2—Is There a Gap Between Employer Skill Needs and the Skills of the Work Force?

Harry J. Holzer

Introduction

Discussions in the popular press and in the policy-making community frequently imply that there is a "skills gap" in the U.S. economy—a gap between the skills needed by employers and the skills of workers in the labor force. Because of this alleged gap, a wide range of policies involving education and job training are frequently advocated by various groups and individuals. But what is the evidence that such a gap truly exists? And if it does, what skills are in particularly short supply in the work force? The latter question has been especially difficult to answer, at least partly because of a lack of available quantitative data on employers and their needs.

"Skills Gaps" In The Work Force: Conceptual Issues

If a gap truly exists between the skills that employers need and those held by the work force, can this be inferred? What would be the likely economic effects of such a gap? Why might the choices of employers and employees with respect to skill acquisition still result in such a gap?

Mismatches in the Short and the Long Run

In recent years there has been much discussion among various social scientists of a skills mismatch in the work force, with the implication that this helps to account for the low employment rates of such groups as inner-city minorities (Wilson, 1987; Kasarda, 1995). Indeed, mismatch is another term for what economists



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--> 2—Is There a Gap Between Employer Skill Needs and the Skills of the Work Force? Harry J. Holzer Introduction Discussions in the popular press and in the policy-making community frequently imply that there is a "skills gap" in the U.S. economy—a gap between the skills needed by employers and the skills of workers in the labor force. Because of this alleged gap, a wide range of policies involving education and job training are frequently advocated by various groups and individuals. But what is the evidence that such a gap truly exists? And if it does, what skills are in particularly short supply in the work force? The latter question has been especially difficult to answer, at least partly because of a lack of available quantitative data on employers and their needs. "Skills Gaps" In The Work Force: Conceptual Issues If a gap truly exists between the skills that employers need and those held by the work force, can this be inferred? What would be the likely economic effects of such a gap? Why might the choices of employers and employees with respect to skill acquisition still result in such a gap? Mismatches in the Short and the Long Run In recent years there has been much discussion among various social scientists of a skills mismatch in the work force, with the implication that this helps to account for the low employment rates of such groups as inner-city minorities (Wilson, 1987; Kasarda, 1995). Indeed, mismatch is another term for what economists

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--> have often called structural unemployment, a situation in which jobs are actually available but unemployed workers cannot be hired because they lack the necessary skills, reside in the wrong area, and the like. (For a very recent description of "structural unemployment" in an introductory text, see Case and Fair, 1996.) But unemployment is not the only possible result of such a situation. To an economist, mismatch suggests a gap between the demand and supply sides of the labor market—that is, between employers and prospective employees—terms of some particular characteristic. Thus, a skills mismatch might arise because the demand for workers with certain skills (such as higher education) has increased more rapidly than the supply of such workers. Figure 2.1A illustrates the results of such a shift in demand from less educated workers to more educated ones. As the figure shows, the demand shift should result in both lower wages and lower employment among the less educated in the short run (and the opposite for the more educated), with the exact effects depending on the elasticity of the labor supply—that is, the responsiveness of the supply of workers to wage levels.1 The lower this is the smaller will be the loss of employment and the greater the loss of wages for this group.2 Thus, widening wage and/or employment gaps between education groups could be interpreted as a sign that relative demands have shifted between them and that some degree of mismatch exists. Widening gaps in earnings or employment between specific demographic groups with more or less education (such as blacks and whites) could also result, and, even within a group whose members have comparable amounts of education, widening gaps for other dimensions of skills (such as those measured by test scores) could also indicate relative shifts in labor demand. This analysis is strictly short run in nature. The new and higher wage gap between education groups would imply a higher return to investment in that particular skill, which should lead to greater enrollment in higher education (Becker, 1975). In the long run the relative supply of educated workers should gradually shift out while the relative supply of less educated workers should diminish (Figure 2.1B). This will, in turn, reduce the wage gaps between the two groups. 1   This analysis assumes that the market was in equilibrium to begin with and that it will be so after the demand shifts occur. If wages are rigid, especially in the downward direction for less educated workers, the result would be somewhat less reduction in wages and somewhat more loss of employment (and a rise in unemployment) among less educated workers, but the overall implications of the analysis still hold. 2   The elasticity of the labor supply is reflected in the shape of the labor supply curve; the steeper the curve, the lower this elasticity is. A low elasticity implies that people will choose to work regardless of the wage level, while a higher elasticity implies that people will choose not to work at low wage levels.

