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August 23, 2011

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Future Skill Shortages in the US Economy?

Posted: 23 Aug 2011 03:06 AM PDT

Via Vox EU:

Future skill shortages in the US economy? Sorting out the evidence, by Marisol Cuellar Mejia, Hans Johnson, and David Neumark, Vox EU: Ageing workforces pose challenges to governments around the world. While fiscal issues surrounding pension and social security have been very much in the news, a less well-known issue concerns skills.
The impending retirement of the baby-boom cohort brings with it the potential for skill shortages. The boomers are well-educated, having come into adulthood as the nation was rapidly expanding post-secondary educational opportunities. In earlier decades, younger workers replacing older workers were both much more educated and much more numerous. But the baby boomers are nearly as educated as current younger cohorts (Figure 1) and are large in number. Thus, their retirement will slow the growth of skill levels in the workforce, leading to shortages if skill demands continue to increase.

Figure 1. Number of adults with at least a bachelor's degree
by age group (25-44 and 45-64)
Source: Decennial Census (1990 and 2000); American Community Survey (2008).

Carnevale et al (2010) recently projected large shortages by the end of this decade: "By 2018, the postsecondary system will have produced 3 million fewer college graduates than demanded by the labour market" (p 16). But Harrington and Sum (2010) criticise these projections, instead seeing over-education or "mal-employment" – college workers in jobs that do not require college degrees – as "perhaps the most pressing problem facing college graduates in the nation today …."

Our projections of skill supplies and demands for the US economy stake out a middle ground. We foresee rising demand for highly-educated workers. But in the near term this rising demand will by and large be met by rising education levels among the US population, suggesting little risk of a substantial workforce skills gap. At the same time, there are greater risks of skill shortages in states with large and growing, and less-educated, immigrant populations. And over the longer-term, as more baby boomers retire, there is greater risk of substantial skill shortages nationwide.

Projections of skill supplies and demands through 2018

Our demand projections rest on US Bureau of Labour Statistics (BLS) projections of employment growth by occupation to 2018 (Lacey and Wright 2009). To project the education requirements of future jobs, we could also rely on the BLS, which classifies occupations by educational requirements. However, using data from the American Community Survey (ACS), we find substantial labour market returns, within occupations, to educational levels beyond those that the BLS deems "required" (see Neumark et al 2011). We therefore instead use empirical evidence on employment practices to estimate and project workforce skills needs, starting with the baseline education distribution of workers by occupation in 2008 and applying recent trend growth in education distributions within occupation (using ACS and Decennial Census data). Applying these estimates to the occupational projections, we obtain projected skill (education) demands.

To project supply, we construct new population forecasts that take account of nativity (unlike US Census Bureau population projections), and we project population by education, and labour force participation. Three important factors underlie our projections:

  • First, that young adults will continue to experience improvements in educational attainment compared to the preceding cohorts;
  • Second, that there will be continued upgrading of educational attainment levels of older workers; and
  • Third, that labour force participation rates will continue to rise for more highly-educated older adults, and that past patterns in retirement will prevail for the baby boom as it reaches retirement ages.

In Table 1, we compare our preferred educational attainment projections (supply) with the employment projections (demand), in levels and shares. These projections do not point to significant impending shortages of skilled workers in the US through 2018, as the projected demand and supply shares by education are quite similar. We do see projected shortages for people with an Associate's degree (356,000), and some excess supply of less-educated workers (those with some college or a high school degree or less). Our comparisons are based on projected total labour force supply of workers, and do not include forecasts of unemployment. If we adjust the 2018 supply projections for unemployment rates by education category as observed in 2008, then the projected shortage of workers with an Associate's degree or higher expands to around 800,000, still far less than Carnevale et al predict.

Table 1. Estimated and projected supply and demand for workers
by educational attainment, 2018

