Terence Hogarth, Institute for Employment Research, University of Warwick

June 2023

Skills and skills mismatches

Providing information on careers depends upon being able to indicate those skills that are in relatively high or low demand in the labour market. The analysis of skill mismatches delivers information of relevance.

What is a skills mismatch? One might want to ask a prior question: what is a skill? In his seminal article What is Skill? Attlewell comments: “… like so many common sense concepts, skill proves on reflection to be a complex and ambiguous idea”(1). Measurement of skill in practice has sidestepped some of the definitional niceties relying instead on proxy measures of skill including occupation and qualification. Neither are ideal. Occupation groups together jobs which are more alike to one another than to other jobs. Depending upon the level of aggregation one may be looking at a set of jobs which require their incumbents to undertake a very different tasks. And qualification or educational attainment provide little indication that the skills or knowledge acquired from studying a particular course are used in practice. In the absence of other measures, occupation and qualification have had to suffice.

Defining mismatches

Putting aside, for a moment, the difficulties of defining and measuring skills, how are skill mismatches defined and measured? This is one of the major skills policy issues. Many countries have made substantial investments over recent decades in their education and training systems which is reflected in rising levels of qualification attainment. Markedly so when looks at the increase in the number of people obtaining university degrees. This has focused attention on whether the capabilities individuals obtain from the education and training system are matched to the needs of the labour market.

Different types of mismatch

Skill mismatches can be classified as follows (see Table 1). This is a gross over-simplification of the concept of skill mismatches but serves to capture the main distinctions of interest. Typically, skill mismatches are defined with reference to shortages (too few skills available) and surpluses (people possess skills characterised by excess supply). A distinction also needs to be made between internal and external labour markets. Individual employers may experience skills shortages and surpluses amongst their existing workforces. These types of internal mismatches are often referred to as skill gaps. From an external labour market perspective there is a need to look at recruitment – the extent to which employers are able to fill their vacancies for skilled jobs and individuals are able to find work commensurate with their skills (however defined).

Table 1:           Classification of skill mismatches

	Skill Shortages	Skill Surpluses
Internal: Organisations’ existing workforces	The workforce of an organisation is not fully proficient in their existing jobs	Workers’ skills are excess to those required in their jobs
External: Skills available in the labour market	Employers experience difficulties recruiting people with the skills they require	Workers are in excess to the jobs available in the labour market

A sometimes complicated nomenclature has developed to describe skill mismatches of various kinds. These include (2):

• over-qualification- individuals have a higher qualification than the job requires
• under-qualification –individuals have lower qualifications than the job requires
• over-skilling – individuals are not able to fully utilise their skills in their jobs
• under-skilling – individuals lack the skills and abilities necessary to perform the current job
• skill shortage where demand for a particular type of skill exceeds the supply of that skill at the prevailing rate of pay
• skills obsolescence – skills previously utilised in a job are no longer required or have diminished in importance
• latent skill deficits – the expected level of skills shortages if economic performance were to be improved (say to the level of a competitor country).

All measure variations on a theme.

Finding data on skill mismatches

• Various sources of information are available to detect skill mismatches. These include: the relationship between vacancy rates and unemployment rates (the Beveridge Curve);
• objective statistical measures (such as the share of people with qualifications above or below that typically associated with job);
• subjective measures (as report by employers and workers respectively);
• job advert data (which reveal real time shifts in demand for labour).

More information on each of these is provided below.

The Beveridge Curve

In practice there are a range of data which can be used to reveal something about the extent of skills mismatches. At a macroeconomic level, there is the Beveridge Curve – the relationship between the demand for labour and the level of unemployment. Over time, there is some evidence that the curve has revealed an increasing degree of mismatch between labour supply and demand. The Beveridge Curve reveals that there may be a matching problem, but not the underlying causes. It needs to be borne in mind that the degree of mismatch between the supply of, and demand for, labour is not just about skills. Labour shortages, for example, might emerge because of the wages on offer, the location of the job, or working conditions.

Objective Statistical Measures

There are several specific measures which reveal something about the extent to which skills account for observed mismatches between the supply of, and demand for skills. Objective statistical measures – typically drawing on evidence from the Labour Force Survey – gauge the extent to which people working in an occupation possess qualifications which are above or below the average held by all those working in that occupation. The threshold to determine a surplus or shortage can be arbitrary in these measures. There is also a need to bear in mind that over time the characteristics of a job might change where new entrants tend to be qualified to a higher level than was previously the case. In other words, over time the skill characteristics of a job might change in response to the availability of skills.

A further objective statistical measure is differential occupational wage growth. One might expect wages to increase where there are shortages. In practice, it will take time for labour market signals to have an impact on wage levels and even then, the process of wage setting within workplaces may affect any outcomes on wages. Nevertheless, data on differential occupational wage growth are readily available from the Annual Survey of Hours and Earnings. It is perhaps  notable that some jobs with the highest increases in median earnings over 2019 – see the top 10 list below – are relatively less skilled ones.