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--> FIGURE 2-1 Shifts in demand for skills and supply adjustments in the labor market. The adjustment process could continue until the gap in earnings between the two groups is restored to its initial level. Alternatively, the initial gap might not be reached if (1) the demand for skills continues to increase and to outpace supply adjustments or (2) there are barriers or costs that limit the magnitudes of the supply adjustments. The second situation might, for instance, occur if too few students who graduate from high school have academic backgrounds that are strong enough for them to consider enrolling in college. Furthermore, the rising costs of attending college, combined with cuts in financial assistance for lower-

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--> and middle-income families, could limit enrollments of students from such families (Kane, 1995). Other imperfections in capital and labor markets might tend to reinforce these factors, leading to investments in higher education that are too small to restore earlier differentials between groups.3 In this case the wage and employment effects of mismatch will persist, even in the long run. Finally, higher unemployment (as opposed to just lower employment) can also result from labor market mismatch.4 This will occur if (1) there are rigidities (such as minimum-wage laws) that keep wages among the less educated from fully adjusting to the lower equilibrium levels shown in Figure 2.1A or (2) the less educated prefer to keep searching for better jobs, rather than accepting jobs with lower wages.5 In both cases, one would expect to find the coexistence of (1) higher job vacancy rates for at least some firms and (2) higher unemployment rates for workers.6 Employer Choices: Hiring, Training, and Other Options At least in theory, employers' skill needs are not fixed or absolute, and employers have a greater degree of choice over what they need than they might acknowledge. In the long run, employers choose among different levels of capital and technology that imply varying needs for skilled versus unskilled labor. For instance, a decision to replace production workers with some type of capital 3   These other market imperfections include liquidity constraints on individuals (so that people are unable to borrow for college education today against their expected future earnings), planning horizons that are too short, and inaccurate expectations of future wages that understate returns to education. Of course, a different set of inaccurate expectations could just as easily lead to overinvestment in education (relative to what is "socially optimal"), as could a variety of other circumstances in which education merely serves as a sorting or signaling device rather than as a productivity-raising investment. For a recent statement of the latter arguments, see Weiss (1995). 4   Lower employment could exist without higher unemployment if those without work withdraw from the labor force altogether. The issue of whether the distinction between being in and being out of the labor force makes sense for all those without work has been debated by economists in recent years (e.g., Clark and Summers, 1982; Flinn and Heckman, 1993). 5   The issue of whether or not minimum wages contribute to unemployment among low-wage workers continues to be debated among economists (e.g., Card and Krueger, 1994; Neumark and Wascher, 1995). If their higher unemployment is due to longer periods of job search, this might be attributable to higher reservation (or minimally acceptable) wages among workers rather than government barriers in the labor market (e.g., Feldstein and Poterba, 1984). 6   A skills mismatch would certainly result in high vacancy rates for jobs requiring more skills; if less skilled workers then refuse to accept lower-wage jobs, vacancy rates would rise for jobs requiring fewer skills as well. While there have been some analyses of job vacancy rates over time or across areas and job categories in the United States (e.g., Abraham, 1983; Holzer, 1989, 1994), such data are not routinely collected by the U.S. government; therefore such analyses are quite rare.

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--> equipment will change employers' relative demands across skill categories. Workplace organization and job descriptions are clearly malleable over a long-term time horizon, and employers frequently make choices about whether or not to upgrade hiring requirements along educational or experience dimensions (e.g., Levy and Murnane, 1995). Even in the short run, with a given set of jobs, employers face a variety of choices regarding needed skills. For instance, employers who have difficulty filling vacant jobs could attract more (and presumably better-qualified) applicants by choosing to pay higher wages.7 Alternatively, firms could invest more in recruiting, through advertising or the use of employment agencies (Holzer, 1987). Finally, employers could generate more highly skilled employees by training the workers they hire, rather than demanding applicants who have certain skills ex ante. Clearly, the strategies of increasing wage levels or recruitment might only redistribute a fixed number of skilled workers among employers; the strategy of training workers would help to generate a higher overall level of skill in the work force. Firms can choose how much training to invest in employees on the basis of prospective market returns for such training through, for example, higher employee productivity. If the skills employers hope to generate are completely general—that is, can be used in many types of work settings—they will generally choose not to bear the costs of such training since employee turnover may cause them to lose their investments. In this case, employers will provide such training only if they can transfer the costs to employees (by paying them lower wages) or can reduce turnover (through apprenticeships, etc.). As the skills needed become more specific to an industry, an occupation, and, especially, an individual firm, employers should be more willing to share in these costs (Becker, 1975). But a firm's willingness to make these investments might be limited by a variety of market imperfections, such as wage rigidities, financial constraints, and short-term planning horizons.8 Furthermore, the provision of training might actually cause employers to raise, rather than lower, their ex ante skill requirements if they view certain personal skills as being complements to, rather than substitutes for, the ones they hope to provide through training. (See, e.g., Lynch, 1992, and Cappelli, 1996, for some mixed evidence on this issue.) The training choices of firms might therefore reinforce gaps or mismatches 7   The notion that it might be cost effective for firms to pay wages above the market level has been emphasized in the economics literature on "efficiency wages" (e.g., Katz, 1986) and in the human resources literature. But for many firms a low-wage/high-turnover policy might still be the most efficient strategy. 8   For instance, minimum-wage laws may prevent firms from paying lower wages to employees while they are training them, which may make firms reluctant to invest in such training at all. Liquidity constraints on a firm (from limitations on its ability to borrow) or pressure from stockholders to stress short-term profitability rather than long-term growth might similarly reduce a firm's training investments. See Lynch (1993).

