Key indicators of labor market flexibility & skill shortages.

AuthorMurti, Ashutosh Bishnu


Over the last two decades, the diminishing walls of international trade and investment have led to a more integrated and interdependent framework of business. As a result, today employers operate in an environment that demands new and constantly developing skills to retain global competitiveness. India is emerging as a potential economic and social power the wheels of which are in the hands of the Indian youth whose skills need to be upgraded to compete in the global scenario. The skills development initiative (1) is designed to leverage the potential of the youth population (19% of India's population is in the age group of 15-24 years) (2) by developing their employability related skills. However, the challenge remains developing the right skill sets among the youth matching global standards with significance to both local and global job markets. Only right skill sets will ensure that Indian enterprises remain globally competitive. The growth of management education in India is phenomenal but it is striving to maintain expected quality levels.

The increasing mismatch between supply and demand is a concern for Indian industry. Despite being acknowledged as one of the foremost success stories in higher education over the last 30 years, business schools are at crossroads in their development (Pfeffer & Fong, 2002). They currently face an image and identity crisis and have been subject to a wide range of critical reviews about their societal status as academic and professional schools (Bennis & O'Toole, 2005; Mintzberg & Gosling, 2002). This raises the question: does the problem lie in attracting and/or retaining management graduates? Or problem emanates from supply side? As mentioned above, there have been much speculation and heated supply-side vs. demand-side debate over the actual causes of the current (perilous) skills shortage situation. These debates which have been mediated and published in the Indian press and in academia over the past few years are the Brain-Drain, the supply of management graduates and the increased demand for management professionals in the Indian labor market. Moreover, Indian media echoes concerns about current skills shortages and the negative impact this might have on local economic expansion.

Recent Literature

The neo-classical economic account of labor and labor markets as an 'imaginary marketplace' has not gone unchallenged as these three citations demonstrate: first, "Among economists, it is not obvious at all that labor as a commodity is sufficiently different from artichokes and rental apartments to require a different mode of analysis" (Ackerman et al, 1998). Second, "labor markets are not natural, universal phenomenon" (Tilly & Tilly, 1998). Third, labor markets in fact, "are different", (Ackerman et al, 1998) and has changed over time. Drawing views from these, this paper argues that labor markets are spatially differentiated and not homogenous. Therefore, each labor market needs to be examined specifically and differently. The theoretical landscape and framework for understanding labor markets has been dominated by the paradigms such as Neoclassical, Marxist and the Institutionalist.

The field of labor economics, predominantly mainstream economics, has been dominated by the neo-classical market paradigm. This paradigm assumes that labor is an abstract commodity of the capitalist economy. It is no different from any other commodity that may be bought or sold in the market and whose price is set by supply and demand

(Marshall, King & Briggs, 1980). In short, the neo-classical perspective reduces work processes to a matter of individual maximizing behavior over a narrow set of quantifiable choices. The basic premise of the neo-classical version is: each person gets paid the value of the marginal product of the input (labor, capital, land) they provide (Tilly & Tilly, 1998).

While, neo-classical theorists speak of individual preferences, Marxists of class consciousness and institutionalists of group norms, Crompton, Gallie & Purcell (1996) argued that these theories have not made great progress in assessing the postfordist (3) labor market of the latter half of the twentieth century. In an attempt to account for the changes in the organization of work, firm works on satisfying lose lane even at the cost of skill formation. However, this exploration was a critically assessed scholarly lineage which appears to have motivated the researchers to work on over the decades. (4)

Despite peculiarity, there seems no consensual method for measuring skill shortages (Brown, Green & Lauder, 2001; Cohen & Zaidi, 2002). Some authors argue that the evidence of skill shortages is tricky to interpret: first, because results are very sensitive to the economic cycle; second, because they rely on employers' perception(Green, Machin & Wilkinson, 1998; Brown, Green & Lauder, 2001) and third, because there are various restrictions that are always imposed by labor market conditions, the peculiarities of specific occupations and the availability and reliability of the data (Cohen & Zaidi, 2002).

These methods are normally adopted in isolation from one another. The findings of the chosen method would then be used to determine and assess skill shortages in the labor market. As suggested above, these approaches quantify the skill shortage situation in labor markets. However, they do not provide measurements incorporating the social, cultural and historical elements (Tilly & Tilly, 1998). The study argues that it is not that such measurements do not explain a 'skill shortage' rather these measures focus on the 'external' economic problems contributing to the skill shortage. As already suggested above, an empirically grounded understanding of skill shortages in labor markets is needed to better identify, understand and explain the specific labor market dynamics that contributes to a skill shortage. This should involve examining the internal and external nature of each labor market in which the shortage is being experienced.


The aim of the paper is to understand the key sources of labor market information on skill-shortage and skill gaps, which form a crucial part of the evidence to inform skills across industry. This study focuses on the firms in India who hire management graduates at global and local levels. The list of firms was identified through the Capitaline database (5). Based on the proximity and total number of firms, the study decided to choose Mumbai, Bangalore and Hyderabad which are ideal locations for the study. All three are global cities (6) and concentration of firms in these cities is the highest when compared to other global cities of India. The three cities were seen as different group to allow proportional representation of...

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