Measuring the 'Gap' in the Skills Gap

professional car mechanic...
professional car mechanic...

What if I told you the U.S. skills gap can now be measured and chronicled, much like how economists have been able to measure the effects of the economy on average citizens since the 1960s? The famous economic indicator known as the 'Misery Index' was created by the Johnson administration by simply adding the monthly unemployment percentage to the monthly inflation percentage. And now, by employing a similar method, I believe we have a way to quantify the effects of the skills gap on the national workforce and to bring a consistent measurement to this otherwise subjective discussion.

This is how I introduced the Skills Gap Misery Index (SGMI) last year in an article by the same name.

What is the Skills Gap?

Basically, the skills gap is the popular term used to describe the perceived disparity between those who are unemployed looking for a job and companies with jobs looking for employees. More specifically, it is the mismatch between the needs of employers for skilled talent and the unavailability of those specific skills within the workforce.

The skills gap creates "misery" within the economy from two different perspectives. Firstly with employers, it is the point at which an organization can no longer grow or remain competitive because it does not have the right skills to drive business results and support the organization's strategies and goals. Secondly with workers, it is the point at which a potential worker is unable to access available jobs due to a lack of training or relevant technical experience.

What is the Skills Gap Misery Index?

The SGMI is an economic measurement that provides tangible evidence for the serious national skills gap dilemma that experts have been describing for a long time and a tool that gives researchers a whole new way to analyze the effects of the skilled labor shortage in the United States. Created in 2014 by CIO Magazine Publisher Emeritus Gary J. Beach, the SGMI makes use of monthly employment and job opening data from the Bureau of Labor Statistics. It plots the relative increase or decrease of "misery" within the economy based on factors believed related to the skills gap.

Where can the Skills Gap Misery Index be found?

The SGMI is available as a convenient online resource. Oklahoma State University Institute of Technology (OSUIT) has partnered with SGMI developer, Gary Beach, to launch the official SGMI website. This new research tool is available free to anyone interested in plotting the effects of the U.S. skills gap. The SGMI website is maintained by OSUIT personnel and updated once a month. All SGMI calculations on the website are based on the most complete monthly data available.

How is the Skills Gap Misery Index calculated?

To determine the SGMI, Beach takes the Seasonally Adjusted Nonfarm Employment Rate and multiplies it by the number of Americans included in the monthly U-6 Total Unemployment Rate. This number is added to the job openings rate identified in the Job Opening Labor Turnover (JOLT) report for the same month. For tracking purposes, the SGMI number is then benchmarked to the original date when JOLT reporting began, December 2000. The formula for calculating the SGMI is:
((Seasonally Adjusted Nonfarm Employment * U-6 Total Unemployed) + JOLT) / Baseline from December 2000) * 100

To better understand the source data, I offer the following explanation. The Seasonally Adjusted Nonfarm Employment Rate (part of the Bureau's Current Employment Statistics survey) is regarded as the first indicator of current economic trends in the U.S. each month. Together with the U-6 Total Unemployment Rate (which shows the millions of Americans who are presently unemployed and underemployed, including those who have stopped looking for work) provides a reliable gauge of the overall health of the U.S. economy based on employment. The monthly JOLT rate reflects the millions of individual jobs available in the U.S. at the time of the report. When tabulated and plotted, the SGMI reveals our nation's ability (or inability) to place unemployed workers into unfilled positions over time.

The Nonfarm Employment and U-6 numbers are typically released the first Friday of every month while the JOLT number is released between the 8th and 12th of the month. The Nonfarm Employment and U-6 numbers reflect the previous month whereas the JOLT number is two months behind (e.g. the December Nonfarm Employment number reflects November's employment and the December U-6 number reflects November's unemployment while the December JOLT number reflects October's job openings, hires and separations). Upon first release by the Bureau of Labor Statistics, these numbers are considered preliminary and subject to change. Usually, the final numbers are posted the following month.

How is the Skills Gap Misery Index used?

Because the SGMI is benchmarked to national data collected in December 2000 and has been calculated every month thereafter, it can be used to plot the effects and relative change of the skills gap in the United States since January 2001. The SGMI website offers a variety of charts and graphs to help the user distinguish month to month differences as well as annual changes.

Rising SGMI numbers basically indicate the skills gap is widening while decreasing numbers indicate it is improving. Any SGMI reading above 100 claims the "misery" caused by jobs not being filled or unemployment/underemployment is increasing beyond the benchmark baseline (e.g. an SGMI of 140 claims the nation's skills gap misery is 40 percent greater than it was in January 2001). An SGMI reading below 100 would signify just the opposite. It would indicate an improvement in the misery caused by the skills gap since the beginning of 2001.