Presentation Transcript

1. Manufacturing Skills and Skill Gaps following Volatility and High Unemployment

   Andrew Weaver Massachusetts Institute of Technology IST/Lisbon June 25, 2014 (joint with Paul Osterman)
2. What are the Issues? Background High and persistent unemployment Firms complain they can’t find skilled workers Questions Does mismatch/gap exist between employer demands and the supply of skills in the marketplace? If so, is it a simple/mechanical result of inadequate worker skills, or are other more complex factors to blame (cyclical demand, corporate strategy, communication among economic actors, etc.)?
3. Relation to Uncertainty and Industrialization Patterns Loss of domestic mfg. raises questions about trajectory of industrial growth, economic development, job quality Policymakers need to understand this issue in order to foster economic growth and improve economic outcomes for workers Common skill-biased technical change (SBTC) narrative leads to focus on supply-side labor market frictions If problem is just structural/skills gap: long-term ed. attainment and worker behavior If other factors matter, SBTC narrative may be misleading and other interventions may be necessary Exhortations to increase STEM education may not solve the problem Institutional approaches may be required: making connections with local labor market intermediaries, solving coordination/communication failures, etc.
4. Presentation Goals Set boundaries on incidence of skill gaps Demonstrate simple skill mismatch story is inadequate Point to importance of intermediaries and institutions in addressing challenges in skill supplies
5. Shortcomings of Existing Research Takes place at very abstract level without direct measurement Unemployment-vacancy indices (Sahin et al. 2012; Canon, Chen and Marifian 2013) Are sensitive to changes in firm strategy (recruitment, wages) Are sensitive to cyclicality Vague measure: hides mechanism (geography? skills?) Only measure inter-industry mismatch (Modestino 2010; Lazear and Spletzer 2012) Supply-Demand indices (Estevau and Tsounta 2011; Rothwell 2012) Use education as proxy Distorts demand measurement: college-educated barista Ignores within-education variation in skills Proxy on both sides: any regional or intra-industry variation generates mismatch
6. Manufacturing Puzzle For manufacturing, important facts are inconsistent with skill gap claims Deloitte and the National Association of Manufacturers (2011) report survey results: 600,000 unfilled jobs due to lack of qualified workers 74% of manufacturers report lack of skilled production workers had significant negative impact If demand exceeds supply for high-skilled manufacturing workers, we would expect wages to increase
7. Manufacturing Wage Trends Source: CPS MORG (NBER) data.
8. Approach To answer questions about skill and mismatch, it’s necessary to gather direct evidence on skill demands: What skills do employers demand? Which establishments demand high levels of skill? Do establishments, particularly those with high skill demands, have trouble finding workers with these skills? To really narrow in on skills, important to focus on industry/industry sector Paul Osterman and I designed and administered a nationally representative survey of manufacturing plants to answer these questions We conducted extensive fieldwork to identify critical factors relating to institutions, regional eco-system
9. Our Survey Administered in late 2012, early 2013 Random sample—Dun & Bradstreet database n=903 36% response rate Focus on “core” production workers (Ben-Ner and Urtasun 2013, Osterman 1995)—62% of estab. employment Concrete skill questions: does this job require reading complex technical manuals? algebra? geometry? etc. Defined skill gaps as prolonged core worker vacancies (> 3 mos.)
10. Basic Skill Demands
11. Interpersonal/Problem-Solving/Soft Skill Demands
12. Extended Skill Demands
13. Skill Gap Evidence
14. What Skill Demands are Associated with Hiring Difficulties? Demands for higher level reading, math, and unique skills are significant predictors of long-term vacancies Computer and soft skills/problem-solving/initiative skills are not So is this relationship between skill demands and hiring problems an automatic/mechanical one? Examine high skill-demanding establishments
15. Which Establishments Demand High Skills? Establishments that demand extended skills are characterized by: high-tech cluster membership high-performance work organization (TQM/self-managed team) frequent process (not product) innovation more foreign competition If the simple skill mismatch story is accurate, these establishments should have significantly higher levels of hiring difficulties
16. Long-Term Vacancies: Estab. Characteristics Models
17. Long-Term Vacancies: Red. Form Cont’d
18. Summary of Results No widespread problem with skill gaps It is worth paying attention to the minority of establishments reporting difficulties Skills are important Extended math is important Extended reading is surprisingly prominent Unique skills: may reflect internal training decline However, many establishment characteristics associated with higher skill demands (high-tech, HPWS, process innovation) are not associated with hiring difficulties This implies no simple/mechanical relationship between higher skill demands and hiring problems: other factors mediate relationship
19. What’s Going On? Skills are critical, but skill gap formulation is not necessarily the best way to frame the issue American skill production system has been changing Decline in mfg. establishment size (Holmes 2011; Henly and Sanchez 2009) Small firms provide less internal training (Lynch and Black 1998) External training actors like community colleges are more important than they once were But system is disaggregated More potential for coordination failures and underinvestment in public goods
