Pacific Northwest Regional Economic Conference 5/16/13 What Everybody Knows but Nobody Can Prove: Searching for Evidence of the Skills Gap in Occupational Wage Data

Overview of Presentation What is the skills gap? Is there actually a skills gap? Business behavior according to economic theory Why observed wage growth is relatively flat Occupations with higher than average wage growth Occupations where supply exceeds demand: USA and Oregon

What is the Skills Gap? A structural misalignment between education, workforce development and the labor market. Companies want to hire but they cannot find people with the right skills An uncharacteristic pairing of high unemployment and low job openings (i.e.: shift in the Beveridge Curve)

Shift in the Beveridge Curve

Debate on the Skills Gap

Is There Actually a Skills Gap? Other theories: Shift in BC caused only by those unemployed for longer durations (i.e.: >26 weeks) (Ghayad and Dickens, 2013) Gap is exaggerated: macro factors have prevented hiring, including weak demand, wage rigidity, uncertainty about future productivity and economic policy (Shimer 2012; Baker, Bloom and Davis, 2011) Companies are complaining and not acting (Peter Capelli, 2012)

Business Behavior According to Economic Theory Problem: Businesses can’t find workers at their offering wage Solution: Raise wages until you have enough of them

Explanations for Wage Increases- Demand Side Demand Shift (outward): Substitution away from lower-skilled labor Lower cost of complimentary capital goods More firms in the market

Explanations for Wage Increases- Supply Side Supply Shift (inward): Fewer potential workers Fewer potential workers with right skills Increased cost of education and training Better wages for other occupations which use similar skills

Why Observed Wage Growth is Relatively Flat 1)Wages are difficult to change for business in near perfect competition earning zero economic profit (e.g.: many types of manufacturing) 2)Even firms with some market power have wage rigidity 3)Categorization of occupations can shroud wage changes that are actually occurring in the labor market

Firms in Perfect Competition 1)Perfect competition and labor cost constraints

Firms with Some Market Power

Limitations of Occupational Data 1)Wage data by occupation can be misleading 767 individual SOC codes do not capture all unique worker types Example: mechatronics technicians

US Wage Growth

National Data Notable Occupational Groups with Above Average Wage Growth 3-digit SOC Description Average Annual Wage Growth 31-2Occupational Therapy and Physical Therapist Assistants and Aides1.5% 19-2Physical Scientists0.6% 19-1Life Scientists0.6% 29-1Health Diagnosing and Treating Practitioners0.5% 17-1Architects, Surveyors, and Cartographers0.5% 17-2Engineers0.4% 15-1Computer Occupations0.4% 29-2Health Technologists and Technicians0.3% 17-3Drafters, Engineering Technicians, and Mapping Technicians0.2% 31-9Other Healthcare Support Occupations0.1% 13-2Financial Specialists0.1% Source: Bureau of Labor Statistics, Occupational Employment Statistics

National Data Wage Change Among Manufacturing Workers 3-digit SOC Description Average Annual Wage Growth Above Average Growth Plant and System Operators0.7% 51-1Supervisors of Production Workers0.3% 51-4Metal Workers and Plastic Workers0.2% At or Below Average Growth digit SOC Description Average Annual Wage Growth 51-7Woodworkers0.0% 51-2Assemblers and Fabricators-0.1% 51-6Textile, Apparel, and Furnishings Workers-0.2% 51-3Food Processing Workers-0.5% Source: Bureau of Labor Statistics, Occupational Employment Statistics

Gap Ratio

Gap Ratios for Occupations with Notable Wage Growth- USA Gap Ratio of Occupations with Notable Wage Growth in USA 3-digit SOCUSA Gap Ratio Life Scientists13.7 Other Healthcare Support Occupations7.4 Drafters, Engineering Technicians, and Mapping Technicians6.2 Architects, Surveyors, and Cartographers5.0 Physical Scientists4.7 Occupational Therapy and Physical Therapist Assistants and Aides3.4 National Median3.4 Engineers3.1 Health Technologists and Technicians3.1 Financial Specialists3.1 Health Diagnosing and Treating Practitioners2.3 Computer Occupations1.9

Gap Ratios for Occupations with Notable Wage Growth- Oregon Gap Ratio of Occupations with Notable Wage Growth in Oregon 3-digit SOC Oregon Gap Ratio Life Scientists11.5 Physical Scientists7.9 Other Healthcare Support Occupations6.7 Architects, Surveyors, and Cartographers6.6 Drafters, Engineering Technicians, and Mapping Technicians4.3 National Median3.4 Occupational Therapy and Physical Therapist Assistants and Aides3.3 Health Diagnosing and Treating Practitioners2.4 Engineers2.4 Health Technologists and Technicians2.3 Financial Specialists1.7 Computer Occupations1.4

Conclusion

Questions? Contact Brian or