• 7/12/2023 7:28:11 AM

On the Value of Skilled Labor

Barış Onur Örs

Skilled labor is becoming increasingly important in the modern economy. Technological advancements and a globalized job market are demanding higher skill levels and a broader range of knowledge from workers. Alongside this, the constant increase in demand for skilled labor and decrease in demand for unskilled labor is leading to striking transformations in the labor market and significant wage disparities. In this article, we examine the increasing importance of skilled labor, wage inequality, and future trends in the labor market.

A good production process requires a balanced, effective, and sustainable assembly of production factors. Among these factors, labor holds special importance. Labor not only forms part of production but also revitalizes the process and determines its quality. A labor force equipped with technical skills and creativity shapes the production process and enables the transformation of inputs into a product or service. The contribution of labor is evident at every stage, from raw materials to the final product.

Skilled labor determines businesses' productivity, work quality, and capacity to create innovative solutions. Skilled workers who possess the necessary knowledge, skills, and experience for the sector or job make fewer mistakes and work faster and more efficiently. This situation reduces costs and increases the overall quality and speed of the production process, enabling businesses to create more value. Businesses need to invest in training that will enhance the skill sets of their labor force to compete in market conditions and continuously innovate. It is also crucial to make the best use of employees' skills and to pay them a wage commensurate with those skills.

Since the Industrial Revolution, the complexity of production processes has increased, and demand for knowledge and skill-based jobs has risen. Today, in the age of technology and automation accelerated by Industry 4.0, the demand for skilled labor has increased even more. However, despite this rising demand, unemployment rates remain high. Claudia Goldin and Lawrence F. Katz's book "The Race Between Education and Technology" examines this paradox. In the book, the authors note that technological progress has increased the demand for jobs requiring high skills, but our education system struggles to meet this demand. This situation has created a "skills gap" where the demand for skilled labor exceeds the supply provided by the education system and has exacerbated income inequality. To solve this inequality, more accessible and effective education policies and modern education models such as lifelong learning are needed.

Technology and health services are at the forefront of sectors with high demand for skilled labor. Positions such as computer programmers, data analysts, software engineers, and artificial intelligence experts reveal the need for workers with advanced technical skills. However, many skilled workers still report not receiving a fair wage.

In 2021, according to OECD data, average hourly wages in advanced economies were approximately 45% higher for skilled workers than for unskilled workers. In the technology sector, the wages of skilled workers are rapidly increasing. For example, the average annual salary of software engineers in the US in 2020 was $105,000, representing an approximately 3.5% increase over the previous year.

The level of education plays a significant role in the labor market and is generally associated with higher wages. In OECD countries, the average income of university graduates is 56% higher than that of high school graduates. Moreover, while the annual growth rate of skilled labor was 1.4% between 1995 and 2015, the growth rate of unskilled labor was 0.2% during this period.

In 2021, the health services and technology sectors had the highest global demand for skilled workers. Also, the World Economic Forum's 2020 "Future of Jobs Report" predicted that 40% of jobs worldwide would significantly change, necessitating a reevaluation of the workforce's skills. According to the same report, by 2025, machines and algorithms will carry out 47% of all working hours; this ratio was 33% in 2020.

Taking these into account, we can see that there are some professions where the demand for skilled labor is rapidly increasing. Data scientists are at the forefront of demanded professions due to the expansion of the job range. The US Bureau of Labor Statistics forecasts a 36% employment increase for data scientists from 2021 to 2031. This situation solidifies the position of data scientists on the list of best jobs in 2023. Their average annual salaries are approaching $130,000.

In the digital world, Full-Stack Developers stand out with their average annual salary of around $117,000. According to the Bureau of Labor Statistics, a 23% increase is expected in web development and digital design from 2021 to 2031. There is also a growing demand for engineers competent in cloud technologies. According to Gartner, user spending on public cloud services will increase from $491 billion in 2022 to $597.3 billion in 2023. The average annual salary of engineers in this field is again around $130,000.

Product managers are also among the high-demand professions. According to Glassdoor, the product manager position was one of the most job-advertised professions in the US in 2022, with more than 17,725 job ads. The average annual salary for this profession has approached $125,000. While a 23% increase is predicted in web development and digital design from 2021 to 2031, back-end developers are among the rapidly growing professions. The average annual salary in this field is in the range of $118 - $120,000.

Engineering in machine learning, a strong component of artificial intelligence, is another standout profession. According to Fortune Business Insights, by 2030, the global machine-learning market is expected to reach $225.91 billion. The average annual salary of engineers in this field is $150,000. The demand for network security experts is increasing as the cost of cyber attacks rises. According to IBM, the average cost of data breaches globally in 2022 was $4.35 million, and in the US, it was $9.44 million. The average annual salary of experts in this field is in the range of $120 - $125,000.

Project managers are another professional group whose employment is predicted to increase by 7% from 2021 to 2031. The average annual salary in this field is close to $100,000. With the popularization of technologies such as cryptocurrencies and NFTs, blockchain engineers are also among the professions seeing increased demand. The global blockchain technology market is expected to grow annually by 87.7% from 2023 to 2030. The average annual salary of engineers in this field is close to $150,000. Digital marketing specialists are also among the gaining professions. According to the Global Strategic Business Report 2023, the global digital advertising and marketing market is expected to reach an impressive value of $1.5 trillion by 2030. The average annual salary of experts in this field ranges from $60,000 to $70,000.

In light of the above data, it is predicted that the demand for skilled labor in fields such as technology, health services, and digital marketing will increase and that those working in these fields will have high salaries. However, the fact that most skilled workers still report not receiving a fair wage presents a significant issue for employers and policymakers to consider. Solving this problem may require a review and even a restructuring of education and labor policies. A labor market that provides equal opportunities and is based on skills and talents is vital for sustainable economic growth and overall prosperity.

Furthermore, the growing wage inequality between skilled and unskilled jobs can be expected to have many adverse consequences at both the individual and societal levels. At the individual level, low wages lead to poverty and low standards of living, while at the societal level, wage inequality can lead to social tensions, the transmission of poverty from one generation to the next, and a weakening of economic growth.

In the future, policies aimed at improving the skills of unskilled workers will be needed to reduce this inequality. Policies such as education and teaching, technical and vocational training, workplace training and learning, and adult education programs can improve the skills of unskilled workers and thereby increase their wages and job opportunities.

The increase in skilled labor and less demand for unskilled labor seems to be one of the future trends in the labor market. This will lead to significant wage differences in the labor market, and this situation will force policymakers and employers to find solutions to improve the skills of unskilled workers and reduce wage inequality.