Article Review: Skills Gap, Skill Shortages, and Skill Mismatches

The article "Skills Gap, Skill Shortages and Skill Mismatches: Evidence and Arguments for the United States" was written by Peter H. Cappelli, a professor of Management at the Wharton School and Director of the Center for Human Resources and Research Associate at the National Bureau of Economic Research (NBER).

In the article, Cappelli reviews an extensive array of reports from employer-related organizations, as well as government and academic sources and examines the supporting evidence behind their skills-related complaints. The author argues that the claims are not well supported by evidence and that contrary to a skills shortage, the evidence actually points to the problem of over-education. Cappelli's overall conclusion is that the skills-related problems that employers have complained about are more about the experience and attitude of employees and less about academic skills. Thus the onus should be on employers (rather than schools), to develop the employee in order to meet the skill-requirement needs of the employer.

While the author makes some good points based on compelling evidence, there are some assumptions made which underestimate the ability for public education to better meet the needs of employers. This article review will identify those assumptions and suggest some modifications to Cappelli's recommendation.

Cappelli, begins the article by highlighting the many stories in recent popular press that claim that employers are finding it increasingly difficult to fill jobs, thus suggesting there is a skills shortage in the U.S. labour force. He challenges this notion by pointing out that if this were true, there should be evidence showing a trend of rising wages in the U.S. to reflect the low supply of available labour. However, no such evidence exists. 

The following skills related terms are defined and frequently referenced throughout the article:

1. Skills Shortage - a shortage of workers of particular occupations. 
2. Skills Gap - shortfalls found in the basic skills of future employees.
3. Skills Mismatch - when the supply of skills and demand for skills are our of sync in either direction.

Cappelli theorizes that rather than a skills shortage, the actual problem employers are facing is a skills mismatch. 

Cappelli goes on to review an extensive array of reports from employer-related organizations, as well as government and academic sources. Examples of claims made by these reports include the following: 

Skills Shortage

• There will be a severe shortage of IT workers in the United States which will require increased immigration and education (U.S. Department of Commerce, 1997).
• The impending retirement of the baby boom cohort will lead to an absolute decline in the size of the labour force and a "severe worker shortage" (U.S. Chamber of Commerce, 2006).
• "The cost and availability of skilled labor in science and technology drives multinational companies in their decisions about where to operate and that increasing the supply of STEM graduates and allowing for more STEM workers and foreign STEM students to enter and stay in the United States will benefit the industry (National Academies of Science, Engineering, and the Institute of Medicine, 2007).
• The United States will have a shortfall of 1.5 million college graduates by 2020 (President's Council on Jobs and Competitiveness, 2012).
• The United States will need an additional 1 million STEM graduates to meet labour market demand (President's Council of Advisors on Science and Technology, 2012).

Skills Gap

• The level of student achievement is declining (National Commission on Excellence in Education, 1983).
• Productivity growth depends on increasing the skill level of the U.S. workforce by establishing national education standard for students based on international standards (National Center on Education and the Economy, 1990).
• Investment needs to be made in the development of a generic set of skills at the high-school level - skills such as reading, writing, math, decision-making, responsibility, etc., and bringing schools and employers closer together ([SCANS],1991).
• The most commonly seen deficits in new hires that were recent school leavers are in workplace attitudes and oral communication suggesting that employer complaints are more about soft skills (Business Roundtable, 2009).
• The biggest skills gap UK employers reported (about new hires that were school leavers) is in soft skills: leadership, sales, communication, and customer service skills, in that order (Institution of Directors, 2010).
• 31% of employers said that the skills shortfall was lack of experience, and only a third of respondents reported that a lack of hard skills was a problem (Manpower, 2013).

Skills Mismatch

• Returns to education are considerably lower for those who are over educated compared to those whose education levels equaled the job requirements (Duncan and Hoffman, 1981).
• The average worker in the United States is overqualified for his or her job and the amount of over qualification has been increasing in recent years (Vaisey, 2006).
• Over qualification in skills and education is widespread in the UK (Sutherland, 2012).
• Roughly 30% of engineering graduates are saying no job is available for them and another 30% are saying the jobs are below market levels, suggesting that the claim of a STEM shortage is false (Salzman, Kuehn, and Lowell, 2013).
• The demand for higher-skill jobs that require college degrees is actually declining and college grads are forced to look to jobs that require less skills (Beudry, Green, and Sand, 2013).

Three frameworks are identified by Cappelli to help employers' solve their problem of not being able to fill jobs according to their skill needs. The first framework is based on the notion that it's the employer's responsibility to train and develop employees once hired. The second framework is based on the notion that proper wage-setting (according to supply and demand) will draw employees with skills required by the employer. A new framework based on recent claims suggests a model where the onus is on public education to develop the skills required by employers.

