The Transferability of Skills - Economics - University of Western ...

CIBC Centre forHuman Capital& ProductivityPolicy BriefNo. 4 March/2012The Transferability of SkillsHighlights• Productivity losses duringrecessions are likely todepend directly on the easewith which displaced workerscan find new employmentwhere their skills areappropriately valued.• The extent of wage lossassociated with jobdisplacement depends onhow closely related the skillrequirements for the newjob are to those used in thepre-displacement job (i.e. thetransferability of skills).• Roughly one-third ofdisplaced workers findnew employment in thesame occupation class,experiencing relatively smallwage losses averaging 5%.• Roughly one-in-fourdisplaced workers make asignificant switch in the typeand amount of skills usedin their occupation. Theseworkers experience sizeablewage losses averaging 17%.• Displaced workers find theirway back to much moresimilar jobs than would occurwith random mobility.• Displaced workers areincreasingly finding theirway back to more and moresimilar jobs in recent years.Most workers change jobs several timesduring their careers, especially duringthe first few years after they enterthe labour market. On the one hand,frequent job changes may be a causefor concern if workers have acquiredjob-specific skills that do not easilytransfer to other places of employment.On the other hand, switching jobs mayreflect worker’s efforts to find a betterjob match to their current skills.The relative importance of these twoopposing forces depends largely onwhether a job change is voluntary orinvoluntary. Many voluntary changesare associated with promotions or thenatural progression up a career ladder.Young workers just entering the labourmarket may also be moving fromtemporary makeshift work to careeremployment. In either case, these jobchanges tend to be associated withincreases in worker pay. By contrast,involuntary job changes often resultfrom layoffs and plant closures and aretypically associated with pay reductionsthat can be substantial. Involuntary jobchanges from worker displacementare particularly prevalent and ofconsiderable concern during economicdownturns, like the one recentlyexperienced throughout much of theworld.In times of increased job mobility anduncertainty, it is critically importantfor the evaluation and design of labourmarket policy to understand how easyor difficult it is for displaced workersto transfer their skills across jobs.Productivity losses during recessionaryperiods are likely to be directly linkedto the ease with which displacedworkers can find new employmentwhere their skills are appropriatelyvalued. Policies aimed at facilitating thismatching process can help limit wageand productivity losses. The extent towhich policymakers should concernthemselves with these issues dependson the specificity or transferability ofskills across occupations and jobs.About theCIBC CentreThe CIBC Centre in theDepartment of Economicsat Western University (TheUniversity of Western Ontario)has a broad mandate to studyissues related to human capitaland productivity. Centre Fellowsand Affiliates conduct researchand provide policy advice in thefollowing areas: early childhood,primary and secondaryschooling; post-secondaryeducation; productivity andearnings; social benefits ofhuman capital; human capitalpolicy; and human capital,development and growth. Tofacilitate the broad disseminationof research, the CIBC Centrepublishes policy briefs and aworking paper series. It alsosponsors conferences, seminars,and workshops on human capitaland productivity.

CIBC Centre for Human Capital & ProductivityIn two recent CIBC Centre WorkingPapers (2008-3 and 2011-5), ChrisRobinson empirically examines thetransferability of skills by measuringhow job skill requirements change forworkers when they switch employers,voluntarily or involuntarily. He furtherexamines the extent to which changesin skill utilization across occupationsimpacts the wages of workers thatswitch jobs.Workers may change jobs voluntarilyfor personal reasons or to move aheadprofessionally. Following a move up acareer ladder, the new job may be quitedifferent from the old one, involving apromotion to a different occupationin which all skills are used at a higherlevel. Not surprisingly, these moves aretypically accompanied by wage gains.By contrast, involuntary moves tend toresult in skill utilization downgrades andwage declines. Interestingly, voluntaryand involuntary moves tend to result inchanges in skill utilization of a similardegree — only the direction of thechange differs.JobDisplacementand SkillTransferabilityIn “Human Capital Specificity:Evidence from the Dictionary ofOccupational Titles and DisplacedWorker Surveys 1984 2000”, Robinson(with Maxim Poletaev) explores theskill and wage losses associated withinvoluntary worker displacementfrom plant closures. Some workersexperience sizeable wages losses, whileothers see little or no decline in theirwages. As one might expect, the extentof wage loss depends on how closelyrelated the skill requirements for thepost-displacement job are to thoseused in the pre-displacement job(i.e. the transferability of skills).Based on data from the 1984-2010United States Displaced WorkerSurveys, roughly one-third of displacedworkers find new employment inthe same occupation class. Theseworkers experience relativelysmall wage losses averaging 5%.Other workers switch occupationsaltogether. Roughly one-in-fourdisplaced workers make a significantswitch in the type and amount ofskills used in their occupation.These workers experience sizeablewage losses averaging 17%. Finally,among displaced workers who switchoccupation but manage to avoid asignificant change in the type andamount of skills utilized, wage lossesaverage a more modest 9%. See Box1 for a detailed description of how theskills used in different occupations aremeasured, along with correspondingmeasures of ‘occupational distance’.Box 1 - Measuring ‘Occupational Distance’Measures of how close any two occupations are in terms of the skills theyuse – referred to as ‘occupational distance’ – are calculated using datafrom a detailed examination of over 12,000 jobs in the U.S., known as theDictionary of Occupational Titles (DOT). Job analysts scored each job interms of a large number of characteristics, such as the required level offinger dexterity, the level of mathematical or writing ability, the requiredamount of strength, etc. Using a technique known as factor analysis,Robinson and Poletaev condense this information to associate with eachoccupation a level of four basic skills, called a skill portfolio, each derivedfrom the analysts’ measures of all job characteristics. These four basicskills roughly correspond to ‘general intelligence related’, ‘fine motorskills related’, ‘strength and gross motor skills related’, and ‘visual skillsrelated’. Any two occupations are considered similar if they have similarskill portfolios. Occupations may differ for two reasons. First, they mayuse a different mix of skills. For example an accountant uses a high levelof mathematics but a low level of strength compared with a constructionworker. Second, occupations may use similar types of skills, but they mayuse them at very different levels.Most of the analysis discussed in this brief focuses on changes in skills andwages associated with movements across the nearly 500 occupationsdistinguished in the U.S. three digit occupation coding system. However,not all jobs within an occupation code have the same skill portfolio. Basedon data from the DOT, the average distance of random within-occupationmoves is about half the average for random moves across occupations.Thus, skills are not fully transferable across jobs even for displacedworkers who remain in the same occupation class. Unfortunately, it is notpossible to link changes in skill requirements across jobs within the sameoccupation to associated changes in wages, since standard data sets thatcontain wage measures, such as the March Current Population Surveysand Displaced Worker Surveys, do not measure jobs at a finer level thanthe three digit occupational classification.

