It’s a Skills Mismatch, Not a Skills Shortage

There’s plenty of buzz about employers facing skills shortages, but pay raises don’t seem to bear that out. If organizations were truly struggling to hire the people they need, they would feel compelled to offer higher wages, and that’s not happening for most positions. 

The root of the problem isn’t an overall skills shortage, but rather a mismatch in where the skills and jobs are, according to Andrew Weaver, a professor of labor and employment relations at Illinois University. Weaver, with co-author Paul Osterman of the Massachusetts Institute of Technology, measured the skills manufacturers are looking for and the likelihood of long-term vacancies for a research paper. 

Weaver’s paper, "Skill Demands and Mismatch in U.S. Manufacturing," published in the journal ILR Review, found that positions calling for higher level reading and math skills are more likely to remain vacant than those requiring higher level computer skills. This belies the adage that STEM skills are the most needed, he told Bloomberg BNA. 

There are clusters of manufacturers with specific skill demands that are more difficult to fill, such as biopharma and biotech firms. One such cluster is located in the Raleigh-Durham research triangle in North Carolina, according to Weaver. "These firms need workers with biology knowledge and familiarity with clean room technology, yet they are able to find the workers they need," Weaver said. 

These companies are successful in hiring the right workers because there’s an active collaboration with local community colleges, as well as employee and trade associations, that ensure people learn the skills the companies are looking for, according to Weaver. "There are places that have made a lot of progress with crowd collaboration. There are others that haven’t quite adapted and face real challenges," he said. 

Relocation, Relocation, Relocation

This mismatch in demand and location contributes to an uneven employment situation, according to Gad Levanon, managing director, Economic Outlook & Labor Markets at the Conference Board. There was a drop in manufacturing jobs between 1990 and 2000, and many areas still haven’t recovered, he said. "We have never had that much displacement in that short a time," Levanon told Bloomberg BNA. 

People could more easily find work by moving to where the jobs are, but relocation isn’t a simple proposition. It might be difficult to sell a current home, cover the expenses of moving, and afford housing in a new location, according to Levanon. People may also be reluctant to leave the network of support they have from nearby relatives, friends and neighbors, he said. 

This geographic and job mismatch may continue, since Americans appear to be moving to where housing is less expensive, and not to where jobs are. Some of the areas losing the most residents include cities in California where tech jobs are plentiful, but the cost of living has skyrocketed, according to a study from 

Labor Market Still Slack?

With improvement in the labor market, wage pressure will increase, according to Levanon. "We are seeing a strong recovery in labor force participation in younger men. We are seeing a better, tighter labor market," he said. 

However, the percentage of people not in the labor force remains relatively high, Levanon added. "There are a substantial number of people who are likely to never re-enter the workforce because they have been out of it for too long," he said. 

The chronically unemployed are keeping down wages and creating a weaker labor market than the unemployment figures might indicate, according to research from the Center for Economic and Policy Research. 

This is why pay has not grown more substantially over the past eight years, according to Nick Buffie, research assistant at CEPR and author of "The Case for a Weak Labor Market." 

There has been improvement, and things are moving in the right direction, but a full recovery remains two to three years out, Buffie told Bloomberg BNA. Wages will rise as employment levels continue to pick up, he said.

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