Voxtable

Conflicting evidence
We have explored numerous explanations for why Carnevale et al (2010) project much more substantial skill shortages. The difference is primarily attributable to the data they use (the Current Population Survey, or CPS). In particular, the CPS data show a higher share with college degrees at the 2008 baseline, and faster growth of these shares over time, both of which lead to considerably higher projected demand for workers with college degrees in 2018. But the CPS data appear problematic. First, the CPS data appear to overstate the share with Associate's degrees, because the CPS equates occupational or vocational programmes with college degrees, whereas the ACS data do not. The CPS data also show much faster growth rates in the share with Bachelor's degrees or higher.
We verified that these data differences explain the differences between our demand projections and theirs. Moreover, in both data sets the shares in each education category in 2008 appear anomalous, whereas education trends through 2007 were much more similar. We therefore redid the demand-side forecasts using data from 2000-2007 (rather than 2000-2008) to estimate the within-occupation trends in education, in which case the entire difference between the projections was attributable to the different baseline educational distribution in the CPS. Finally, because Carnevale et al use a supply projection from a completely different source, it seemed likely that using CPS on both the demand and supply sides of the market should substantially reduce the sensitivity of the projections to the definition of education, which we verified. Using CPS data on both sides of the market leads to much milder projections of skill shortages than the dramatic shortages that Carnevale et al project.
The Harrington and Sum criticism of the projections in Carnevale et al (2010) could equally well be directed at our projections. They argue against using observed educational distributions within occupations to measure educational requirements, and instead believe that the BLS determinations of skill requirements are accurate. Although they do not develop projections, our full paper (Neumark et al, 2011) shows that if we project skill demands based on BLS skill requirements, we project massive oversupply of skilled workers. So Harrington and Sum are right that conclusions about skill shortages depend critically on how one measures skill requirements.
However, the argument that BLS skill requirements are accurate is belied by the evidence that there are substantial economic returns, within occupations, to education levels above those "required" according to the BLS. Although Harrington and Sum (forthcoming) present some evidence that appears to suggest the opposite, their evidence is based on earnings regressions that omit occupation controls, leading to spurious evidence of lower estimated returns to education for those in occupations that use less-educated workers. For example, Harrington and Sum (2010) tell the "story" of bartenders (college degree is not required) and compensation and benefits managers (college degree required). The question is not whether bartenders earn less than compensation and benefits managers, but whether the return to education within for bartenders is less than the return to education for compensation and benefits managers. We therefore conclude that the Harrington and Sum critique of using observed rather than "required" education to capture skill demands is unfounded.
Skill shortages in some states?
Although we do not project significant near-term skill shortages nationwide, the situation could differ in states with large and growing Hispanic immigrant shares in which older adults nearing retirement ages are notably better educated than young adults. States that fit this profile include California, Texas, Florida, Arizona, Colorado, New Mexico, and Nevada. The importance of these demographic changes is illustrated by a simple exercise where we project supply for the nation, but substituting California's ethnic composition in 2018 for that of the entire US. In other words, we ask the question, would there be a national skill shortage if the country had California's demographic mix? The answer is yes: we project a deficit of 3.1 million workers with an associate's degree or higher. Of course, domestic migration could ameliorate some of these shortages.
Skill shortages in the longer term?
The longer-term perspective is also less sanguine. Our projections extend to 2018 because the BLS occupation projections end there. But the majority of boomers (two of every three) will be younger than age 65 in 2018, whereas by 2030 all of the boomers will have passed age 65. We expect that projections of the US economy to 2030 would show a continuation of greater rates of growth in industries and occupations that employ highly-educated workers, consistent with the long-standing trend in the US, and accentuated by the increased demand for healthcare as the baby boomers enter old age. Yet the size of the baby boom cohort coupled with its high education levels imply that the replacement of older with younger cohorts will not lead to rising education levels to anything like the extent to which it did in the past (Figure 1). It is plausible, then, that general skill shortages would be much more evident in projections extended out a couple more decades.
The research on the projections was supported by the Gates Foundation and the AARP Foundation. The views expressed are the authors', and do not reflect the views of PPIC or the AARP or Gates Foundations.
References
Carnevale, Anthony P, Nicole Smith, and Jeff Strohl (2010), Help Wanted: Projections of Jobs and Education Requirements Through 2018, Centre on Education and the Workforce, Georgetown University.
Harrington, Paul E and Andrew M Sum (2010), "College Labour Shortages in 2018?", New England Journal of Higher Education, November.
Harrington, Paul E and Andrew M Sum (2011), "Recent Projections of Labour Shortages Through 2018: From Great Recession to Labour Shortages? A Critical Look at the Evidence", forthcoming in Monthly Labour Review.
Lacey, T Alan, and Benjamin Wright (2009), "Occupational Employment Projections to 2018", Monthly Labour Review, 132(11), November, 82-123.
Neumark, David, Hans P Johnson, and Marisol Cuellar Mejia (2011), "Future Skill Shortages in the US Economy?", NBER Working Paper No. 17213.

Krugman vs. Rogoff: How to Fix the Economy

Posted: 23 Aug 2011 02:07 AM PDT

links for 2011-08-22

Posted: 22 Aug 2011 10:01 PM PDT

The suburbs

Posted: 22 Aug 2011 07:29 PM PDT

I set up 18 posts before I left for Lindau. Most are of the "Here's [name] talking about [subject]" variety, and two or three will post automatically each day:

The suburbs, by Dan Little: There has been lots of work on urban history, and rural life has come in for its own specialized study for almost two centuries as well. But what about the suburbs? Is there anything distinctive about suburban life in the United States that suggests that it needs its own sociology and history? Kevin Kruse and Tom Sugrue think so, and their volume, The New Suburban History (Historical Studies of Urban America). Kruse and Sugrue think that this history is actually crucial to understanding many things about the United States since the 1950s.

In the still-developing history of the postwar United States, suburbs belong at center stage. The rise and dominance of suburbia in America after the Second World War is inescapable. In 1950, a quarter of all Americans lived in suburbs; in 1960, a full third; and by 1990, a solid majority. (1)

This question divides naturally into two tracks. First, has there been a distinctive sociology of suburban life that needs to be tracked? And second, does this social-demographic fact about post-war America have important consequences for larger issues -- electoral politics, race, education, cultural homogenization, and economic competitiveness? Kruse and Sugrue think that suburbanization has implications for each of these topics, and the volume makes the case.

