STEM shortages

The American econo-blogosphere has been wondering whether there really is any shortage of workers in Science, Technology, Engineering and Maths. Dan Kuehn and coauthors at the Economic Policy Institute suggest that the absence of particular wage inflation for graduates in STEM disciplines means there are no particular shortages of STEM workers relative to other workers; Tyler Cowen notes that this may be evidence of a shortage of complementary inputs for those workers. Kuehn agrees, but notes that policy then should be targeting those complementary inputs rather than boosting STEM numbers.

The American policy debate differs from the Kiwi one. There, they're talking about increased immigration for STEM workers via H1-B visas; EPI doesn't think they're needed. Here, we're wondering how much emphasis the tertiary education system should put on STEM disciplines relative to the others.

I've done a bit of digging around in NZ Stat; unfortunately, the publicly available data doesn't seem sufficiently disaggregated to say much about relative shortages. Median weekly income for all occupations went up by 6.7% from 2009 to 2012. Professionals' incomes increased by 9.4%; technicians and trade workers' income went up 4.9%; community and personal service workers' median weekly income went up 12.7%; managers' median weekly income went up 14.4%. By broad category, there doesn't seem to be much evidence of the kinds of salary ramp-ups that would be consistent with strong shortages in STEM disciplines. If anything, skilled managers seem to be in shorter relative supply. It could be that the technicians category is too broad and is missing out on very large increases in science technician salaries; maybe the 'scientist' category is a high-wage-growth lump within the broader professional category. The ANZSIC classifications are sufficiently finely grained, but I'd have to make the data request.

But suppose that we found STEM shortages here evidenced by large salary discrepancies. While salary ramp-ups can be evidence that we need to make it easier to import skilled workers, they're not really sufficient basis for increased government spending on STEM training. We'd rather expect that higher salaries would draw capable students into STEM subjects and away from disciplines with worse employment prospects. If there were binding constraints built into the funding system, like caps on the maximum number of students who could be funded to pursue those disciplines, then those caps could be revisited. But instead it seems the government wants to pour more money per student into STEM training. Where the gains from STEM training are internalised in higher wages, I'm not sure that's such a great play.

The best case for encouraging STEM workers over others is if those disciplines generate greater social benefits relative to the worker's wages;* maybe you could make some productivity spillover case for it. But even in that case, we ought to be intervening where the intervention can have best effect. If tech workers require a lot of complementary inputs and are mobile, does it make more sense to highly subsidise STEM disciplines in our universities and hope that the New Zealand labour market finds use for them, or to subsidise the wages of qualified STEM workers, or to subsidise the outputs that the government thinks actually generate whatever positive externalities they think come from technological innovation? If our workers are mobile and if there are agglomeration effects in play, then other countries will always be able to outbid us for STEM workers graduating here; I'm less than convinced that large funding boosts for STEM disciplines are the best way of achieving whatever the government's trying to achieve. If it wants more scientific research, funding lab outputs directly or establishing prizes for great new innovations bids up the wages of STEM workers most likely to produce those innovations and also brings in the complementary investments.

If the story is asymmetric information about job prospects and salaries post-University leading to inefficient student choices among disciplines, that seems already adequately addressed by government initiatives to highlight employment prospects for various degrees.

* The alternative case would work as follows. Government wants to maximise its total net tax take. If it thinks that young peoples' time preferences are too high relative to the government's time preferences, or even just if it discounts non-wage elements in students' utility functions, it might want to push people onto lower-welfare-but-higher-lifetime-earnings paths. That's more an Olson despot, NZ Inc. model. If government were maximising a broader social welfare function, it would put more weight on the externality case and look for areas where social benefits are high, wages are low, out-migration is unlikely, and where increased provision can be more efficiently ensured with training rather than wage/output subsidies. Another alternative case: it's a second-best solution when they're constrained to provide student loans at zero percent no matter what discipline the student chooses while repayments are keyed to income.