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--> between their own skill needs and those of less educated workers, instead of helping to mitigate those gaps. Inferring Applicants' Skills Employers might have a clear sense of what tasks need to be performed on their jobs and what skills and personal characteristics are necessary for performing those tasks. But those skills are often not directly observable to an employer at the time of hiring. In other words, the employer will often not know very much about an applicant's prospective ability to perform well on the job. Therefore, employers look for a variety of personal credentials, such as level of education, previous job training or work experience, and references. During interviews, they also look for a variety of personal characteristics, such as social and verbal skills and attitude. Other screens, such as tests (either of cognitive abilities or specific job tasks), are sometimes used as well. An applicant's personal characteristics or test results are used as signals or predictors of future productivity on the job, rather than considered to be indicators per se of the skills required for job performance. Of course, the ability of these credentials and characteristics to actually predict job performance may be quite limited (Bishop, 1993). Employers' perceptions of some of them, especially attitudes, are inherently subjective and could lead to discriminatory hiring outcomes as well. Indeed, at least some firms are aware of potential legal constraints on their ability to use certain screens that they cannot tie directly to job performance.9 More generally, the costs to employers of obtaining various kinds of information (such as school grades, transcripts, and criminal background checks) might outweigh the information's potential usefulness, thereby discouraging employers from seeking information that would better enable them to judge worker quality.10 Thus, mismatches between jobs and workers could result from employers' lacking information that would enable them to identify skilled applicants as well 9   These constraints arise out of the 1971 U.S. Supreme Court decision in Griggs v. Duke Power (401 U.S. 424, 1971), which established that hiring procedures that have "disparate impacts" on the employment of whites and minorities create a prima facie case for discrimination and require the employer to establish some link between these procedures and employee performance on the job. These principles were reaffirmed in the Civil Rights Act of 1992. Of course, firms differ greatly in the extent to which they think they are subject to such legal constraints; for instance, large firms appear much more concerned than smaller firms (Holzer, 1996). 10   Bishop (1989) has argued that employers would use academic grades to evaluate applicants (and students would have more incentive to perform better in high school) if transcripts were more easily attainable from high schools. Bushway (1995) also argues that the costs of doing checks on criminal backgrounds dissuade many employers from doing so and may actually hurt the wages of young black males, who are often generally suspected of having criminal records.

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--> as from low overall skill levels among applicants.11 Both of these problems can stem from "market failures" in private-sector labor markets, and a variety of policy interventions may be appropriate if evidence of these problems is found in labor market data. General Economic Evidence The above discussion suggests that, when the demand for certain skills grows relative to their supply in the labor market, those skills will generate higher returns (at least in the short run). Therefore, one way of making inferences about "skill gaps" is to review the general empirical evidence on labor market returns to various skills and how they have changed over time. Returns to Education The simplest and most easily observable measure of labor market skill is the number of years of schooling and educational degrees that an individual has obtained. On this dimension the evidence is strong and very clear: the returns to education have risen quite dramatically in recent years. For instance, in 1979 the average weekly earnings for young college graduates were about 45 percent of those for high school graduates; by the late 1980s the ratio had risen to about 85 percent (Katz and Murphy, 1992). This rising gap in earnings between more and less educated workers has coincided with a dramatic decline in the real hourly earnings of less educated males, especially among the young. Thus, the real wages of male high school graduates between the ages of 25 and 34 declined by over 20 percent from the late 1970s to the late 1980s (Katz and Murphy, 1992); the declines for male high school dropouts were even larger. In contrast, real wages rose modestly for young males with college or higher degrees and rose substantially for college-educated young females (Bound and Holzer, 1995). (The gender gap in earnings declined at all levels of education during the 1980s, even while inequality was growing across other dimensions. See Blau and Kahn, 1994, for explanations of why this might have occurred.) These changes in relative and real wages across groups parallel the changes that have occurred in employment rates (or annual hours worked). Basically, employment and labor force participation rates have risen for young females, especially the more educated, while they have declined quite substantially for male high school dropouts and blacks (Juhn, 1992; Bound and Holzer, 1995). The falling employment rates for young and less educated black males have also 11   These microlevel mismatches because of poor information could also result in higher vacancy rates in skilled job categories or high turnover rates, where the latter occur as employers (or employees) realize they made "errors" in the hiring process.

