Low-Skilled Workers Benefit from Economic Growth

(p. A2) For years, falling wages and high unemployment seemed proof that low-wage workers needed an entirely new set of skills to succeed in an economy shaped by technological change and globalization.

It turns out what they needed most was time. As the economic expansion reaches a record age and unemployment remains near generation lows, the fortunes of low-skilled workers have turned up markedly. What looked like a permanent setback may be mostly cyclical.

. . .

In a 2016 study, Alicia Sasser Modestino of Northeastern University and two co-authors observed that as unemployment soared between 2007 and 2010, the percentage of job postings requiring a bachelor’s degree on Burning Glass, a website that aggregates job postings, rose more than 10 percentage points. That share then fell over the next four years. The same thing happened with postings requiring at least five years’ experience.

This wasn’t because high-skilled occupations or industries had become more important; the authors found that even within the same company posting the same job, hiring criteria became tighter as unemployment rose and easier as it fell.

In counties that benefited most from the shale oil-fracking boom, local demand for labor shot up. As a result, manufacturing, agriculture and timber companies, which weren’t benefiting from the fracking boom, still relaxed their education and experience requirements.

This suggests that when unemployment is high and labor is plentiful, employers opportunistically “upskill”—they raise the requirements of jobs, for example demanding a bachelor’s degree when an associate’s degree or experience used to be sufficient.

This reverses when the labor market tightens. This, the authors say, counters the theory that high vacancies coexist with high unemployment because unemployed workers had the wrong skills: “A significant portion of what is sometimes labeled as structural mismatch unemployment is actually cyclical.”

For the full commentary, see:

Greg Ip. “CAPITAL ACCOUNT; Long Expansion Lifts Low-Skilled Workers Too.” The Wall Street Journal (Thursday, July 11, 2019): A2.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date July 10, 2019, and has the title “CAPITAL ACCOUNT; A Record Expansion’s Surprise Winners: The Low-Skilled.”)

The published version of the paper mentioned above that was co-authored by Modestino, is:

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Ballance. “Downskilling: Changes in Employer Skill Requirements over the Business Cycle.” Labour Economics 41 (Aug. 2016): 333-47.

A more recent paper, by the same authors, uses later data to support the same message:

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Ballance. “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?” The Review of Economics and Statistics (posted online on June 4, 2019). doi.org/10.1162/rest_a_00835

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