The U.S. economy, as a whole, has not performed well since the early 1960’s. Sclar and Hook (1992) point out that since 1960, the rate of productivity increase in the U.S. has only grown at an average annualized rate of 1.21 percent, while countries like Japan, Italy, and Germany have experienced rates of between 2.87 to 5.71 percent. The slowdown in productivity is hypothesized to be directly related to the widening skills gap being caused by the demand in U.S. industries for high-performance work and skills in their workers (Packer and Wirt 1992; Howell and Wolff, 1991; Levy and Murnane, 1992; Juhn, Murphy, and Pierce, 1992; EQW, 1995; See Spenner, 1983).
Packer and Wirt (1992) posit that the dimensions of skills that labor force participants must have in order to gain employment and/or to maintain their relative real wages are changing from traditionally defined skills to those that involve flexibility in problem solving and adaptiveness, “and other skills necessary for high-quality production” (p.32). These changes are reflected by differences in real wages within human capital categories, which include workers with and without college education, workers with and without high school education, and workers with and without job experience. According to Packer and Wirt (1992), evidence of the widening skills gap is derived from studies that show changes in relative wages and incomes between those at the top and those at the bottom of the wage and income distribution.
As a result of the industrial/manufacturing decline and the rise of service producing companies in the central city during the 1960’s and 1970’s, demand in the central city for low-educated labor has declined as the demand for higher educated labor has increased. Additionally, despite overall improvements in the overall educational attainment (as measured by years of schooling) of central city residents, they still lack sufficient and/or appropriate schooling to gain access to the jobs in the new urban growth industries (Kasarda 1990). This suggests that the labor force skills mix has not been able to match that required by demand, and over time has caused either an under supply of skilled workers, an over supply of low-skilled workers, or both (Peterson and Vroman 1992). Indeed, the fact that the returns to college education for black workers fell during the 1980’s as their education levels rose, suggests that the skills and education they obtained through standard secondary and post-secondary education programs were not of the type that the labor market required (Peterson and Vroman 1992).
Other research show an increasing demand among most U.S. employment sectors for higher skilled workers (Packer and Wirt, 1992; Howell and Wolff, 1991; Levy and Murnane, 1992; Juhn, Murphy, and Pierce, 1992; EQW, 1995). The National Center on the Education Quality of the Workforce (EQW) conducted a survey of 4,000 establishments, across the U.S., that employed 20 workers or more, from both the goods producing and services producing sectors. The study found that skills required by 95 percent of the employers either increased or stayed the same from 1991-94 (1995).
What types of skills are industries looking for? Bailey (1989) concludes a series of case studies analyzing the banking and textile industries by saying that firms have growing requirements for workers who can: understand complex systems, deal interpersonally with a wide range of people, and effectively communicate ideas and information. In particular, cognitive skills, general education, interactive skills, and motor skills make up the primary skill categories that these researchers have analyzed over the past three decades. Three of the four categories have seen an increase in demand, while the “motor skills” category has seen a decrease. Presumably, the decrease in demand for motor skills is because of the shift away from manufacturing sector employment where motor skills are most important (Packer and Wirt, 1992).
However, these skills are not necessarily correlated with the normative human capital variables associated with wage increases and career success: “years of education” and “experience”, respectively. This suggests that these skills are not able to, or are not being taught through traditional secondary, or even post-secondary academics (i.e. college prep or general education courses of science, math, and English). Instead, acquisition or development of these skills seems more likely to be correlated to the type and quality of job experience and social background of an individual (Wirt and Packer, 1992). Additionally, most forms of secondary education standardized testing (i.e. ACT, SAT, PSAT) do not test for these types of skills.
This skills mismatch between labor force supply and demand is important because it has, in part, led to increased income inequality, poverty levels and unemployment in the metropolitan inner city. The income gap that exists between those at the top of the wage and income distribution and those at the bottom of the wage and income distribution continues to increase. Packer and Wirt (1992) state that “the total amount of income inequality has increased at an average rate of about 1.3 percent per year over the past 20 years, for a total increase of about 30 percent” (p. 35).
Juhn, Murphy and Pierce (1993) show that the real average weekly wages for the least skilled workers (measured by the 10th percentile of the wage distribution) declined by nearly 5 percent, while the wages for the most skilled (as measured by the 90th percentile) increased by approximately 40 percent. These authors also show that the bottom 40 percent of younger workers in the U.S. earn less in the 1990’s than they would have in the 1960’s.