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--> coincided with a rapid rise in criminal activity and incarceration rates for them, especially relating to the drug trade (Freeman, 1994; Piehl, 1995). Overall, this pattern of falling employment and wages for the less educated and rising employment and wages for the more educated strongly suggests that employers' demands have shifted toward workers with higher education more rapidly than the relative supplies of the two groups have been able to adjust. Indeed, relative increases in the supply of college graduates actually slowed during the late 1970s and early 1980s, reflecting an earlier drop in college enrollment rates as well as the declining number of young people in the ''baby bust" cohort. These enrollment drops appear to have contributed to the market premiums that college graduates have enjoyed (Katz and Murphy, 1992). More recent evidence suggests that enrollment rates have recovered somewhat since then (in response to the rising returns for education) and are likely to continue to rise (Mincer, 1994). But few observers expect these increases to be sufficient to fully reverse the recent increases in earnings gaps between education groups, especially since the relative demand for college-educated workers will continue to grow (Bishop, 1995). Why does the demand for workers with higher education continue to rise? Growing international competition and the exodus of manufacturing plants from the United States to lower-wage areas are frequently mentioned as major reasons for these changes. But these labor market changes have occurred in nonmanufacturing (or nontraded goods and services) as well as manufacturing industries; even among the latter, most of the changes have occurred within particularized manufacturing industries rather than between industries whose relative employment levels are affected by trade (Berman et al., 1994; Freeman, 1995a). The most likely suspect for this shift in employer demand is a rapid increase in the pace at which employers have implemented various technological changes. Computer-related technologies (such as CAD-CAM and robotics) have clearly transformed many manufacturing processes. At the individual level, computer use is clearly correlated with higher educational attainment or wage levels among workers (Krueger, 1993), and at the industry level, industries in which technological changes have been most rapid have also experienced the largest declines in employment among less educated production workers (Berman et al., 1994). Of course, technological change need not always be "biased" toward more highly educated workers (Goldin and Katz, 1995), and examples can certainly be found of computers leading to lower rather than higher skill requirements for workers. But, on average, rising capital intensity and technological improvement seem more likely to be associated with higher demand for educated labor in the United States (Bartel and Lichtenberg, 1987; Hamermesh, 1993). Changes in the organization of production that at least some firms have chosen to undertake, such as total quality management and other "high-performance" workplace activities, might also increase employers' demand for education (e.g., Ichniowski et

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--> al., 1995; Cappelli, 1995b, 1996). A variety of industry case studies seem to corroborate that this occurs with technological change and/or workplace reorganization (e.g., Bureau of Labor Statistics, 1984, 1986; Bailey, 1990; Levy and Murnane, 1995). Thus, the data strongly suggest that employer demand for more educated workers has risen relative to their supplies in recent years. The case for a skills gap or mismatch in education levels can therefore be made. This is true even though overall unemployment levels in the United States are not high, especially relative to European countries. Apparently, the relative demand shifts in this country have largely resulted in low wages for the less educated (except among high school dropouts and young blacks, as noted above), while in Europe they have mostly resulted in lower employment rates (e.g., Freeman and Katz, 1994).12 Finally, there appears to have been no strong trend toward greater or lesser overall job stability in recent years, as measured by turnover rates or job tenure (i.e., time with a single employer). However, average tenure has declined somewhat among the lowest-wage employees. Whatever the causes of these trends, they certainly do not imply a greater willingness among employers to invest in job training for their low-tenure employees.13 A variety of caveats might be mentioned here. For one thing, although not all young college graduates will easily find employment, especially at relatively high wages (Hecker, 1992), they are, on average, a good deal more likely to do so than are those without college degrees, and the gaps between the abilities of these two groups to do so have certainly risen in the past 10 to 15 years (Bishop, 1995; Murnane, 1995). Furthermore, the rising relative demand for college-educated workers is not the only reason for the declining wages of the less educated. Falling rates of union membership, falling real minimum wage levels, and rising immigration all appear to have contributed to this development (e.g., Freeman, 1995c; Dinardo et al., 1995; Jaeger, 1995). Furthermore, the rise in labor market inequality has occurred even within education groups as well as within every other observable demographic category, and these increases remain not well understood (Levy and Murnane, 1992). Finally, the falling wages of less educated workers in the United States reflect 12   On the other hand, Freeman (1995b) notes that if employment and unemployment rates in the United States for the least educated males are adjusted so that those incarcerated are included among the nonemployed, U.S. employment numbers become much more comparable to those of Europe. 13   See, for instance, Swinnerton and Wial (1995, 1996), Diebold et al. (1996), and Farber (1994). The wave of firm restructuring in the early to mid-1990s may not yet be reflected in these data, though there has been some recent evidence of stagnating earnings among older college-educated males who may be experiencing declines in job tenure (Murnane, 1995). The apparent inconsistency between the rising skill and training needs of employers and their possibly declining commitment to long-tenure jobs is stressed by Cappelli (1996).

