What's Behind the Skills Gap?

Amid the uncertain economic news of recent months, one particular phrase keeps reappearing: skills gap. You've likely heard or read it a lot: Google's CEO recently claimed he couldn't find enough trained engineers. Manufacturers in NH often say they can't find qualified workers. Unemployed workers find their skills are no longer in demand. Recent college graduates fret they won't find a job in their field.

But moving beyond anecdote, what data might help us understand the nature of the skills gap and how it varies across the labor market? Can we measure this gap? If so, what does it say about our education system, our economy, and our future needs in these areas? Or does a skills gap, as so often described in the media, even exist?

The Unemployed

While the unemployment rate has improved, it is still higher than the historical average. But is that because workers lack the necessary skills, or because employers are reluctant to hire in a shaky economy? In economist-speak, the question is whether this is a structural problem or a cyclical one.

If it's a cyclical problem, lack of demand is the cause, which means unemployment will likely drop as the economy improves. If joblessness is due to structural causes, then a skills gap (among other things) stands in the way of economic growth.

Workers in construction, food preparation, farming, maintenance and transportation all have disproportionately higher shares of unemployment, relative to the number of people employed in that occupation. The high rates of unemployment for these workers likely means a lack of demand in those industries, rather than a mismatch in skill sets. The bust in the housing market, for example, resulted in heavy job losses in the construction industries. Those former homebuilders aren't out of work because they lack the right skills; it's because people aren't buying or building as many houses as they did a decade ago.

The Technical Skills Gap

New Hampshire has traditionally relied on in-migration from other states for an educated workforce. But numerous studies, the most recent by the University of NH's Carsey Institute, have shown that in-migration nearly halted during the Great Recession.

So if a skills gap exists in NH, is it because our education system is not properly aligned with the specific needs of the economy, or because slower migration into NH has dried up the pool of talented workers? Or is it some combination of the two? Is the problem limited to a small number of industries that need workers with very specific skills, like machinists? And what do we know about any geographic variation in job skills across the state?

The state's higher education system plays a role in this puzzle. The state's community colleges have joined the effort to train and find jobs for middle skill workers-that is, workers with high levels of training, but who may lack a college degree.

High School Graduates

When employers talk about the skills of recent graduates, you hear that high school graduates lack the job skills-reading, math, and communications-to perform entry-level jobs. Anecdotal evidence regarding this dimension of the skills gap is strong. And to a certain extent, our methods of assessing students-which indicates declining levels of proficiency in math and reading skills-suggests that either our public education system is not meeting our labor market demands or we are measuring the wrong thing. Whatever the case, we don't have sufficient information to assess this dimension of the skills gap.

A Comprehensive Approach

There will never be a perfect match between the needs of employers and the skills in the labor force. That is the nature of a free-market economy, in which businesses constantly grow, shrink, experiment and innovate. But policy proposals and public-private partnerships can attempt to close the gap, by subsidizing job training, helping the unemployed acquire new training, or reshaping the higher and K-12 education systems. The state's Workforce Opportunity Council offers one such job training grant for employers.

A more complete attempt to grapple with this issue would also examine NH's demographic trends, including shifts in the young adult population, projections of future job needs, and the effect of the global economy. The question is what set of public and private initiatives will position NH for the next 30 years?

Steve Norton is executive director of the NH Center for Public Policy Studies, an independent, nonprofit, non-partisan organization that pursues data-driven research on public policy. Its work includes research on the state budget, public school funding and health care finance. Dennis Delay is the Center's economist. Norton may be reached at snorton at nhpolicy dot org. For more information, visit www.nhpolicy.org.