Skill Mismatch Is Surmountable

Christina Romer makes a number of fascinating points about lessons for today from World War II, but the one I hadn’t heard before has to do with the point that skill-mismatch, even if real, is a surmountable problem:

What of the idea that monetary and fiscal policy can do little if unemployment is caused by structural factors, like a mismatch between workers’ skills and available jobs? As I discussed in a previous column, such factors are probably small today.

But World War II has something to tell us here, too. Because nearly 10 million men of prime working age were drafted into the military, there was a huge skills gap between the jobs that needed to be done on the home front and the remaining work force. Yet businesses and workers found a way to get the job done. Factories simplified production methods and housewives learned to rivet.

It’s an interesting point. One relevant issue here is that the nature of total war is that “eh, let’s not increase short-term output” just wasn’t an option. Even if overall output is well below potential, measures to substantially boost demand are likely to lead to some specific shortages if you’re talking about a large country. That means higher prices, at least temporarily. One possible response to that is to say “omg inflation” and act to reduce overall output. Another response is to say we’re going to tough it out a bit and firms will adapt. Rosie will become a riveter. Navigating between those poles adequately is a judgment call for policymakers. If there’s a strong national consensus around the need to fight and win a war against Adolf Hitler, that should produce a consensus on erring toward higher output. But absent that kind of consensus the debate is bound to become contentious.