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--> the recent decline in overall earnings and productivity growth as well as a widening of wage inequality—that is, a stagnating mean (or median) level of earnings along with growing variance around that mean. The explanations for this overall stagnation are not widely understood, nor is there much consensus regarding future trends in this area. (For a very readable summary of trends and the historical perspective on this question, see Madrick, 1995.) Despite these questions and caveats, the evidence strongly suggests that a rise in the demand for educated workers relative to their supply has widened the gaps in relative earnings and employment rates between more and less educated workers, consistent with a "skills gap." Test Scores The fact that earnings inequality has risen even within educational categories raises the question of whether employer demand for skills measured along other dimensions has risen as well (e.g., Juhn et al., 1993). One measure of individual abilities that varies within educational categories can be found in scores on tests of cognitive ability. A long and sometimes controversial literature has appeared over several decades on the extent to which test scores actually measure cognitive abilities, on their environmental versus hereditary determinants, and on their correlations with earnings (e.g., Jencks, 1972; Herrnstein and Murray, 1994; Goldberger and Manski, 1995; Hauser and Carter, 1995). But some important new evidence on the labor market effects of test scores has emerged in the past few years. For one thing, Murnane et al. (1995) have found that the returns to test scores (especially for math) rose significantly during the 1980s. Indeed, they found that the entire increase in returns to college education for females can be accounted for by the increased return to test scores during that period. Murnane et al. also found that wage returns to test scores rose with the number of years of labor market experience. This reflects the fact that test scores (and cognitive abilities more generally) are not observable by employers at the time of hiring. But the rising returns to these scores with experience indicate that they may well be correlated with subsequent labor market performance, which employers can more easily observe over time.14 Other studies (e.g., O'Neill, 1990; Ferguson, 1993; Neal and Johnson, 1995) have also found that differences in hourly earnings between whites and blacks (after educational differences have been controlled for) can be accounted for largely by differences in the scores of the two groups on armed forces qualifying tests. Effects of test scores on the relative employment rates of whites and blacks have also been found (e.g., Rivera-Batiz, 1992), though a substantial racial difference 14   Hunt (1995) reviews the psychometric literature on the measurement of IQ and its links to actual work performance. Bishop (1989, 1995) provides some economic evidence that links test scores to work performance on a variety of tasks as well as earnings.

