Two Approaches to Closing the Skills Gap – One of Which Actually Works

While the question of whether there really is a skills gap in the United States has been hotly debated by economists, surveys consistently show that employers believe they face a shortage of qualified workers. This belief is affecting how businesses hire and manage their human resources which makes the skills gap important, whatever its empirical basis. Firms respond to skill shortages in a variety of ways and particular strategies have very different implication for job seekers, incumbent workers, and local economies. Two recent articles illustrate how specific employer responses can lay a foundation for long-term economic growth or further slow any broadly-shared economic recovery.

First is a New York Times article featuring two German manufacturing companies that have set up shop in South Carolina. Tognum America and BMW established plants to take advantage of lower fuel costs on this side of the pond, and the generous tax incentives and low labor costs offered by South Carolina. Shortly after starting operations both companies quickly ran into a shortage of skilled workers. Rather than return home, they responded the way German companies have been doing for generations – by making long-term investments in the development of a skilled local workforce. Both companies reached out to high schools and community colleges to develop apprenticeship programs for local young people interested in careers in advanced manufacturing and alternatives to traditional college. A number of other German and Japanese companies, including Siemens, Volkswagen, and Toyota have set up similar programs in the Southeast, working with community colleges in North Carolina, Tennessee, and Kentucky to build a skilled workforce.  The companies work hand in glove with the local schools and state officials, developing curriculum, training instructors, and issuing credentials. Programs are highly competitive, over-enrolled, and put students on pathways to good paying jobs and further career and educational advancement.

A November article in Time Magazine points to a very different employer response to perceived skill shortages that, sadly, is far more common – delaying hiring and stretching incumbent workers even further until the candidate with the exact right mix of skills and experience is located. The article, titled “The Real Reason Recent Grads Can’t Get Hired“, describes how employers would rather leave vacancies open than fill them with recent college graduates who they believe lack the necessary “soft skills” to succeed in the workplace. Citing a number of recent surveys, including the annual Talent Shortage Survey from Manpower Group, the article notes that jobs are going unfilled because companies can’t find “team players, problem solvers [who] can plan, organize and prioritize their work.” The fact that these graduates have the necessary cognitive and technical skills for the job – which employers acknowledge they often do – is purported to be less important than other ephemeral qualities like flexibility, motivation, and interpersonal skills. Employers would rather wait than take a chance on an employee that might not be able to problem-solve effectively their first day on the job.

There is little reason to believe that college graduates from 1993 had significantly better “soft skills” than 2013 graduates – but they did enter a much better labor market and employers were more willing to let them develop skills on the job.

These divergent responses illustrate stark differences of opinion on the role of employers in building the skills of their workers, particularly with regard to who should pay. Over the last few decades, American business has shifted the onus of skills development almost entirely onto job seekers who, in turn, rely on local education providers who may or may not provide the right mix of marketable skills.  While hard data on how much money employers spend on training is hard to come by, surveys point to significant declines in firm-based training, particularly for entry-level workers. Young workers in the 1970s received an average of 2.5 weeks of training per year. By contrast, a 2011 survey of employees and employers by Accenture revealed that only 21% of workers had received any formal training in the last five years. That means that the overwhelming majority of American workers have little or no access to any form of employer-provided training.

The unwillingness of employers to hire workers lacking the right mix of “soft skills” is a continuation of the same theme of disinvesting in training. Learning how to navigate an organization, manage a work project, communicate effectively with colleagues, supervisors, and clients and solve work-specific problems, are all skills we obtain at work. That is not to say that schools aren’t important in developing communication, teamwork, organization, and problem-solving skills, on top of critical cognitive skills like math, reading, and analysis, but it is a stretch to think that employers have no role in helping new entrants learn the specific skills and behaviors that come with professional work.

In fact, there is considerable evidence that employers are not so much interested in particular soft skills – which conveniently defy measurement and can range from personal qualities like “warmth” to dispositions like “optimistic” to personality traits like “extroverted” – as they are in concrete work experience. Surveys of hiring managers show they prefer candidates who have field-specific (and even position-specific) work experience where they have already learned the right mix of soft and hard skills, eliminating the need for any additional training.  According to one survey, over eighty percent of hiring managers expected recent graduates to have completed an internship in their field to be competitive, which likely means the student worked for free. That’s how much employers don’t want to pay for training.

Recent college graduates are having a hard time finding jobs today because they lack work experience and are competing in a loose labor market in which work experience is necessary to get hired. There is little reason to believe that college graduates from 1993 had significantly better “soft skills” than 2013 graduates – but they did enter a much better labor market and employers were more willing to let them develop skills on the job. Youth unemployment in Germany is the lowest in the OECD and German manufacturing sets the global standard for quality. Apprenticeship programs, while costly in the short-term, generate long-term benefits for employers, workers and local economies.  American employers and policymakers might want to consider whether our approach to the skills gap is setting us up for that kind of success.