What ails the American worker? Republicans and Democrats, chief executives and certain academics all say they see a mismatch between workers' skills and employers' needs. The data see something different.
A specter haunts the job market. You've witnessed it on the campaign trail. You've seen it on TV. It is the idea that the skills of U.S. workers don't match the needs of the nation's employers.
This "skills mismatch" is routinely held up to explain why the unemployment rate is still at 8.2% three years after the Great Recession officially ended, and why nearly half of those out of work have been so for more than six months. The Romney campaign affirms that the skills mismatch "lies at the heart of our jobs crisis." In his State of the Union speech, President Obama quoted conversations with businessmen who can't find qualified workers, and then proposed "a national commitment to train two million Americans with skills that will lead directly to a job."
It is heart-warming to see Democrats and Republicans agree, but unfortunate that the thing they agree about may not be true.
In recent months, researchers from the Federal Reserve Bank of Chicago, the University of California-Berkeley, and the Wharton School have expressed skepticism about the existence of a national skills mismatch. A larger body of work, stretching back decades, paints a murky picture about how broad-based a problem worker skill level is. Despite this, policymakers have fretted about the issue for 30 years, in periods of high unemployment and low. If the research is far from certain, why does the skills-mismatch narrative stay with us? And by fixating on mismatched skills, are we ignoring a far bigger problem for the economy?
UNDER-QUALIFIED OR OVER-QUALIFIED?
History is a useful place to start looking for answers. Concern about missing skill arose in the early 1980s as an increasing gap in pay between college graduates and everyone else led economists to believe that the demand for skill was outstripping its supply -- largely, it seemed, because automation and computers boosted the need for white-collar workers over blue-collar ones. At the same time, a series of government-commissioned reports questioned America's broader work-readiness. The Department of Education's 1983 A Nation at Risk and the Department of Labor's 1987 Workforce 2000 held forth about declining American standards, with the latter concluding that "the drastic reduction in the availability of qualified young labor force entrants... may imperil the nation's competitive position."
Just 40 years ago, economists were worried that workers were becoming dangerously overqualified. Today many insist, with equal certainty, that the opposite is true.
That public discourse in the 1980s landed on the idea of a vastly under-skilled labor force is curious, considering that less than a decade earlier, policymakers believed that over-qualification was the main threat as technology "deskilled" work. In the 1976 book The Overeducated American, economist Richard Freeman held that the then-falling wage difference between high-school and college graduates was the result of a college-graduate glut. Sociologists studying "credentialism" agreed, arguing that inflated hiring requirements had led U.S. workers to obtain more education than was necessary. A 1973 report by the Department of Health, Education and Welfare ruminated about how to keep employees happy when job complexity increasingly lagged workers' abilities and expectations for challenging jobs.
What accounts for the turnabout? One possibility is that the quality of the American workforce fell off a cliff at the end of the 1970s. Another is that what changed was how we view the relationship between workers, skills, and jobs. For instance, at a Department of Labor "skills summit" in 2000, then-Federal Reserve chairman Alan Greenspan described a shift in thinking about who bears responsibility for developing and updating workers' skills, explaining that over the past few decades, on-the-job training had given way to formal education programs -- those that would, presumably, turn out fully qualified workers in advance of having a job. As that responsibility shifted, so might have our definition of what it means to be adequately skilled.
Data can help tease apart the difference. One way academics try to detect a potential mismatch is by analyzing the average pay of people with different levels of education. From the days of Richard Freeman on, this sort of research has held enormous sway over popular thinking. Most recently, Harvard economists Claudia Goldin and Lawrence Katz have argued that since the late 19th century, spikes in the pay of highly educated people relative to other workers corresponds with a dearth of well-educated people in the workforce -- and that this is the sort of world we've been living in since 1980. In other words, the skills mismatch is real.
But other approaches have produced different results. A second body of work zooms in to the level of the individual worker and individual job, and assesses whether each person has more or less education -- or another proxy for skill, such as reading or math ability -- than his job requires. The findings here are decidedly more nuanced. While certain pockets of workers, such as high-school drop-outs, clearly lack necessary skill, no nation-wide mismatch emerges. In fact, some work, such as an analysis by Duke University's Stephen Vaisey, finds that over-qualification is much more common than under-qualification, particularly among younger workers and those with college degrees.
WHO IS MISSING WHAT SKILLS?
Of course, popular beliefs don't only come from data analysis. As the President's State of the Union remarks illustrate, companies are influential in bolstering the skills mismatch narrative. Corporate chiefs such as General Electric's Jeffrey Immelt, American Express's Kenneth Chenault, and Intel's Paul Otellini frequently ring in on the nation's op-ed pages, as members of commissions and panels, and in private. Executives particularly like to talk about a lack of qualified employees in manufacturing and engineering, but those aren't the only industries that elicit complaints. A survey of more than 1,300 firms conducted by the employment agency Manpower earlier this year found that 49% of employers have trouble filling positions.
A recent employer survey found that the top skill deficiency among manufacturing workers wasn't technical expertise, but "inadequate problem-solving skills."
Dig deeper into what employers say, though, and the skills mismatch gets complicated. A 2011 employer survey from the Manufacturing Institute found that the top skill deficiency among manufacturing workers was "inadequate problem-solving skills." No. 3 on the list was "inadequate basic employability skills (attendance timeliness, work ethic, etc.)." In the 2012 Manpower survey, 26% of employers complained about the lack of such "soft skills." If the American workforce doesn't show up on time or think outside the box, that may be a problem -- but probably not one solved by more math, science, and technical training, the go-to remedies.
The Manpower survey also suggests another possibility. When firms were asked why they have difficulty hiring, 55% picked "lack of available applicants," but essentially the same percentage, 54%, said candidates are "looking for more pay than is offered" (many more than the 40% selecting lack of "hard" skill). This is an important reminder that the labor market is a market. The U.S. conversation revolves around whether workers have the right skills. Whether firms are willing to pay enough to compensate workers for having acquired those skills is rarely mentioned. When firms post job openings at a certain wage and no one comes forward, we call this a skills mismatch. In a different universe, we might call it a pay mismatch.