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It's Not a Skills Gap: U.S. Workers Are Overqualified, Undertrained


Bloomberg BusinessWeek. August 19, 2014. By Matthew Philips.

In the debate over why the U.S. has been so slow to emerge from the Great Recession, many have laid the blame on what’s become known as the skills gap: Despite an abundance of workers, too many simply aren’t qualified to fill the jobs available. Even now that hiring is running at its fastest clip since the late 1990s, business and industry groups such as the Chamber of Commerce continue toemphasize the damage the skills gap is doing to the economy. So do a lot ofconsulting firms.

These reports tend to rely on surveys from employers and usually point to the growing number of unfilled job openings. Indeed, there are now 4.7 million job openings in the U.S., the most in more than a decade. Even so, some 9.7 million people are looking for work—more than two for every open job. The skills gap argument relies on that basic paradox: How can there be so many unemployed people in the face of so many job openings?

In the chart below, the orange line represents the number of unemployed people looking for work; the white line represents the number of job openings.

Plenty of anecdotal evidence suggests that companies have trouble finding qualified applicants. (For example, there’s a shortage of welders.) Across the broader economy, though, the data do not hold up. Annual wage increases have been stuck at around 2 percent; they’d be rising much faster if there were a shortage of qualified workers.

Something is clearly broken in the labor market. The problem may not be the skills workers ostensibly lack. It may be that employers’ expectations are out of whack. That’s the premise of a paper by Peter Cappelli, a management professor at the Wharton School. For much of the twentieth century, it was up to industry to pluck smart, capable college graduates and turn them into quality workers. In recent decades, on-the-job training has declined. Companies want new hires to be able to “hit the ground running.”

Cappelli cited data suggesting that in 1979, young workers received on average about 2.5 weeks of training per year. That dropped quickly:

By 1991, Census data found only 17 percent of all employees reporting that they received any formal training that year. Several surveys of employers around 1995 indicate that somewhere between 42 and 90 percent of employers offered some training (the lower number indicating more programmatic training) with the amount of training an individual received per year averaging just under 11 hours. The most common training topic was workplace safety. Those figures also include what vendors provide when they bring in new equipment: “Here’s how to work this copier.”

In 2011, an Accenture (ACN) survey of U.S. employees found that only 21 percent had received any employer-provided formal training in the past five years. “That means almost 80 percent had no training in five years,” Cappelli wrote.

With employees switching jobs more frequently than they used to, it’s easy to see why businesses have cut back on workforce training: They might never recoup their investment. This has placed a disproportionate value on experience among new hires. In particular, companies want employees who have already done the job somewhere else. That shows up in data about how much employers value internships:

Meanwhile, career and technical education (CTE) has declined in favor of traditional four-year colleges. The average number of CTE credits taken per student fell by half from 2000 to 2005.

Boosting CTE in public schools and then feeding young people into one- and two-year career and technical schools could help boost the labor supply for such industries as health care and manufacturing, but those sectors are already pretty good at filling job vacancies. In June, data show that manufacturers posted 312,000 job openings and hired 307,000 people.

To make a difference in the broader economy, Cappelli argued, businesses need to bear more of the burden in training workers and giving them the experience that is so valued. “If employers would only do what they did 30 years ago, we wouldn’t have this problem,” Cappelli tells me, adding that the fear of having a competitor reap the rewards of your investment are overblown. Consider the consulting industry, in which firms invest lots of resources to train new workers, only to have them leave: If more industries did the same, employers would ultimately end up meeting their own demand for experienced workers—by producing more of them.