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What skills shortage?

from John Schmitt

I remember well the gas shortages of the 1970s. Long lines at the pumps and gas prices through the roof. Higher prices are, of course, the textbook free-market response to a shortage.

Some economic analysts argue that an important reason we have high unemployment today  is because we have a shortage of skilled workers. Employers have good jobs to fill, but they can’t find qualified workers to fill them.

If there really is a shortage of skilled workers, though, we’d expect to see skilled workers’ wages rising. Back in the late 1990s, for example, when the economy experienced four years of sustained low unemployment, and employers really were beating the bushes to fill vacancies, inflation-adjusted wages for workers at all skill levels rose faster than they have during any period in  the last three decades.

Journalist David Wessel has posted a magnificent graph at the Real Time Economics blog that shows almost the exact opposite of what we’d expect if there were a shortage of skilled workers.

Real wage changes by education, 2000-2010Source: Matthew Slaughter via David Wessel.

The graph displays the inflation-adjusted change between 2000 and 2010 in the average wage of workers with different education levels. Workers with less than a high school degree saw their real wages fall about 10 percent over the period. Workers with only a high school degree experienced about a 5 percent fall. But, workers with some college (including those with associates degrees) or a bachelors degree or even a masters degree suffered average real wage declines even steeper than those of high school graduates.

The only two groups that experienced real wage increases over the period were workers with MDs, JDs, MBAs, and PhDs. And even these wage increases were  small –about one-half of one percent per year.

One particularly nice feature of the graph is that it shows not just the change in wages for each group (on the y-axis), but also the relative size of each education group (on the x-axis). Together, the MDs, JDs, and MBAs make up only 1.5 percent of the workforce; the PhDs, another 1.5 percent.

So, if we have a shortage of skilled workers, it is a peculiar one. Only about 3 percent of workers are in skill groups experiencing average increases in real wages, and those increases border on the impeceptible on an annualized basis.

  1. missdisplaced
    October 1, 2011 at 12:31 pm

    I never understand the “lack of skilled workers” and “skills mismatch” talking points either. Companies may say this, but it really means they do not want to have to train or re-train anyone. Sometimes also, the so-called “good jobs” they have to fill, mean they want a mechanical engineer or physicist or some such. Well, yes, that would be hard to fill, considering it takes a good 6-10 years to become one!

    As for the medical fields, my husband is doing this now, changing a career that went from construction to IT/computers to medical tech. It was very difficult for him to get into a school (and he had previous pre-med college level classes). The schools require that you have taken many of your required classes within the last 3-5 years. That alone turns people off–you could have a degree, but still have to re-take math? He had to re-take some classes and pay again, NOT something many are likely to want to do.

    • October 1, 2011 at 8:28 pm

      “…but it really means they do not want to have to train or re-train anyone.”

      Bingo. They want to turn every junior college, and most every non-Ivy League university into trade schools instead, and pass all the costs back to workers and taxpayers.

      We live in Chumpmericastan….

  2. Robert Dulin
    October 1, 2011 at 3:03 pm

    We have a money shortage not a skill,idea or willingness to work shortage. The productive economy can not afford to borrow enough money from the financial economy for full employment or full pay. The financial economy needs to start spending not lending money or have it taxed away from them.
    Thanks, Robert.

    • October 2, 2011 at 5:13 pm

      There’s plenty of dosh, it’s just not in the right hands.

  3. October 1, 2011 at 3:20 pm

    There is a skill shortage among economists, though. They don’t seem to be able to do the basic fact checking that would eliminate their pet theories. It doesn’t keep them out of a job.

  4. Alice
    October 2, 2011 at 2:21 am

    Perhaps the “skills shortage” is just a ruse to save companies a wage costs or a ruse not to hire sufficient staff. After all if the firm faces a skills shortage (so called) they wont pay skilled wages and firms also dont contemplate the fact that after their employees have learnt “on the job” they might actually become skilled, thereby necessitating a wage increase.

    Not when unemployment is high…. Its easier to suggest there is a skills shortage and offer no jobs or give people poorer wages (skills or no skills).

  5. October 4, 2011 at 6:23 am

    The high level of education and training in the Arab world does not seem to have produced jobs there, and led to — rather than from — the Arab Spring. Likewise across the world. But the problem is not so much that education and training are not useful, but that the productive employment for these people is not in the private consumer economy.

    The productive uses of talent are in the energy production and distribution and conservation arena, in environmental systems salvation, and in reconstructing our infrastructure to low-impact forms. This could be creative destruction on the grand scale we need. (And oddly, this is exactly where the best minds want to go. But they are cut off by the entrenched interests, and the absurd claim that we “cannot afford” our planet’s survival.)

  6. Alice
    October 5, 2011 at 9:05 am

    I could be really really cynical at this point and suggest that the skills shortage is an excuse for financial firms to plough headlong into student loans and speculating on student education (plus governments get to save money when you make students carry the burden of high debt for an education – look what Cameron has done in the UK!!)

    All in the name of user pays, except that the mothers of these students are deserting Cameron’s government in droves. I wonder why?? (I dont wonder why. I know why being the mother of a student). First we had a housing bubble, now the financial markets seem to want to dabble in student debt.

    Ah… who cares we may as well ask??….. As long as we are all in debt (and lots of it) both government and their big hitting wall street friends will be happy of course…wont they?

    Ouch.. the stock markets are falling (give me back my super so I can pay for my son’s skilling up)!!.

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