In the Nation's Interest
The Work That Can’t Be Offshored or Automated
by Diane Lim April 26, 2016
If you ask the man or woman on the street what he or she considers the “hot” new jobs of the future, chances are they’ll bring up some sexy-sounding tech sector job—you know, developing new iPhone apps, analyzing Google data, programming cool new gadgetry. But what’s “hot” to economists is what the market reveals as “hot” in terms of supply and demand. Viewed through that lens, a new analysis of labor shortages by my colleagues at The Conference Board (TCB), Help Wanted: What Looming Labor Shortages Mean for Your Business, finds results that may surprise you.
What defines an economically “hot” (high “shortage”) occupation?
The basic economic definition of a “shortage” in a market is an excess of demand (or more precisely, quantity demanded) over supply (quantity supplied) at the current market price of the good or service. So a particular occupation would be in “shortage” if there were fewer people available to fill such jobs (on the supply side) relative to the number of positions employers are trying to hire (on the demand side), at the current market wage or salary. Many shortages don’t last long, because as long as there is a ready supply of workers waiting in the wings and wages are free to adjust, then wages get bid up, more workers are hired, and shortages close up; the labor market finds a new “equilibrium.”
So, note that a “hot” job in an economic (shortage) sense does not just mean the occupation is in high demand—which might be the popular conception of a “hot” job—but that demand is high relative to available supply. But TCB’s measure of labor shortages actually goes further than simply measuring excess demand for an occupation at a given point in time. Their “Labor Shortages Index” (LSI) uses an analytical framework that not only measures excess demand but also assesses the current and forward-looking factors that make it difficult for the market to quickly and easily “clear” with mere short-term price and wage adjustment. The LSI ranks occupations according to “the risk of experiencing labor shortages in the coming decade” and essentially reveals the likely stubbornness and persistence of shortages.
The LSI is divided into three subindexes:
• The “demand-supply gap” subindex estimates the gap between the number of job openings that will have to be filled in the next decade versus the number of new entrants to the occupation;
• The “education and skills” subindex captures the level of education and skills required for the job; and
• The “flexibility” subindex (perhaps more intuitively considered a “lack of flexibility” index) assesses how difficult it is to fill shortages in particular occupations through options such as “tapping remote workers in other countries” (offshoring jobs), allowing remote (tele-work) and contracted/part-time arrangements for U.S. workers, bringing more immigrants into the occupation, and “automating” tasks within the job.
The overall LSI is a weighted average of the three main components above, with weights of 50, 25, and 20 percent, respectively, plus a measure of unionization (5 percent weight). In other words, while the traditional measure of economic “shortage,” the demand-supply gap, remains the most significant factor in TCB’s measure, the other factors reflecting the challenges in alleviating these labor shortages are, combined, equally as important. As TCB’s report points out, not only is this labor shortages index unique in its broader assessment of current and future labor market conditions, but is “the only analytical framework that compares the risk of labor shortages across occupations using the same metrics.”
So what’s “hot” and what’s “not”?
Based on the composite LSI measure, the chart below (chart 2.1 from The Conference Board’s report) shows the (percentile) rankings by selected occupations:
What’s “hottest” from an economic perspective and the LSI measure is the “occupational therapy and physical therapist aides” category: that occupation faces a higher shortage risk than all other occupations. And contrary to popular perception, much further down the list is where we find “computer occupations” (with an LSI of just 54.2). In between, we find a wide variety of occupations, but also some generalizations we can make across broader occupational categories. Quoting from TCB’s report, the key “takeaways” are (emphasis added):
• Health and skilled trade labor occupations are at a high risk of labor shortages.
• Computer and science occupations are not ranked high.
Why this surprising result, particularly in the health service occupations compared with computer ones? Let’s take a closer look at the LSI sub-indices across these occupational categories (chart 2.5 from the report):
This shows that the occupation with the highest LSI, the occupational and physical therapists and aides, has the very highest risk of shortage, because it scores highest on the demand-supply gap component and very high on the (in)flexibility component as well. Its score on the demand-supply gap (remember, 50 percent of the LSI) is high because the demand for such workers will continue to grow rapidly over the coming decade given the aging of the baby boomers (and their rising demand for health care services), and is currently far outpacing the entry of new workers into those occupations. Its score on the (in)flexibility component is high as well, because the kind of human services provided by these occupations have to be done “live and in person” rather than remotely or by machines. So this occupational category is at a high risk of current and future shortage, despite this occupation not requiring a high level of education or skills compared with many other occupations. In general, the health sector occupations are relatively “hot” jobs according to the LSI because these jobs face high demand relative to supply, and the shortages cannot be overcome by simply offshoring or automating the jobs.
In contrast, computer occupations are very “middle of the pack” in terms of the LSI, and STEM fields in general rank low relative to health sector jobs. For one thing, the demand-supply gaps are not as large, both because demand for computer tech services is not as driven by demographic factors (the aging of the population), and because young people are providing a steady supply of workers entering these fields. Moreover, STEM occupations, especially computer ones, score very low in terms of the (in)flexibility factor, because in stark contrast to the health service occupations, computer tech work can be done under more flexible, alternative work arrangements—including by offshoring the work to other countries, or by hiring workers on a temporary, contract, and/or remote basis. Computer occupations are also relatively easy for immigrant workers to fill because, despite calling for relatively high education and skills, they typically do not have the citizenship and licensure requirements that other occupations have. So computer jobs are not so “hot” in terms of the LSI and the risk of shortages over the next decade.
Steering more people into the “hot” jobs
The “hotness” of a particular occupation can be interpreted as a good thing for the people who currently occupy those jobs or are already on that education-to-career path. But for the employers and consumers of the services of those high-shortage occupations, it remains a concern: how will these labor markets adjust over time in response to these shortages, and what will the new “equilibrium” (the “new normal” one might say) look like? And for the health occupations in particular, there is this very basic question: Who will take care of us when we get old? If our society demands more people providing health services, there are two main sources of supply we can tap: (i) we can recruit more young workers into those professions; and (ii) we can bring in more immigrants to work in those professions. This means that there are important roles for both education policy and immigration policy in addressing these labor market shortages. A follow-on report by TCB and CED on immigration and immigration policy “as a solution” to labor shortages is coming this summer. And our research on education and workforce development policy will increasingly relate to the measures of labor shortages, not just across occupations but across geographies (both of which are discussed in TCB’s report).
So to sum up, TCB’s new “Help Wanted” report and their unique and more complete measure of labor shortages provides us the economists’ perspective on what makes for a “hot” job. We find that the hottest jobs are not so much in building the “internet of things” in cyberspace, but in caring for the “real world of people” here on planet Earth. And no matter how fast technology progresses—no matter how close our real world gets to that of the “Jetsons” and how much we’ve dreamed of our own “Rosie”(!)—we will always need (or at least want) real people to provide those services, “live and in person.”