Study suggests low wages to blame for skills gap

New research from Warwick University suggests that low wages rather than inadequate training and education is the primary cause of the STEM skills gap.

Based on data from the US, the study was carried out by Dr Thijs van Rens, associate professor at Warwick’s Department of Economics. He claims that despite growing calls from industry for more STEM graduates, businesses are not providing adequate wages to attract the right personnel.

“Businesses complain about the lack of workers with STEM skills but are unwilling to raise wages for these workers – or reduce wages for workers with skills that are less in demand,” he said.

“It is often taken for granted that the skills gap and skills mismatch is a supply problem and appropriate training is not available to workers.  However US data shows that market wages do not reflect the relative demand for different types of skills.”

The research used data on job finding rates, earnings and profits across states, industries and occupations to measure the extent of skills mismatch in the US labour market, and the underlying frictions that give rise to it. Van Rens identified three reasons why this mismatch exists: workers don’t adjust to changes in skills demand; firms don’t adjust to changes in skill supply, or wages do not reflect skills shortages. A particular problem with STEM is that grads are being attracted to sectors where their technical skills are under-utilised.

“While firms complain about a shortage of qualified physicists and engineers on the labour market, a very large number of graduates in these fields work in the financial sector, where they only use their STEM skills to a very limited degree,” said van Rens.

“Encouraging universities to educate more physicists and engineers will not make any difference if these additional STEM graduates look for jobs in investment banks.”