Proof of big U.S. skills mismatch lacking: Study

Little evidence skills shortage keeping unemployment elevated
By Lucia Mutikani
||Last Updated: 06/15/2012

(Reuters) — There is a little evidence the United States has a major skills shortage that is keeping unemployment elevated, according to a study from the Chicago Federal Reserve Bank, which also found employers are reluctant to hire.

The issue of skills match is at the center of the unemployment debate and the findings support the thinking of many top federal officials, including Ben Bernanke, chairman of the Federal Reserve, who feel the elevated level of joblessness can be addressed through monetary policy.

Others who believe there is a big mismatch between the skills of potential workers and the needs of employers urge a limited role for monetary policy on the grounds that central banks can only bring down unemployment that is the result of insufficient demand in the economy.

A skills mismatch is considered a structural issue, best tackled by fiscal policy. The unemployment rate is currently at 8.2 per cent. It has been above eight per cent since February 2009.

Jason Faberman, a senior economist at the Chicago Fed, told Reuters the study found that only a small part of the elevated unemployment rate was due to skills mismatch.

The study analyzed employment data for various skill levels. To test the validity of the mismatch theory, the study assumed that if workers are scarce in particular occupations where skills are highly valued, their employment would be expected to return to its 2007 level.

But employment in 2011 was about 6.2 per cent below its pre-recession level, the study found, offering little support for the skills mismatch hypothesis.

"In other words, it's been more of an aggregate demand issue more than skills mismatch issue," Faberman said.

An analysis of employment data by sector also found limited evidence of skills mismatch.

The study found employment levels for workers in occupations that are sometimes claimed to be in scarce supply, such as those classified as installation, maintenance and repair workers, were about eight per cent lower in 2011 than in 2007, suggesting supply is not a constraint.

Pockets of shortages

This is in stark contrast to a study last year by auditing firm Deloitte and the Manufacturing Institute, which found manufacturers could not fill as many as 600,000 vacancies, ranging from machinists and welders to maintenance technicians.

Small businesses tracked by the National Federation of Independent Business have also been reporting difficulties finding people with the right skills to fill positions.

The National Federation of Independent Business this week said the share of small business owners reporting they were finding it hard to fill job openings rose in May to its highest level since June 2008.

Faberman, however, said there were some pockets in the labour market, such as dental assistants, electricians, legal secretaries, personnel recruiters and recreation workers, where supply may be an issue.

"The middle-skilled jobs have the highest demand for labour and also the lowest employment growth," he said. "That is consistent with the skills mismatch story. But that's the only place we see it."

Even as manufacturers report a shortage of qualified workers, there have been few signs of wage pressures. While the Chicago Fed study did not look into wages, Faberman said companies' hiring standards were more stringent than they had been during the recession.

"It's clear firms are reluctant to hire because they are posting vacancies but they aren't hiring that many people," he said.

"Whether they are reluctant to hire because they are not finding people with the skills they need or they are not willing to offer wages that will get people to accept the position is unclear. We don't have any information on that."

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