Is the Skills Gap Real? Changes in Employer Skill Requirements During the Great Recession

The Issue:

Since the Great Recession, employers have cited a skills gap in which workers lack the education and experience needed to fill vacant jobs. In response, federal and state policymakers have called for increased efforts for training and retraining of workers to alleviate this mismatch in the labor market. While job requirements increased for many openings during the recession, the inverse has happened as the labor market has recovered: some employers have been lowering education and experience requirements to fill open positions. Does a skills gap exist and if so, what should public policy do about it?

Education and experience requirements increased for many job openings during the recession. As the labor market recovered some employers have been lowering requirements to fill open positions.

The Facts:

• The levels of education and experience that employers seek when hiring workers varies with the tightness of the labor market. Employers’ demand for more highly educated and more experienced workers rose during the deepest part of the Great Recession, but fell as labor markets recovered. According to a survey by CareerBuilder in 2013, almost one-third of employers said that their educational requirements for employment had recently increased, and specifically that they were hiring more college-educated workers for positions previously held by high school graduates. Data from Burning Glass Technologies containing 83 million online job postings between 2007 and 2014, across all U.S. industries, shows strong evidence of this pattern: The share of job postings requiring a bachelor’s degree or higher rose by more than 10 percentage points during the recession, from 2007 to 2010, and then fell as labor markets recovered, from 2010 through 2014. A similar pattern exists for the share of job postings requiring 5 or more years of experience (see chart).
• At the local level, the changes in skills required by employers varied more widely where unemployment rates saw the greatest swings. During the Great Recession, the increase in employer skill requirements was greater in areas where the unemployment rate rose more dramatically, and the decrease was larger in areas where the unemployment rate fell more swiftly during the recovery. In research conducted with Daniel Shoag, and Joshua Balance, we find that a 1 percentage point increase in the state unemployment rate is associated with a 0.6 percentage point increase in the fraction of employers requiring a Bachelor’s degree and a 0.8 percentage point increase in the fraction of employers requiring four or more years of experience within a specific occupation. The change in the demand for more educated workers was not happening because of changes in the composition of the types of jobs available during the Recession but rather due to an increase in the skills required within occupations. These effects are very robust and occur even for particular job titles. For example, while only 15 percent of physician assistant jobs required a bachelor’s degree or higher in 2007, that share jumped to 35 percent in 2010 and had fallen to only 12 percent as of 2017 (see here). The magnitude of the estimates we derived from looking at local unemployment levels implies that roughly one-third of the total increase in skill requirements observed during the Great Recession was due to firms raising education and skill requirements as an opportunistic response to a greater abundance of workers.
• It is not just the demand for the educational credential or "degree" that varies with the tightness of the labor market but also the demand for specific skills. The Burning Glass Technologies (BGT) data parses the different skills that appear listed in job postings, which allowed us to see whether the requirements for these skills also varied as economic conditions changed. The different skills listed in the postings are classified depending on whether they are generic skills (such as leadership, project planning and development — which BGT calls "baseline" skills), specialized (for instance information security), or software (e.g. Adobe Dreamweaver). In our research, we find evidence that demand for these types of skills also fluctuates with changes in unemployment. Interestingly, the requirements for baseline skills, which can typically be learned on the job, were more likely to be lower during the recovery compared to specialized or software skills that often require more formal instruction or training
• Changes in skill requirements for open positions don’t only happen during recessions and during boom times, but also occur other times when there is a sudden change in the supply of workers. For example, the drawdown of troops from Iraq and Afghanistan lead to an additional 200,000 to 300,000 veterans entering the U.S. domestic labor force each year between 2009 and 2012. States receiving larger numbers of returning veterans experienced a greater increase in the skill requirements in occupations that typically make use of the specialized skill set that comes from serving in the military such as law enforcement, first responders, aircraft mechanics, and logisticians, among others (see here). Another example, operating in the opposite direction, is the hydraulic fracturing or “fracking” boom in natural gas: discoveries of large shale gas deposits boosted production by 27 percent between 2007 and 2011. Increased production in the fracking industry raised employment and wages in the sector drawing workers away from other industries such as agriculture, timber, metal-based mining, and manufacturing. Occupations in the industries that competed for workers with the fracking industry cut education and experience requirements in response to the tighter labor market: as local unemployment rates dropped, the probability that a non-fracking job in the competing industries required a Bachelor's degree or 5 years of education also fell (see here).  
• Occupations that had strong credential requirements such as state licensing, industry certifications, or specific measurable skills (e.g., coding) showed little or no signs of educational upskilling. This is particularly true in the healthcare sector where occupational licensing is more common. For example, many healthcare technician jobs such as phlebotomists, radiology technicians, and diagnostic medical sonographers only require a certificate that demonstrates their training in performing the skills that is needed. When employers have specific criteria to use as a yardstick when hiring, there is less incentive to filter applications using less‐specific screens such as having a bachelor’s degree.
• Not all increases in skills requirements are temporary and due to employers being opportunistic and hiring more educated or experienced workers when they are abundant. For instance, some argue that a portion of the rise in skills requirements during the Great Recession corresponds to a more permanent change in the skills being demanded due to firms changing the way in which they operate. One study finds that the change in employer demand for skill also responds to local industry demand shocks that appear to be related to technological and capital changes that permanently affect the demand for education and experience. In this view, changes brought about by the Great Recession hasten a process in which firms restructure their production toward greater use of machines (or outsourced labor) and higher-skilled workers.