After assessing the evidence behind claims made in each of the reports reviewed, Cappelli notes that many of the studies (especially the employer-driven ones) are poorly designed and often contradict the actual evidence provided. Rather than a skills shortage, the evidence points to a skills mismatch in the form of over-education which burdens the school-leaver and leads to a negative impact on wages. He concludes that the skills shortage that employers are facing are mostly in soft skills - skills that aren't really academic in nature.  Cappelli's recommendation is based on the first framework mentioned above, where the onus is on employers to solve the skills problem by taking the initiative to invest in more training programs and internships for new hires in order to meet their skills requirements.

Cappelli does a thorough job examining the evidence behind each of the report claims mentioned in his report and identifying assumptions that degrade the validity of some of these claims.  In looking at the evidence to support claims of a skills shortage, Cappelli points out that a common assumption some of the reports make is that "every job currently held by a college graduate requires the skills associated with that degree" (p. 257). Take, for example, the U.S. Department of Commerce's (1997) claim that there will be a shortage of IT workers and that more IT graduates need to enter the workforce. Cappelli explains the assumption here is that only graduates with IT degrees can do IT-related jobs which is incorrect. His argument is acceptable as its not hard to imagine that a hobbyist who spends a lot of time on the computer and is technically inclined, could possibly get a job as an IT specialist. The U.S. Chamber of Commerce's (2006) claim that retiring Baby Boom cohort will lead to a shrinking labour force, is rebutted by Cappelli with the following statement, "Only the rate of increase in the labor force was expected to slow, assuming baby boomers did not delay retirement."  He then points out that the labour shortage that was expected to occur in 2010 never materialized, again discrediting the research findings of the report.

In looking at the evidence to support claims of a skills gap, Cappelli points out that the common assumption made here is that when employers complain that employees are not meeting their skill requirements, people assume this means the employee is under educated.  Cappelli explains that it is a mistake to assume that more education is equivalent to more skill, "using education as a proxy for the 'skill' that employers want should be interpreted with caution" (p. 270). He provides several references of studies such as the Business Roundtable report (2009), the Institute of Director's Report (2010), and the Chronicle of Education (2013), that show that employer complaints related to shortfalls of new hires are often associated with conscientiousness, attitudes, and experience, which do not necessarily improve with academic education. Another assumption Cappelli points out is the notion that all new hires come directly from school and so any skill gaps seen in these new hires can be blamed on the school system.  He supports his argument against this using a report by Career Xroads (2013), "Hiring directly from college accounted for only 5.5% of all new employees hired by these firms...the common assumption that employer complaints about skill problems necessarily refer to jobs filled by new graduates is hard to square with these data".

Perhaps the most compelling evidence Cappelli presents is the evidence supporting his theory that the skills problem employers are facing is actually a skills mismatch rather than a skills shortage. He uses Vaisey (2006) and Salzman, Kuehn, and Lowell (2013) to demonstrate that more and more college graduates are becoming over educated and unable to find jobs to their satisfaction. Many of these graduates do not get to enjoy the wage premium expected from getting more education than that of a high school student (Duncan and Hoffman, 1981). If its true that there is a labour shortage and that employers are finding it hard fill their jobs, then why are there so many unemployed graduates? Cappelli criticizes employers for complaining about the lack of experience and soft skills of employees despite the fact they show no effort to invest in training and developing their own employees. He supports this with Accenture's report (2011) that showed that almost 80% of employees said they received no training from their employer in the past 5 years. Thus. Its understandable that Cappelli suspects that employers have a hidden agenda behind their complaints, "No doubt some component of the complaints is simply an effort to secure policy changes that will lower labor costs...the view that emerges from these arguments is that the responsibility for developing the skills that employers want has been transferred from the employer to the job seekers and schools" (p. 281).

Cappelli deduces that there can't be a skills shortage if there are so many skilled graduates that are still looking for work or forced to accept jobs that do not utilize their full skill potential.  He concludes that the problem is actually a skills mismatch. There are many skilled graduates available, but what the employer actually desires, based on empirical finding, are soft skills and work experience, not academic skills.  His overall recommendation is for employers to lower their hiring standards and hire more entry-level candidates (despite their lack of experience) and further develop the new hires in-house rather than leaving the onus on students and schools to meet their skill needs.  This recommendation is rational and hard to argue with, however, Cappelli's assumption here, is that schools are not suited to organizing work experience and that these skills are easiest and cheapest to learn in the workplace.  

The reality is that public school systems are now adapting to meet the needs of the 21st century learner.  At least, from an Ontario post-secondary institution perspective, a simple Google search of the recent public Strategic Mandate Agreements made between the 45 Ontario institutions with the Ministry of Training, Colleges and Universities (MTCU), will reveal that public institutions are making efforts to serve the 21st century learner by providing experiential education in the form of co-op placements, internships, project-based learning, service learning, field experiences, co-curricular campus activities, etc.  All these things will help the student graduate with the experience and soft skills that employers are looking for.  The one modification that can be made to Cappelli's final recommendation, is for employers to actively seek partnerships with schools to further develop these experiential learning opportunities, and ultimately work together to help eliminate the skills mismatch.