2014 Series • No. 14–17
Research Department Working Papers
Upskilling: Do Employers Demand Greater Skill When Skilled Workers Are Plentiful?
The Great Recession and subsequent recovery have been particularly painful for low-skilled workers. From 2007 to 2012, the unemployment rate rose by 6.4 percentage points for noncollege workers while it rose by only 2.3 percentage points for the college educated. This differential impact was evident within occupations as well. One explanation for the differential impact may be the ability of highly skilled workers to take middle- and low-skilled jobs. Indeed, over this period the share of workers with a college degree in traditionally middle-skill occupations increased rapidly. Such growth in skill requirements within occupations has become known colloquially as "upskilling."
It is not clear from employment outcomes alone whether the increasing share of high-skilled workers in middle- and low-skill occupations reflects changing behavior by employers. Few researchers have been able to quantify rising employer requirements due to the difficulty in isolating labor demand from labor supply. In this paper, using a novel dataset of online job vacancy postings, the authors tackle the question of whether the education and experience requirements for job postings have risen between 2007 and 2012, and if so, whether this rise was driven by the state of the local labor market.
- In bad labor markets, employer requirements rise for both education and experience, even when controlling for time, occupation, and state fixed effects among other covariates. This is true when using alternative measures of labor market slack, and does not appear to be driven by reverse causality or local demand effects.
- Using a natural experiment based on troop withdrawals from Iraq and Afghanistan as a source of exogenous variation, the authors also find significant increases in employer requirements for occupations that typically employ veterans. This result confirms their earlier finding that some portion of the upskilling observed during this period is caused by increases in labor supply rather than changes in labor demand.
The main results indicate that much of the observed increase in skill requirements within detailed occupations is correlated with the business cycle. Specifically, the share of employers' opportunistic upskilling related to the state of the labor market represented roughly one-third of the total increase in education requirements and more than half of the increase in experience requirements between 2007 and 2010. The greater sensitivity of experience requirements to changes in the labor supply may imply that these requirements are more likely to revert as the labor market tightens—possibly helping to reduce the relatively high rate of unemployment for younger, less-experienced workers. The question of persistence is particularly relevant for workers just entering the labor market who are likely to be less skilled and experienced—
particularly at a time when employers seem less willing to provide on-the-job training.
The paper has broad implications for both macroeconomics and policy. The findings support the notion that what is sometimes labeled as structural mismatch employment is actually at least partly cyclical. The results also document a novel feedback mechanism between the labor supply and the selectivity of vacancies that may be relevant for macroeconomic models more generally. Finally, the trends documented here imply that the demand for skilled workers may be more dynamic and responsive to labor market conditions than previously thought, suggesting the need for workforce development policies that can adapt more easily to changing labor market conditions.
Using a large database of online job postings, we demonstrate that employee skill requirements rise when there is a larger supply of relevant job seekers. We identify this effect using variation across time, occupations, and places, which allows us to control for potentially confounding factors. We further exploit the natural experiment arising from troop withdrawals from Iraq and Afghanistan over this period as a shock to local, occupation-specific labor supply. Our estimates imply that the increase in national unemployment rates from 2007 to 2010 increased requirements for a bachelor's degree within occupations by 2.2 percentage points and increased the fraction requiring two or more years of experience by 3.5 percentage points.