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There’s a persistent skills gap in America’s labor market, and it may fall to companies to solve the mismatch between their needs and workers’ skills and education.
The “middle skills gap” is one of the key factors putting downward pressure on our economy, according to Harvard Business School’s (HBS) recent study on competitiveness, which explains that the absence of US workers with relevant training to handle in-demand jobs is affecting US global competitiveness.
HBS professor and study team member Joe Fuller explained to Yahoo Finance that this gap has translated to weakness in the jobs market—with openings not filled for months at a time—but that companies can take a more active role in solving this issue.
Employers must actively participate in employee training
While many think of skills development in the context of the “pre-K through 12” educational system, Fuller said key training development needs to come from on-the-job training as well.
Fuller explained that business has a central role to play in addressing workforce skills gaps.
“No one is better equipped than local business leaders—or more motivated—to ensure that education and training efforts develop individuals who can thrive in the workforce,” the report explained.
Specifically, by partnering with local community colleges, companies can help narrow the growing gap between employees’ skills and employers’ needs, Fuller explained.
In Georgia, for example, Southwire—a cable and wire manufacturer—is working with the Carroll County school system to place at-risk students in jobs, allowing them to earn money while completing high school degrees, the report states.
Importantly, companies can also provide training that develops skills that are portable across industries and promote career development.
Wal-Mart (WMT) is one company that is working to improove employees’ credentials, Fuller said. The company has been working with its employees to up-skill and promote them. The company also has programs targeting veterans.
“[Wal-mart has] begun to acknowledge that a significant number of their employees will not finish their career at Wal-Mart. Their first or second job is at Wal-Mart. So they’re gearing some of their training for broader job readiness skills, not just focused on the very narrow policies and strategy of Wal-Mart itself,” Fuller said.
Fuller added the company recognizes that its stores are members of their communities and that it must respond to outside criticism and realize that those former employees are customers as well.
“Whether it’s raising the lowest wages they’re paying or making greater investments in workforce development, I think they’re responding to that message from a public that, while people love their prices, they’d like to see better outcomes for Wal-Mart employees,” he said.
Meanwhile, the National Network of Business and Industry Associations is developing new cross-industry, national credentials that will provide longer careers and greater job security for restaurant and hotel industry workers, metal workers, construction workers, and automotive workers, according to the report.
Retrain existing employees
JPMorgan Chase (JPM) is another company that has invested in employee programs.
“JPMorgan has a very innovative program they’ve announced to take existing employees, bank tellers, and train them to assume higher level jobs in their retail banking operation, particularly being customer service reps,” Fuller said.
This could have a significant impact on middle skilled worker populations, especially as the number of bank tellers is expected to shrink by 50% over the next ten years. That’s a large number of middle skilled workers who will be out of work.
The company recognized, according to Fuller, that by investing in employees they already have and know, they can develop the group without having to hire a new employees.
“Why not use the personnel file, as opposed to the interview notes and the resume, to make a judgment about someone’s ability to be a success at the bank?” Fuller said.
And while there are some companies dedicated to investing in the skills of employees, especially skill sets that change over time—like UPS (UPS), according to Fuller—many are too short-term focused, he added.
“Many employers essentially play what we call the spot market for labor,” he said. “They have a job that gets opened. Their reflex action is to go and post a help-wanted ad on a job site, and not consider how they could take one of their own employees, and through a little bit of investment, thinking ahead, have that person job-ready for that job opening.”
Fuller emphasized that companies need to invest in what the report refers to as “the commons,” a set of communal assets that every economy and company rely on to be productive and competitive. This refers to not only to skills development but also to a commitment to wage growth and general support.
Companies are starting to respond to this need, Fuller said, largely because of public pressure.
“To address shared prosperity while improving productivity, leading companies are focusing new attention on prospects for their lower-income workers,” according to the report. “For example, companies like Gap, Ikea, JPMorgan Chase, McDonald’s, Starbucks, TJ Maxx, and Wal-Mart have discovered that by raising wages for low-income employees, they can often boost productivity, improve customer service and reduce employee turnover.”
Fuller explained that HBS has found that business leaders are preferring part-term workers and outsourcing versus investing in employees—a trend that is increasing over time.
“There is no industry here that isn’t intensely competitive,” Fuller said. “And so managers, appropriately, are always looking for ways to sculpt and customize their cost structure to fit with their actual needs.”
Outsourcing—via companies like Kelly Services (KELYA) and Manpower (MAN)—has been one of the big trends in the economy for the last two decades. We’ve gone from 10% of workers employed by staffing agencies to almost 16%, he explained. Meanwhile, two-thirds of employers, if given an alternative, would rather have an outsourcing company do the hiring.
Higher educational standards
Fuller explained that to be ready for one of today’s jobs, a post-high school education is key. In particular, the requirements for higher-paid jobs with wage growth have increased over time.
And with only one-third of Americans attending a four-year college, other options—including an Associate’s degree from a community college or a certificate related to a specific skill—are key to form a household and lead an independent life, Fuller explained.
In addition, skills need to be further developed after educational training has been completed.
Skills mismatch has led to the dissatisfaction we see in the current election
“If you look at the demographics of the campaign and compare it to the demographics of economic developments in the last 25 years in the United States, there’s a correlation,” Fuller said. “[A] large number of communities, [a] large number of regions, were exposed to types of competition that they were unable to match, but were not able to rebound.”
Jobs that became unsustainable in the US—either because of low wage rates elsewhere or the level of regulation in the US—disappeared and workers didn’t have the breadth of skills.
This has led to anger and blame that can be seen in this year’s presidential election. Instead of blaming outsourcing and international displacement, it is key to focus on skills development on the job, along with increased alignment between education systems and career opportunities, Fuller explained.
“A job that’s very closely defined is one you can write a specification for and send to China or send to Mexico or you can build a machine or write software to do,” Fuller said. “Once that work goes away, it’s not coming back. It’s important that the candidates at all levels stop talking about the good old days… And start talking about what kind of workforce we need in the future and how we can help people make that transition.”
For more on the US Competitiveness Study, please see here: