Chart of the Day: Never Believe Corporations. Never.

Matt Yglesias points me today to an elegant recent study of the job market. As you know, the business community has been grousing for years that they simply can’t find people who are qualified for all the complex new jobs they have on offer. This is known as a “skills gap,” sometimes referred to as “structural unemployment.” The response of liberal economists has typically been to tell employers that they just need to raise wages: if they pay more, then people with stronger skills will apply for their jobs. Employers moan that this is just unpossible.

Now along come Alicia Modestino, Daniel Shoag, and Joshua Ballance to look at things a different way. Their approach is so simple I’m surprised they’re the first, but apparently they are. All they did was analyze an online database of job offerings to find out whether employers made their hiring requirements stricter when unemployment was high and they could be more selective about who they hired. Do I even have to tell you the answer?

As unemployment went up during the Great Recession, businesses began requiring more experience and more education. The share of job offerings requiring a college degree nearly doubled and the share requiring more than four years of experience increased by two-thirds. Only when the unemployment rate went back down to 7 percent did employers finally start relaxing their requirements a bit.

The bottom line is that employers had a hard time finding qualified workers because they had consciously decided to get pickier about who they were willing to hire. With lots of college grads out of work and getting desperate, they figured they might as well try to pluck a few them out of the job pool, a phenomenon the authors call “opportunistic upskilling.” And note that they weren’t paying any more than they did with old job requirements, either.

Now, if you’re a sophisticated consumer of time-series data like this, your first question is whether the whole thing is just a coincidence. It’s not a whole lot of data points, after all. However, the answer appears to be no. The authors also did a state-by-state analysis, and they found that states with higher unemployment rates reliably produced more selective job requirements. They also found that when large numbers of veterans re-entered the job market after serving in Iraq and Afghanistan, it produced the same effect even though the troop drawdown was unrelated to the broader job market. Overall, they find that deliberately tightening job requirements probably accounted for about a quarter of the alleged skills gap.

And what accounts for the rest? We don’t know. Some if it is simply that employers weren’t willing to pay enough to get the people they wanted. And some of it is real. There are certain industries that really do require substantially higher skills than in the past, and they have a hard time finding workers because the educational system hasn’t yet caught up to them.

My take on all this is to repeat something I’ve said before: Never believe corporations. Period.¹ Don’t believe them when they say the “jury is still out” about the danger of the chemicals they produce. Don’t believe them when they say environmental regulations will put them out of business. Don’t believe them when they claim that they’ll hire more people and boost their fixed investment if Congress will pass tax cuts. And don’t believe them when they say they just can’t find people to take their jobs. Most of them just need to stop goosing their hiring requirements and increase their pay rate a bit. Problem solved.

¹I should add that you shouldn’t automatically believe the opposite of what corporations say, either. Simply treat their pronouncements as null data, sort of like the pleas of a coke addict who you know will say anything to get a few bucks from you. Just ignore the chatter and make up your mind based on all the other evidence available.

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