Thoughts on skills shortages In Transition: Recognizing Economic Turning Points 52 nd Annual Conference Council for Community and Economic Research Oklahoma City June 6, 2012 Greg Weeks, Ph.D. Brandt Information Services December 1, 2011

Do we have skill shortages? Yes: The retirement of highly educated and skilled baby boomers will lead to shortages of critical skills, particularly in some industries. No: High unemployment rates across the nation means that the presence of millions of unemployed workers are available to fill any available jobs. Yes: Rates of return to higher education have been increasing since No: Education levels are projected to rise.

Skill shortages: a labor market issue?  Widespread shortages of critical skills can derail economic growth.  The gestation period for education and training programs makes training system responses to skill shortages difficult.  Markets may mitigate skills shortages, but the time frame for a market response may be too long.  Policy responses (increasing training opportunities) may exacerbate the problem.

Skill shortages: background 1.0 Wage rate ($) Quantity of Labor 0 Supply of available labor (specific skill) Demand for labor (specific skill) WSWS WEWE D1D1 S1S1 S2S2 Skill shortage Dis-equilibrium

Skill shortages: number of unemployed

Skill shortages: Background 2.0

Skill shortages: Background 2.1  U.S. educational and occupational wage differentials were exceptionally high at the dawn of the twentieth century and,  decreased in several stages over the next eight decades.  But starting in the early 1980s the labor market premium to skill rose sharply and,  by 2005 the college wage premium was back at its 1915 level.  The twentieth century contains two inequality tales: one declining and one rising.

Skill shortages: Background 2.2  An increase in the rate of growth of the relative supply of skills associated with the high school movement starting around 1910 played a key role in narrowing educational wage differentials until  The slowdown in the growth of the relative supply of college workers starting around 1980 was a major reason for the surge in the college wage premium from 1980 to  Institutional factors were important at various junctures, especially during the 1940s and the late 1970s. Source: Claudia Goldin and Lawrence F. Katz. “The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005”. NBER Working Paper No March From their book with the same title

Skills shortages: returns to education, employment + earnings Seasonally adjusted, age 25 and older, percent

Skills shortages: AARP source Retrieved from: education--gates-foundation.pdfhttp://assets.aarp.org/rgcenter/econ/labor-force-projections-workers- education--gates-foundation.pdf

Skill shortages: AARP outlook

Skills shortages: AARP data

Skills shortage: AARP Conclusions

Skill shortage: conclusions  National, widespread skills shortages are unlikely before 2018  Local, temporary shortage may occur  These shortages will be mitigated by migration, immigration, and wages  The training system should respond to perceived skills shortages with some caution and stay with a strategic longer run plan.  Unemployed workers are a prime source of needed skills.  The role of the public (and private) labor exchanges is to increase the efficiency of labor markets (make the supply and demand matches easier).

Questions? Greg Weeks (850)