1. Steve Hine, Research Director Minnesota Department of Employment and Economic Development

2. One Definition: A difference between the skills applicants for a job have and the skills deemed necessary for the job Recent concerns have been over a perceived increase in a skill shortage: applicant skills < necessary skills Note the tempered language: ‘applicants’, not all job seekers, and ‘deemed’, not known to be.

3. An Important Distinction - Between Current and Future Gaps Current Skill Shortage – exemplified by The Manufacturing Institute’s 2011 Skills Gap report claiming “that as many as 600,000 [manufacturing] jobs are going unfilled” due to lack of proper skills. Future Skill Shortage – exemplified by Carnevale et al’s Help Wanted report claiming that “[b]y 2018, the postsecondary system will have produced 3 million fewer college graduates than demanded by the labor market.”

4. Current Skill Shortage – the Econ 101 view Wage Supply Upward Wage Pressure Vacancies Pressure on HoursDemand Employment

5. Expected evidence consistent with a shortage: 1. A large and increasing number of openings 2. Increasing hours by incumbent workers 3. Upward pressure on wages Focusing on manufacturing and some of the specific areas within that have been identified as prone to shortages, does such evidence exist?

6. Openings are up, but still lower than before recession

7. So are hours, but comparable to ‘90’s

8. Wages having been growing more slowly than ever Rate of annual average hourly earnings growth – Manufacturing production workers (CES, National, SA)

9. Wages offered in skilled prod occs show some improvements – but so does productivity

10. FRB NY Measure of Mismatch

11. What About Claims of a Growing Gap by 2018? Most oft-cited (and critiqued) study is the Georgetown Center of Education and the Workforce study Help Wanted by Carnevale et al Based on their projections of growth in demand for educational requirements by occupation, and NCES projections of degrees conferred through 2018, we face a large and growing shortage of post-secondary attainment. Results are derived from the methods and assumptions used to project this growing demand Findings aren’t robust to changes in these assumtions

12. What drives this growing gap? In Help Wanted case, these stem from the following criticism’s of BLS education classification: BLS educational requirements for entry into an occupation understate true requirements as evidenced by actual CPS-based attainment of incumbent workers “the present distribution of education among the employed prime-age population is the best single indicator of present demand for education.” (p. 130) BLS classification of entry-level ed requirements is static – doesn’t reflect growing requirements over time Carnevale et al use ed attainment through 2008 to project trends through 2018, claiming that two-thirds of growth in ed is through this ‘upskilling’ channel.

13. Criticisms of this approach: Educational attainment of incumbents may not reflect requirements of the job but rather ‘mal-employment’ of those incumbents – e.g. ACS data show that 46.6% of wait-staff in MN have PS ed, 13.4% have bachelor or more Projecting ed ‘requirements’ through 2008 overstates rate of ‘upskilling’ that is occurring; evidence suggests dropping 2008 (using thru 2007) reduces rate significantly Study uses CPS on demand side but not on supply side (NCES forecasts), and assumes 48% of 25-54 year olds will leave the workforce by 2018 – these may overstate demand growth and understate supply

14. In fact, we already have enough educated workers Regardless of the many demand-side criticisms, Carnevale predicts a need for 101,600,000 individuals with some PS education by 2018 (app. 3, p. 125), the 2011 ACS reveals that we already have 114,600,000 such individuals (http://www.census.gov/hhes/socdemo/education/dat a/cps/2011/tables.html).http://www.census.gov/hhes/socdemo/education/dat a/cps/2011/tables.html

16. So should we not worry? Of course not – skill mismatches have long been recognized as a source of labor market inefficiency It may not be as severe a concern through 2018 as some portray, but through the 2020’s does look worse Need ‘better’ measurement of the education/employment nexus and properly calibrated policy response, not a blind acceptance of any single study, or reliance on anecdotes

17. Thank you