20. Intermediaries/Institutions are Important Rochester story Kodak Monroe Community College Rochester Regional Photonics Cluster (RRPC) Addressed coordination failure Intermediaries and institutions are critical for matching supply and demand, as well as coordinating increases in skill demands and supplies Challenge coming from volatility/uncertainty: Simple SBTC story says high returns to education/skills will provide should provide incentive for supply side of labor mkt. However, volatilty may destroy the very institutions and intermediaries necessary to raise skill levels on both supply and demand side
21. Thank You Andrew Weaver weaver55@mit.edu
22. Our Survey Production in the Innovation Economy (PIE) project Administered in late 2012, early 2013 Dun & Bradstreet database Establishment approach: Bloom and Van Reenen 2007, Lynch and Black 1998 Manufacturing establishments, excluding baking, printing, and publishing Random sample, stratified by estab. size (>10 emp.) Targeted plant managers (identified appropriate person) $10 incentive n=903 36% response rate
23. Survey Design Focus on “core” production workers (Ben-Ner and Urtasun 2013, Osterman 1995)—62% of estab. employment Battery of concrete skill questions (>30) Examples Reading Basic: Does this job require reading basic instruction manuals? Extended: Does this job require reading complex technical documents or manuals? Any document that is longer than five pages? etc. Math Basic: Does this job require mathematical operations involving multiplication and division? Extended: Does this job require mathematical operations involving probability and statistics? Algebra, geometry, or trigonometry? etc.
24. Survey Design (2) Concrete questions re skill gaps Defined skill gaps as prolonged core worker vacancies (> 3 mos.) Background data on establishment and workforce Industry Employment/financial trends Innovation Training Age structure Sex composition etc.
25. Hypotheses H1: If skill gaps are a widespread problem in manufacturing, then long-term vacancies will be a widespread problem Benchmark from Deloitte survey: 74% of mfg. firms suffered from lack of skilled production workers H2: If demand for higher skills mechanically leads to hiring problems, the establishments characterized by the highest skill demands should experience greater problems Higher level skill demands (math, reading, etc.) should be associated with hiring problems If high-tech or other types of establishments have higher skill demands, they should have more severe hiring problems
26. Analysis of Establishments with Hiring Difficulties Two dependent variables: Long-term vacancies as a percentage of total core workers (OLS) Indicator for long-term vacancies (Logit) First estimate models with skill variables as regressors, then with high-skill establishment characteristics as regressors Reduced form controls Supply: county unemployment rate (2011), county population density Demand: change in core workers over past two years Wage measures (mgmt. strategy): standardized by Census geographic division (2011 to avoid simultaneity) All models control for establishment size
27. Long-Term Vacancies: Skill Models
28. Implications Demanding high skill levels is not necessarily a ticket to trouble A wider range of institutional policies responses may be relevant Targeted policies may have the potential to affect hiring outcomes even holding current worker skill levels constant Institutional relationships (e.g., between firms and community colleges or labor market intermediaries) Incentives for firm-level human resource/training policy Policies that reduce risk of mfg. career for job applicants
29. Further Research Agenda PIE Survey Institutional and other factors that mediate skill and hiring problems Community college density: determinants and implications for economic growth LPNs and job ladders Social entrepreneurship and philanthropic capital markets
30. Extended Skill Demands: Logit Analysis
31. Size Distribution
32. Weighting and Validation Small establishments somewhat more likely to respond than large estab. For all descriptive statistics we use size weights based on the employment-weighted proportion of establishments of various size classes in the Census Bureau’s County Business Patterns (CBP) data Validate aggregate workforce data with CPS: close match
33. Validation with CPS *=significant differences at 95 percent level or higher.
34. Geographic Distribution
35. Geographic Comparison
36. Industry Distribution
37. Industry Comparison
38. Occupational Wage Comparison
39. Extended Skill Demand Models (2)
40. Quantifying the Skill Gap
41. Skill Gap Robustness (1) What if we miss skill gaps because we’re looking at a point in time Hiring funnel (based on attempt to hire in last two years)
42. Skill Gap Robustness (2)
43. Why Manufacturing? Manufacturing is interesting test case for structural mismatch Arguments about mismatch/spiking skill demands are commonly applied to manufacturing Deloitte and the National Association of Manufacturers (2011) report survey results: 600,000 unfilled jobs due to lack of qualified workers 74% of manufacturers report lack of skilled production workers had significant negative impact Capital intensive / sensitive to technology shocks Key theories: tech. shocks drive mismatch (Brynjolfsson and McAfee 2012, Autor, Levy, and Murnane 2003) STEM skills are important Idea of vacancies in industry with millions of laid off workers implies structural gap Broad sector with a lot of variation (high-tech/low-tech, domestic/export, etc.) 12% of GDP; 70% of industry R&D