This is the second in a three-part series, researched and written with co-author Natalie Pregibon, Director of P3 Intelligence at Concordia, about the U.S. economy, the job readiness of the country's labor force, and how public education could play a more-effective role in addressing the skills gap that keeps existing jobs from being filled. Some of the data analyzed by Ms. Pregibon for this second installment in the series can be found on the Concordia web site.
The first installment in this three-part series, "Where Have All the Jobs Gone?," addressed how more than five decades of structural changes in the U.S. economy has led to the anomalous circumstance of stubbornly high unemployment while an estimated four million jobs go begging. This second installment takes a closer look at the scope and extent of the current skills gap to help explain why so many currently available jobs will continue to remain unfilled. The third and final installment -- "What Role Should Apprenticeships, Vocational Education, and Similar Alternatives Play in Traditional K-12 Education?"-- will offer both short-term and long-term policy suggestions to remediate the disconnect between the qualifications employers currently seek in the marketplace and the workforce skills various educational institutions could deliver to the labor market through their respective programs' graduates.
...What people know and what they do with what they know has a major impact on their life chances. The median hourly wage of workers who can make complex inferences and evaluate subtle truth claims or arguments in written texts is more than 60% higher than for workers who can, at best, read relatively short texts to locate a single piece of information. Those with low literacy skills are also more than twice as likely to be unemployed. [Emphasis added]. OECD (Organisation for Economic Co-operation and Development) Skills Outlook 2013: First Results from the Survey of Adult Skills, pg. 3
It is inconceivable to the average American that at a time of stubbornly high unemployment -- its downward trend since October 2009 notwithstanding -- every available job isn't immediately filled in the U.S. The first installment in this series posited three main factors in the structural changes to the U.S. economy that may be partly to blame for this anomaly: Mechanization, Globalization and Transformational Technological Change. But that represents only the first half of the equation: How the demand for workers has fundamentally changed. That there are millions of jobs that are available as a consequence of these structural economic changes, which are not being snapped up, is a supply side problem: There simply are not enough qualified employees to fill those new positions. In other words, what employers require from the marketplace aligns neither with the skill-sets of workers from the "old economy" nor with what our educational institutions are creating in terms of the competencies and knowledge bases of their respective graduates.
Matching Unemployed Workers with Available Jobs.
In well-functioning labor markets, job seekers and employers efficiently find mutually beneficial matches. Individual businesses grow and shrink in response to fluctuations in profitability and in the demand for their products; workers change jobs as they look for and find positions that best fit their skills and interests; and improvements in technology, changing consumer preferences, and changes in international trade have disproportionate effects on various industries, occupations, and locations of work. The need for workers to move from one industry or occupation to another, to acquire new skills to facilitate such a shift, or to relocate to find new work often is characterized as a skill or locational mismatch, and such mismatches always result in some amount of unemployment as businesses with vacancies and workers looking for jobs take time to find good matches. That normal mismatch is one component of CBO's estimate of the natural rate of unemployment, which was five percent before the recession [Emphasis added]. Congressional Budget Office Report, "The Slow Recovery of the Labor Market," February 2014.
The CBO's Labor Market Outlook downplays, however, the role that the skills gap is playing in the slow pace of absorption of the four million jobs currently available in the U.S. In its latest market outlook the CBO suggests: "[t]hat effect will diminish gradually over the next few years...as the causes of dampened matching efficiency recede and as workers acquire new skills, shift to faster growing industries and occupations, or relocate to take advantage of new opportunities." [Emphasis added].
The CBO report suggests only that the impacts of the skills gap will "fade" away by 2017, without offering anything in the way of how this will occur or why it will take at least several more years. Moreover, and as described below, this sentiment is largely at odds with what employers currently perceive to be the substantial problem of the skills gap represented by the current workforce. And, most-importantly, the skills gap issue is unlikely to fix itself through this gradual absorption process.
In fact, this skills gap between what employers need and what the available workforce offers to those employers in terms of qualifications is likely to be exacerbated over time. Regardless of whether the skills gap represents one percent, five percent or even ten percent of the total number of currently unemployed workers in the U.S. (there being a lack of consensus on the magnitude of the skills gap on unfilled, available U.S. jobs) there can be little doubt that the percentage is growing. The pace of technological advances underpinning the new economy -- the "Innovation Economy" -- is so rapid that the types of skills required are constantly changing. What is being taught to the ranks of the emerging workforce -- high school graduates; students emerging with degrees from community college, undergraduate or graduate programs; or old economy workers successfully completing worker retraining programs -- is not keeping pace with the demands of this new economy.
The U.S.' various educational institutions must be willing and able to play catch-up, in significant ways, to better prepare their students to be active participants in the Innovation Economy. If they fail to make the necessary adjustments to better align graduates' capabilities with the demands of employers, the skills gap will continue to widen, unemployment will remain stubbornly high -- and could start trending up, particularly if foreign countries like India and China compete effectively, through outsourcing, by offering workers better-aligned with the needs of U.S. employers -- and this new Innovation Economy may suffer setbacks because its natural growth is constrained by a lack of qualified workers.
