Are policymakers misdiagnosing Maine’s labor market?

John E. Haskell

John E. Haskell

There is a clear schism among policymakers, pundits, and others regarding what ails Maine’s still soft labor market. Although the unemployment rate continues to decline, labor market indicators for the state’s prime age workers are troublesome, while wages and hours have plateaued (clear signs that the labor market woes are largely cyclical in nature), Maine policymakers and pundits have voiced greater concern for potential structural weaknesses in Maine’s labor market.

Although there are various forms of the structural unemployment argument (such as demographics, which is also highly prevalent in Maine policy debates), the focus of this post is on the argument that Maine faces a skills gap.  In other words, the demand for labor (specifically certain skills) is not or will not be met in the near future.  As a result, in the words of Maine Senate President Justin Alfond:

I think it’s time for us to have a laser focus on the skills gap.  I don’t think we’ve really focused on filling the skills gap. Businesses are asking for it. Our communities are asking for it. Students are waiting in line [for training programs.]

This past year, the Maine House unanimously passed a “skills gap” bill.  From the Kennebec Journal:

The Maine House of Representatives unanimously passed a bill Monday aimed at Maine’s so-called “skills gap,” developing Maine’s workforce with job-training initiatives.

L.D. 90, sponsored by Senate President Justin Alfond, D-Portland, is an omnibus bill that would establish a uniform credit-transfer system between the University of Maine System and the Maine Community College System, reducing waiting lists for popular community-college programs, providing financial assistance to adult learners who went to college but didn’t earn a degree and implementing a worker-training system between businesses and community colleges, among other things.

“This is about an investment in Maine’s future,” said Rep. Gay Grant, D-Gardiner, a member of the Legislature’s Joint Select Committee on Maine’s Workforce and Economic Future, in a prepared statement. “We’re investing in our workers, we’re investing in our businesses, we’re investing in our infrastructure so there will be more opportunity in Maine.”

The bill’s fiscal note says it would cost nearly $9.4 million over four years, $5 million of which would come in the next two budget years. About half of the four-year total, just over $4.7 million, would go to the community college system.

The 138-0 vote Monday in the House sends the bill to the Senate for approval, after which it will go into effect only if the Legislature’s Appropriations Committee can fund it in the next two-year budget, which begins in July.

But where are these forecasts coming from?  From a 2010 BDN article:

Maine will not have the skilled workers needed for the jobs available in 2018, when economists predict the nation will be over the recession and the economy will be expanding, according to a national study.

“This study by Georgetown University tracks what we have been looking at here in Maine,” said John Dorrer, director of the Maine Department of Labor Center for Work Force Research & Information. “This is something we need to act on now, and not wait until people in business can’t find the skilled workers they need.”

He said the Georgetown study looks at the nation, and at the individual states. He said it projects that 63 percent of all jobs nationally will require at least some postsecondary education in 2018. Employers will need 22 million new workers with postsecondary degrees, both four-year and two-year degrees. The report says there will be a deficit of 300,000 college graduates every year between now and 2018.

“America needs more workers with college degrees, certificates and industry certifications,” said Anthony Carnevale, the director of the Georgetown University Center on Education and the Workforce in a statement. “If we don’t address this need now, millions of jobs could go offshore.”

And from a 2012 BDN op-ed:

Given all that has, and is being said, in Augusta and in the media about work force development, economic development, education and training, and even welfare reform in Maine, it seems prudent to reflect on a number of pressing realities and their impact on the future of our state’s work force that were highlighted in a study conducted by Georgetown University — the results of which were featured in the June 20, 2010 issue of the Bangor Daily News.

The national study projected a shortage of skilled workers in the United States and Maine by 2018.

John Dorrer, then the director of the Maine Department of Labor Center for Workforce Research and Information, asserted: “Maine, like the rest of America, will need more college educated workers than it will have. It’s a problem that needs to be addressed now, because it takes time to solve. Our employers won’t have the workers they need in 2018, if we don’t act today.”

This work force development challenge presents itself at a time when an estimated 65 percent of the projected American work force in 2020 is already beyond the reach of our public school systems.

The two above quoted pieces reference a 2010 report authored by James Carnevale, Nicole Smith, and Jeff Strohl of the Center on Education and the Workforce at Georgetown University, titled Help Wanted:  Projections of Jobs and Education Requirements Through 2018. Premised on this report, Augusta is aiming to tackle the skills gap.  But there’s a problem with this policy.

Well, actually there are few problems, though I am only addressing one in this post.  That problem is the methodology employed by Carnevale et al in generating those forecasts Augusta is relying on, which drasticllay overestimates the demand for college degree holders in the labor market.  From the appendices to that report:

The Georgetown University Center on Education and the Workforce has developed an approach to projecting educational demand that differs fundamentally from the BLS approach. A detailed methodology paper can be found online at cew.georgetown.edu. In short, our method:

Builds on the occupation projections data provided by BLS;

Uses existing labor market data for each year between 1983 and 2008 to analyze increases and decreases in each occupational group;

Uses occupationally specific data on increases in education and training required by an occupation;

Assumes that the present distribution of education among the employed prim-age population is the best single indicator of present demand for education. This model does not start with a deficit of some 20 million post-secondary degrees, as the BLS model does;

Has proven itself to be robust across a number of statistical tests. The most intuitive of these shows that by using data between 1983 and 2002 the projections method forecasts educational demand for 2008 reasonably well.

I am not going to per se defend the BLS methodology, but the above cited section is troublesome.  First, and most glaringly, is the line “[a]ssumes that the present distribution of education among the employed prime-age population is the best single indicator of present demand for education.”  What’s wrong with that?  To begin with it assumes there is always equilibrium between supply and demand of college degrees.  That is to say, if only 55 people in the labor market have college degrees, then there is a demand for 55 people with college degrees.  There is no such thing, under this rubric, of underemployment (or overemployment for that matter) because the market is always at equilibrium.  Alternatively, it also means that a person with Y degree (say a master’s degree) for job X (say a coffee barrista), then that job demands that degree.

Of course, this runs counter to the data.  From Jaison R. Abel, Richard Deitz, and Yaqin Su of the New York Fed:

According to numerous accounts, the Great Recession has left many recent college graduates struggling to find jobs that utilize their education. However, a look at the data on the employment outcomes for recent graduates over the past two decades suggests that such difficulties are not a new phenomenon: individuals just beginning their careers often need time to transition into the labor market. Still, the percentage who are unemployed or “underemployed”—working in a job that typically does not require a bachelor’s degree—has risen, particularly since the 2001 recession. Moreover, the quality of the jobs held by the underemployed has declined, with today’s recent graduates increasingly accepting low-wage jobs or working part-time.

But doesn’t the fact that college grads are getting hired evidence demand for those degrees, even for low-paying jobs?  Not according to Nancy Folbre of UMass-Amherst, who wrote in the NYT last December (my emphasis):

Mal-employment – a more descriptive term than “underemployment,” which also includes involuntary part-time work – is growing, with more than a third of recent college graduates in jobs that don’t require a college degree.

Many college graduates are simply displacing less-educated workers from the jobs they once held, scrambling up the attic stairs to the roof of a bungalow whose first floor, inhabited by mere high school graduates, is now largely underwater.

So what does this mean for Maine?  It means that public policy premised on the Carnevale (and any similar) report should be questioned because, again, the report drastically overestimates the demand for college degree holders.  As a result, Maine policymakers might very well be misdiagnosing what ails Maine’s labor market.  In future posts, I will explore whether policymakers have misdiagnosed the problem, and what that misdiagnosis could mean for the labor market.

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John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.