The subject of suburban history isn't a new one. But what is new about the approach taken by the contributors is the fact that they treat the suburbs as part of a system. They treat regions as metropolitan systems including inner cities and multiple suburban places.

[The contributors] take a broader metropolitan perspective, paying attention to the place of suburbs in political and economic relationship with central cities, competing suburbs, and their regions as a whole. (6)

Another distinctive part of their approach is that they look at suburbanization as chiefly a long-running political process. It was the result of many layers of federal, state, and local public policies. Here is how David Freund puts it in his essay:

The modern American suburb is heavily indebted to the federal government. For decades writers have chronicled this debt, documenting how state policy fueled the rapid suburban growth that has so decisively shaped U.S. politics and culture since World War II. ... Meanwhile the nation's cities, and especially the minority populations concentrated within them, were left behind. (11-12)

And it led to a powerful new set of political dynamics of competition.

The history of suburbanization and its consequences is, in large part, a question of power. (6)

In fact, the editors point out that a number of key electoral issues in the past half century have emerged out of the conflicts of interest that arose out of the shift of population to the suburbs and competition between suburban communities -- for example, the anti-tax movement that originated in California. (Robert Self analyzes this dynamic in his contribution, "Prelude to the Tax Revolt.")

Arnold Hirsch picks up the issue of segregation in his essay.

The cumulative effect of federal housing policies ... was to produce a federally sponsored social centrifuge that not only separated black from white but increasingly linked the latter to placement on the economically dynamic fringe as opposed to the crumbling core. (35-36)

It is also interesting to understand in hindsight that these implications of federal housing policy were fairly clearly understood on both sides -- by advocates of a radicalized housing policy and by advocates for the civil rights of African Americans. Hirsch summarizes the prescient views of George Nesbitt:

In 1952, Racial Relations Service officer George B. Nesbitt addressed the meeting of the National Association of Intergroup Relations Officials and warned that the programs then being implemented under the rubric of urban redevelopment would establish the spatial and psychological framework within which the civil rights struggle would take place in "decades to come". The racial implications of the program were awesome and could not be avoided. (52)

(Hirsch's own urban history of Chicago is well worth reading; Making the Second Ghetto: Race and Housing in Chicago 1940-1960 (Historical Studies of Urban America).)

Kruse and Sugrue and most of the contributors to the volume emphasize the range of variation that has existed in American suburbs. The racial and class homogeneity that earlier historians have highlighted has a realistic core -- Federal housing policies certainly contributed to de facto segregation across metropolitan regions -- but the editors note that there were a fair number of embedded clusters of minority residents and low-income workers as suburbs developed. And these facts of race and class diversity -- and sometimes conflict -- have had large consequences.

Detroit and its suburbs provide an almost pure case for the processes described in the volume. White flight beginning in the 1950s, the provision of county and municipal governments, and a very strong separation between Oakland County, Wayne County, and the city of Detroit illustrate many of the social and economic dynamics that are described in the volume. This has left a legacy of fragmented governance where it is very difficult to achieve anything like a shared regional perspective on problems that cross over the whole region. The fate of unified mass transit (which still doesn't exist in the region) and the bitter arguments among governments over the fate of Cobo Hall point to the failure of regionalism to date and the sub-par outcomes that are the result for almost all the 4.5 million people who live in the metropolitan region. Tom Sugrue's The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit (Princeton Studies in American Politics)does a masterful job of telling the story of how we got here.

Kruse and Sugrue and the contributors to the volume succeed in establishing the importance of suburban history within American social development and public policy change, and they do a good job of drilling down into the policy choices that were made at all levels leading to this course of development in the U. S. They also demonstrate how the politics and sociology of race relations played an essential role in this history. What the volume doesn't even try to do is to get at the sociological dynamics that this form of residence, work, and socialization created. So plainly there is still a lot to do in the field by sociologists and ethnographers to capture the suburban experience.

(It is interesting to consider that there is a significant slice of the American population who live in places that are neither urban, suburban, nor rural. These are people who live in towns and small cities -- population 50,000 to 250,000. This is small-city America -- Peoria, Youngstown, Grand Rapids, Indianapolis, Orlando. These places often have many of the same challenges as major cities, without the dynamism and opportunity that are part of the scene in Chicago, Miami, Seattle, or New York. It would be very interesting to see data on things like social and geographical mobility, innovative business ideas, and average educational levels for places like these. Richard Florida has made the case for large cities and their inherent dynamism; do any of these effects extend down the scale to Peoria or Syracuse? Take Peoria, Rockford, and Chicago -- what does a detailed history of Illinois electoral politics and public policy tell us about the relations of competition, cooperation, and dominance that these three cities demonstrate over time?)

Travel

Posted: 22 Aug 2011 12:24 PM PDT

I'm traveling here today. I'll post as (and if) I can.

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