As the labor market has tightened, many of us have looked to trends in wage growth to see evidence that we could be hitting full employment. While the tighter labor market has led to gains for those at the middle and bottom of the wage distribution, it has not led to a general acceleration in wage growth. The year-over-year increase in the average hourly wage was just 2.5 percent for November, roughly the same as it has been for the last two years.
In spite of the weak wage growth, news outlets continually tell us that employers are unable to find workers with the necessary skills. The argument is that more people would be hired if only the unemployed workers had the skills required by employers.
This story doesn't fit with the weak wage growth story since there are always workers with the necessary skills — they just might work for competitors or in another city. The way employers attract these workers is by offering a higher wage. If we don't see wages rising, then this story doesn't really make sense. (Employers would always like to find workers who will accept below-market wages; so what?)
Nonetheless, we often see people citing the Bureau of Labor Statistics data on job openings and hires to argue the case that companies can't find workers with the needed skills. There has been a fall in the ratio of monthly hires to job openings over the last decade. This is taken as evidence that employers have positions that are going unfilled because they can't find skilled workers. A closer look at the data indicates otherwise.
The table below shows the ratio of hires to job openings in the first six months of 2007, before the collapse of the housing market had a substantial effect on the labor market, and May to October of 2017, the most recent months for which we have data.
|Ratio of Hires to Job Openings|
|Jan-June '07||May-Oct '17|
|Accomodation and Food Service||1.59||1.13|
|Private minus retail &food service||1.02||0.87|
|Health Care & Social Assistance||0.67||0.54|
As can be seen, there is, in fact, a substantial fall in the overall ratio of hires to openings for private sector workers, but there are several points about this decline that are worth noting. First, while there has been a substantial decline in the overall ratio, from 1.16 to 0.93, the sharpest declines have been in the categories of retail and accommodation and food service. These are not industries that we generally associate with high skills. This may indicate that the fall in the ratio is telling us something other an inability of employers to find workers with the necessary skills.
There is a substantial decline in the ratio in the category of health care and social assistance. This could reflect that many of the jobs in this sector require considerable skills, which are in relatively short supply. However, it may also be the result of the effort by employers to reduce the pay of workers in many occupations.
Two other sectors where there are interesting patterns are state and local education, which has seen a somewhat sharper decline than the private sector, when the retail and accommodation and food service sectors are removed. This would not be surprising, given the attacks on public sector workers in many states and cities. There has been little change in the ratio of hires to openings in other categories of state and local employment.
However, the sharpest decline in the ratio of hires to openings has been in federal government employment. This ratio fell from 1.61 in the first six months of 2007 to 0.42 in the most recent six months. This might indicate that the federal government is having a very difficult time attracting qualified workers for its openings. In this case, there is no option to pay more, since Congress determines the pay scale.
In short, while there doesn't seem much evidence for the skills shortage story in these data generally, it could well be the case that cutbacks in the pay and benefits of federal workers, along with changes in the work environment, are making it difficult for the federal government to attract qualified workers.