Cost/Benefit Analysis

I have a quibble with this article at the Harvard Business Review, “The Great Recession Drastically Changed the Skills Employers Want”:

In recent research we investigate how the demand for skills changed over the Great Recession (2007-09). Using nearly all electronically posted job vacancies in 2007 and 2010–2015 collected by the analytics company Burning Glass Technologies, as well as geographic differences in economic conditions, we establish a new fact: the skill requirements of job ads increased in metro areas that suffered larger employment shocks in the Great Recession, relative to the same areas before the shock and to other areas that experienced smaller shocks. Our estimates imply that ads posted in a hard-hit metro area are about 5 percentage points (16%) more likely to contain education and experience requirements and about 2–3 percentage points (8‒12%) more likely to include requirements for analytical and computer skills.

Moreover, the vast majority of this “upskilling” persists through the end of our sample in 2015. That is, even while most measures of local labor-market strength had converged back to pre-recession levels, differences in advertised skill demands remain. This holds true even when we statistically control for the availability of skilled labor and the composition of ads across firms and occupations. In fact, we find that the same firms that upskilled by 2010 drive the persistence later in our sample period – the companies that reacted to the recession by looking for more skilled workers were still pursuing that strategy five years later.

My quibble is that they’re neglecting what is to me an obvious reality. Managers do things for reasons. They don’t just do them in a sort of Brownian motion or random walk. If managers are convinced that there is a reliable and unending supply of low-end workers or of workers with higher skills than present workers at lower pay (or they can use the claimed need for higher skills as a pretext for replacing present workers with workers who will work for lower wages), they will do so.

But such convictions are based on politics and policies and may be reversed. Then they’ll do something else. Managers may not be emotionless robots or perfectly rational but they’re not single-celled organisms or mindless particles, either.

The question that I wish were being considered but no one seems to be is why did so many companies, particularly large companies, have so many nonproductive employees previous to 2007 whom they continued to employ? I think that’s the $64 trillion question.

4 comments… add one
  • Guarneri

    Oh, I don’t know. I’ve seen managers mimicking Brownian motion. We have a term for them: “ex-managers.” But I digress.

    Without questioning their conclusion (although I have commented here a number of times that I agree with the skills deficit) as a former experiment designer, measurer and interpreter I wonder how in the world they would control for an advancing, more skill intensive, economy. And I’d suggest therein lies the answer to your question. The alternative explanation is depressing: because they could.

    Oh, and as for your obvious explanation. We have been over this. I simply do not see nor have I experienced that. But I left large corporate for the “no effing around/no fat allowed” world of leveraged middle market companies some 25 years ago. You have far more large corporate exposure than I.

    As they say – YMMV.

  • Janis Gore

    You took the comment out of my mouth, Guarneri. What is Equifax management but entropic decay?

  • Gawaine

    On the question of fat… we were trained to have fat.

    Rounds of seemingly randomly timed layoffs, plus Jack Welch style “fire the bottom 10 percent”, caused us to keep expendables on hand at all times. Otherwise, you might lose someone who actually had skills.

  • I’ve never experienced that although I wouldn’t doubt that it could have happened, though.

    IMO empire building is a more likely explanation.

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