The persistent myth of the “skills gap”

You’ve likely heard or seen a story somewhere in the media that employers face a skills shortage, or “skills gap”. The message coming from employers is that workers or education system—or both!—just don’t cut it. Unfortunately, the story that there are too few qualified workers for the jobs available is largely a myth.

Nobel Prize-winning economist Paul Krugman calls the skills gap a “zombie idea” that won’t go away despite being routinely debunked. The reason has less to do with ignorance than with power. After decades of rising inequality and an eroding labour share of income, the skills gap mythology downloads blame onto workers and costs onto government. Jim Stanford, writing in the pages of Academic Matters, puts it well: “According to this worldview, the biggest challenge facing our labour market is adjusting the attitudes, capabilities and mobility of jobless workers…The problem is with the unemployed.” The skills gap takes the onus off employers to pay decent wages and train workers, blaming labour market failings on workers instead.

Business associations routinely cite employer complaints about a lack of skilled workers. However, the Conference Board of Canada’s own report touting the skills gap helpfully indicates that employers in Ontario spend dramatically less on employee training than they did just two decades ago (on average, $700 per worker per year in 2010 versus $1200 in 1993). By comparison, employers in parts of Europe (including Sweden, the Netherlands and France) spend on average over $1000 per employee per year on training. Meanwhile, one of the obvious solutions to attracting more workers, raising wages, gets nary a mention. This may be because wages have relatively flat-lined in Ontario in recent times: the inflation-adjusted median wage has grown by a miniscule 0.5% in the past five years (one tenth of one percent per year) and by just four per cent since 1997.

Today, over seven years since the last global financial crisis, there are still six unemployed people for every vacant job in Ontario. Even researchers at TD Economics, not known for being rabble-rousers, have poured cold water on the skills gap myth. Their research brought together Canada’s patchwork of labour-market data and compared indicators such as unemployment and vacancy rates across time and particular occupations. Their conclusions accord with what those who have disputed a skills shortage have long said. Namely, the skills gap narrative is haunted by labour market perceptions that don’t align with reality:  workers not keeping up with technological advances; universities pumping out the wrong graduates; or workers entering the workforce without enough universal “soft skills”. In fact, a comprehensive review of studies from the United States published in 2014 showed the exact opposite problem: many workers are overqualified for their jobs!

As with so many questions in economics, it comes down to supply and demand. However, if rather than workers supplying too few skills relative to employer demand, employers are supplying too little training and too few good, decently-paid jobs, the implications are very different. The skills gap myth lets employers off the hook and leaves workers – and increasingly, universities and colleges – to answer for systemic imbalances.

The past few decades have seen a rise in inequality and a broad shift in power from labour towards capital. In the past 30 years, the share of GDP going to labour in Canada has dropped by nearly 10 per cent, more if we exclude the labour earnings of the top one per cent. Inequality, as measured by the slice of income going to the top one per cent or 0.1% of the population, has increased in Canada at a pace not far off that of the USA or the UK. At the same time, government budgets, including funds going towards postsecondary education, have seen belt tightening and cutbacks.

Even organizations like the OECD have argued that there is more room for activist fiscal policy that creates jobs and lays the foundations for an equitable labour market. Rather than blaming workers and education institutions for imagined skill deficits, a much more fruitful discussion would be had if we asked how public policy can foster a strong education system and a healthier labour market to support the growth of good jobs across Ontario.