Career Advice

Are Wages to Blame for the STEM Skills Gap?
Meghan Brown posted on December 10, 2015 |
(Image courtesy of BPlanet/FreeDigitalPhotos.net.)

(Image courtesy of BPlanet/FreeDigitalPhotos.net.)

A new study indicates that the STEM skills gap may be caused by the wages being offered by employers, rather than educational factors.

What is the STEM Skills Gap?

Structural unemployment, also known as a skills gap, is a present and growing concern among advanced economies.  It refers to a widening divide between the skills workers possess and the skills businesses require.

Engineering fields see the focus falling on perceived shortages of workers skilled in STEM subjects.

According to a report from Warwick University, the apparent lack of workers with STEM skills has less to do with the education and training they received than with employers who are unwilling to offer wages comparable to the value of these skill sets.

(Image courtesy of Graur Codrin/FreeDigitalPhotos.net.)

(Image courtesy of Graur Codrin/FreeDigitalPhotos.net.)

“It is often taken for granted that the skills gap and skills mismatch is a supply problem and that appropriate training is not available to workers. However, US data shows that market wages do not reflect the relative demand for different types of skills,” states Thijs van Rens, associate professor in the department of economics at Warwick. 

“Businesses complain about the lack of workers with STEM skills but are unwilling to raise wages for these workers - or reduce wages for workers with skills that are less in demand,” he continued.

His analysis shows, based on US data, that the source of the labour market mismatch is that market wages do not reflect the relative demand for different skill sets.  He argues that the publicly debated position that the skills gap is caused by a supply problem is incorrect.

The report combines data on job finding rates, earnings and profits across states, industries and occupations.  This data is used to measure the extent of the skills mismatch in the US labour market, as well as the underlying influences.

Solving the STEM Gap

In his report, van Rens describes three causes of a skills mismatch within the labour market:

  • Workers do not adjust to changes in skill demand
  • Firms do not adjust to changes in skill supply
  • Wages do not reflect skill shortages

This mismatch can come from a number of external factors, including obsolescence from new technologies removing the need for specific expertise or increasing productivity to a point where fewer highly skilled workers are required to meet process demands. 

Globalization is also a factor, introducing competition that influences skilled manufacturing jobs to relocate from high-wage to low-wage states or countries, for example.

He suggests that the labour market can adjust to a skills mismatch in one of two ways:

  • The workforce may adapt to the demand for skills, either by changing occupations or by re-training
  • Companies and industries can adapt to the available supply of skills

Unfortunately, the nature of structural unemployment means there is no ready fix, and any solution involves a significant investment of time and money by both individuals and industry.

STEM Education is Not to Blame

One specific argument van Rens makes is that reforming the education system is not an answer to the perceived lack of skilled workers.

He indicates that as long as wages do not reward certain skills, such as STEM skill sets, workers will be less likely to acquire them.

Furthermore, even when workers do develop these skills, they will often seek out or accept employment in higher paying occupations that do not utilize their skills to their full potential.

“While firms complain about a shortage of qualified physicists and engineers in the labour market, a very large number of graduates in these fields work in the financial sector, where they only use their STEM skills to a very limited degree,” said van Rens.

"Encouraging universities to educate more physicists and engineers will not make any difference if these additional STEM graduates look for jobs in investment banks."

A discussion of van Rens' paper titled “The Skills Gap: Is It a Myth?” was recently hosted by the think-tank Social Market Foundation in association with the University of Warwick's Centre for Competitive Advantage in the Global Economy (CAGE). The roundtable discussion examined how employers, policy makers and educators can help to reduce the skills gap in light of new research.

For more information, visit Warwick's CAGE website.

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