↳ Letter

February 23rd, 2019

↳ Letter

Grievous Plans

NO SHORTAGE

New evidence on the relationship between skills and labor supply

More than a decade after the financial crisis of 2008, median household incomes have stagnated at their pre-2008 levels, and global economic growth is expected to decline further from what is already a historic low. While the unemployment rate has rebounded, part time, service, and temporary work remain the principal drivers behind labor market growth. Weak recovery from the crisis has been widely attributed to the “skills gap”; commentators and policymakers alike hold that quality jobs are there, but Americans are simply not qualified to perform them.

At the American Economic Association’s most recent conference, ALICIA SASSER MODESTINO, DANIEL SHOAG, and JOSHUA BALLANCE provide evidence against this view. Using a proprietary database of more than 36 million online job postings, they show that employers increased skill requirements in states and occupations which experienced larger increases in the unemployment rate. Their findings suggest that it wasn’t a shortage of skills which weakened labor markets, but rather the ubiquity of qualified applicants which drove employers to raise hiring standards. By testing employer responses to an influx of veterans from Iraq and Afghanistan, the authors are able to confirm this mechanism:

"As a source of exogenous variation in the availability of skilled workers, we make use of a natural experiment resulting from the large increase in the post-9/11 veteran labor force following troop withdrawals from Iraq and Afghanistan... Panel A of Table 5 demonstrates that there is a strong, significant, and positive relationship between the sharp increase in the supply of returning veterans and the rise in employer skill requirements for both education and experience."

This is among the first pieces of empirical evidence which suggests that employer skill requirements are driven, in part, by labor supply. Link to the conference webpage, where a full version of the paper is available for download.

  • As early as 2011, Lawrence Mishel argued against analysts who asserted that the unemployment crisis was structural, proposing instead that the economy was experiencing a crisis of demand. Link.
  • In his most recent book, LSE anthropologist David Graeber examines the relationship between skill and value, questioning why jobs which produce the most social value tend to be categorized as unskilled, consequently earning lower wages. Link to Graeber's widely acclaimed essay from 2013 that first outlined his argument, and link to the Google preview of his new book.
  • In a report for the Roosevelt Institute, Marshall Steinbaum and Julie Margetta Morgan argue that the 'skills gap' narrative is inconsistent with student debt crisis: "Although the country’s populace is becoming more educated, each educational group is becoming less well paid." Link.
  • Paul Osterman wrote an accessible overview of the debate for The Atlantic in 2014: “The claim that a shortage of skilled workers has exacerbated inequality has gained traction but it is not supported by the data… For instance, while 38 percent of manufacturing firms require math beyond simple addition, subtraction, and multiplication, the type of math employees need to be able to handle are standard features of a good high school education and part of the curriculum for most community-college students…Nearly 65 percent of businesses report they have no vacancies whatsoever, and another 76.3 percent report they have no long-term vacancies…” Link.
⤷ Full Article

September 15th, 2018

The Marshes

THE JANUS FACE

The paradoxical outcomes of university-centered economic growth

A recent paper by RICHARD FLORIDA and RUBEN GAETANI takes an empirical look at the role of research universities in anchoring local economies and driving economic growth. The paper examines the density of patenting and financial investment within the internal geographies of specific American cities and argues that knowledge agglomeration exacerbates economic, occupational, and spatial segregation.

“Although universities certainly affect national levels of innovation and growth, research has shown that they tend to affect innovation and growth by operating through more localized channels. The roles played by Stanford University in the rise and economic performance of Silicon Valley and of MIT in the Boston-Cambridge ecosystem are cases in point.

Universities constitute a rare, irreproducible asset at the local level. At the same time, it is increasingly clear that the knowledge-economy metros and so-called college towns suffer from relatively high levels of inequality and segregation.”

Set to be released in the October issue of MANAGERIAL & DECISION ECONOMICS, the paper presents a nuanced exploration of agglomeration economies and complicates the use of universities as levers for economic revitalization, job creation, and mutual prosperity.

Link to the working paper.

  • As spotlighted in a November newsletter, Lyman Stone discusses national problems with the role of the US higher education system: “The problems we face are: (1) the regional returns to higher education are too localized, (2) the price of higher education is bid up very high, (3) the traditional entrepreneurial player, state governments, is financially strained or unwilling, (4) private entrance is systematically suppressed by unavoidable market features.” Link.
  • At CityLab, Richard Florida examined venture-capital invested start-ups and found they disproportionately clustered in metropolitan regions with high-performing universities. Link.
  • For a deep dive into the role universities play in economic and spatial development, see Margaret O’Mara’s book on Cold War era “Cities of Knowledge." Link.
⤷ Full Article