CIBC Centre for Human Capital & Productivity0.95Figure 1: 'Occupational Distance' Between New and Old Occupations forDisplaced Male Workers in US0.93'Occupational Distance' (Relative to a Random Occupation Change)0.910.890.870.850.830.810.790.770.751984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010YearIn “Occupational Mobility, OccupationDistance and Specific Human Capital”,Robinson shows that displacedworkers find their way back to muchmore similar jobs than would occurwith random mobility. For example, ifdisplaced workers randomly selectedamong all occupations, fewer thantwo percent would end up finding reemploymentin their same occupation– much less than the one-third thatactually remain in the same occupationclass. Furthermore, among thoseworkers that switch occupations, thechange in skill requirements is typicallyless than one would expect if they wererandomly selecting among all possibleoccupations.More importantly, displaced workersare increasingly finding their wayback to more and more similar jobs inrecent years. Conditional on changingoccupations, displaced workers in 1985found new jobs that were, on average,only a little better matched to their skillsthan if they had randomly accepteda new job in a different occupation.More precisely, the ‘occupationaldistance’ (see Box 1) between their oldand new jobs was roughly 90% of the‘occupational distance’ between anytwo randomly selected occupations.Over the past 25 years, Figure 1 showsthat this skill distance has fallen bynearly 10 percentage points. Thissuggests that the productivity andincome losses from involuntary workermobility may be declining significantly,raising important questions about whatlabour market or policy influencesare improving the occupational reassignmentof displaced workers.Many studies have shown that providingjob search assistance can have ahigh pay off for displaced workers. Bycontrast, numerous policy experimentsand decades of research have shownvery little return to providing trainingopportunities to most displacedworkers (Jones 2012). Together, thesefindings suggest that public policiesaimed at helping displaced experiencedworkers find new jobs that utilize theskills they have spent their careersbuilding may be more cost-effectivethan trying to re-train them for entirelynew occupations.

CIBC Centre for Human Capital & ProductivityReferencesChris Robinson, “OccupationalMobility, Occupation Distance andSpecific Human Capital”, CIBC Centrefor Human Capital and Productivity,Working Paper 2011-5, 2011.Maxim Poletaev and Chris Robinson,“Human Capital Specificity: Evidencefrom the Dictionary of OccupationalTitles and Displaced WorkerSurveys 1984-2000”, CIBC Centrefor Human Capital and Productivity,Working Paper 2008-3, 2008.Stephen R.G. Jones, “The Effectivenessof Training for Displaced Workers withLong Prior Job Tenure”, CanadianLabour Market and Skills ResearchNetwork Working Paper No. 92, 2012.About the authorsChristopher Robinson is a Professorof Economics, and an Affiliate of theCIBC Centre at Western University.Maxim Poletaev is a recent PhD.graduate from Western University.Additional copiesFor additional copies or for a pdfversion of this paper please visit ourwebsite at:economics.uwo.ca/centres/cibcCIBC Centre for Human Capital & ProductivityDepartment of EconomicsSocial Science CentreWestern UniversityLondon, Ontario CANADA N6A 5C2