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--> remains here even after these differences are controlled for. While the test scores of blacks have risen in recent years relative to those of whites (Grissmer et al., 1994), the economic returns to test scores appear to have risen even more rapidly, thus preventing any relative improvement in black-white wage rates (Bound and Freeman, 1992). A similar story can be told about overall test scores in the population: they rebounded somewhat from their lows in the 1970s (Bishop, 1992), especially among the lowest-scoring groups. But this did not occur rapidly enough to offset the rising returns and resulting increases in inequality associated with these differences. Summary data on the National Assessment of Educational Progress test scores still indicate large fractions of the population scoring at very low levels of reading or mathematical competence (Barton and Kirsch, 1990). The lower means and higher variances in test scores among less educated workers in the United States than in several other industrial countries have also been linked to the greater relative declines in earnings that have occurred here in recent years (Bishop, 1989; Nickell, 1997) as U.S. workers have appeared to have more difficulty adjusting to recent shifts in labor demands. A few caveats are in order here. The magnitudes of estimated relationships between test scores and earnings or job performance are not enormous—test scores generally account for little more than 10 to 20 percent of the variance in earnings or job performance (Bishop, 1995; Hunt, 1995). Some questions remain as to what the scores really measure and whether their correlations with measured job performance are real or spurious. For blacks these questions are even greater than for whites.15 Nevertheless, employer demand for cognitive abilities seems to be growing even within educational categories and is apparently growing more quickly than the supply of these skills can respond. Thus, the economic returns to these abilities appear to be rising as well. Employers' Skill Demands: Survey Evidence The Multi-City Employer Survey While the evidence cited above clearly indicates that relative employer demand has shifted to workers with more education and better cognitive abilities, many questions remain unanswered. Exactly what skills do employers currently need among their less educated (i.e., noncollege) workers? How do employers seek these skills—that is, how do they screen for them, and what observable credentials and characteristics do they regard as signals of potential 15   Hunt (1995) notes that test scores generally have even less predictive power with regard to job performance for blacks than for whites, while Rodgers and Spriggs (1995) argue that test scores are rewarded quite differently in the labor market for blacks than they are for whites.

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--> Other Recent Survey Evidence In addition to the employer survey in the MCSUI project reviewed above, a number of other surveys of employers have been administered in the past 5 to 10 years that focus on many of these issues. (Descriptive and qualitative data on employers' skill needs can be found in the report of the Secretary's Commission on Achieving Necessary Skills [SCANS], as described in Packer and Wirt, 1992, and also in Carnevale et al., 1990.) Among the best known of these are (1) a survey of over 3,000 employers in 1994 designed by the National Center on the Educational Quality of the Workforce (EQW), administered by the U.S. Bureau of the Census and funded by the U.S. Department of Education; (2) a mail survey of over 2,500 employers administered by the National Federation of Independent Businesses in 1987; and (3) local surveys administered in New York City in late 1993 by the city's Department of Employment and in Milwaukee in October 1993 and 1994 by the Employment and Training Institute of the University of Wisconsin-Milwaukee. Other surveys of employers include an update of the Employment Opportunity Pilot Project of firms by Barron et al. (1994) and a variety of surveys discussed by Kling (1995). The focus here is on those that deal primarily with hiring requirements and methods. Also, some much more qualitative and in-depth surveys of smaller samples of employers have been administered in Chicago, Detroit, Atlanta, and Los Angeles (Kirschenman and Neckerman, 1991; Moss and Tilly, 1995; Kirschenman et al., 1995). These surveys generally provide little quantitative information but generate interesting descriptive material that would be hard to generate in the less personal formats (i.e., phone and mail surveys) used in the large-sample studies. Among the many issues that have been addressed in these surveys (and in reports based on them) are (1) the frequency with which certain skills and personal characteristics are considered important by employers for job performance, (2) the weights placed by employers on a variety of screens and hiring requirements as well as their perceptions of applicants they hire, (3) more objective measures of how these skills and screens contribute to worker or firm performance, (4) the extent to which various skill needs are rising, and (5) the ability of employers to hire employees with the relevant skills. Of course, the responses to at least some of these questions will be subjective and hard to interpret clearly. But they still provide some interesting descriptive data on how employers view their skill needs and hiring. Employers consistently report that basic literacy and numeracy skills are very important for virtually all jobs. In the New York City survey these skills are heavily weighted in every job category, though again somewhat less in the blue-collar and service jobs than in the white-collar ones.26 Listening and speaking 26   On a scale of 0 to 100 for measuring the "importance" of each skill, reading and writing and math skills were ranked 92 to 99 for managerial jobs, 89 to 99 for professional jobs, 77 to 86 for technical and skilled jobs, 81 to 97 for clerical and sales jobs, 55 to 81 for service jobs, and 50 to 79 for semiskilled and unskilled (blue-collar) jobs. See New York City Department of Employment (1995). The survey gauged the importance of the lists of skills used in the SCANS report.

