Who can fix the ‘middle-skills’ gap?
Three and a half years after the Great Recession, unemployment in the United States remains stubbornly high. Yet many employers still struggle to fill certain types of vacancies, especially for so-called middle-skills jobs that require postsecondary technical education and training and, in some cases, college math courses or degrees. Currently in the US about 69 million people work in middle-skills jobs, representing roughly 48% of the labour force.
This number is expected to grow substantially as more baby boomers retire. Shortages of workers for these types of jobs are already undermining US competitiveness and causing firms to shift their operations abroad. Figuring out how to train people to fill those well-paid jobs could help remedy the wage stagnation gripping the country and close the growing gap between high- and low-income households.
The big obstacle is execution. We think companies can and should take the lead in training workers to fill the middle-skills gap. Realistically, that can happen on a large enough scale only if business leaders co-operate with one another, unions and educational institutions, both regionally and nationally.
The changing skills landscape
For most of the 20th century, people obtained marketable skills and achieved prosperity in one of two ways. The first was on the job. By promoting from within, firms enabled workers to progress to higher-level occupations. Unions negotiated career ladders that were linked to skills and seniority, and they joined employers at an occupation or industry level to host apprenticeship and other training programs. That system ensured an adequate flow of new talent equipped with state-of-the-art skills.
But as unions declined, so did apprenticeships, other union-employer training programs and promotion from within. At the same time, the kinds of skills needed by employers changed from incremental new ones that can easily be learned on the job to those that require advanced technical and behavioral skills that existing production and employment paradigms lacked.
The second path to skills acquisition was through college. Young people were told to play by the rules and major in a field that suited their interests and talents. But demand for people with liberal arts degrees has dropped sharply.
Consequently, the capacity of the US system to nurture midlevel skills is in decline, just as a shift to flatter, team-based structures is increasing the need for them and automation is reducing the demand for less-skilled workers. Nevertheless, forward-looking local initiatives are making progress in addressing the skills gaps in their regions. They embody at least one of the following attributes:
1. Multiple employers in the region or industry sector co-operate with one another and with educational institutions to design and fund initiatives and to train and hire graduates.
2. Classroom education is integrated with opportunities to apply new concepts and skills in actual or simulated work settings – an approach proven to be the way adults learn best.
3. Training focuses on offering workers career pathways, not just skills for the initial job.
Apprenticeships
Apprenticeships – the vast majority of which are at unionised companies and jointly run by unions and management – are the most trial-tested way for firms to address their current and future skills needs.
Completing a registered apprenticeship program pays off substantially for both workers and employers. The most recent studies estimate that graduates enjoy a $250,000 increase in lifetime earnings and that employers get a 38% return on their investment in the form of lower recruitment costs and a reduced need for expensive contractors. Employers also consistently report high satisfaction with graduates’ skills, performance and reliability.
Apprenticeship programs are most successful when a group of companies in an industry collaborate with one or more unions, or when a company is a dominant employer in its industry or region and therefore doesn’t have to worry that other companies will poach its workers.
Sector-based regional initiatives
Non-unionised businesses can develop workers’ skills by cooperating with other local employers in their industry sector. The United States has generally failed to develop widely accepted skills standards for particular sectors. However, recent local and regional experiments suggest that sector-based strategies can succeed in the US.
Important lessons about how to build sustainable skills ecosystems have emerged from these experiments:
— Start from positions of strength – and common pain and interest. It’s hard to get every stakeholder in a local area to collaborate. Chances of success are greatest in a sector where firms believe their biggest competitors for talent are elsewhere in the world rather than local.
— Identify a network integrator. Perhaps the key factor in establishing skills ecosystems is to find one person in an organization who can unite a wide range of stakeholders, including companies, local policymakers and skills providers. That person must have strong credibility with the various actors and a proven track record in fostering cooperation.
— Building skills ecosystems takes time. Solutions may not be very expensive to create, but they require at least three to five years of steady funding.
Higher-education consortia with strong industry ties
Another collaborative training model involves programs that employers build with several types of postsecondary educational entities.
— Community colleges. The enormous scale of these institutions makes them well suited to train people for middle-skills positions. Key to their success are the state-of-the-art equipment and space for satellite training labs provided to the colleges by leading firms. In return, these companies send some of their current workers to the programs for specialized training during scheduled maintenance shutdowns – a win-win-win arrangement for the employees, businesses and schools.
Proximity also allows company managers and engineers to visit classes, advise students on career opportunities, and discuss technical and organizational issues that students will face when they finish the programs. This intensive and extensive exchange of ideas, equipment and personnel helps these programs keep up with new and constantly changing skills requirements.
— Internships and co-operative education. One of the best ways to ensure that new university graduates can meet the needs of employers is to build well-designed internships or cooperative degree programs. This “try before we buy” approach allows many employers to assess the skills, work ethic and attitudes of prospective workers and to give them training tailored to firms’ specific needs.
— Online education. For-profit, nonprofit and public universities are offering or developing exclusively Web-based degree and certificate programs. Employers with workforce shortages of critical skills could partner with universities to provide online courses for entry-level professionals and on-the-job opportunities to apply the new skills. This approach would offer a powerful second chance for underemployed or unemployed graduates with nontechnical degrees who have the intellectual capacity to learn the basic skills that are in short supply. Employers would simply need to collaborate with these new online entities.
The bottom line: The US can – and must – close the middle-skills gap to remain competitive, remedy wage stagnation, and raise living standards. That will take leadership and innovation from various constituencies – business (individual firms, but especially industry associations), education and labour – and targeted federal funding and incentives.
Thomas Kochan is a professor of management at MIT's Sloan School of Management. David Finegold is the senior vice president for lifelong learning and strategic growth at Rutgers University. Paul Osterman is a professor of human resources and management at MIT's Sloan School.
Harvard Business Review
Harvard Business Review is a general management magazine published by Harvard Business Publishing, a wholly owned subsidiary of Harvard University. Selected articles from the Harvard Business Review are republished on LeadingCompany for 30 days.
©2012 Harvard Business School Publishing Corp
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