The Mechanisms Behind Rising Employer Skill Requirements

Project Date:
Nov 2015
Award Amount:
$34,477
Project Programs:
Future of Work

The Great Recession and subsequent recovery have been hard for low-skilled workers. From 2007 to 2012, the unemployment rate rose by 6.4 percentage points for non-college workers, relative to an increase of 2.3 percentage points for the college educated. Due to the increase in labor supply and the limited employment opportunities, the share of workers with a college degree within middle- skill occupations increased rapidly. This growth in skill levels within occupations has colloquially become known as "upskilling."

Previous research shows that employers opportunistically engaged in this upskilling behavior by raising education and experience requirements within middle-skill occupations during the Great Recession in response to increases in the supply of relevant job seekers. What forces might be driving this employer behavior? There is evidence demonstrating that the college wage premium for new hires falls as unemployment rises, which may motivate firms to increase their skill requirements when they can hire new talent “on the cheap.” However, the mechanics of the hiring process and employer skill requirements are not well understood and existing research cannot distinguish among alternative explanations for employers raising requirements.

Economists Alicia Modestino and Daniel Shoag, in consultation with labor economist Philip Moss at the University of Massachusetts Lowell, will conduct 40 in-depth interviews with members from the Greater Boston Chamber of Commerce to examine how employers decide to set skill requirements. They will interview firms in four industries—manufacturing, healthcare, finance, and the life sciences—which all have a large number of middle-skill jobs. Modestino and Shoag aim to answer the following research questions: What institutional firm level characteristics are correlated with changing employer skill requirements and why do they matter? Does “upskilling” occur along other, harder to measure, dimensions of skill requirements? What were the motivations for employers to change their skill requirements during the Great Recession? Did recession-induced upskilling lead to a permanent shift in requirements for middle-skill jobs? If employers have experienced difficulty filling vacancies as the labor market has recovered, what actions have they taken?

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