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What Skills Shortage?

Written by John Schmitt   
Wednesday, 21 September 2011 09:30

I remember well the gas shortages of the 1970s. Long lines at the pumps, and gas prices through the roof. Higher prices are, of course, the textbook free-market response to a shortage.

Some economic analysts argue that an important reason we have high unemployment today is because we have a shortage of skilled workers. Employers have good jobs to fill, but they can’t find qualified workers to fill them.

If there really is a shortage of skilled workers, though, we’d expect to see skilled workers’ wages rising. Back in the late 1990s, for example, when the economy experienced four years of sustained low unemployment, and employers really were beating the bushes to fill vacancies, inflation-adjusted wages for workers at all skill levels rose faster than they have during any period in  the last three decades.

Journalist David Wessel has posted a magnificent graph at the Real Time Economics blog that shows almost the exact opposite of what we’d expect if there were a shortage of skilled workers.


Source: Matthew Slaughter via David Wessel.

The graph displays the inflation-adjusted change between 2000 and 2010 in the average wage of workers with different education levels. Workers with less than a high school degree saw their real wages fall about 10 percent over the period. Workers with only a high school degree experienced about a 5 percent fall. But, workers with some college (including those with associates degrees) or a bachelors degree or even a masters degree suffered average real wage declines even steeper than those of high school graduates.

The only two groups that experienced real wage increases over the period were workers with MDs, JDs, MBAs, and PhDs. And even these wage increases were  small –about one-half of one percent per year.

One particularly nice feature of the graph is that it shows not just the change in wages for each group (on the y-axis), but also the relative size of each education group (on the x-axis). Together, the MDs, JDs, and MBAs make up only 1.5 percent of the workforce; the PhDs, another 1.5 percent.

So, if we have a shortage of skilled workers, it is a peculiar one. Only about 3 percent of workers are in skill groups experiencing average increases in real wages, and those increases border on the impeceptible on an annualized basis.

Comments (3)Add Comment
Width of bars
written by Paul, September 21, 2011 11:43
The graph's caption says "bar width measures share of unemployment," but the article says "relative size of each education group (on the x-axis)". Are these the same thing? I suppose it could be the case that unemployment is spread proportionally among these groups, but is that necessarily so?
Width of bars is relative to employment
written by John Schmitt, September 21, 2011 12:39
Hi Paul,

The print on the graph is too small, but what the graph says is "bar width measures share of employment" not "unemployment."

The text refers to the "relative size of each education group" implicitly, in employment, since only the employed have wages. (It would be possible, of course, to assign zero wages to non-workers and calculate changes in average wages that way. This could make sense in some situations, but it isn't standard practice.)

Which workforce?
written by Karel, September 22, 2011 2:31
I suspect that the graph, and hence the article, focusses on the situation in the USA. Is that correct?

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