New Studies Challenge Conventional Wisdom on Gig Economy, Skills Gap

New Studies Challenge Conventional Wisdom on Gig Economy, Skills Gap

Over the past decade, particularly in the US, there has been considerable debate over whether the labor market trends we were seeing represented fundamental shifts in the economy or business-cycle responses to the Great Recession that followed the 2008 financial crisis and the long, slow recovery. In new studies, two of these trends—the skills gap and the gig economy—are reconsidered in light of new data, with researchers finding that phenomena they once thought were secular may actually have just been products of the recession after all.

Economists Alan Krueger and Lawrence Katz made headlines in 2016 when they released the results of a survey they had conducted the year before, which found a major jump in the number of Americans making a living in “alternative work” arrangements (i.e., not in regular, full-time employment), though gig economy platforms like Uber made up a small fraction of this contingent labor market. At the time, Krueger and Katz found that around 16 percent of the American workforce were engaged in this type of work, compared to 10 percent in 2005. Follow-up work indicated that alternative work accounted for almost all of the jobs created since 2005.

Now, the leading economists of the gig economy say their initial study overestimated its impact, the Wall Street Journal reported this week. In a new paper, Krueger and Katz look at new evidence and conclude that their 2015 survey overstated the size of the contingent workforce because of a weak labor market and the impact of the recession. Many of the alternative jobs they counted were stopgap jobs people took to make ends meet while they were unable to find full-time work. Once the economy and their job prospects improved, these gig workers returned to more traditional employment. The vast difference in the health of the US economy between 2005 and 2015 skewed the data.

Accordingly, the economists now revise their estimate of the growth of alternative work during that period to a 1 or 2 percentage-point increase, not 5. This brings their findings more in line with other recent studies that have painted more modest pictures of the gig economy—including the Bureau of Labor Statistics’ 2017 Contingent Worker Supplement survey, which claimed the alternative workforce had actually shrunk since the last time the survey was conducted in 2005. At the same time, Krueger and Katz argue in their new paper that the surveys used to measure alternative work arrangements, including those conducted by the Labor Department, are seriously flawed (the huge gap in the BLS data due to the dozen years when the survey wasn’t conducted is part of the problem).

These economists’ new argument makes a lot of intuitive sense given what we know about what job candidates value and how they behave in different labor markets. When they have their pick of employment opportunities (as in today’s tight labor market), candidates put a premium on job security, opportunities for growth, and benefits like health insurance and retirement savings that usually only come with regular, full-time employment. In a depressed labor market with fewer options, job seekers will take what they can get, but that doesn’t mean it’s what they want. To be sure, some workers enjoy and benefit from the flexibility and short-term commitments of gig work, but this type of work is best thought of as an alternative to traditional employment, not a substitute for it. Organizations can also use variations on the gig economy model to create internal labor markets that enable a more agile talent strategy and offer employees the opportunity to accrue a wider range of experiences and skills within the business.

Another new study casts a similarly skeptical eye on another truism of the US labor market: the skills gap. Vox’s Matthew Yglesias highlighted the paper from economists Alicia Sasser Modestino, Daniel Shoag, and Joshua Ballance, presented this week at the American Economics Association’s annual conference, which concludes that the apparent skills gap in the US labor market in the years after the Great Recession was largely accounted for by the higher skill requirements employers demanded in a looser labor market, when they could afford to seek out the most highly qualified candidates they could find:

Their research is based on a set of 36.2 million online job postings aggregated by Burning Glass Technologies that lets them see exactly what requirements employers attached to which jobs. … [T]he education and experience qualifications employers were looking for got steadily higher as the unemployment rate rose during the Great Recession. Superficially one could interpret this as a “skills gap” — people couldn’t find work because they simply lacked the credential needed to work in the modern economy. Except as the unemployment rate started to fall, so did employers’ skill needs.

The paper features a bunch of more detailed statistical analysis that leads to the conclusion that “a 1 percentage point increase in the state unemployment rate is associated with a 0.6 percentage point increase in the fraction of employers requiring a Bachelor’s degree and a 0.8 percentage point increase in the fraction of employers requiring 4+ years of experience.” In other words, the skills gap was the consequence of high unemployment rather than its cause. With workers plentiful, employers got choosier. Rather than investing in training workers, they demanded lots of experience and educational credentials.

These findings reinforce the argument that employers brought the skills gap on themselves through outdated hiring practices that demanded too much experience or education for certain roles, particularly in technical fields. Now, of course, this doesn’t mean US employers have all the skilled talent they need. What it illustrates is how labor market conditions affect employers’ perceptions of the availability of talent and the strategies they need to employ to meet their demand for skilled employees. In today’s tight labor market, proactive companies are spending less effort trying to find the perfect “unicorn” candidate with all the right skills; instead, they are changing up their recruiting strategies to create a candidate experience that attracts the most committed candidates and investing in learning and development to equip their employees with the new skills they need in the digital era.

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