College Graduate Supply and Demand

A national debate is presently being waged over the validity of the skills gap. Some are convinced it is real; others are equally convinced it is not. Allow me to suggest that these different conclusions have been reached because of different interpretations of the market.

The market economy of our nation was built on the basic principle of supply and demand. In simplest terms, it states that if you have a large supply of one item, the price for that item should go down. But if the demand for that item is high, the price for that item could also be high. So, consumer demand for a product affects its price, but demand also drives supply (how much of a product is produced).

Let's apply this principle in two different scenarios -- first with demand increasing and then with demand decreasing:

Scenario A -If demand for an item increases and supply remains unchanged, a shortage of that item will occur, leading to higher prices.
Scenario B -If demand for an item decreases and supply remains unchanged, a surplus of that item will occur, leading to lower prices.

Now, let's replace "items" with "college graduates" and consider the effects of supply and demand on graduates in the workforce:

Scenario A -If demand for college graduates increases and supply remains unchanged, a skilled labor shortage occurs, leading to a skills gap.
Scenario B - If demand for college graduates decreases and supply remains unchanged, a graduate surplus occurs, leading to higher unemployment among graduates.

Based on current market evidence, both scenarios are happening at the same time. Those proclaiming the validity of the national skills gap are focused on Scenario A, while those who claim the skills gap is not real are focusing on Scenario B. But how can both claims be correct? How can demand for college graduates be increasing and decreasing at the same time?

The answer is found in the type of college graduates that are in demand. Employers (consumers) want graduates with greater technical skills, while colleges (suppliers) have remained unchanged, producing graduates in all the same traditional disciplines. The result is a consumer demand that is not being met by suppliers and suppliers that are producing something in quantities that consumers no longer need.

Last month, I spoke at the Demand Driven Training for the 21st Century workforce summit in Tulsa, Okla., and was joined by several business and industry leaders, including Jennifer McNelly, president of The Manufacturing Institute, Leo Reddy, chairman and CEO of the Manufacturing Skill Standards Council, and Dr. Robert Sommers, director of the Oklahoma Department of Career and Technology Education, among many other members of higher education, large employers and chambers of commerce. The event focused on developing the talent pipeline in advanced manufacturing, aerospace, transportation and logistics.

From individual speakers to panel discussions and breakout groups, several key takeaways emerged.

1. The skills gap is real. Employers absolutely want to hire workers; they just aren't seeing enough qualified candidates. It's more important than ever for institutions of higher education to match curriculum with the stated needs of the recruiting market.

For several months, the national narrative has been that if there are 12 million people out of work, there must be 12 million too few jobs. This makes sense superficially but is not entirely accurate because we know there are three million skilled labor jobs available right now for workers with the appropriate skill sets. Our problem is that many of the jobs for which we have been preparing graduates no longer exist, and we have not been preparing enough graduates for the jobs that do exist.

We essentially have the wrong supply for the present demand, and we need to do a much better job of preparing graduates for the demands of the modern workforce.