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Shall we dance?

As jobs grow but the labor pool doesn't, job matching becomes essential to make sure everybody gets the right partner

July 1, 2002


Shall we dance?

The 1990s were good to Fargo, N.D. Among numerous national surveys, the city rates highly as a "livable city"and a good place to start a career and a business.

"We have a magnet effect," said David Martin, public affairs manager for the Fargo-Moorhead Chamber of Commerce. Nothing put the city on the national map quite like the sale early last year of locally based Great Plains Software to Microsoft. "People think, 'Microsoft? Fargo, ND?' Yeah," Martin said.

But Martin said economic success—more businesses, more and better jobs—requires constant diligence given the labor shortage. "You hatch more eggs, you've got more chickens that you've got to feed."

That is proving more difficult given the region's low unemployment. Fargo-Moorhead has enjoyed comparatively low unemployment—it hasn't been above 5 percent since 1983 and has marched steadily downward to an annual rate of just 2 percent last year. Such a tight labor market is making some companies skittish.

"We've got some companies asking us to stop recruiting companies" from outside the region because they don't want any more competition for workers, Martin said. "The new kid on the block often doesn't have trouble" finding workers, he said, because they may have the curiosity factor in their favor and offer slightly better wages.

In fact, a good example of that occurred in March of last year. A prospective heavy manufacturer looking at Fargo ran ads to gauge available labor for machinist and welder positions paying $8 to $12 an hour. Officials were hoping to receive 100 applications for 70 openings. They got 542 applications, despite low unemployment.

Dance with me?

In a perfect world—or more accurately, a perfect market—there are no worker shortages. Labor supply meets employment demand like Ginger Rogers swooshing into and out of the arms of Fred Astaire.

But this ain't the movies, and labor supply and employment demand often end up out of sync in the real world. That's how there can be a labor shortage simultaneously with high underemployment; growing education and training demands while some college graduates work as bartenders; a bounty of applications for good-paying, lower-skill jobs; and comparatively few applicants for high-skill, high-paying jobs.

Work is being done to bring a little better rhythm to the supply and demand for workers, but it's complicated. A labor shortage implies there are simply not enough bodies. To an extent that's true, but underemployment and mismatched workers show it's not quite that simple.

As economic theory suggests, when the supply of workers becomes tighter, prices (or wages) will go up if demand (job growth) stays strong. Numerous examples show that some employers do not have trouble finding workers, and the most common reason is attractive compensation—what economists call a "price equilibrium," or the wages at which workers with the desired skills pursue a job opportunity, rather than ignore it.

But price equilibrium is not easy to find and is constantly changing in many occupations. So rather than a simple lack of workers, the labor shortage is more of a short-term lag as employers feel their way to the "right" wages for a particular job and workers search for jobs that offer competitive wages given their skills.

Less Ginger, more Fred

Such a lag shines a spotlight on the efficiency of job matching—how easily and quickly employers and workers find each other and decide to pair up.

The big difference in the job-matching process today is that workers have more say in the selection process. When there is a labor surplus, employers can afford to look through many candidates for the perfect dance partner. If a particular worker isn't a good fit, the employer simply looks for a better partner. Once chosen, workers have an incentive to be good partners because they know others want to take their spot.

But that job-matching process changes when the labor supply dwindles, particularly when job growth is strong. Now all of the sudden, there are fewer Gingers—who can be pickier—and more Freds, who can't be so choosy anymore. Just such a scenario is happening today and likely will accelerate, the result of a collision among multiple demographic and social trends.

Falling birth rates and meager-to-modest migration to Midwestern and Upper Plains states has meant comparatively slow population growth in all district states. For about the last decade, states have seen much faster growth in total employment, and for a while, states and regions were able to tap into historically underused labor pools, particularly women and minorities, to cover the gap between the demand and supply of workers.

From 1990 to 1998, for example, Wisconsin's population grew 6.5 percent, but its workforce grew more than 14 percent, mainly because the state's labor force participation rate went from about 68 percent to almost 75 percent, one of the top rates in the country. Most of it was the result of more women entering the workforce.

The prevailing wisdom by demographers, however, is that there is little slack left in terms of attracting more people—men, women or various subgroups—into the workplace; those not already working are either uninterested, unwilling or unable.

Matchmaking tough

But saying there aren't enough workers is only half the story. Annual unemployment in Grand Forks, N.D., has been under 3.5 percent for the last four years running. But a labor availability report done there last year concluded, "Even with a relatively low unemployment rate, there is a substantial available labor supply" in the Grand Forks region.

