Academic journal article Indian Journal of Industrial Relations

Determinants of Skill Shortages in Indian Firms: An Exploration

Academic journal article Indian Journal of Industrial Relations

Determinants of Skill Shortages in Indian Firms: An Exploration

Article excerpt


There is ongoing concern about the shortage of workforce with particular skill as unfavorable to the growth of firms and economy at large. Moreover, information is available at the aggregate level on skills issues, rather than how these issues affect individual firms in India. Global evidence suggests that the availability of workforce with the appropriate types and levels of skills has foremost impact on the success of the firms. Limited research conducted globally suggests that "Skill shortages directly constrain production and prevent firms from meeting demands and using available inputs efficiently with consequences for lower productivity" (Haskel & Martin, 1993b).

The measurement of skill shortages and gaps to an extent is dependent on the definition of skill shortages used. The definitions of skill shortages that are derived from macroeconomic (1) and microeconomic (2) indicators indirectly restrain innovation and use of new technologies which are skill intensive. This may lead to have long term impacts on the way firms do business, in terms of their location, size, structure, production methods and product strategy (3). Thus, exploring how these skill shortages manifest them will not only help industry to fill skill gap but also improve international competitiveness.

This paper aims to unravel our understanding of skills within Indian firms. At first this paper discusses the microeconomic measures of skill shortage and explores the determinants of skill shortages i.e. vacancies which are hardto-fill due to skill-related reasons. Moreover, the paper tries to explore the probability that the firm had any vacancies and hard-to-fill vacancies in the last year. This paper uses two methods to investigate the determinants of a firm reporting the three types of vacancies. First, we estimated separate chances for the firm reporting each of the vacancy types. However, the mechanisms causing firms to report each of the different types of vacancies are likely to be interrelated. All skill and non-skill related shortage vacancies are by definition hard-to-fill vacancies. In addition, a proportion of firms have vacancies while other firms do not have vacancies so it is important to account for the factors which influence the reason firms recruit as opposed to those which do not.

Skill Shortage--An Overview

It is surprising that mainstream economic theories have not contributed significantly on the issues of skill and tends to work with open concepts of labor supply and demand. Applied labor market research has advanced on general accepted understanding of 'skill' which means the ability to execute specified tasks. However, classifications of skill dimensions are based on particular tasks and level of ability (training) needed. The very notion of a skill shortage can be helpful because of its broad perspective but it may not match-up with the employers' explanation.

Besides, previous research has pointed out ambiguities over both the notion of 'skills' and of 'shortage'. It is often apprehended that the 'skills' are being referred as technical, defined by the ability to perform given tasks or to master various techniques, whether manual or cognitive. The study conducted by Oliver & Turton (1982) explores what employers mean by skills (when they refer to skills shortages) encompassing also a range of behavioral attributes such as reliability, ability to work without supervision and stability of employment. Bosworth, Dutton & Lewis (1992) recognize both behavioral attributes and technical skills which are included in the potential list of qualities that employers are looking for.

The global concern regarding skills shortages has 'become more the new millennium' (Cohen & Zaidi, 2002:1). India shares the same concern. In the research titled 'Global Skill Shortages', Cohen & Zaidi (2002:1) argue that the world is heading into 'new periods of skill shortages in the 21st century'. …

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