Skill gaps, skill shortages, and skill mismatches: Evidence for the US

Peter Cappelli

Many high-paying jobs in the US cannot be filled, raising concerns about an existing skills gap. However, this column does not find evidence in support of serious skills gap or shortages in the US labour force. Similarly to other developed economies, the prevailing situation in the US is due to skill mismatches. This could have implications for students and their tuition-paying families.

Federal and State governments in the US are giving serious consideration to the idea that the there are important problems with the overall quality of labour in the US.

The most extreme but nevertheless most common view of the situation is that there are substantial numbers of high-paying jobs that cannot be filled because school leavers do not have the skills to perform them.

This view is often described as a ‘skills gap’. As many as a dozen reports from respected organisations like the National Academy of Sciences (2007) have echoed some version of this position, and several state legislatures are considering measures to channel students into fields where employers want to hire.1

Lack of systematic evidence

It is difficult to think of a policy issue as serious that has been given less attention by the academic research community.

Virtually all the evidence used to support the skills gap idea comes from employers, either via anecdotes, proprietary surveys from consulting firms, or industry associations.

The surveys report that employers have difficulty hiring but do not give a definition as to what ‘difficulty’ means nor ask why. My review of all these reports finds that many of them actually report contradictory evidence; a surprisingly large percentage of employers when asked say that the difficulty they have stems from not paying enough, not providing training, and not being able to anticipate their skill needs. Among the jobs that are hardest to fill are those that are unskilled – such as labourers – or low-skill – such as truckers.2

Academic research

Some academic research, mainly macro-level data, has been used by proponents of the skills gap idea. Some of the applications suffer from logical problems; the fact that the unemployment rate for college grads is much lower than for high school grads, for example, does not necessarily imply that there are many more jobs requiring college level skills as college grads can and are taking jobs that require only high-school skills. High school grads cannot do the reverse. The fact that the college wage premium is at historically high levels above the wages for high-school-only workers is often also taken as evidence that there is a high demand for college grads, but many other factors are at work as well, such as declining wages for high school grads, and the fact that the other attributes of high-school-only and college grads are not equal nor constant over time.

Other, more direct evidence on outcomes like wages, suggests that there any prior shifts in demand toward jobs with college-level skills has stopped in recent decades and even reversed (Beaudry et al. 2013). More direct evidence on the actual requirements of jobs in the US economy shows only modest increases over the past generation and surprisingly, given the rhetoric, no increase in average engineering and science skills (Liu and Grusky 2013).

While there has been little, if any, evidence of any structural changes in the economy since the Great Recession that might affect skill requirements going forward (e.g., Rothstein 2012), the one fact that has relevance for the skill gap argument is the apparent shift in the Beverage curve (Barnichon et al. 2012). Employers are taking longer to fill vacancies, and while that might be consistent with the idea that there are problems with applicants, we do know that they have also cut back on their recruiting efforts (Davis et al. 2012), which would explain longer search times. We also know that job search has changed substantially since the US last experienced unemployment at current levels, and the move to online and computer-based hiring makes searching much cheaper for employers, which should lead them to do more of it.

We do not know with any certainty whether the employer complains about difficulty hiring represent anything new or is, in fact, a serious concern. The absence of any upward pressure on wages, for example, is strong evidence that hiring challenges are at least not yet a serious burden for employers. Assuming there is something new and serious afoot, the most promising hypotheses point to changes in employer behaviour, specifically greater use of outside hiring and the preference for hiring those currently employed, both of which drive turnover elsewhere (Hollister 2011). More vacancies and the need to fill them by itself would create more hiring challenges, and hiring currently employed, experienced workers, is much more challenging than hiring on college campuses.

Concluding remarks

Overall, the available evidence does not support the idea that there are serious skill gaps or skill shortages in the US labour force. The prevailing situation in the US labour market, as in most developed economies, continues to be skill mismatches where the average worker and job candidate has more education than their current job requires. Accepting the premise of the argument and making schools more responsible for creating job skills at the college level would have considerable implications for students and their tuition-paying families that should be thought through very carefully.

References

Barnichon, R, M Elsby, B Hobijn, and A Șahin (2012), “Which Industries areShifting the Beveridge Curve?” Monthly Labor Review.

http://www.bls.gov/opub/mlr/2012/06/art2full.pdf.

Beaudry, P, D A Green, and B M Sand (2013), “The Great Reversal in the Demand for Skill and Cognitive Tasks”, NBER Working Paper 18901.

Cappelli, P (2014), “Skill Gaps, Skill Shortages and Skill Mismatches: Evidence for the US”, NBER Working Paper 20382. Forthcoming in ILR Review.

Davis SJ, R J Faberman and J C Haltiwanger (2012), “Recruiting intensity during and after the great recession: National and industry evidence”, American Economic Review, Vol. 102(3).

Hollister, M (2011), “Employment Stability in the US Labor Market: Rhetoric Versus Reality”, Annual Review of Sociology 37: 305-324.

Liu, Y and D B Grusky (2013), “The Payoff to Skill in the Third Industrial Revolution”, American Journal of Sociology, 118: 1330-1374.

National Academies of Sciences, Academy of Engineering and Institute of Medicine (2007), “Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future”, The National Academies Press.

Rothstein, J (2012), “The Labor Market Four Years into the Crisis: Assessing Structural Explanations”, Industrial & Labor Relations Review (65:3) 467-500.

Footnotes

Among the most remarkable of these is the joint publication of the National Academies of Science, Engineering, and the Institute of Medicine called “Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future”(2007), which argued that it was important to increase the supply of highly educated grads in fields like information technology in order to keep employers in the US by keeping wages here down.

2 See Cappelli (2014). The best known of the proprietary surveys and also the one that contains the most contradictory evidence, albeit typically not in the headlines, is conducted by Manpower annually (2013).