May 2013

Hiring difficulties: Skills gap or more complex?

Steve HineBy Steve Hine, Minnesota Department of Employment and Economic Development (DEED)

Over the past few years, there has been much discussion about the skills gap in Minnesota. Steve Hine, research director of DEED's Labor Market Information Office, authored a new report, Hiring Difficulties in Minnesota: Select Nursing, Engineering, and Production Occupations, on this topic. We asked Steve to share insights he gained from the study.

Q: Is there a shortage of skills that today's employers require?

A: There has been no shortage of claims that there is a shortage of skilled workers, but, almost without exception, they are based on reports from employers that they don’t get qualified applicants in response to job postings. This is then accepted as prima facie evidence that there are not enough people with the required skill set out there.

But there are problems with jumping to such a hasty conclusion. First, there are many possible explanations for the inability to match job seekers with employment opportunities, and they may require different responses. Second, numerous studies and much of the observed data are inconsistent with this skills shortage narrative. For example, if there is a skills shortage, we would expect to see upward pressure on wages, more vacancies going unfilled, and more employees asked to work longer hours. But evidence consistent with these expectations is hard to come by, even in occupations most frequently cited as prone to shortages.

Nonetheless, the skills shortage narrative certainly dominates this discussion, so much so that other reasons for this inability to match job seekers with employment opportunities are not being addressed. For this reason, we felt it important to investigate more carefully the magnitude of and reasons why employers might have difficulty hiring qualified workers.

Q: How did you go about this investigation?

A. Every six months we survey about 10,000 Minnesota businesses about their current job openings. What we did in our Hiring Difficulty Survey was to select three groups of occupations that are frequently purported to experience a skills deficit and follow up with businesses within these groups that had reported vacancies. We asked them at length about their experience filling vacancies and specifically to identify challenges to do so. 

We felt that going directly to employers who were trying to hire people with in-demand skill sets would allow us to best identify cases of a skills shortage and the nature of that shortage. We did not design this to provide data on the overall economy-wide magnitude of any shortage that may exist.

Q: What did you find?

A: As I described above, we cherry-picked the businesses we contacted so that we were more likely to find a shortage. Specifically, we contacted firms that were hiring nurses (specifically registered nurses, nurse practitioners, and nurse anesthetists), engineers (industrial engineers, industrial technicians, and materials engineers), and production workers (computer controlled operators, programmers, and machinists).

Across all of these occupational groups, employers reported difficulty filling 45 percent of open positions. Interestingly, by the time we followed up with employers two to three months after conducting the vacancy survey, 61 percent were filled.

Furthermore, employers reported more than half of hiring difficulties were due to both a lack of qualified applicants and unattractive conditions such as uncompetitive wages, poor location, or unfavorable work hours. A third of employers reported difficulties due solely to a skills mismatch, including lack of experience. The remaining hard-to-fill positions were due to unattractive conditions alone.

So, the bottom line is, even among the occupations analyzed in this study, which were selected in order to stack the deck in favor of finding such an occurrence, only about a third of hard-to-fill positions (15 percent of all vacancies) are deemed hard to fill purely due to a lack of skills or experience.

In addition, it’s important to recognize that in a dynamic economy such as ours, there are always some areas that experience an inequality between employer demands and worker supplies. The ebbs and flows between industries, regions and occupations as our economy evolves gives rise to these mismatches and to what economists call structural unemployment. So finding pockets where there truly are worker or skills shortages does not necessarily mean that an overall shortage of those types of workers exists.

Q: Were there differences in the findings depending on the type of job?

A: There were. The nursing jobs were less difficult to fill – only 32 percent compared with 51 percent of engineering jobs, and 68 percent of production jobs. Half of these production job openings were difficult to fill solely because of a lack of qualified candidates, whereas only 18 percent of the difficult-to-fill nursing openings were.

Interestingly, the production job openings have the lowest educational requirements. For jobs that required a high school diploma only, we found that 70 percent of hard-to-fill positions remained unfilled solely because candidates lacked qualifications. So in the area where skills shortages appear most pronounced, it isn't driven by a lack of post-secondary credentials since they aren’t required, but more frequently by a lack of the experience that employers seek.

This suggests that while we often think of the skills shortage as being based on insufficient education or training, what employers are having a harder time finding is candidates with the desired work experience. In our follow-up with firms hiring production workers, we heard comments such as “applicants had training but no practical experience on our machines” and “one kid had experience but not specific to the equipment.” So it becomes less clear from this whether the issue is a lack of skills per se or whether it’s a lack of candidates who can demonstrate they can do the job on day one without any on-the-job training.

Q: What can we take away from this study?

A: Obviously we have only looked at a very small part of our economy, but I think we can draw some preliminary conclusions. First, even in areas where we might expect to see shortages, a majority of firms are not reporting difficulty hiring, and, among those that do, a majority fill their openings. So while there may be instances of a misalignment between jobs and workers, our findings don’t suggest a pervasive lack of qualified applicants overall to fill the jobs.

Second, we find a wide variety of issues may give rise to this. Employers themselves frequently acknowledge that their job offerings may have undesirable attributes. Often employers are looking for substantial experience in specific tasks, perhaps as an indicator of skills attainment but perhaps as a way to avoid training expenses.

In conclusion, there is no question that matching appropriately qualified job seekers with available employment opportunities can be a hit-or-miss proposition, due to skill mismatches, geographic immobility, unreasonable or uninformed expectations, and rapidly-changing job search practices, among other reasons.

But there are plenty of things that can be done to improve the labor exchange system and raise the ratio of hits to misses. First and foremost, it’s crucial that we investigate, understand, and calibrate the nature of this problem and its many dimensions so that corrective actions address the problems that exist. That was the intent of this study, and while it’s only a start, we do have a better understanding that will only improve as further analysis is conducted.

 

Minnesota Compass regularly uses data provided by DEED, including the Jobs Key Measure. Steve Hine and other DEED staff have served as Minnesota Compass advisors.

 

Opinions expressed in Minnesota Compass guest columns do not necessarily reflect the views of Minnesota Compass. Compass welcomes a range of views about issues pertaining to quality of life in Minnesota.

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