Five Signs Point to Skill Shortages in the United States

A new report says deficits are most severe in health “and they'll only get worse.”

Is there a skills shortage in the U.S.? Businesses complain that they can't find workers with the skills they need (and recruiters are in great demand), but workers and their advocates respond that employers simply aren't willing to pay enough.  

A new report tries to get to the bottom of this by combining insights from five sources of data, including ones that employers like to cite and ones that workers use to make their case. Its conclusion: Yes, there are skill shortages. But not everywhere. While skill shortages are "most dire" in health care, there are no national shortages at all in several other sectors, including leisure and hospitality.

The study is by Third Way, a think tank that identifies itself as centrist. Its author is Rachael Stephens, who has a master's degree in public policy from Harvard's Kennedy School of Government and wrote the report while working as an economics fellow at Third Way. 

The middle-of-the-road conclusion on the existence of skills shortages--kind of yes, kind of no--grew out of Stephens's decision to consult multiple, sometimes-conflicting data sources. "While any one type of data might have a shortcoming, when we look at the data sets holistically, we see patterns emerging," she said in an interview on July 5, her last day at Third Way.

In health care and social assistance, for example, the job-filling rate is low, which seems to indicate that employers can't find the nurses, aides, and other workers they need. On the other hand, wage growth has been modest, which seems to indicate the opposite--that employers are getting the people they need without resorting to big pay raises.

To resolve the contradiction between job-filling data and pay data in health care, the report looks at three other indicators. One, the supply of people in the U.S. who have the education or credentials that the sector requires, points to a "moderate gap or shortage." Two other measures—employer surveys and analyses by state governments—point to a "significant gap or shortage."

Putting all five measures together, the report rates the skills shortage in health care as dire (and likely to get worse as society ages). Still, what about the fact that pay growth has been so modest? Not a reliable indicator in this case, Stephens decided. "Wages in the health care sector are largely controlled by public health care funding and insurance markets," the report notes. "Thus, we can’t necessarily expect wages to behave the same way we would in most labor markets."

The indicators are flipped in the sector with the second-worst skill shortages, professional and business services. There, the job-fill rate isn't too bad, but wage growth has been exceptionally strong, Stephens found. Tech seems to be the most problematic corner of the professional and business services sector. State-level analyses helped her reach that conclusion. "In their 2016 reports to the U.S. Department of Labor, seven of the nine states with high-quality data (California, Colorado, Missouri, New York, Rhode Island, Washington, and Connecticut) all reported serious concern about filling tech jobs over the next few years," she wrote.

In education, which has the third-worst problem, it's STEM (science, technology, engineering, and mathematics) where qualifications tend to be lacking, the study finds. This colorful table summarizes the data, sector by sector. 

As a bonus, the Third Way report sorts out three terms that tend to get used interchangeably (including by me). Skill gaps exist when the training or education for a job is inadequate to the job's demands. A skills shortage "is more commonly what we're really talking about," the report says; it's when training and education are adequate, but there simply aren't enough people who have it. And a skills mismatch is when workers are skilled but in the wrong things: Some sectors have an oversupply of skilled labor, while others suffer a deficit. Will these careful distinctions catch on? Hard to say—the Third Way report itself sometimes uses "gap" and "shortage" interchangeably.

    Peter Coy
    Bloomberg Businessweek Columnist
    Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.
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