The federal-provincial battle over Ottawa’s ambitious push to overhaul job training programs has pushed the “skills shortage” agenda, once an arcane point of largely academic discussion among economists, to the front and centre of the public policy debate. The premise that Canada has a variety of skills shortages is usually taken as given by many in government and business, particularly when it comes to the information and communications technologies (ICT) sector.
And because what happens in the ICT sector significantly affects other parts of the economy, these skills shortages are seen as a factor in Canada’s stubbornly weak performance in both innovation and productivity, and therefore as a threat to our future prosperity. Without keeping up with the growing need for ICT skills, it is argued, we will see no new Canadian BlackBerrys, and we will cripple our global competitiveness across the board, from finance to manufacturing, resource extraction and beyond.
Yet a closer look suggests that while there is some evidence of ICT skill shortages, we need to expand how we look for this evidence and accept that the underlying reasons for any shortages are more complicated than traditional economic models allow.
And especially at a time when the demand for ICT skills is evolving in swift and complex ways, we need to recognize the essential principle of linking our post-secondary institutions to developing ICT skills. Victory goes to the swift, and the stakes are high.
So how do we get a handle on the issue? The first step is to rule out what a skills shortage is not. When Tim Hortons owners in Fort McMurray say they face a “skills shortage” because they cannot find workers at the wages on offer, that is a rhetorical flourish, nothing more than employers wanting to pay less than they may need to pay in order to hire and keep workers who are, in fact, available. The solution to this “shortage” is simple: bump up the wage and the needed workers will present themselves, moving from other jobs, other parts of the country and from being out of the labour market. As economists are wont to say, “There is no such thing as a skills shortage, there are only employers who do not want to pay what the market requires for them to attract the workers they need.”
The danger, however, comes from the natural tendency of economists to apply that simple model indiscriminately to all occupations and industrial sectors. The framework that works for the Tim Hortons coffee server does not necessarily apply in the same way to the ICT sector. Advanced skills are fundamentally different from simpler skills, in various ways, which includes the time they take to be developed.
This skills development takes place primarily in the post-secondary education (PSE) sector. The current model for how that development works goes something like this: first, a shortage of ICT skills emerges — let’s say, due to rising demand for ICT workers as the entire economy becomes more digital. As a result, the wages paid to ICT workers would be expected to rise as employers try to attract the workers they need. If these higher wages are expected to last, they should trigger changes in post-secondary education. The changing demand for skills thus has an effect not just on the labour market but also on the PSE system, which we can characterize as a market being on its own.
From this perspective, the PSE system has its own demand and supply dynamics. The demand side comes from students wanting to gain ICT skills; the supply side comes from institutions offering spaces in their programs. The number of students coming out of the system is determined by the intersection of this demand and this supply. Conventional economic models often ignore the important points that you can have only as many graduates as there are (1) students who want to study and (2) places available in the programs they want to take.
For the system to deliver the right number of the right kind of workers in the right flows, both markets — the labour market and the PSE market — have to be operating efficiently on their own and interacting in an equally efficient manner. If either the demand side (driven by students) or the supply side (determined by PSE institutions) of the PSE market fails to respond to the labour market signals indicating that more ICT workers are needed, the number of ICT students and graduates will not be right. In particular, there will not be an efficient new longer-run supply of ICT workers in response to any increased market demand for them.
In this sense, it is not unreasonable to say that there is and may continue to be a “shortage” of ICT workers, even if the ICT labour market is offering higher wages than before in the face of increased demand for ICT workers. The key factor in this scenario is the response of the PSE system. Now we are no longer in our Tim Hortons world.
This is where the policy rubber meets the road. What are the problems — or “market failures” — that could cause the PSE system to fail to operate efficiently by not being responsive to labour market shortages? And what is the potential role of policy-makers to correct the situation?
On the demand side, students may not be aware of any emerging labour market shortages. This is where the much-touted labour market information issue comes to the fore. If labour market tightness is not being well measured, or if the information is not generally available or not being effectively communicated to youth, governments need to help correct this market failure. Furthermore, policy-makers need to accept that labour market shortages do not necessarily only result in wage increases but also may lead to other adjustments, such as increasing the hours that workers put in, improving nonwage benefits or putting more resources into recruitment. Labour market information should be expanded beyond simple information about wages.
