Posted by: Josh Lehner | July 10, 2018

Deciphering Oregon’s Tight Labor Market

We know the economy is beginning to run into capacity constraints. The biggest issue today facing Oregon firms is the ability to attract and retain workers. The labor market is getting tighter for two primary reasons: a strong economy, and demographics as retirements increase. These factors are seen across the entire economy, not in an industry or two. Overall this results in slowing statewide job growth as the economy transitions down to more sustainable rates.

That said a tighter labor market is not the same as a true labor shortage. There is plenty of evidence of the former and none of the latter. The share of prime working-age Oregonians with a job is back to where it was a decade ago, yes, but remains lower than in the late 1990s. In fact we continue to see the labor force response where previously sidelined individuals return in search of these more-plentiful, and higher-paying jobs. Additionally a true labor shortage, or a genuine lack of workers is not the same as a skills gap. While these concepts are intertwined (or even nested), the implications and policy prescriptions are different.

Supplementing data with qualitative information and reports is a great way to help flesh out the entire story. One such source is the job vacancy survey our friends over at the Oregon Employment Department do (full report, blog summary). Given Employment has conducted the survey for 5 years now, we have a treasure trove of information on hiring directly from Oregon businesses. The recent report is filled with juicy anecdotes like an Oregon grocery store that had zero applicants for more than six months. Do read the real report for more information.

To start I like to group the responses into different buckets to gauge overall trends. First, Oregon firms continue to report that a plurality of their job openings are not difficult-to-fill. It takes time to post a job, conduct interviews, and get all the paperwork filled out, so it is no surprise that many job openings reflect general labor market churn, akin to, say, frictional unemployment. Second, when it comes to the rising number of difficult-to-fill openings in Oregon, the relative pattern has remained essentially unchanged in recent years. Roughly, an equal number of these difficult-to-fill positions are due to a general lack of applicants, issues with the jobs or employers themselves, and issues with underqualified applicants. Each of these segments has different implications for the economy and policy, but so far none are really sticking out.

A general lack of applicants is likely tied to the overall tightness of the labor market, and potentially a true labor shortage should it come to pass. Job-specific or employer issues are a reflection on the jobs themselves, including low wages, unfavorable working conditions and the like. These issues are best addressed by individual firms or industries. However it is the third group, the underqualified applicants, that is the most important to watch for legitimate workforce issues, including a skills gap should it ever materialize.

In digging into the details, or individual responses, there are only a few changes from 2016 to 2017 that stand out. First, the increase in not difficult-to-fill positions. Second, the increase in difficult-to-fill positions but no reason given as to why the vacancies were difficult-to-fill. This makes it hard to interpret these results. And third there was a sizable increase in the lack of soft skills as a reason for why some positions are difficult-to-fill.

From the report:

Soft skills include professional competencies required for a job, such as communication, interpersonal, and social skills. In the Job Vacancy Survey it included employer responses related to subjective traits such as honesty, reliability, and motivation. It also included more quantifiable traits such as having a valid driver’s license and clean driving record, passing a background check, and passing a drug screen.

The report goes on to note that drug testing issues accounted for 1-2% of all vacancies from 2013 to 2016, however they increased to 4% in 2017. This is similar to what our office noted a few weeks back and in our latest forecast document. And in our forecast advisory meetings our friends at Employment did share with us some of this information during the discussion of the labor market and anecdotal reports our office has received. Again, we’re not exactly sure what to make of this development. Some of it likely is a compositional issue, but it does warrant monitoring these trends moving forward.

So what are employers expected to do? For one they must dig a bit deeper into their resume stack to find workers that may have been previously passed over. This includes searching in places where participation is down but likely to respond in a strong economy. Employers may also downskill some positions by having fewer skill and/or work experience requirements. Similarly, on-the-job training becomes considerably more important in a tight labor market. And raising wages to compete in the market. Additionally providing other benefits like consistent hours, or a flexible work arrangement, and the like can similarly attract and retain workers.

Bottom Line: To date, based on the information and responses from Oregon businesses, it does not yet appear that Oregon is facing a genuine labor shortage, nor the much-hyped-but-never-proven skills gap. This is great news. The pattern of job vacancies overall reflect a strong economy in which businesses are having a harder time filling positions, but at least not yet due to legitimate labor market problems. Oregon’s working-age population continues to grow, in large part due to migration trends. However, the tighter labor market is expected to remain until the next recession. It does makes it a bit more challenging for firms to grow and expand, but it is also good news for workers as strong wage growth is expected to continue as well.


Responses

  1. Josh, I love your reports and find them very useful, Since you have a large store of data, is there anyway to break out the job vacancies by income level?

    Steve

  2. Thanks! Informative and interesting, as usual! I’m glad to see a nuanced consideration of the possibility of a labor shortage. People toss that phrase around a lot, but in a market economy – with resources allocated by price – it’s not clear that you can have a shortage, rather than simply people attempting to pay a price below the market price. Or in this case, a wage below the market wage in conditions closer to full employment.

  3. […] Source: Deciphering Oregon’s Tight Labor Market | Oregon Office of Economic Analysis […]


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