Is There a Skills Gap? It’s Less Clear-Cut Than You Think

Closing the “skills gap” is high on the list of priorities for Washington policymakers. But the debate behind the skills gaps—whether it exists, how large it might be, and what to do about it—is much less clear-cut than a casual reading of the papers would suggest.

A skills gap means that there are plenty of jobs (or strong labor demand), but not enough of the right kind of workers to fill them (or weak labor supply). References to a skills gap are often coupled with the buzzwords "STEM” and "manufacturing"; we are told there are not enough scientists and engineers to fill the glut in high-tech and manufacturing jobs. Then there is the skills gap at the lower end of the skill spectrum, this time coupled with “unemployed”; if only unemployed Americans had the right skills, we are told, they would be employed.

In the media, the most widely cited evidence for this skills gap is employer surveys; around half of U.S. employers say they have difficulty filling positions—a higher proportion than nearly any other country in the rich world. They say the most common types of jobs going vacant are a mix of high-skilled and STEM positions like engineers and IT staff, as well as middle-skilled jobs like “skilled trade workers,” mechanics, or nurses. The manufacturing sector, where international competition is tight, purports to have the hardest time finding workers. According to one survey, 67 percent of responding manufacturers reported a “moderate to severe shortage of available, qualified workers.”

But definitive, hard evidence of a skills gap is actually hard to come by.

It is true that job vacancy rates have increased slightly in the past few years amid persistent unemployment. The vacancy numbers, however, are small, as is the increase. In 2009, about 2 percent of the labor market was vacancies. Today, it is about 3 percent. The rate for manufacturing is thought to be higher, perhaps 5 percent. But even an informed observer could be forgiven for confusing a 3 to 5 percent vacancy rate as being natural turnover and churn in a healthy labor market.

A labor economist would locate a skills gap by watching wage trends. If employers are having difficulty filling a job, they would increase wages to entice more prospective employees. While there has been some wage growth in specific middle-skilled jobs like healthcare technicians, this is not the case for high-skilled STEM or engineers. And in manufacturing, wages have been flat.

Could it be that anxiety over a skills gap is overblown, and employers are saying one thing and doing another? Two researchers at MIT tried to answer that question. They looked at how long job openings remained vacant at manufacturing firms. Though their study suffered from a low response rate of just 36 percent, they still found some telling trends among the 900 manufacturing firms that did respond: only about one-quarter show any signs of hiring difficulties, and high-tech firms that demanded the highest skills had the least difficulty. These findings fly in the face of employer opinion surveys and conventional perceptions about skills gaps.

Or it could be that the skills gap is being masked in other ways that are tricky to parse out. Measuring labor shortages has long been a challenge for economists. The Bureau of Labor Statistics has an infamously poor track record at predicting what kinds of jobs will be in the highest demand just a few years out.

For the high-skilled STEM fields, it could be that employers are unwilling to pay what a lot of well-educated Americans have come to expect. In a labor market that is less closed and more global, employers can move STEM jobs to lower-wage India, for example, instead of stomaching the high cost of American employees. This could also help explain why such a large proportion of American STEM PhDs end up working in non-STEM fields for the likes of McKinsey and Goldman Sachs, which pay handsomely.

For less-educated Americans, some economists say the skills mismatch presents itself in the form of rising income inequality. This is the theory most famously posited by Claudia Goldin and Lawrence Katz in their seminal study The Race Between Education and Technology. They claim that up to half of the growth in inequality since the 1950s can be attributed to an education-technology mismatch, with technology advancing much faster than educational attainment. But the policy implications are not so consoling. A wholesale upskilling of the U.S. workforce may be plausible for future generations, but it is wishful thinking for today’s unemployed.

The big idea in Washington is to retrain the unemployed. But unfortunately most retraining programs have had disappointing results for dislocated workers, especially when they are older. The retraining programs that work best tend to be in locations where jobs already exist and the person being retrained is highly motivated because they can see the job at the end of the tunnel. The fact of the matter is that the unemployed are often trapped in locations where there are not enough jobs for them. This is less a skills mismatch than a location mismatch.