Academic Literature

Skills Gap in Europe – Skill shortages and skill mismatch

Labour markets are currently in a phase of cyclical recovery and undergoing structural transformation due to globalisation, demographic trends, advancing digital technologies and automation and changes in labour market institutions. Against this background, businesses increasingly report that the limited availability of skills poses an impediment to corporate investment. Genuine skill constraints can negatively affect labour productivity and hamper the ability to innovate and adopt technological developments. For individual Europeans, not having “the right skills” limits employability prospects and access to quality jobs. For Europe at large, persistent skill gaps and mismatches come at economic and social costs. This paper reviews the recent economic literature on skill mismatch and skill shortages with a focus on Europe a focus on Europe.

The review starts with a conceptual overview of skill mismatch and skill shortages and how to measure them. An issue discussed in the first section is the measurement of job requirements, i.e. a demand side variable, that some authors compute using surveys of individuals, which typically collect information on the supply side (educational attainment, foundation skills). Individuals, however, do not often have a reliable view of job requirements, and may actually have an incentive to inflate them. Another issue is whether skill shortages stated by employers reflect the lack of suitable candidates among job seekers or are due instead to the wage and working conditions being offered.

The second section looks at how skill shortages and mismatch are affected by cyclical and structural factors. Whether mismatch is pro or counter-cyclical depends on the relative strength of cleansing effects (poor matches are destroyed in a recession) and sullying effects (in a recession skilled workers are willing to accept unskilled jobs as jobs are scarce). Structural factors contributing to skill mismatch and shortages in Europe include ‘megatrends’, notably globalisation, digitalisation and ageing. In addition, institutional factors shaping labour markets, skill utilization and formation at national and European level can work to reinforce or mitigate skill shortages and mismatches and are an important factor mediating the impact of structural trends.

Chosen excerpts by Job Market Monitor. Read the whole story at Skill Shortages and Skill Mismatch in Europe: A Review of the Literature

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