Needed skills go beyond the technical set taught in colleges and universities.The Functionary
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Another factor affecting the demand side of the PSE system is that students may not be responding to the labour market signals that do exist. We have a growing understanding that young people do not necessarily make their schooling decisions as “rationally” as economists assume. To the degree that this is true, we need to address how students actually make decisions and help them improve those choices. Here, too, there is a potential role for governments.
But the supply side of the PSE system also must respond to labour market signals and ensure that the number of student spots available in ICT programs is appropriate. The PSE sector is to a substantial degree controlled by governments through funding formulas and other more direct forms of regulation, including the allocation of the number of places offered in a given area of study. Our PSE systems need to allow for expansion of the programs in demand, decisions that are often taken at the micro level of individual institutions, faculties, schools and even departments.
All this takes time. Even if the system is operating efficiently and providing the necessary spaces and skills training, it will take three, four, five or more years before an increased flow of PSE graduates emerge as the ICT workers needed to address a skills shortage that emerges today. And if we look for students to accommodate themselves to the labour market demand at an even younger age, with high school students preparing for ICT studies, the lag will be even longer.
The challenge is made even more difficult by the specialized — and ever-changing — nature of the specific skills needed in the ICT sector. In the real world, ICT skills are not left vaguely defined. And what ICT employers are telling us is that even the most specialized PSE programs are not producing workers with the specific skills needed to function in the digital economy.
These needed skills clearly go beyond the set of technical skills traditionally taught in colleges and universities. Today’s ICT sector needs workers with cross over skills, not just programmers who know 0s and 1s and engineers who know systems. Skilled workers need to be able to work and communicate within multidisciplinary teams of designers, marketers, media experts and others. Knowing when and how to take initiative is part of any skill set in a sector where products often develop by iteration, and where companies need workers nimble enough to adjust to volatile markets and intense competition. And other “soft” skills are emerging that we are only beginning to understand.
This dynamic makes it even more complicated to define and respond to a “skills shortage.” What are the market signals for those particular emerging skill sets? How are they to be measured, evaluated and communicated to students, the PSE system and policy-makers? Do students understand the skill mix being sought and can they identify the PSE programs that will get them there? Are PSE institutions paying attention to these emerging needs and adapting to — or trying to get ahead of — the game?
It is a tall order to provide a road map for what we should do, but perhaps the analytical framework sketched out here is a good starting point for the necessary thinking. Such a framework could better guide empirical investigations of whether an ICT skills shortage actually exists and, if so, help us to understand why. It could allow us to better assess and measure the PSE system’s response to the demands of the ICT sector and of students. And it offers some guidance to policy-makers as they address this complex issue.
Employer groups might be best placed to describe the kinds of workers they are looking for and explain what they are doing about any emerging skills shortages. Or perhaps ICT employers are just blowing smoke with all their talk of skills shortages. Let’s not forget the sector’s previous busts — including the dot-com collapse of just over a decade ago that led to legions of freshly minted ICT graduates entering an ICT labour market that was on the skids, and it left many PSE institutions with shiny new ICT-focused facilities with no one to teach.
Claims of skills shortages cannot be ignored but they need careful scrutiny before being acted upon. We need empirical evidence of where these shortages do — or don’t — exist, and what the missing skills look like. That information has to get to those who need it, from employers to prospective students, the PSE sector and PSE policy-makers and even back to the K-12 educational system.
And we need PSE systems that are appropriately responsive to the emerging demand for skills. For the system to work optimally, we thus need clear and well understood signals or indicators of what the needed skills of tomorrow will be. We need students to respond to those signals, and we need PSE systems and institutions to deliver future skills today to the students who seek them. And we need all this to happen in a world where some of those skills are not even known — precisely because the sector’s activities and opportunities are changing as the technology itself evolves. This is asking a lot.
And it is very, very far from any skills shortage in the Tim Hortons world.