Keeping up with the competition
A skilled workforce was the capstone of national economic achievement even before the industrial revolution, but today workers risk losing their place. Creaking education systems, haphazard immigration reform, and a range of other challenges are degrading the supply of skills in many developed nations, while threats from offshoring and automation keep us guessing about the demand for homegrown human talents.
The narrative that the U.S. workforce is down on its luck played a key role in the 2016 election, and there is no doubt that America in particular is at risk of losing its advantage from skilled labor. The consequences have already been felt in hard-hit communities, as well as in the results of last November’s election. But the U.S. beats every country but Switzerland in economic competitiveness, and many economic indicators are trending in the right direction. Clearly, then, the country and its workers are doing something right.
This paradox raises a more nuanced question: namely, how can the U.S. economy maintain its highly-skilled labor force, at a cost that the nation can bear? This seems a manageable problem, given the right resources, but the world of work and the skills to compete in it are getting harder to predict and describe. Global trade and technology play their role, but they are not the protagonists of this story. It is us and our ability to keep up that take center stage.
The Great Skills Race, then, is our struggle to keep pace with the evolving demands of the global economy. The race is run between cities, between states and regions, between employers, and employees. We race against technology, against people like us on the far side of the world, and against the very pace of change itself. But as we run, our progress is hindered by three factors which we, the race competitors, must address to succeed in the Great Skills Race.
1. The Information Gap
Science, Technology, Engineering and Math skills (STEM) are said to be in short supply in the U.S., and increasingly so over the next 10 years. But the census bureau found in 2014 that a majority of STEM graduates didn’t go on to work in STEM related fields. And in advanced STEM careers, like research and tenure track positions in universities, there is an acute surplus of qualified graduates, compared with available roles.
This situation is a notable example of what we call the information gap; the gulf between the capabilities that employers really need, what young adults are told, and the skills that educators provide. While there may be a shortfall of computer programmers today, if all young people are encouraged to specialize in computer science, for how long will we have a deficit? And what will computer science experts do when they can’t find jobs in this track?
We need to close this information gap by ensuring better information gets to current and future job seekers. More importantly, we need to create a common language for the skills required by employers and those produced by educators, and develop tools to measure the quantity of skills required, available, and in production at a given time.
Much like a commodities forecast, in which supply and demand information is compiled by a third party, which enables better purchasing and production decisions, closing the information gap would help people, business and government to understand the skills to be prioritized, their market value, and any deficits anticipated in the future. This can only be done by reliably comparing both supply and demand of skills, a significant gap in the research currently. To do so would put the U.S. in a position to create better policy, and more effective workers.
2. The Education Gap
The challenges of the U.S. K-12 and college education system are well documented. Less publicized are gaps in adult education, particularly for those who did not benefit from a good education early in life. While working age adults account for well over one third of the U.S. population, spending on adult training programs is a tiny fraction of total education spending (an average of 0.3% at the state level, and 6% at the federal level, according to our calculations), and employers are not picking up the slack. An estimated total of $177bn was spent on formal training and education by employers in 2013, compared to $405bn spent by colleges and universities in the same year.
Employers, one of the primary beneficiaries of a more skilled workforce (alongside the state and employees), are responsible for some impressive innovations in workforce development, often in collaboration with public agencies and educators. But many are falling short of what’s required to upskill the American workforce, dragging their feet on apprenticeships, and perpetuating the divide between the ‘skilled’ and the ‘skilled-nots.’ The majority of corporate spending on training goes to those who already have a bachelor’s degree, and consulting firm McKinsey and Company found in 2014 that a quarter of training spend was allocated to senior executives, even though the group makes up a tiny proportion of total employment.
Employer investment in training and education at all levels has been shown conclusively to generate positive returns on investment, and the countervailing view, that employee tenure has dropped in recent years making training investments riskier, is out of sync with the evidence. It’s time for employers to shoulder their part of the bargain for creating and upgrading skills throughout the economy, and for government and regulators to get better at incentivizing them to do so.
3. The Mobility Gap
High levels of geographic and social mobility have long been a hallmark of America’s dynamic economy, enabling skills to accumulate in a growing portion of society, and providing capable workers to employers across the country. Over the last 30 years though, social mobility, geographic mobility, and business dynamism, have all been trending down, in some cases significantly. A recent study showed that the proportion of children earning more than their parents, after inflation and when both reached the age of 30, was 90% for someone born in 1940, but just 50% for someone born in 1980. Figures for job creations, job-to-job transitions and interstate migration are all down as well, by between 20% and 25% since 1980.
Economists have yet to identify a convincing explanation for these phenomena and certainly not a pattern that ties them all together, but the outcomes are quite clear. Job tenure is increasing, contrary to popular views of millennial job-hopping. Internal promotions have dropped, as people stay in their jobs longer. And the average duration of a job vacancy has surged from around 20 days at the turn of the millennium to over 30 days today. Taken together, this results in fewer opportunities for employers to find the right skills in the labor market. The economic effects of all this are significant; depressed wages as employee bargaining power is weakened, lower productivity gains as workers are matched less efficiently with work, and falling international competitiveness as creativity and innovation suffer.
Of all the issues described, the mobility gap may be hardest to address. Stable companies and the steady jobs that go with them are hardly negative externalities, and social mobility is a many-headed beast which policy-makers have been trying to tackle for a century. There are a few places to begin though, as researchers figure out cause from effect.
First, companies must be more proactive in increasing geographic and social mobility. Policies to support worker relocation are easy to implement, even if they do add cost to the hiring process. Employers should also learn to use alternatives to the degree to validate basic skills in job applicants, a practice associated with a drastic reduction in hiring lead time. The state can help by adopting policies to support portable benefits, enabling the easy transition of health plans with an employee. Local and state agencies should also invest in the provision of low-cost housing and public transport to internal migrants. Without spending a dime on education, these changes could significantly improve skills matching, and hence the competitiveness of U.S. workers and their employers.
The Race for Opportunity
Ensuring that today’s adults are skilled for tomorrow’s work requires investment to address gaps in information, education and mobility for adult workers. The payout will be significant though, as fewer people rely on the state for assistance, and employers use improving skills to supply hard-to-fill jobs. The opportunity is greatest for workers themselves. Thomas Piketty wrote “Over 300 years of economic history, the principal and most enduring mechanism for distribution of wealth … is the diffusion of skills and knowledge.” It’s hard to argue with this principle, and the next 100 years promise to be no different.
Tomorrow’s Work bridges the gap between the skills required in the workplace and those that need them, using technology, data and compelling story-telling. We hope you’ll reach out, or follow us on our journey.