Are There Really Skills Gaps Everywhere?

Special Focus : Who Should Solve the Skills Gap?
Life Skills October 26, 2015

Virtually everywhere we turn there are discussions about what to do to solve the skills gap problem, both in the press and in public policy forums. The skills gap notion started in the US, surprisingly, in the middle of The Great Recession when we would have thought there was never a greater glut of talent. Now we hear some similar complaints in the UK, in rising economies like China and India, and also in developing countries in Africa. If you have a curious mind you’d ask, what is going on in all these places that is causing a skills gap?  

The short answer is that whatever is happening, it isn’t the same thing everywhere, and that begins with the fact that the term “skills gap” is used to mean different things in different places.  

The idea of a skills gap means a distance between what employers want and what they are finding, so the common theme across countries is the idea that employers cannot find the candidates they are looking for when they go to hire.  

What are employers looking for? In some developing countries, employers are looking for basic academic skills to work in any modern organization: can candidates read, for example? We might expect wages to be rising for individuals with education if employers were looking for more candidates with education than are available, and in some countries, that is happening.  In the developed world, the problem is the opposite, candidates having more education than the jobs they can find require.

In China, India, and some other fast-growing countries, the problem is different. It is not necessarily a gap in academic skills per se. It is a gap in more practical skills that might be learned in vocational or technical schools or in engineering. The overall unemployment rate of recent college graduates in China, for example, is estimated at more than 50 percent and climbing while there are complaints about not being able to find enough technicians and evidence of rising wages there. 

The problem in the US and to some extent in some European countries is different still. While there is a glut of candidates with the necessary academic background, employers are looking for candidates with prior work experience, sometimes very detailed work experience at the level of working with particular brands of equipment. Wages in general are not rising, and there isn’t much evidence that they are rising for employees with the experiences that are supposed to be in short supply.

If there is a gap between what employers want and what they are finding, we should expect that functioning labor markets will close it: wages will rise to balance supply and demand. When that doesn’t happen – and typically in these cases of employer complaints it hasn’t – it suggests that the demands are more about “want” than “need.”  We want candidates with a special qualification and several years of practical experience, just as most of us want faster, better looking and more fuel-efficient cars at lower prices, but we can get by with less. The surveys that claim employers are experiencing skills gaps almost without exception conclude that what employers say they want is what is absolutely needed to perform the jobs in question, and that is a mistake.

Where employers have a real need for skill, what role should they play in creating those skills? In business schools, we would see this problem as something like a standard supply chain. Employers are the customer for work-based skills, schools and job seekers are the providers.  

At a minimum, we would think customers who aren’t getting what they want need to be involved with those who are supplying them to get the message across about the shortfalls. If the problem is a shortfall of basic academic skills in a community, the causes are typically societal and fundamental. Short of providing education themselves, it is difficult for employers to have any immediate impact on the problem. It is certainly possible for employers to advocate through the political system for the type and level of skills they need, and in most cases those skills are similar to what educators believe is important for life and citizenship.   

When we come to more advanced skills after compulsory education, typically students choose what to pursue, and that makes it a market, a labor market. Students aren’t going to choose to go into machine technology – and pay for it themselves – if it doesn’t look like the jobs they will get after are worth it. Customers have to pay for what they want, and in this case, that means the employers.  

There are approaches that work for employers other than just offering better paying jobs. As in supply chains, that means getting closer to their providers. If there are good jobs available, students and their schools need to know about them. If the cost of securing the skills is high, employers can help subsidize it or effectively loan students the money as they do in some countries with employment “bonds” where students agree to work for the employer after finishing their subsidized education. This is like a partnership with providers in a supply chain.

Finally, we come to the skills that are best or perhaps only learned on the job, especially through initial work experience. Two basic approaches had been used to provide those skills. One was on-the-job training, where an employer would hire inexperienced candidates, give them simple tasks to perform, and slowly advance them up promotion ladders as they took on bigger tasks and learned more. 

In many places that system appears to have broken down, in part because the simplest jobs now are often gone, performed by machines (simple bookkeeping, e.g.) or bundled into existing roles (clerical work), because business needs change too quickly to keep those promotion ladders in place, and because the large scale facilities that made them possible seem to be giving way to smaller, more flexible operations.  

That breakdown has directed attention to the other approach, apprenticeships. They use the same idea of learning by doing to produce skills but in this case those skills are useful to many employers. As a result, they have to be protected against outside employers who would hire away the apprentices before they finished their training and before they have paid back the costs of that training through their work contributions. Apprenticeships thrive where the systems are backed by laws, by agreements across employers, and by unions that prevent this type of poaching. When those supporting systems decline, as they have in the US, apprenticeships also decline.

Here again, the path forward is for employers to get closer to their suppliers. School leavers and graduates are interested in training, and they can be persuaded to take jobs that pay less in order to get it if the training is credible. Programs where employers and schools work together to provide classroom and work experiences that are integrated are very successful at producing graduates who have both classroom and work-based skills. What has held back these programs has been a lack of employer engagement more than unwillingness on the part of schools. It is even possible through cooperation to get apprenticeship programs going, but employers have to work together to do so.

Getting the skills needed is the basic talent management task for all employers. It is unfortunately not possible for employers to solve that challenge without their direct engagement. It can’t be outsourced to the government.