There are, of course, many reasons other than the skills gap that could be keeping the ranks of the unemployed from filling available positions with employers throughout the U.S. A lack of mobility among the unemployed, for example, is one such factor that could trump an otherwise good match between unemployed workers and available jobs. Geographic mismatches between where available jobs are located and where potentially qualified workers currently reside may partly explain why some of these available jobs go begging. Such dislocations of human capital may be aggravated by other factors -- such as being in a home with an underwater mortgage or having a spouse whose job is the household's current source for healthcare insurance -- that cannot be ameliorated through the better alignment of job skills and available jobs that could potentially be achieved through a more-enlightened approach to educating the workforce.
While geographical or other mismatches may explain some percentage of unfilled jobs, there is compelling evidence of a significant and growing skills gap. According to a 2012 survey by the American Society for Testing and Development (ASTD), 84 percent of surveyed employers reported a skills gap in their organizations. Even the pool of recent graduates lacks the skills required by employers. A 2012 McKinsey study found only 49 percent of employers considered graduates to be adequately prepared for the job market. Interestingly, this view was not shared by education providers, 87 percent of whom in the McKinsey survey considered graduates to be adequately prepared for the job market.
This disconnect between educators' views on job readiness and employers' views on the lack of alignment between required skills and new workers' qualifications is disconcerting, as the U.S. economy relies almost exclusively on our education system to build the collective skills of its workforce. Employers' growing frustrations with educators' abilities to teach skills is evidenced in a recent Gallup poll, which found that only nine percent of surveyed business leaders thought that from which institution a job candidate received his or her degree was very important in making a hiring decision. Even a candidate's major was not deemed very important, with only 28 percent of business leaders citing it as a very important factor when making a hiring decision. Conversely, knowledge of the field and applied skills in the field were deemed very important by 84 percent and 79 percent of business leaders, respectively. This may be truly distressing news for the Board of Overseers of Harvard University and welcome news for the Board of Directors and shareholders of the Apollo Group, Inc., which includes the University of Phoenix among its wholly owned subsidiaries.
It is not surprising that middle and high-skills jobs are the most difficult to fill. The factors addressed in the first installment in this series -- Mechanization, Globalization and Transformational Technological Change -- have created a U.S. labor market that demands workers with specialized skills and technological savvy. Previously "low-skill" industries like construction and manufacturing are now in the market for "middle-skill" workers and are having difficulty finding them. 83 percent of manufacturing executives surveyed by Deloitte said they are experiencing a moderate to severe shortage of workers capable of skilled production. 60 percent cited a moderate to severe shortage of engineering technologists. Conversely, 72 percent of surveyed executives said they are not experiencing a shortage or are experiencing a very low shortage of unskilled workers.
Educators and the government are addressing the skills demand by pursuing initiatives, like the Obama Administration's Educate to Innovate initiative, that focus on what they consider to be neglected subjects: Science, Technology, Engineering and Mathematics (STEM). However, simply shifting the focus to or prioritizing STEM, by itself, may not be enough to correct the misalignment of graduates' skill-sets with what employers are seeking.
Given what appears to be -- at least based on the lack of better results -- a somewhat ad hoc approach by educational institutions to close the skills gap, it should not have been as shocking as it was that U.S. workers scored embarrassingly low on the OECD's Programme for the International Assessment of Adult Competencies (PIACC), a practical skills assessment. The performance of U.S. workers in the PIACC scored below the OECD average on mathematics, reading, and problem solving. Interestingly, the oldest cohort of U.S. workers assessed by OECD (age 55-65) scored above the OECD average on literacy and problem solving and just slightly below that average on numeracy for this age group. Conversely, U.S. workers in all other age groups performed worse than the OECD average.
Among other things, these findings suggest that U.S. workers are losing their human capital edge. According to the World Economic Forum, U.S. global competitiveness has gone from number one, in 2007, to number five in 2014, with Switzerland, Singapore, Finland and Germany taking the top four spots. In an increasingly technological world, young Americans' low scores on problem solving in technology-rich environments is particularly disconcerting.
A growing skills gap affects every stakeholder in the workforce ecosystem adversely: Workers, employers, industries and the overall economy. Workers will increasingly find themselves unemployed or underemployed. Employers will have difficulty filling positions, and when they do, will experience high on-the-job training costs, lower productivity, lower efficiency, higher worker turnover and lower profitability. Whole industries will be affected as the pipeline of appropriately skilled workers diminishes. Such diminishment may, among other things, incentivize competing, foreign companies to fill the void, drawing domestically based businesses and industries away from the U.S. once again. The resulting human capital deficit will constrain the pace of technological advancements, ultimately reducing the U.S. economy's global competitiveness.
The foregoing raises one, fundamental question: Is the educational infrastructure in place in the U.S. to facilitate the processes by which both graduates from various educational institutions and unemployed workers, through targeted retraining programs, can "acquire new skills, shift to faster growing industries and occupations, or relocate to take advantage of new opportunities," as suggested in the CBO Labor Market Outlook?
Thinking in such terms, identifying the various skills gaps keeping available jobs unfilled, and then developing practical strategies for bridging those skills gaps as efficiently and quickly as possible, certainly seems a worthwhile undertaking. Making sure the educational infrastructure is in place to prevent such a skills gap from recurring to this extent again could inure greatly to the U.S.' long-term economic benefit. That will be the subject of the third and final installment in this series.