Friday, August 29, 2014

Hmmmm: BU law school economist says 'skills gap' is real

highskilledwageFrom my weekly dose of pain (a Google alert for "skills gap"), an article worth a close read by me, other skeptics of the 'skills gap' in the Harvard Business Review blog by economist James Bessen:

"To the contrary, there is evidence that select groups of workers have been had sustained wage growth, implying persistent skill shortages. Some specific occupations such as nursing do show sustained wage growth and employment growth over a couple decades. And there is more general evidence of rising pay for skills within many occupations. Because many new skills are learned on the job, not all workers within an occupation acquire them. For example, the average designer, who typically does print design, does not have good web and mobile platform skills. Not surprisingly, the wages of the average designer have not gone up. However, those designers who have acquired the critical skills, often by teaching themselves on the job, command six figure salaries or $90 to $100 per hour rates as freelancers. The wages of the top 10% of designers have risen strongly; the wages of the average designer have not. There is a shortage of skilled designers but it can only be seen in the wages of those designers who have managed to master new technologies. 
This trend is more general. We see it in the high pay that software developers in Silicon Valley receive for their specialized skills. And we see it throughout the workforce. Research shows that since the 1980s, the wages of the top 10% of workers has risen sharply relative to the median wage earner after controlling for observable characteristics such as education and experience. Some workers have indeed benefited from skills that are apparently in short supply; it’s just that these skills are not captured by the crude statistical categories that economists have at hand. 
And these skills appear to be related to new technology, in particular, to information technologies. The chart shows how the wages of the 90th percentile increased relative to the wages of the 50th percentile in different groups of occupations. The occupational groups are organized in order of declining computer use and the changes are measured from 1982 to 2012. Occupations affected by office computing and the Internet (69% of these workers use computers) and healthcare (55% of these workers use computers) show the greatest relative wage growth for the 90th percentile. Millions of workers within these occupations appear to have valuable specialized skills that are in short supply and have seen their wages grow dramatically... 
I'm not an economist, so I don't know if I can critique all of what Professor Bessen has to say. Also, there's not a data set to go along with his blogpost. I think that "it's happening, we just haven't been able to quantify it" is a particularly compelling point. A couple of quick thoughts:
  • Surely his assertions about the relative wages of the 90th versus 50th percentile of graphic designers have been statistically substantiated somewhere. 
  • I think he's completely spitballing when he says that "the occupational groups are organized in order of declining computer use". In what sense? 
Professor Bessen's argument seems to be an application of the "superstar effect" writ large to broader groups of employees. (i.e. top income earners are just better than the rest of us, who have not learned these desired skills.) While I might be convinced of that, I think I've yet to see evidence of it and I think the implication of a "skills gap" is still unfounded. 

(Also, how is his "information technology = wage increases to the 90th percentile" theory legit when the largest wage gap is seen for health care?) 


  1. Not really. The entire article only refers to I.T. people, nurses and graphics artists. There is no mention of science, let alone chemistry, throughout it.

  2. If you need way more people that have the skills you want, then why has training gone down so much? If the pay difference is just because of a skills gap (rather than chasing the people that are likely to make you money with the least effort), then training people avoids having to pay for high-end labor (or, at least, should avoid persistently paying for high-end labor - at some point, the pay differential between what you want to pay and what the people you want will take is greater than the cost of training people who will leave and the cost of the resultant turnover). That clearly hasn't happened.

  3. Health care has the most computer use?? Come on, he just put it there to have the tallest bar in the middle. Ridiculous graphic.