THE SLUGGISH RECOVERY OF THE U.S. LABOR MARKET during the period following the Great Recession remains poorly understood. As of 2012, two years after the official end of the Great Recession, the unemployment rate still hovered around 8 percent — despite employers reporting more vacant positions. This led to fears that the skill set of American workers were somehow permanently out of line with the skills required by employers.

A new Harvard Kennedy School Faculty Research Working Paper authored by Daniel Shoag, assistant professor of public policy, takes aim at that line of argument. It shows that changing employer skill requirements were not the cause but a symptom of the labor market, and documents that these requirements fell as the labor market recovered.

Using a novel database of 82.5 million online job postings, Shoag and co-authors Alicia Sasser Modestino and Joshua Ballance found employer requirements for education and experience rose significantly from 2007-10 and then took time to fall as the labor market improved from 2010-14. This decrease in skill levels within occupations, known as ’downskilling,’ was causally linked to the recovering labor market, they found. For example, the decrease in employer requirements for skills between 2010 and 2014 was greater in locations and occupations that experienced a steeper decline in unemployment—even when those declines were caused by exogenous changes, like the natural gas fracking.

The magnitude of ‘downskilling’ that began in 2010 is very similar in magnitude to the skill increase, or `upskilling’ that took place years prior during the Great Recession.  

The authors found that as much as 20 percent of this total increase in skill requirements was reversed by labor-market induced ‘downskilling’ after the Great Recession. The authors suggest that employer skill requirements are driven—in part—by the available supply of labor.  

“This demonstration of downskilling in vacancy postings, the first of which we are aware, is important for many reasons,” the authors conclude. “It better identifies the dynamic nature of employer skill requirements and it establishes that movements in these requirements will, at least in part, revert with the labor market.

“The relationship between employer job requirements and the state of the labor market is relevant for policymakers as well. Our results indicate that the demand for skilled workers is dynamic and responsive to labor market conditions, with employers acting strategically to fill positions with higher skilled workers during period of slack labor markets.”

Training programs, then, are trying to hit a moving target, and policymakers should appreciate the cyclical nature of requirements, the authors conclude.

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