Is More Money the Solution to the Skills Gap?

Is More Money the Solution to the Skills Gap?

That’s what economist Thijs van Rens’s research has led him to believe. At the Harvard Business Review, van Rens argues that rather than some kind of educational deficit, the main reason why not enough young people are going into STEM fields is that “employers are unwilling or unable to pay market price for the skills they require”:

Imagine that a particular set of skills — say, STEM skills — enables workers to be particularly productive but their pay does not go up to reflect this higher productivity. It is not surprising that workers do not acquire more of these skills, since they do not reap any of the benefits of their increased productivity. In the UK, for instance, less than half of STEM graduates work in scientific occupations, and there is no wage premium for having a STEM degree in other occupations.

On the other hand, firms are more interested in hiring workers with these STEM skills, as they are very productive and cheap. Thus companies open lots of vacancies for STEM positions but find it very difficult to fill them.

Companies often advocate for better education to fix the skills gap, but our results indicate that this is unlikely to work for a simple reason: Students have a choice about what skills they acquire in school and how they use these skills in the labor market. Encouraging universities to educate more physicists and engineers will not make a difference if these additional STEM graduates then choose to work for investment banks that offer higher salaries.