Can higher salaries counteract the engineering shortage?

An empirical analysis of how regional differences in relative wages affect the career choices of civil engineers

Engineers play a vital role in driving technological development and economic growth. It is therefore concerning that Swedish employers have repeatedly reported a shortage of engineers. At the same time, only 6 out of 10 working-age individuals in Sweden with a Master of Science in Engineering (“civilingenjörer”) are employed in engineering occupations. One possible explanation is more attractive pay and working conditions in other fields.
This report therefore explores whether the wage difference between engineering and alternative occupations—that is, the relative wage for engineering jobs—affect the likelihood that engineering graduates work as engineers. This sheds light on whether raising relative wages could help ease the shortage.

To the best of our knowledge, this is the first study in Sweden to estimate the causal effect of relative wages on the supply of engineering graduates to engineering occupations.

Higher wages could help reduce the shortage

Our findings support that relatively low wages in engineering occupations are likely contributing to the shortage. Based on an empirical impact evaluation, we find that higher relative wages increase the share of engineering graduates who choose to work as engineers. According to our estimates, a 1 percent increase in the relative wage for engineering occupations leads to at least a 1 percent increase in the share of engineering graduates working in such roles.

These results point to the potential value of a more competitive wage for engineers as a way to strengthen Sweden’s supply of technical expertise.

Policymakers can support the process through insight and analysis

Policymakers can indirectly support a wage structure that helps address persistent engineering shortages by providing knowledge and analytical support to labour market actors. For example, the government could mandate an independent agency to regularly assess whether changes in relative wages across occupations are aligned with evolving labour market dynamics.

The analysis is based on comparisons across regional labour markets

Methodologically, our analysis draws on regional variation in relative wages and the share of engineering graduates working in engineering roles. To identify causal effects, we apply instrumental variable (IV) regression using a Bartik instrument—a method widely used in related empirical research.

A first step toward understanding the role of relative wages in engineer shortages

Our empirical results represent an initial step—one we hope will be followed by further research—toward understanding how relative wages contribute to engineering shortages. Naturally, future studies using different data or methods may yield alternative results and conclusions. Nevertheless, our findings are in line with previous research showing that wages influence occupational choices.