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--> skills are also considered important in white-collar and service jobs but less so in blue-collar jobs. A variety of personal qualities, such as responsibility, integrity, and self-management, are considered almost as important as the basic skills described above, and in blue-collar and service jobs they are even more important.27 These results are consistent with those of Moss and Tilly (1995), who stress the importance of what they refer to as "soft skills"—that is, communication skills and attitudes/motivation. (See also Cappelli, 1995a.) In addition, the New York City survey found that thinking skills, such as decision making, reasoning, problem solving, interpersonal skills, and working with technology are all relatively important in white-collar jobs and (in some cases) in service jobs as well.28 These results are consistent with the notion that growing numbers of companies are reorganizing jobs and work in ways that require more problem-solving ability on the part of employees, though this is not true universally. For instance, in the EQW survey 37 percent of establishments use some type of total quality management, which usually requires workers to have a higher degree of analytical ability; fewer establishments use a variety of other high-performance organizational strategies, such as teams (used by just 12 percent). (See National Center on the Educational Quality of the Workforce, 1995.) As for screens and hiring requirements, both the New York City and the EQW surveys found that employers rank attitudes and communication skills as the most important characteristics they look for when screening candidates. Interviews are also given a lot of weight, despite the findings (noted above) from the human resources literature that question the objectivity and predictive power of information gained in interviews.29 Somewhat more objective measures of skill, such as previous experience and work history, are given almost as much weight in these studies as the attitude and communication measures. References and recommendations score highly as well, as do industry-based credentials in the EQW and previous training for some occupations in the New York City survey.30 The evidence on measures of academic background is somewhat more mixed. On the one hand, educational requirements do exist on most jobs. For instance, 27   The mean scores for personal qualities were 84 for service workers and 82 for blue-collar workers, compared with 79 and 68, respectively, on all basic skill categories. Personal qualities had mean rankings of 74 to 93 in the various white-collar occupations, whereas basic skills averaged 81 to 96. 28   The "thinking skills," which cover a broad range of skills, have mean scores of 87 and 91 in the managerial and professional categories, 72 in the technical jobs, 73 in sales and clerical jobs, 67 in the service occupations, and 62 in blue-collar jobs. 29   Moss and Tilly (1995) quote a few employers who claim that they just try to get a "feel" for the candidate in interviews and put a lot of weight on this subjective impression. 30   For instance, the mean scores on these responses in the EQW survey (on a scale of 1 to 5) are as follows: attitude, 4.6; communication skills, 4.2; previous work experience, 4.0; recommendations from current or previous employers, 3.4; and industry-based credentials, 3.2. See Black and Lynch (1995).

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--> the Milwaukee survey shows that only 23 percent of full-time jobs do not require high school or more education, as well as training and/or experience.31 On the other hand, in both the New York City and the EQW surveys, years of schooling gets only a moderate weight in subjective rankings of importance in all except professional and managerial jobs (where college is required). In the EQW survey, academic performance is given even less weight than the number of years of schooling.32 But these results must be interpreted with some caution. For one thing, the vast majority of job applicants today have at least a high school diploma; therefore, this credential alone signals little about potential ability to an employer. On the other hand, failure to hold a diploma sends a much more negative signal to employers, which may be only partly offset by a GED (Cameron and Heckman, 1993). Thus, a high school diploma is necessary but not sufficient as a signal of academic quality. Furthermore, most employers do not use transcripts or other indicators of academic performance since they are so hard to obtain (Bishop, 1989); in other words, it is because of the high cost of using them, rather than their low benefit, that employers generally do not weight this information highly. The relative importance of education levels and academic performance to job outcomes has been established in a few statistical studies of these relationships. For instance, Black and Lynch (1995) have shown that the average educational attainment of employees contributes positively and significantly to the value of output at the establishment level, as does the use of academic grades in hiring in nonmanufacturing establishments. Bishop (1993), in analyzing the National Federation of Independent Businesses data, also found that employer perceptions of academic skills contribute somewhat to their evaluations of worker performance. Bishop found that occupational skills, the ability to learn new things, and leadership also contribute to worker performance in most occupational categories and that basic work habits contribute significantly in the blue-collar categories. Some consensus is found across these studies in terms of the growth of skill needs. The EQW survey reports growing needs for skills in 56 percent of establishments, which seems relatively consistent with findings in the New York City survey and the Moss-Tilly interviews. The area of highest growth in the need for skills is in computers, especially in white-collar jobs; 30 to 50 percent of these 31   These data suggest a somewhat greater availability of jobs with no requirements than did the numbers from my own survey mentioned above. This might partly reflect a longer set of requirements listed in my questions and Milwaukee's very tight labor market (in which employers are likely to loosen some requirements in order to be able to attract workers). 32   In the New York City survey, the receipt of a high school diploma or equivalent is given a score of only 37 in semiskilled or unskilled blue-collar jobs and 52 in service jobs, whereas attitudes and work habits score 90 and above. In the EQW survey, years of schooling completed is ranked 2.9, academic performance 2.5, reputation of school 2.4, and teacher recommendations 2.1. See Black and Lynch (1995).

