Skills – The Great Recession drastically changed what employers want

The employment shift from occupations that require mid-level skills toward those at the high and low ends is one of the most important trends in the U.S. labor market over the past 30 years. Previous research has suggested that a primary driver of this job polarization is something called routine-biased technological change (RBTC), an unfortunate mouthful whereby new technologies substitute for repetitive, middle-skill jobs and complement analytical, high-skill jobs. Think of word processors replacing typists or engineers using AutoCAD software. Until recently, economists thought of this trend as a gradual phenomenon that didn’t depend much on the ups and downs of the economy.

In recent research we investigate how the demand for skills changed over the Great Recession (2007-09). Using nearly all electronically posted job vacancies in 2007 and 2010–2015 collected by the analytics company Burning Glass Technologies, as well as geographic differences in economic conditions, we establish a new fact: the skill requirements of job ads increased in metro areas that suffered larger employment shocks in the Great Recession, relative to the same areas before the shock and to other areas that experienced smaller shocks. Our estimates imply that ads posted in a hard-hit metro area are about 5 percentage points (16%) more likely to contain education and experience requirements and about 2–3 percentage points (8‒12%) more likely to include requirements for analytical and computer skills.

Moreover, the vast majority of this “upskilling” persists through the end of our sample in 2015. That is, even while most measures of local labor-market strength had converged back to pre-recession levels, differences in advertised skill demands remain. This holds true even when we statistically control for the availability of skilled labor and the composition of ads across firms and occupations. In fact, we find that the same firms that upskilled by 2010 drive the persistence later in our sample period – the companies that reacted to the recession by looking for more skilled workers were still pursuing that strategy five years later.

These patterns are consistent with a restructuring of labor demand towards these skills.

In contrast to conventional view of labor substitution, in harder hit metro areas, routine-cognitive occupations like clerical and sales surprisingly exhibit only modest increases in layoff risk and no relative employment losses. Instead, we show that these occupations experience pronounced upskilling, as well as modest relative wage and employment growth after the recession. That is, rather than disappearing entirely, surviving routine-cognitive occupations appear to have become both relatively higher-skilled and more productive. These occupations thus became less routine — and more analytical — because of the Great Recession.

In summary, we find that businesses more severely affected by the Great Recession were more likely to invest in new technology, and while this technology may have helped replace some forms of routine jobs, it apparently increased the demand for greater worker skills for other routine jobs.

Chosen excerpts by Job Market Monitor. Read the whole story at The Great Recession Drastically Changed the Skills Employers Want