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America's Skills Gap: Why It's Real, and Why It Matters

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America's Skills Gap: Why It's Real, and Why It Matters MARCH 2019 America’s Skills Gap: Why It’s Real, And Why It Matters BY RYAN CRAIG At the start of 2019, Last fall, following publication of my new book, A New U: Faster + Cheaper Alternatives to College, I 7 million U.S. jobs remained was on a panel at a Boston book fair with another unfilled, and American author, a professor at a nearby university. After I presented a few U.S. Department of Labor employers consistently cite statistics on unfilled jobs in America, she trouble finding qualified responded by saying: “I don’t believe it. I don’t believe your numbers.” Why? Because she hadn’t workers. While some liberals encountered the problem herself. insist a "skills gap" doesn't She’s not alone. In January 2019, lefty blogger and provocateur Matt Yglesias published an exist, all evidence points to 1 article in Vox headlined, “The ‘skills gap’ was a lie.” the contrary. These gaps are He claimed the skills gap “was the consequence moreover made worse by a of high unemployment rather than its cause… With workers plentiful, employers got choosier. higher education system Rather than investing in training workers, they that ill-equips graduates for demanded lots of experience and educational credentials.” the workforce. Those who haven’t ever worked in the private sector might be forgiven for being skeptical about the existence of a skills shortage. But employers know that America has a significant skills gap – one that is growing with each passing month. And you won’t find many skill gap skeptics among underemployed workers, particularly Millennials. America’s economy has digitized over the past decade and our legacy infrastructure – postsecondary education institutions and workforce development boards – have not come close to keeping up. Moreover, the digitization of the economy has also changed hiring practices, with real implications for our workforce. In this whitepaper, I attempt to explain to the skeptic crowd that the skills gap is real, why we haven’t closed it, and why it matters. P1 America’s Skills Gap: Why It’s Real, And Why It Matters THE SKILLS GAP IS REAL There can be no question that American close the skills gap on their own simply by hiring employers have a record number of unfilled jobs. legions of unskilled entry-level employees and For the past year, the number has hovered around training them up to where they need to be. Two 7 million. As of early January 2019, the number reasons explain why. First is the increasing cost reported by the U.S. Department of Labor Bureau of bad hires; experts estimate that the cost of a 2 of Labor Statistics (BLS) was 6.9 million. bad hire now exceeds six months of that employee’s salary, which means companies are Faced with real numbers, skill gap skeptics make increasingly reluctant to take the leap with several arguments besides denying the validity of employees about whom they’re not confident can the BLS data (which, if they care to look, comes do the job. The5 second reason companies are with an impressive level of rigor and backup). demanding better-qualified candidates upfront is the higher rate of churn for entry-level First, they say that millions of unfilled jobs are the employees. Footloose Millennials are more likely fault of employers, because there are candidates to jump to another job at the first opportunity, with potential but not experience who are being which disincentivizes employers from investing in passed by. Data suggest that many employers training. Whereas a generation ago, employers now insist that candidates have already done the viewed entry-level hire training as an investment job, even for entry-level jobs. For instance, a in their own future, today it’s seen through the recent survey found that 61 percent of all full-time lens of the free-rider problem: investing in entry-level openings require at least three years of entry-level training is more likely a gift to a experience.3 company’s competitors, and hence, for suckers. It is this thinking that has produced the new status Observing this phenomenon, Peter Capelli of quo of “do the job before getting the job.” The Wharton notes that American employers have upshot is that candidates who would have been developed a global reputation for wanting the snatched up a generation ago are now left sitting perfectly qualified candidate delivered on a silver on the sidelines. platter—or they simply won’t hire. According to Capelli, “Employers are demanding more of job A second claim from skills gap skeptics is that the candidates than ever before. They want 6.9 million unfilled jobs are not skilled jobs, but prospective workers to be able to fill a role right rather low-skill jobs. This line of argument casts away, without any training or ramp-up time. To get the “true” gap as one of labor, not skills. So while 4 a job, you have to have that job already.” Capelli the engine of America’s dynamic economy is calls this the “Home Depot view of the hiring humming along, millions of jobs in agriculture, process,” where filling a job vacancy is “akin to hospitality, and custodial services are unfilled. replacing a part in a washing machine.” The store either has the part, or it doesn’t. And if it doesn’t, As of January 2019, the employer waits. 