The False Theory of the Growing U.S. Jobs Mismatch

Job seekers line-up to give their resumes to an employment agency representivie at a job fair at a Holiday Inn in New York City. Photograph by Spencer Platt/Getty Images

A primary refrain of the jobless recovery is that a growing skills mismatch is largely to blame, that many of the unemployed simply aren’t qualified to fill the jobs that are out there—like trying to squeeze square workers into round openings. It’s an argument both sides of the political spectrum make. The Right uses it as an excuse to oppose more fiscal stimulus aimed at job creation, while the Left uses it to propose further funding to goose demand and retrain the unemployed.

The latest data show there were 3.5 million jobs openings at the end of February—about 800,000 less than in December 2007, the month the U.S. technically went into recession. As of March, there were 12 million unemployed people. It’s clear that we now have more of a buyer’s market than in years past and that there is something of a mismatch going on. But that’s always been the case, even when unemployment was low. The question is: Has it gotten worse?

A new report from the Federal Reserve Bank of San Francisco attempts to throw cold water on the notion that it has. Authors David Neumark and Robert Valetta recap a recent conference that looked at evidence that employers can’t find workers with the right skill set. Their conclusion? ”These mismatches do not appear to be much more severe than in the past.”

Neumark and Valetta cite four bits of research to back up their claim, beginning with a 2011 IMF paper (PDF) that finds the skills mismatch in 2010 was only “1 3⁄4 percentage points higher than before the onset of the housing market meltdown at end-2006.” The real problem, according to the IMF paper, is a lack of mobility due to the housing bust. With more people underwater on their mortgages, workers are less capable of moving to take a job in a different town or state. It’s not that they’re unqualified; it’s that they can’t untether themselves from mortgages. Count that as a definite downside to the decades-long push to raise home ownership rates in the U.S.

They then look at a 2011 book by Georgetown’s Henry Holzer, whose data set covers workers and businesses in 12 states from 1992 to 2003. According to Neumark and Valetta, Holzer’s big take-away is that, even before the Great Recession, it had become increasingly hard for low-skill workers to find high-paying jobs. They write: “Moreover, other evidence suggests that soft job skills, such as the ability to communicate effectively, have become increasingly important.”

Whether or not being unable to find enough workers with good communication skills constitutes a “skills mismatch” is debatable. What’s the bigger problem? Not being able to write and speak effectively, or not being able to run some high-tech piece of equipment or fancy software? Without the first, are you ever going to get the chance to learn how to do the second?

The third bit of research (PDF) they cite examines the rise of retail and how it’s pulled workers from a declining manufacturing sector, leading to the belief that bad jobs have replaced good ones. By examining every retail business in the state of Texas from 1990 through 2006, the paper finds rising demand for high-wage jobs in retail but notes that overall, retail pay still lags far behind manufacturing, even though education levels in the two sectors have basically converged. Interesting, though it’s not exactly something that should make you feel any better about the state of the job market—or education, for that matter.

Last, the authors look at a 2009 Pew study (PDF) that tracks 135,000 community college students in Florida from the high school class of 2000, matching courses of study with reported earnings. Of all the research cited to show that the skills mismatch hasn’t grown, this one seems least convincing. In essence, Neumark and Valetta argue that community college students who take “low return” courses in arts and science can switch to “higher-return” fields such as healthcare and business without much difficulty. That may be—but then, why haven’t they? Solving the unemployment problem is going to take a lot more than finding jobs for unemployed community college art students.

The key is demand, particularly for low-skilled workers. Are they mismatched for jobs? Sure, but that’s always true. The difference is that during times of expansion, the economy has room to accommodate them. For example, when retail sales are going gangbusters, as they did in the mid-2000s, big-box stores can afford to hire additional sales clerks and cashiers. The problem isn’t so much a lack of skills but a lack of demand. One of the hallmarks of the recovery has been a huge rise in productivity. When the crisis hit, all those low-skilled workers were pushed out of a tightening economy. Over time, businesses learned they could live—even thrive—without them.

The question, in a world whose businesses have learned to do more with less, will those people ever find places in the workforce again? We may get a clue in the next few months. As Peter Coy writes, productivity has started to fall, meaning that businesses should be looking for more workers soon. Time will tell which ones they hire.

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