Is the Skills Gap Real?

On July 28^th, Labor Secretary R. Alexander Acosta announced in his blog that there are about 6 million open jobs in the U.S, and it is estimated that American companies are missing out on nearly USD 250 billion due to these unfilled jobs. This number is large compared to 6.9 million unemployed workers. In line with this claim, many companies have complained that there is a serious skills gap in the U.S. and they face difficulty hiring workers with the right skill set. To address this issue, on June 15^th, President Trump signed an Executive Order expanding federally funded apprenticeship programs, which enables students “earn while they learn.”

Before we question the efficacy of the President’s new program, we should question whether the U.S. needs such a program. To do this, we would therefore need to define the concept of a skills gap in order to determine if the 6 million unfilled jobs can be attributed to this phenomenon.

Peter Cappelli defines “skills gap” as shortfalls in the basic skills of future employees, and “skills shortage” as a shortage of skills in particular occupations, such as engineers or information technology specialists. Both definitions fall under a general idea of the “skills problem.” The two definitions have different implications for examining the current skills problem. The former attributes the cause to the failure of the education system to provide students with basic skills whereas the latter attributes to lack of college graduates in STEM (Science, Technology, Engineering, and Math) field.

The Skills Gap Argument

The skills gap idea in Cappelli’s report states that there are “systematic shortfalls in basic skills across entire age cohorts of the population” due to failure of U.S. schools. These basic skills include reading, writing, math, thinking skills such as decision-making, and personal attributes such as responsibility. ETS analysis on the PIAAC produced by the OECD, which measures the literacy and arithmetic skills of workers of ages 16 through 65 across OECD countries, shows that more than half of U.S. millennials lack proficiency in applying reading and math skills at workplace compared to other European or Asian countries.

The Skills Shortage Argument

National Academies of Science have produced several reports arguing that there are lack of college graduates in the STEM field in the U.S. The U.S. Department of Commerce in 1997 stated that there is a severe shortage of IT workers in the U.S. Forbes released an article earlier this year arguing that U.S. should create policies/programs to attract more foreign STEM workers and increase immigration to benefit its industries. According to James Bessen, rapid change in new technology has radically changed the requirement for skills, making it difficult for employers in the technology sector to figure out whom to hire and whose experience is valuable, and also have a hard time finding workers with the latest design skills. David Autor and David Dorn argue that “polarization” in the job market causes the proportion of middle-skill jobs to decline relative to low or high-end. A number of high-end jobs are growing but are not easily filled as they require extensive training.

Other Factors

Tom Loveless questions whether PIAAC accurately measures the skills that workers will need going forward. Cappelli adds that high scores among Asian countries are credited to extensive supplemental classes outside of school. This year, The U.S. Department of Commerce released a report showing the significant growth in number of STEM workers relative to non-STEM workers.

Numerous reports argue that the skills gaps may not be real and provide alternative explanations to the large number of vacancies.

Rothstein explains that complaints about skills shortage should be evident in rising wages as employers facing tight labor markets should bid up the wage in order to attract workers. But this did not happen. Real wage trends have been largely stable. Gary Burtless makes a similar argument: “Unless managers have forgotten everything they learned in Econ 101, they should recognize that one way to fill a vacancy is to offer qualified job seekers a compelling reason to take the job” through better pay or benefits.

Some (Cappelli, CEPR, NYT) question whether employer-led complaints about the skills problem are just self-serving bias, blaming the situation on workforce rather than employer’s practices.

Noam Sheiber writes that a large number of job vacancies may be due to an aging work force (older businesses tend to grow more slowly and are bureaucratic), long-term decline in the proportion of start-ups, employers with better technology and data to screen candidates for drug problems, criminal records, or credit problems. Rothstein adds that firms may be choosier among job applicants by raising qualifications and drawing out the hiring process with multiple rounds of interview. All of these could delay vacancies to be filled.

Cappelli argues that academic skills are not an employer’s primary concern, but work experience is, even for school leavers. At the same time, employers seek to get the skills they need through hiring instead of training, and most of these skills come from work experience. And such skills are not acquired at schools, but are easiest and cheapest to learn in the workplace through apprentice-like arrangements. However, employer-provided training or apprenticeship programs are very low and continues to decline and this situation seems to be unique to the U.S.

Andrew Weaver points out that although much research touches on this topic, there is lack of studies that directly measure skills. Thus, we should be more careful about calling for more skills without specifying which skills should take priority especially since skills vary across occupations—from advanced reading and writing abilities in some industries, to advanced analytic skills acquired through STEM.

Conclusion

Traditional claims about skills problems have put the blame entirely on the workers and education system. Workers themselves should have been prepared to gain the skills that employers want and schools were responsible for providing such skills. Nevertheless, alternative explanations mentioned above suggests that the responsibility should be shared among employee, employer, and schools. Andrew Weaver noted that “doing so requires that we think not only about adjusting worker skills levels but also about changing employer behavior.” Employers may be more capable than workers in finding and making use of particular skills that they need. If they don’t find the right skills, they can train their workers to acquire the skills through apprenticeships training programs. Hence, if skills problem is real, President Trump’s new program may be an initial effort to reallocate the responsibility of the problem.