Most of that supply comes from the ranks of the currently employed. The study found that 43 percent of the employed labor force in the region would consider changing jobs, and another 7 percent would be interested in taking a second job. Almost two-thirds of this labor pool reported having some training or education beyond high school (one-third at least a two-year degree) and more than half were working in an occupation different from their training.

Such evidence suggests that job matching for both workers and employers has a lot of room for improvement. But proper job matching includes a lot of variables on both sides. That's where imperfect information and time lags in the demand-supply chain can make it difficult for both sides to find the right dance partner.

For example, one of the most consistent messages for workers has been the need for more education. Ironically, some regions are now finding that the supply of educated workers is outstripping demand. A study last year on labor conditions in west-central Minnesota stated, "The population as a whole has greater educational attainment than that needed by employers in the region."

A 1998 survey of households in the northeast region of Minnesota by University of Minnesota-Duluth researchers "showed a labor force that is overtrained relative to firms' needs. ... While earlier studies warn of U.S. business firms' inability to find individuals with high-level skills, our analysis suggests the problem is not universal." A follow-up survey in late last year confirmed that "[w]hile the households report a large number of certificates and skills, firms appear to be looking for lower skilled individuals."

A labor force with too many skills? Not really. The problem isn't overeducation, but skill mismatches at both ends of the skill ladder. For high-wage, professional jobs, employers are saying they need more people with higher education and specialized skills. Workers have responded by going to college in record numbers. For example, total enrollment in all higher education institutions in Minnesota went up almost 12 percent from 1996 to 2001, topping 305,000.

But as they fan out to study different occupations, not all college goers are in equal demand by employers. Most anecdotes and data suggest that there is a shortage of college-educated workers in certain fields, like science and technology, but not in other fields like the humanities (at least not for employment in their particular field of study; college goers still have a leg up on many better-paying jobs that require critical thinking and other nontechnical skills). This is how many college graduates become part of the underemployed and skill mismatched.

Neither are educated workers in equal demand by geography. In the Twin Cities, better than 40 percent of job vacancies in the fourth quarter of last year required education or training beyond high school. In outstate Minnesota, fewer than 30 percent of job vacancies required any post-secondary education or training.

That doesn't mean workers are ignoring the education or training that will land them a good job. Over the last half-decade or so, the number of computer science majors at the University of Minnesota has more than doubled. But in some cases, there are secondary impediments, like slow-changing bureaucracies, that prevent a smooth adjustment between the demand and supply for particular skills.

Last year, for example, the University of Montana's College of Technology was looking for additional money from the state to expand its programs. The school's dean told the Missoulian newspaper that 40 percent of programs had a waiting list and have had them for years despite the fact that I get calls every week for jobs we can't fill. The demand is greater than the supply."

Employers' soft side

Job matching on the lower end of the employment market—where the majority of job vacancies lie—deals with a different skill shortage. Because employers often provide the in-house training necessary for workers to do their job, many are first seeking so-called soft skills in workers—punctuality, courteousness, motivation and the like (also referred to as work-readiness). A 2001 survey in Pierce County, Wis., by UW-Extension professor Gary Green reported that "employers tend to rate the importance of 'soft skills' ... much higher than some of the 'hard skills.'"

As employers reach farther down into the labor pool, many are dissatisfied with the work readiness they find in applicants. A 1999 survey of Montana employers and employees—one of few to date on labor conditions in that state—found that "employers are first and foremost looking to hire employees with positive work habits ... [which] was also the most difficult trait for employers to find."

Employers do have options for attracting higher-quality job candidates (or ensuring better matches), none better than a good paycheck. Numerous labor availability studies show that wages are easily the biggest reason that currently employed workers are willing to shift employers.

Some businesses can't raise wages because they don't operate on a high enough margin to increase pay across the board. But other employers simply won't raise wages because they haven't adapted to new labor conditions and related wage demands of qualified workers.

One local employer told Ron Kraft, head of Yankton Economic Development, that his firm was having difficulty finding certified welders at $8.75 an hour. "I didn't know there was any certified welder anywhere in the last 20 years"making such low wages, Kraft said.

"Skilled jobs are a national market. You can't say, 'I'm going to pay Yankton wages for a skilled job,'" Kraft said. "It took people a while to figure that out. ... They're getting better but a lot of them have a long way to go."

