‘Skills gap’ arguments overlook collective bargaining and low minimum wages

As the U.S. economy slowly but steadily recovered from the Great Recession beginning in 2009, Gross Domestic Product grew, employment rose, and the unemployment rate declined. These were all consistent with an economic recovery, but one very important metric has not caught up. Wages, seemingly defying the laws of labor supply and demand, remained essentially flat. The economy was growing, demand for workers was rising faster than the supply, yet the nominal price of their labor was not increasing any faster than inflation. As a result, the additional income produced by a growing economy was going not to workers, but to capital—investors and employers. And while real wage growth has begun to pick up in recent months, it is still below target (opens in a new tab) for a tight labor market.

In the post-World War II era, as productivity rose, wages for U.S. workers went right up with it. Workers enjoyed the fruits of their hard work, made ever more efficient and productive by improving technology. But in the 1970s, as the Economic Policy Institute has demonstrated (opens in a new tab), wages and productivity became decoupled. As the EPI figures show, productivity has risen fairly steadily since then, yet wages have stagnated.

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Over time, one theory—which was advanced about the flattening of wages and today is almost accepted wisdom—was that wages were rising at a healthy clip for skilled workers; it was only relatively low-skilled workers for whom wages were flat. There were higher-skilled jobs available, the theory went, but not enough workers with those skills. Hence, the supposed “skills gap” between supply and demand for skills.

But if the problem of growing wage inequality were primarily a problem of skills (opens in a new tab), then to make wages grow, policymakers would need to reduce the skills gap. The way to do that, so the argument still goes, is for workers to become better educated and better trained by getting higher degrees and by learning new trades. And this should be a priority for government—to fund such skills acquisition across the age and educational spectrum.

Yet interestingly, and not coincidentally, among those supporting this interpretation of wage stagnation most aggressively were businesses. It was as though employers had nothing to do with setting those flat wages. And it was as though businesses had no responsibility to train their workers in new skills so they could earn higher wages. For businesses, fixing the skills gap rested on the shoulders of workers themselves, perhaps with support from the government by making education more accessible.

There’s no question that investment in human capital—in education and training, in particular—should be a high priority. Such investments pay dividends for individuals, for the economy, and for society. Moreover, this is a shared responsibility of government, individuals, and, yes, businesses. But education and training are only a necessary condition for wage growth, not a sufficient one. Moreover, whether the amount of such investment was related to the flattening of wages is an entirely different matter.

Indeed, as the recovery nears its decade-long mark and the jobs market continues to tighten, wages have finally begun to move upward modestly because of a tightening labor market. But there is a way to go for wages to reach a level reflecting long-run productivity increases (opens in a new tab) and to overcome historical wage disparities between groups of workers (opens in a new tab).