the past while working at the job.
The situation where supply is greater than demand in the market for skilled labour is typically seen as a concern for employees. For unemployed skilled workers the loss is not only for them but for society generally. Concern has also grown in recent years for the situation where skilled workers are in work but are not using their skills fully. Several studies have shown that skills underutilisation is associated with lower pay and well-being at work, compared with equally skilled workers who are using their skills more fully (e.g. Allen and van der Velden, 2001).
The problem with understanding and remedying skills underutilisation is that its measurement is especially difficult. Usually, measurement relies on subjective indicators in surveys, but the answers obtained vary a great deal, depending on how questions are phrased. Underlying this variation is the fact that the skills that people have are an important part of their identity and self-esteem. Questions that focus on people’s skills are very poor indicators of actual skills, though they may say something about self-efficacy or self-confidence. Recently, the OECD (2013) has attempted a new measure of skills underutilisation, using a combination of occupation coding and responses to subjective questions and the results of the competence tests in the Survey of Adult Skills. But the measure is contested strongly by other commentators. Cross-country variations of skills underutilisation, using the various measures available, bear little resemblance to each other. In my view, the scientific understanding of subjective skills underutilisation (as opposed to “skills deficit”) is insufficiently developed, as yet, for supporting policy interventions in at least the near future.
“Overeducation”, or “underemployment”, where someone has a higher level of education than is required to do the job, is an indirect way of trying to capture skills underutilisation. However, it has to be recalled that education is only a loose measure of skill. Rather, overeducation might be thought of as a problem in itself, apart from its link with skills underutilisation. If people have acquired “too much” education, this could be a worry both for them and for the rest of society if they have helped to pay for it. The concern for individuals may be alleviated if they aim to get more out of their education than just access to jobs. The concern for society might be alleviated in so far as education has external benefits for everyone, not just those being educated (Green and Henseke, 2016). There is a sizable academic literature on underemployment, studying mainly its effects on wages, job satisfaction and firm productivity (e.g. Kampelmann and Rycx, 2012; McGuiness and Sloane, 2012).
Last but not least, there is the concept of a “skills deficit”, which refers to the state where the skills both supplied and demanded are below some optimal (and in principle feasible) level. This concept should have as much or more prominence in thinking about future scenarios, as the concept of skills shortage. Several commentators have argued, over the years, that the problem facing the skills system in Britain – or at least some regions of Britain – is a skills deficit rather than a skills shortage. In this perspective, managers’ have too low ambitions, or are too risk averse, to opt for a strategy of high investment in their workers’ skills (both through recruitment and training), while workers have insufficient resources to invest heavily in their own human capital and to choose their best course of skills investment. In a very uncertain world, neither managers nor workers can see substantive incentives to alter their plans, which is the hallmark of an equilibrium. Only a substantial change in the institutional framework and in the incentives can disrupt this “low-skills equilibrium” (Finegold and Soskice, 1988; Froy and Giguère, 2010).
The measurement of skills deficits is difficult, because the comparison point is some implicit optimum, a level of skills supply and demand that could in principle be obtained, but which is greater than currently found in the country or region. The only way of measuring it is through benchmarking against other countries or regions which are thought to have similar characteristics in other respects but greater supplies and demands for skills. Hence, the importance of international comparisons in the area of skills acquires considerable importance. The main indicators for this are educational and skills comparisons, both supplied through the work of the OECD, which along with UNESCO helps to collect and coordinate comparable education statistics. As well as the PISA studies of skills among school pupils, the OECD runs the Survey of Adult Skills (Kuczera et al., 2016). The latter provides indicators of both the numeracy and literacy skills that individuals have and the generic skills needed for the tasks performed at work. For example, the Survey of Adult Skills revealed that the numeracy and literacy skills of young adults in Britain were generally quite low, and especially unequal (Green, A. et al. 2015, Kuczera et al., 2016).
Parallel to the skills mismatch concepts and indicators, there are mismatches in the market for acquiring skills – that is, training barriers and learning barriers. The latter, however, are also quite hard to measure satisfactorily. Perhaps the most salient indication of a learning barrier is unemployment: if you are involuntarily unemployed you do not have the opportunity to acquire new skills on the job. Those who enter the work force at a time of high unemployment are known to be “scarred” for many years in the labour market (Gregg and Tominey, 2005), the main explanation being the denial of an early opportunity to acquire work skills. Training and learning barriers also occur when in work, arising from discriminatory practices (for example, denying training for older workers) or from lack of information and support, and from low self- esteem. Indicators can be derived from these phenomena, but there is no scientifically accepted practice. The mere fact of low training is not in itself an indicator of a training barrier, since that low training could be the consequence of choice in the context of high costs and low training value.
To conclude this section, there are several quite different concepts that are grouped under the phrase “skills mismatch”, each associated with potential concerns for policy-makers. “Skills shortages” continue to be prominent, especially in times of growing demand. However, the “skills deficit” also reflects a potential deep problem for the British economy and skills system, pointing to the need for policy interventions to influence both the supply and the demand side of the skilled labour market. Graduate under-employment (overeducation) has not hitherto been a major problem for policy-makers but might become so in the coming decades.
Chosen excerpts by Job Market Monitor. Read the whole story at Skills demand, training and skills mismatch: a review of key concepts, theory and evidence