1. Rail transport operatives
2. Glass and ceramics makers, decorators and finishers
3. Managers and proprietors in forestry, fishing and related services
4. Rail construction and maintenance operatives
5. Collector salespersons and credit agents
6. Publicans and managers of licensed premises
7. Business, research and administrative professionals n.e.c.
8. Telecommunications engineers
9. Upholsterers
10. Hotel and accommodation managers and proprietors.

Subjective measures

Surveys of individuals provide a more subjective assessment of skills mismatches. Workers are typically asked about various tasks they undertake and whether they consider themselves to possess the skills to carry them out. Individual workers, however, might over- or under state the extent to which they possess the skills required in their current job. For instance, they might be reluctant to admit they do not possess all of the skills necessary to do their jobs. There have been a range of surveys which attempt to gauge the extent to which individuals possess the skills required in their job. An estimated 17 per cent of people in employment in the UK report that they are under-skilled mainly as a consequence of changes in the task content of their jobs (often linked to digital skills) (3).

A further subjective assessment of skill mismatches is provided by employer skills surveys. These provide information on:

• recruitment difficulties: – i.e. the extent to which vacancies prove hard-to-fill because there is an insufficient number of applicants with the skills, experience or qualifications required (a potential indicator skill shortages); and
• internal skill gaps – i.e. the extent to which those employed in a particular workplace, or those working in a particular occupation within a workplace, are fully proficient at their existing jobs.

Employers’ reports may be biased in the sense that they are looking to acquire skills at a price below the going rate. One study suggested that many claims that vacancies remain unfilled because of a shortage of applicants with the skills required were more to do with the terms and conditions of employment on offer rather than the supply of skills (4).

A timely reminder, if one were needed, to be cautious when interpreting data which purports to be about skill mismatches. Nevertheless, employer surveys provide a number of key indicators on the extent of mismatches. Table 2 shows the extent to which employers reported having vacancies, the share of vacancies that was said to be hard-to-fill, and the share that proved hard-to-fill because of a shortage of applicants with the skills, experience or qualifications sought (i.e. skill shortage vacancies). The data reveal that at the time of the 2019 Employers Skills Survey, that the extent of skill-shortage vacancies was equivalent to 0.8 per cent of total employment. The data also show that skill gaps in the existing workforce were much more evident than skill-shortage vacancies. Overall, just under five per cent of the workforce were not fully proficient at their jobs according to their employers. Many of jobs associated with skill shortages and skill gaps are concentrated in professional, associate professional, and skilled trades occupations.

Table 2:           Skill shortages and skill gaps reported by employers

	Employment
No. of vacancies	811,703
Vacancies as % employment	3.2
Hard-to-fill vacancies as % employment	1.1
Skill-shortage vacancies as % employment	0.8
Skill gaps as % employment	4.6

Job advert data

Job advert data provides real time information on skill demand. For the time being it does not reveal much about mismatches. For example, it is not known whether a vacancy proves hard-to-fill and if so whether this is a result of a shortage of applicants with the skills required. But combined with other data it is possible to identify whether shifts in volume of vacancies by occupation are linked to drivers of change in the labour market (such as technological change) or associated with known skill mismatch hotspots. Where job vacancy data are particularly valuable is the identification of the particular skills required within a job. When combined with sources of information on skill mismatches, this potentially provides detailed information which can inform those responsible for education and training provision.

Where next?

How can the situation be improved? First, there is scope to amalgamate the various data sources which reveal something about skill mismatches. A model for doing so already exists. The Understanding the Extent Causes and Implications of Skill Mismatches study provided the means of achieving this goal. It identifies the jobs which are associated with skill shortages or skills surpluses. The data used to demonstrate the proof of concept revealed the following occupations as being in shortage (see Table 3).

Table 3:           Skill Shortage Occupations

Source: Gambin et al. (2016) Understanding the Extent Causes and Implications of Skill Mismatches

By taking a multi-faceted approach that takes into consideration the multiplicity of factors which are likely to determine a skill shortage or surplus a more robust indication of skill shortages emerges. It is possible to take this a step further to show the skills associated with the shortage and surplus occupations. There are now data available from a range of sources which scrape data from online job adverts to reveal the skills associated with skill mismatch occupations, be that shortages or surpluses.  Data will be available from 2024 on the LMI for All website which provides these data.

References

(1) Attlewell, P. (1990) “What is Skill?” Work and Occupations, Vol. 17, No.4, pp.422-448

(2) Cedefop (2015). Skills, qualifications and jobs in the EU: the making of a perfect match? Evidence from Cedefop’s European skills and jobs survey. Luxembourg: Publications Office; McGuiness, S. Pouliakas, K.and Redmond, P. (2018) ‘Skills Mismatch: Concepts, measurement and policy approaches’. Journal of Economic Surveys, Vol. 32, No.4

(3) The 2014 European Skills and Jobs Survey revealed that around 17 per cent of workers in the UK said they were under-skilled.

(4) Cedefop (2015). Skills, qualifications and jobs in the EU: the making of a perfect match? Evidence from Cedefop’s European skills and jobs survey. Luxembourg: Publications Office