Don’t Blame the Skills Mismatch for the Slow Recovery

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By Paula Dwyer

Is the stubbornly high unemployment rate, above 8 percent for almost four years now, structural or cyclical? That question has fueled a long-running debate between liberals, who claim it's largely cyclical, and conservatives, who insist it's more structural.

The debate matters because, if today's high jobless rate is the temporary result of the severe economic recession, then many economists believe large doses of short-term government borrowing and spending would help bring it back to normal. But if unemployment is largely the result of deeply entrenched problems, such as a skills mismatch, then more government spending would be a waste of money, and regulatory and tax reform might be the better solution.

A Brookings Institution study out today sheds much light on the skills mismatch theory, even if it muddies the structural versus cyclical waters somewhat. The study analyzes decades of data on job listings and compares them with education levels in the U.S.'s 100 biggest labor markets. The study then ranks the 100 metropolitan areas. Regions with the highest education levels include Madison, Wisconsin, and Raleigh, North Carolina. Places where the education gap is the widest include Bakersfield, California, and El Paso, Texas.

The study finds that 43 percent of job openings require at least a bachelor's degree, while only 32 percent of adults 25 and older have earned one. Labor Department data reinforce this: Unemployment among workers with a high school diploma or less is 9.9 percent. The rate for those with at least a bachelor's degree is only 3.9 percent.

The study, however, also concludes that unemployment rates are 2 percentage points higher in large metro areas with a shortage of educated workers. But before you go thinking that that confirms a structural problem, consider this: The same mismatch has existed for decades. "It's never been easy, even as far back as the 1960s, to fill skilled jobs," says Jonathan Rothwell, the study's author.

If the skills mismatch isn't the main culprit behind the slow recovery, what is? The study -- no mystery here -- points to declines in housing prices and in demand for goods and services. Still, the education gap plays a major role over the long term. For example, it suppresses job openings by convincing employers to invest more in technology as a substitute for educated workers. It leads to fewer business startups -- most entrepreneurs are college-educated -- and less spending locally, which in turn means fewer service jobs.

The takeaway from this study: The education gap isn't the major cause of the slow recovery, yet it is by far the most important factor in lowering jobless rates over the long run.

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)

-0- Aug/29/2012 17:00 GMT