The Mismatch of Available Jobs and Skills

Stephen DeAngelis

May 14, 2009

In a post entitled India’s Three E’s: Entrepreneurs, Economics, & Education, I noted that many educated India’s can’t find work because they don’t have the skills that employers are seeking. Less than one-quarter of Indian college students have the requisite skills to be hired directly after graduation. It turns out that this jobs/skills mismatch is not merely a problem in the developing world [“Help Wanted,” by Peter Coy, BusinessWeek, 11 May 2009 print issue]. Coy reports that three million available jobs in the United States remain unfilled. He also asserts that having so many unfilled jobs is not a good sign during the worst economic downturn since the Great Depression. Coy writes:

“It’s evidence of an emerging structural shift in the U.S. economy that has created serious mismatches between workers and employers. People thrown out of shrinking sectors such as construction, finance, and retail lack the skills and training for openings in growing fields including education, accounting, health care, and government. At the same time, the worst housing bust in decades has left the unemployed frozen in place. They can’t move to get work because they can’t sell their homes.”

Coy claims that the jobs/skill mismatch could make things worse in the long-run for three reasons. First, it means that unemployment could remain higher than necessary because even if the economy improves untrained workers will still lack the skills being sought. Second, it could foster inflation as employers begin bidding wars for skilled workers. Finally, a prolonged high unemployment rate could tempt Congress to increase unemployment benefits to the point where people lose their appetite for work. The answer, he insists, is a public/private partnership that encourages retraining.

 

As I noted in the post about India, my discussions concerning Development-in-a-Box™ almost always include something about education and training. Basic education is essential for learning reading, writing, and arithmetic. Advanced education is essential for specialization and developing skills. In the earlier post, I noted that some educated Indians show a disdain for the word “skills,” believing that skills are required by blue collar workers but not by white collar professionals. The fact of the matter is that true “professionals,” be they soccer players or programmers, achieve their reputation based on their skills more than their education. Generally, of course, education and skills go hand-in-hand. The bottom line, according to Coy, is that it will take some time to close the jobs/skill mismatch and things might get a bit uncomfortable in the interim. In Coy’s view, “workers and employers will have to accept harsh new realities: lower pay for workers starting new careers, and imperfect fits for employers filling vacancies.”

 

One good thing out of all of this is that people are learning the importance of jobs — whole new generations in the developed world are learning the value of hard work. Things are not quite as bad as they were during the Great Depression, when legions of unemployed workers roamed the country looking for work. Today, Coy reports, workers are far less likely to move to find work. “The Census Bureau reported on Apr. 22,” Coy writes, “that the percentage of the population that moved [last year] was the lowest since recordkeeping began in 1948.” I suspect there are probably two reasons for that. First, more people probably own homes now than durng the great depression and with the housing market flat they are anchored to their mortgage. Second, people hate uprooting their families and affecting their quality of life (unemployed workers in North Carolina simply don’t want to move to North Dakota where businesses are closing because they can’t find enough workers). Some companies, like IBM, are taking matters into their own hands Coy reports. “Big Blue announced that it plans to add 4,000 specialists in what it calls ‘analytics.’ It hopes to get as many as possible by retraining, using some of its $1 billion-a-year training budget.” Of course, not all of the unfilled jobs are high paying. People who have climbed the economic ladder, Coy notes, are never eager to head back down it. Coy worries that the combination of immobility caused by the housing crunch and increased unemployment benefits could calcify the U.S. labor market. He concludes:

“To fight this sclerosis, the White House is using $3.5 billion of the stimulus for training, while boosting support for community colleges. Classes for factory workers seeking entry-level health-care careers have shown some success. The truth is, displaced workers may have to move down a few rungs as they switch careers because their skills are irrelevant in their new roles, says David H. Autor, a labor economist at the Massachusetts Institute of Technology. … Employers need to bend as well, recognizing that the candidates they’re seeking may not exist. … A mismatch of work and workers is never a good thing. But smart policy—combined with realism on the part of employers and job seekers—can minimize the disruption.”

Not all the news on the job front is bad. The New York Times reports that some companies have once again started to hire [“Bright Spot in Downturn: New Hiring Is Robust,” by Steven Greenhouse, 5 May 2009]. Although “4.8 million workers were laid off or chose to leave their jobs in February, employers across the country hired 4.3 million workers that month, according to the Bureau of Labor Statistics.” While that represents a net loss in jobs, Greenhouse points out that most people hearing that half a million people lost their jobs would get the impression that those people were fired and nobody is hiring. The economy, he notes, is much more dynamic than that. The question, of course, is who’s hiring?

“Hospitals, colleges, discount stores, restaurants and municipal public works departments. I.B.M. is hiring more than 700 people for its new technical services center in Dubuque, Iowa, while the Cleveland Clinic has 500 job openings, not just for nurses but also for pharmacy aides and physical therapists. And after President Obama’s stimulus package kicks into gear, state, local governments and road-building contractors are expected to hire more. Zachary Schaefer has hired 72 people since February for the Culver’s hamburger and frozen custard restaurant that he and several partners just opened in Surprise, Ariz. ‘The amount of applicants who are qualified is definitely up,’ he said. ‘Whereas before we were counting on a lot of high school applicants, now there are a lot more middle-age people applying.’ … Even industries that have taken a beating are doing plenty of hiring. According to the Bureau of Labor Statistics, construction companies hired 366,000 workers in February, and manufacturers hired 249,000. Retailers hired 536,000 workers in February, but that was down 25 percent from the previous February. Some job openings are to replace retirees, some to replace employees who left for other jobs, but many openings result from expansion. Companies that are still growing are blessed with talented applicants. … The nation’s largest private-sector employer, Walt-Mart Stores, is also hiring aplenty. Wal-Mart, with 1.4 million workers nationwide, hires several hundred thousand workers each year because of employee turnover, and expects to increase its domestic work force by nearly 50,000 this year, thanks to plans to open 150 new stores.”

Some of those jobs are well-paying, but when fast food chains see an increase in middle-aged applicants, one can be assured that hard times are still with us. Greenhouse reports that there are still over four unemployed Americans for every job opening. The current recession will only end when new jobs are created to replace the ones that have been lost. The entrepreneurial enterprises that will create those new jobs are just beginning to get a sense of the new business landscape and developing business plans that will attract funding. Warren Buffet told his stockholders that while the current economy remains fragile, things appear to moving in the right direction. As the administration and Congress take a breath, they should refocus their efforts on ensuring that they are fostering the conditions that will encourage entrepreneurs and small businesses. They should also stay the course on programs offering retraining. Eventually, they may have to address the workforce mobility challenge. The best outcome, of course, would be for companies to begin operations in areas where large numbers of unemployed workers already reside. Barring that, some extremely creative programs will have to be implemented to free workers to move to where the jobs are being created.