Kraft also said that employers can attract and keep workers, even at average wages, "if you can create that mystique" of being a good place to work, Kraft said, "that [positive corporate culture] goes a long way, whether you're hiring a guy to sweep the floor or an engineer."

Working overtime on the problem

Many other obstacles stand in the way of a more seamless system for matching worker skills and employer needs. "Employers don't do a good job of talking to educators" about their needs, said one. Another said public higher education has failed to meet the needs of employers and left "a vacuum that's been taken up by private education centers."

Some elements of the job-matching gap are structural. Underemployment, for example, often results when there is not a compatible opportunity for the spouse of someone who has been recruited to a small market—which happens frequently in college towns, where spouses of professors often have a difficult time finding the right fit for their own careers.

Other gaps are procedural, like poor applicant screening by employers, which can result in ill-advised hiring and high turnover. Many employers often don't do much to match workers and skills outside of a resume or application review. Studies in three western Wisconsin counties found that employers' most common pre-employment screening technique was doing reference checks; most did no skill or aptitude testing before hiring job candidates.

With so many pratfalls plaguing an efficient supply and demand for workers, there appears to be a proportional number of efforts to plug various gaps. Indeed, the capacity for job matching has already improved tremendously in the last half-decade, thanks mostly to the Internet, and is likely a central reason why unemployment declined in recent years to record-low levels.

Several years ago, the state of Minnesota developed ISEEK (Internet System for Education and Employment Knowledge) to not only provide a virtual meeting space for workers and employers (like many other online job centers), but also to give students and current workers information on occupational demand and available education and training.

Employers are getting more involved in the skill issue as well by providing more training to more employees. Sometimes local employers come together to design training curriculum for use by many companies. Lincoln County, in rural north-central Wisconsin, has training consortiums in its two main cities, Tomahawk and Merrill, that are led by area manufacturers and human resource professionals.

Businesses are also becoming more involved in local schools. The Greater Yellowstone Business and Education Council was recently launched in Billings, Mont., to better match employers' skill needs with particular school programs.

For its part, the public sector is also finding new ways to improve the job-matching process. For the better part of a decade, district states have been aggressively pursuing customized training programs, whereby two-year technical (and sometimes community) colleges design training programs specifically for the workers of local employers. Such programs are often subsidized by states or
cost-shared with the employer.

Existing resources are also being funneled more often to meet dual needs, like retraining workers in a high-demand field. South Dakota recently received a grant of $2.7 million from the federal Department of Labor (DOL) to train unemployed and underemployed workers for careers in health care.

More money is being used for incumbent-worker training. The DOL provided a $449,000 grant to a local workforce development agency to upgrade the skills of 100 employees and provide high-tech training for another 80 workers at Firstlogic, a computer software products and services provider in La Crosse, Wis.

Additional efforts are under way to better match employers and workers. Northwest Concentrated Employment Program in Ashland, Wis., received a $590,000 federal grant this year to create an online, customized, anonymous matchmaking service for both job seekers and employers. The Upper Peninsula Economic Development Association has implemented the Web-based "U.P. Business Barometer" that will allow economic development professionals to evaluate local worker skills and workforce needs automatically, based on information obtained during business-retention visits.

The nation's main data collector on employment, the Bureau of Labor Statistics, has also developed a new tool to better identify employers' demand for skills. The agency recognized that "there is no economic indicator of the demand for labor with which to assess the presence or extent of labor shortages in the United States." The new survey, called JOLTS (Job Openings and Labor Turnover Survey), will provide data on job openings, hires and separations. But it is still in the development stage, and no new data will be published until later this year.

We think, we hear, we don't know

And the newest, most widespread tool—labor availability studies (see cover article)—is yet another effort to tackle the fundamental gap in the supply-and-demand conundrum: better information. So says Jim Hirsch, director of the North Dakota Workforce Development Division. "One of the biggest gaps" between the supply and demand for labor "is the lack of data warehousing for planning purposes," Hirsch said. "Probably every state has this problem."

States, communities, employers, chambers of commerce and others collect lots of useful data on workers and skills, but the information is not aggregated in a spot "where everybody can access the kind of [comprehensive] data they need."

North Dakota, for example, is helping its local communities conduct labor availability studies and is in the midst of a "needs assessment" for information technology workers "to find out exactly what the skill gaps are," Hirsch said.

"We think there is a shortage. We hear [there is], but we don't have the data."

See also:
Labor Shortage, fedgazette, January 2005
Mr. Recession, meet Mr. Labor Shortage, fedgazette, May 2002