6.9 million jobs It’s true that American employers have moved the remained unfilled. goalposts when it comes to whom they hire. But it’s also unrealistic to expect that employers can P2 America’s Skills Gap: Why It’s Real, And Why It Matters BLS has relevant information on this point. Deloitte in the United Kingdom has found Last fall, there were around 900,000 unfilled that only 25 percent of “digital leaders” jobs in accommodation and food service, but believe their workforce is sufficiently skilled also nearly 1.2 million unfilled openings in to execute their digital strategy.10 Another professional and business services, and survey found 80 percent of executives another 1.3 million in education and health highly concerned about a digital skills gap.11 services. 6 While some of these positions are And for the first time in recent memory, in certainly lower skill (e.g., medical assistants), May, August, and September 2018, the a significant percentage of America’s unfilled TechServe Alliance, the national trade jobs are skilled positions. According to association of technology staffing and Burning Glass, there are 1.7 openings for services companies, reported no tech job every qualified worker in high-skill healthcare growth in the U.S. According to TechServe jobs like nurse practitioners, physician’s Alliance CEO Mark Roberts, “this is totally a assistants, physical therapists, and supply side phenomenon. There are simply occupational therapists. The job site not enough qualified workers to meet indeed.com alone lists nearly a million open demand.” 12 positions with salaries at or above $75,000. There are two primary reasons for the large But what’s most convincing is the steady digital skills gap. The first is a real drumbeat of surveys and reports transformation in how we do business. It’s demonstrating that employers really are not just that there are more digital devices having a hard time finding candidates for (or that you’re almost certainly reading this middle and high-skill positions. As Burning paper on a screen). It’s that over the past Glass has recognized, “Our research shows decade, businesses and organizations that roles requiring highly skilled workers… have transformed their internal systems, as are the most undersupplied roles.” 7 well as their processes for interacting with stakeholders – customers, suppliers, Let’s drill down on the two primary reasons employees, shareholders – from informal why employers are leaving middle and and manual to formal software-based high-skill positions unfilled: (1) They are processes. Across all sectors, most failing to find enough candidates with the middle- and high-skill jobs now involve requisite digital skills; and (2) They are managing some business function through dissatisfied with the “soft skills” presented by software or software-as-a-service (SaaS) candidates, even those with digital skills. platforms. According to Brookings, only 41 million American jobs still don’t require 1. The Digital Skills Gap significant digital skills; nearly 100 million The World Economic Forum found only 27 do. Two-thirds of the jobs created in the percent of small companies and 29 percent last decade require either high or moderate of large companies believe they have the digital skills.13 But it’s inexact to generalize digital talent they require.8 Three quarters of about a digital skills gap. Business Roundtable CEOs say they can’t 9 find workers to fill jobs in STEM-related fields. P3 There can be no question that American employers have a record number of unfilled jobs. For the past year, the number has hovered around 7 million. As of early January 2019, the number reported by the U.S. Department of Labor Bureau of Labor Statistics (BLS) was 6.9 million. Faced with real numbers, skill gap skeptics make several arguments besides denying the validity of the BLS data (which, if they care to look, comes with an impressive level of rigor and backup). First, they say that millions of unfilled jobs are the fault of employers, because there are candidates with potential but not experience who are being passed by. Data suggest that many employers now insist that candidates have already done the job, even for entry-level jobs. For instance, a recent survey found that 61 percent of all full-time entry-level openings require at least three years of experience.
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