How to Understand and Deal with your Company’s Skills Challenges

The conversations overheard at every Chief Executive Group event this year undoubtedly echo the conversations you’re having with your board, your CHRO, and the heads of every division in your organization: how to deal with the skills gap that has made it so difficult for companies throughout America to fill available jobs, increase often-stalled productivity, navigate change, and fuel the sort of disruptive activity that is essential for survival in this economy.

Those having the discussions range from small manufacturers who say their Number One problem is “getting workers to show up and pass the drug test” to larger companies who wonder how they’ll fill their workforce pipelines when baby boomers retire and leave few workers to take their place. In addition, all sorts of companies are searching for highly skilled employees whose abilities outpace the STEM-oriented training currently available in much of the country.

To address these issues, some companies have cut deals with local community colleges and developed courses specific to their needs. Others have created their own in-house “universities” while offering employees the choice of reskilling or leaving the company. Several top tech executives recently announced plans to help underwrite and craft STEM education in America’s public elementary and high schools.

How deep is this skills gap? Writing in Bloomberg Businessweek recently, economics editor Peter Coy noted that while businesses are complaining “that they can’t find workers with the skills they need…workers and their advocates respond that employers simply aren’t willing to pay enough.” Other cynics have suggested that complaining companies are simply trying to pass the buck, in an attempt to get government to pay for training programs.

“A skills gap is present when training or education for a given occupation does not adequately prepare students for the demands of that occupation.”

Last week, in an effort to get to the bottom of the skills gap question, a centrist think tank called Third Way released a study that combined five different measures (job fill rate, wage gains, education and credential attainment, employer surveys and state analyses of labor supply and demand) in order to smooth out any prejudices or data inadequacies that might be inherent in one or another of the statistics.

As Third Way explained, “There is little national-level data because much of the data is gathered regionally or is incomplete. This makes it hard to get an accurate picture of how many workers have certain skills and credentials, and which skills or credentials employers really need.” Critically, they continued, “proponents and skeptics of skills gaps each point to different types of data to make their case, or interpret the same data differently.” By looking at all five measures, Third Way felt it could present a clear, balanced, industry- and even state-based picture that not only would be accurate, but useful to the industries and states affected.

Even so, to get at the truth, Third Way needed to go beyond the data in its analysis. For example, while four of the five data sources indicated a dire shortage of healthcare workers across the country, a look at wage growth—which was flat—seemed to undercut the other findings. Wages tend to grow when there are shortages of available employees, so why weren’t they growing in the healthcare industry? As Third Way concluded, “wages in the healthcare sector are largely controlled by public healthcare funding and insurance markets.” So, talent shortage or not, no significant wage growth was possible for healthcare workers.

Breaking down the reasons for the skills gap
Although, overall, Third Way’s research indicated a nationwide, cross-industry skills gap, there were some critical variations by industry, by state and by cause. For example:

• Technology jobs, across various skill levels, are going unfilled due to a lack of qualified candidates. The U.S. Department of Labor noted that this problem was particularly evident for companies seeking “computer user support specialists” in Missouri and California and for those looking for software developers and computer programmers in New York and Washington, DC.

• The shortage of highly qualified K-12 teachers is most evident in classrooms where STEM is taught. “While we actually have a surplus of elementary teachers,” Third Way noted, “we don’t have enough educators being prepared for or entering into STEM teaching roles.”

• Financial services, Third Way warns, is on the verge of a worker shortage—and, unlike with healthcare, wages have been rising to lure skilled workers to available jobs—median wages in financial services rose almost 4% between 2013 and 2015. The shortage of specific types of financial services workers appears to differ by state, reflecting the industries clustered in those areas. So, while Connecticut needs twice as many claims adjusters and insurance underwriters as it currently has, Colorado is facing growing shortages of accountants and auditors. Underlying this shortage, Third Way suggests, is the age of the workforce: with millennials flocking to other industries, there are fewer and fewer employees to replace retiring baby boomers.

• Baby boomer retirement also will contribute to worker shortages in both manufacturing and construction. In the case of manufacturing, Third Way says that even though manufacturing wages are solid, an increase in college attendance has made manufacturing training programs less attractive to potential workers. And this, they suggest, is likely to lead to the loss of U.S.-based manufacturing jobs “as companies relocate to countries with a larger supply of qualified workers.”

Third Way also points to an increasingly important nomenclature issue: the difference between a skills gap, a skills shortage and a skills mismatch. Though these terms are often used interchangeably (even, Peter Coy notes, by Third Way), it’s critical that companies analyzing their own situations—and figuring out what to do—understand what differentiates one from the other. Here’s how Third Way explains the difference:

• “A skills gap is present when training or education for a given occupation does not adequately prepare students for the demands of that occupation.”

• “A skills shortage…is when training for a given occupation is adequate, but there aren’t enough people getting that training and then entering that occupation.”

• “A skills mismatch is when…the supply and demand of skills—usually measured by education level—are out of sync.” This, they note, is often evident when companies are hiring labor “with more education or skills than the job actually requires.”

While Third Way’s study may appear to do little, at least on the surface, to help companies bedeviled by whatever type of “skills challenges” they’re facing, it does underscore what is clearly a nationwide, industry-agnostic problem. It also goes a long way toward explaining not only the common causes of this problem, but also the key differences faced by specific industries, job titles and companies, which can help businesses—and, especially, their leaders—start figuring out how to turn these challenges into opportunities.

Dig more deeply into a wide range of talent issues at Chief Executive Group’s annual Talent Summit, in Orlando on October 25th and 26th.