Is there a skills gap in the U.S. labor force or instead de-skilling?

Employers in the United States complain loudly and often about their inability to find workers with the right skills. This claim, known as the “skills gap,” was used as evidence that much of the surge in unemployment amid the Great Recession was structural. If workers had the right skills then employers would hire them. But a paper released this week shows how truly flawed this narrative is. The paper also presents data that puts long-term trends and challenges for the labor market into context to complement another paper that points to a very different problem—the apparent “de-skilling” of U.S. workers into jobs they are over-qualified to fill and driving less-skilled workers out of the labor market altogether.

Earlier this week the National Bureau of Economic Research released a working paper by Peter Cappelli of the University of Pennsylvania. He digs into the data around the narrative that the skills gap is a major labor market problem and finds it wanting. Cappelli points out that employers have been complaining about the skills of workers for years, yet the available academic research on matching between employers and employees doesn’t provide much evidence for the story.

If anything, the problem with the labor market is not that workers lacked skills but that the average worker has more education that her job requires. How could this sort of mismatch be possible? This shift would require employers to be no longer demanding cognitive skills as much as they have in the past.

As unlikely as that seems given the prevailing discussion about education and economic inequality, evidence exists that education may not be as valuable as in the past. A paper by economists Paul Beaudry and David Green of the University of British Columbia and Benjamin Sand of York University documents what they call “the great reversal in the demand for skill and cognitive tasks.” They show that the demand for cognitive skills (skills you develop attending school) has declined since 2000 even as the number of college graduates has increased.

The result is “de-skilling,” where workers end up with jobs they have too much education for. In this situation, the value of a college degree is not that it necessarily grants a worker access to a higher paying job. Instead, it gives the worker an advantage over less-educated workers when competing for the same job. That means less-educated workers are pushed out of the labor force.

According to the authors’ calculations the employment rate would be 5 percent higher if the demand for cognitive skills were at pre-2000s levels. That magnitude might not be enough to explain the entirety of the frightening drop in the employment-to-population ratio for prime-age workers since 2000 of approximately 6 percentage points. But it can help explain some of the drop.

If this view of the labor market is correct then policymakers would need to rethink the conventional wisdom. Education would have to recede in importance when we consider long-term policy for the labor market. Instead, policies that boost demand for workers of all education levels would need to be fleshed out. It’s a sobering thought, but one we all need to examine more thoroughly.

August 21, 2014


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