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The Future Mismatch of Skills
It is next to impossible to predict whether there will be some mismatch between what employers will require -- even in the near future -- and the skills that employees will have because we cannot forecast how the mix of goods and services will change or how the production techniques that demand skills will be altered in the future.
A few weeks ago, I participated in a National Academy of Science's workshop on the future of skill requirements for the U.S. economy. The question underlying the workshop was whether we will face a substantial mismatch in the future, caused either by rising requirements of jobs or by a declining workforce and declining educational achievement. The workshop was, frankly, driven by the many employers and their associations who seem to be persuaded that they will not have enough workers with the right skills to meet their requirements in the future. It is a simple question, but at least for me, one of the big conclusions from the workshop was to understand better why that question is so hard to answer. The reason is because the question is predicated on some assumptions that are simply not true. The basic assumption is that the economy is like a giant kitchen where we are collectively baking a huge number of cookies according to standard recipes. Each recipe outlines the proportion of inputs into the production process, one of which is a mix of employees with requisite skills. And to make more of those cookies, we need proportionately more of the appropriate skills. Figuring out what kind of employees we need in the future is therefore pretty straight-forward -- it just depends on how many cookies you expect to have. But here's what is wrong with that way of thinking. First, what we're making in the kitchen of the economy changes constantly, and it is difficult to predict what consumers will order in the future. The long-term trend has been to shift the menu from manufacturing items to services, and that trend has been accelerated in the United States somewhat unpredictably by the arrival of another kitchen, this one Chinese, which turns out one heck of a cheap menu of manufactured goods. So the shift toward services in the U.S. kitchen has accelerated faster than expected as consumers get more of their manufactured goods from China. The best predictions of how the menu of the U.S. kitchen will change suggest a shift toward some services that are very high skill -- e.g., consulting and legal services (the latter are now by some accounts the largest "export" from New York) -- but also very low skill -- e.g., elder care. There is some concern that, as a result, the middle of the menu has been and will continue to be hollowed out, reflected by the sharp increase in income inequality. But we don't know this with any certainty because we can't predict how consumer preferences and foreign competition will change over time. Second and more important, the recipe we use in the kitchen of the economy changes constantly. In part, this is what productivity growth is about: We need far fewer workers to turn out the same number of cookies now as compared to the past. How will these changes in the recipes of production play out: Will they demand more or less skill from employees? Here, the answer from a generation of studies is quite clear: It depends on the choices made by employers. Within the same industries right now, some employers choose recipes that require high skills from most employees while others chose ones that require a much lower-level skills, substituting expert guidance for the skill of the typical employee.
Why employers differ in their choices is something that we do not yet understand. As compared to other countries, though, the limited evidence we have suggests that U.S. employers have made more low-skill choices, at least as compared to their European counterparts. A third complication with the kitchen model is that the ingredients keep changing. Potential employees adapt their skills and their choices of where to work to where the money is. Employers in declining industries -- where wages are low and future prospects are poor -- report they cannot find enough candidates with the skills they need to do the work at wages they can afford to pay. At the same time, some highly skilled workers cannot find jobs because the market for the products that use their skills has declined. Overall, it seems clear that there will be no shortage of people to do the work in the U.S., not just because the slowdown in the growth rate of the workforce over time will be relatively modest but also because the level of skill we have now already exceeds the demands, at least in terms of education levels. As compared to a generation ago, the percentage of employees who are overqualified for their jobs, as defined by having at least three more years of education than is required by the job they hold, is about three times greater than the proportion of people who are underqualified using the same criterion. And the overqualified proportion has more than doubled over the past generation. That's according to "Education and Its Discontents, 1972-2002: Overqualification in America," by Steve B. Vaisey, which was published in Social Forces in 2006. A related conclusion from the workshop is that what counts as "skill" is tricky to define. To the extent to which we can identify the skills that are truly important in the workplace, however, they do not look all that much like what gets taught in traditional classrooms. Things like social skills, communication abilities and decision-making are at the top of the list. In fairness, this is hardly a new idea -- as education and workforce reformers reached the same conclusion more than a decade ago. Given all this, what did we conclude from the workshop about the question of future mismatches? An obvious point is that it is next to impossible to predict whether there will be some mismatch between what jobs will require -- even in the near future -- and the skills that employees will have because we cannot forecast how the mix of goods and services will change or how the production techniques that demand skills will be altered in the future. If there are mismatches, they will quite likely be only temporary because employers have the ability to change the recipes they use to turn out goods and services and use less of the scarce skills; employees also respond to rising wages associated with scarce skills and move to those jobs that are in short supply. As a result, there does not appear to be any real credibility to the scare stories we often hear about how employers will not have the skills they need in the future. In terms of prescriptions for public policy, the rising inequality of opportunity and income troubles many people and is, at least in part, related to rising demand relative to the supply for some skill levels and falling demand relative to the supply for other skill sets. Policy recommendations in the employment area almost always come down to "more education" because such prescriptions don't seem to have a downside: Even if we're wrong, what's the harm in having an overqualified workforce? Rather than more education, though, these recommendations point toward redirecting education to raise the work-based skills that can move low-skill workers up the wage ladder. The fact that such recommendations sound so modest is a result of the growing recognition that we really can't predict and plan for what will happen in the great kitchen of the U.S. economy. July 23, 2007 Copyright 2007© LRP Publications |
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