Global Skill Shortages

Global Skill Shortages

Malcolm S. Cohen and Mahmood A. Zaidi

As the world entered the twenty-first century, global skill shortages in many occupations were evident throughout the world. While these were mitigated by a global recession, there is no generally agreed upon method for measuring these shortages. This book discusses various theories for measurement. Using data collected from 19 developed countries in North and Latin America, Europe, and the Pacific region, the authors explore various aspects of skilled labor shortages, develop a methodology of measuring shortages by occupation, and provide estimates of the likelihood of the occurrence of such shortages. They develop labor market indicators which measure the degree of shortage or surplus in different occupations.

Chapter 2: Theoretical Aspects of Skill Shortages

Malcolm S. Cohen and Mahmood A. Zaidi

Subjects: business and management, human resource management, economics and finance, industrial organisation, social policy and sociology, labour policy


This chapter reviews some of the theoretical literature on skill shortages.’ It is important to point out at the outset that there is some discussion in the literature about the precise definition of skill shortages by occupation (Bosworth and Warren, 1992; Muysken, 1994). One of the main arguments here is that the term ‘shortage’ is imprecise. In a discussion of skill shortages one needs to consider skills as encompassing economic and institutional factors as well as innate abilities and personal characteristics. Booth and Snower (1996) blame the problem on insufficient incentives for people to acquire skills. Solow (1990) argues that the market clearing mechanism applied to labour markets has failed to explain the presence of unemployment. In other words, labour cannot be viewed as a commodity and labour markets do not behave in the same way as product markets. Furthermore, the traditional general equilibrium theory cannot easily justify the existence of skill shortages.2 This is not the place for an extensive discussion of general equilibrium theory as applied to labour market^.^ Our review is limited to a presentation of important concepts associated with static and dynamic skill shortages and explanations for the failure of labour markets to clear. The efficiency wage theory, the insider-utsider approach, barriers to mobility and the notion of path dependence are four concepts that provide explanations for the failure of labour markets to clear. STATIC SHORTAGES The existence of a skill shortage in a traditional and partial equilibrium framework can be easily determined. If the demand...

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