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--> jobs in the New York City survey show growing computer needs, with somewhat smaller rates of growth in the other job categories and other skill areas. Finally, employers report difficulty in obtaining employees with the necessary skills for a variety of reasons. For instance, the Milwaukee survey (especially in 1994) was administered during a very tight labor market (with local unemployment of just 4.0 percent). Thus, roughly 60 percent of employers report some difficulty in filing jobs and give somewhat higher rates for jobs that have lower educational or experience requirements. But in other surveys employers generally report that it is the relative quality of applicants, rather than their numbers, that generates their hiring difficulties. For instance, roughly 30 percent of applicants in the New York City survey were judged deficient in a variety of skill categories by employers; even among those hired, deficiencies in basic skills were reported in 10 percent of the cases and in higher numbers of cases on other skill categories.33 Respondents to the EQW survey report similar numbers. Bishop (1993), using the National Federation of Independent Business survey, focuses on a somewhat different problem: the inability of employers to gauge whether an applicant possesses the necessary skills and personal characteristics given the limited information they have at the time of hiring. Bishop reports that employers have somewhat greater difficulty in judging such characteristics as the ability to learn new skills, work habits and attitudes, and leadership than basic skills or previous job skills acquired. He also found consistent evidence of large performance "surprises," measured as the differences between expected performance at the time of hiring and performance measured later. Bishop therefore argues for a variety of ways in which matches between jobs and employees might be improved through better provision of information to employers. Conclusion The market rates of return for education and test scores have been rising since the late 1970s. This is consistent with the idea of a skills gap or mismatch, in the sense that the demands for schooling and cognitive abilities in the labor market rose more rapidly than did their supplies. Real wages have declined substantially for less educated (i.e., noncollege-educated) males, and employment has declined, especially among blacks and high school dropouts (who are increasingly substituting illegal for legal modes of work). My survey data indicate that employer demands for basic cognitive and social skills as well as for various credentials (such as high school diplomas, specific experience, and previous training) are extensive; indeed, very few new jobs are available for workers without these skills and credentials. The skill needs of employers are generally rising. Employer attitudes also indicate a great deal of 33   In the New York City survey, the greatest deficiencies among those hired are reported in the areas of thinking skills (39.5 percent) and technological/computer skills (26 to 28 percent).

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--> skepticism about workers with unstable employment histories and those suspected of having criminal records. Many of these hiring requirements and employer attitudes seem to limit the employment options available for less educated and especially minority workers. Other recent employer surveys mostly confirm these findings. While basic skills are required by employers in almost all jobs, so are a variety of communication skills and personal qualities (such as motivation and good work habits). Analytical skills (such as problem-solving abilities) are mostly valued in white-collar jobs or in other jobs where firms are using so-called high-performance work practices. When hiring, employers heavily weight impressions from their personal interviews as well as previous experience, training, and work history. Applicants' educational histories (e.g., whether they graduated from high school, what grades they achieved) get somewhat less weight in the employers' mind, though clearly not zero, and when educational attainment is considered in hiring, it does seem to contribute to worker performance. Some educational attainment is thus clearly necessary for workers to be hired and to perform well, even if it is not sufficient . Finally, there is some evidence that employers have relatively little information that truly enables them to distinguish strong job candidates from weak ones (in terms of prospective job performance). On-the-job training for employees might be another way for employers to meet their skill needs, and evidence from the EQW survey shows a moderate increase in the proportion of firms providing such training (National Center on the Educational Quality of the Workforce, 1995). But the provision of such training is likely to be limited by a variety of market imperfections, and the training is unlikely to benefit employees who (owing to the rising skill needs of employers) have difficulty being hired in the first place or who are not likely to remain with a single employer for very long. Overall, then, a labor market is found in which disadvantaged workers (especially minorities and high school dropouts) often appear to have difficulty meeting the basic skill requirements necessary for employment, while high school graduates generally gain employment more easily but primarily at low wages. Improving the educational levels and cognitive abilities of these groups would certainly help to narrow the growing gaps in employment and earnings between them and the more skilled workers and might even contribute to improved economic performance and productivity growth for the economy as a whole. (For a recent discussion of the relationship between educational attainment and productivity growth, see Griliches, 1996.) Making information about prospective worker skills more available to employers and improving its quality should enable employers to use such information more frequently in their hiring decisions. This, in turn, might improve the incentives for academic performance among high school students, an area that now appears to be quite weak. With more highly skilled workers and better matches between worker skills and job requirements, employers might also become

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