Sunday, August 23, 2015

Economy: Is there really a skill mismatch?

Economists often talk about “skill mismatch” in their attempts at explaining the fact that many job seekers are unable to find employment in an otherwise strengthening labor market.  The excuse offered by economists is that recent college graduates, as well as older workers, lack the skills necessary to get jobs in today’s technically sophisticated labor market.  These job seekers are said to have either majored in low-skilled fields in college or else their skills have become obsolete. 

In truth, the phrase “skill mismatch” is heard only during economic recessions or sluggish economies.  The fact that the current recovery is one of the weakest on record explains why “skill mismatch” is such a popular term among the pundits today.  “Skill mismatch” is merely a euphemism for a soft labor market, one in which the supply of job seekers is far greater than the number of available jobs. 

The real reason for the complaints of low-skilled applicants is that demand is currently too low, which allows employers to be highly selective when seeking new hires.  In a situation like this employers can afford to be picky, and they focus on finding only the highest skilled and most experienced prospects they can.  Since such applicants are normally hard to come by it gives the impression that hardly anyone is qualified for the job in question, hence the ubiquitous complaint of a “skill mismatch.” 

When the economy is running at full steam, as it was in the late 1990s, skill mismatch simply doesn’t exist.  Demand is so high in such cases that employers don’t have the luxury of being picky; they’ll hire even marginally skilled workers and train them on the job.  Truly strong economies give prospective employees the upper hand and allow many with lower skills to obtain jobs that normally wouldn’t be available in a slow economy. 

An article appearing in the April 2011 issue of Wired magazine provides an excellent example of this.  According to Wired, members of the illicit narcotics industry have discovered a novel way of avoiding detection.  In their never ceasing attempts at evading authorities the crafty members of Columbian drug cartels have taken to shipping cocaine in submarines.  The problem is that the dense jungles of Columbia aren’t exactly ideal for building or launching subs.  That hasn’t stopped the cartels from trying, though. 

The Wired article highlighted a most remarkable find deep in the Columbian rain forest: a homemade 70-foot submarine.  The sub was never launched but was deemed to be seaworthy by the experts who examined it.  Its outer shell was made of Kevlar so as to avoid detection by Coast Guard ships possessing radar and sonar.  The sub even had the fuel capacity to make a 10-hour journey underwater before refueling.  Most remarkably, this modern feat of engineering was constructed without the benefit of electricity or access to a shipyard. 

And just how was this technological marvel built?  Why with unskilled laborers (supervised by submarine experts), of course.  To be exact, the builders were mostly poor, uneducated locals desperate for employment.  More importantly, the cartels were even more desperate for workers in such a sparsely populated locale.  This meant they didn’t have the luxury of complaining about “skill mismatch” when seeking laborers for their enterprise.  The point is that when the demand for skilled labor is great enough, skill and experience aren’t always prerequisites to meeting the needs of employers.  All that’s necessary in most cases is sufficiently high market demand.  When that basic requirement is filled, the rest will take care of itself.

So the next time you hear the term “skill mismatch” it should serve as a reminder that the labor market isn’t as tight as it could, or should, be.  

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