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THE TALENT EQUATION
Big Data Lessons for Navigating the Skills Gap and Building a Competitive Workforce
By MATT FERGUSON, LORIN HITT, PRASANNA TAMBE, RYAN HUNT, JENNIFER SULLIVAN GRASZ McGraw-Hill Education
Copyright © 2014 CareerBuilder, Lorin Hitt, and Prasanna Tambe
All rights reserved.
ISBN: 978-0-07-182712-6
CHAPTER 1
Navigating the Skills Gap and the Shifting Labor Market
Since the official beginning of the economic recovery (June 2009), the labor market has been like a freeway traffic jam: four of the five lanes are stalled completely, or are at best inching forward at a slow crawl. Drivers in these lanes make up most of the job-seeking population. They are former public sector employees—teachers, police officers, city administrators, etc. They are service, retail, construction, and manufacturing workers. They are small business owners who had to shut their doors when credit dried up and business slowed. They are recent graduates competing for finite opportunities and mature workers nearing—but not quite able to reach—retirement. Some drivers have pulled off the freeway altogether, temporarily or permanently quitting their job searches. In fact, the labor force participation rate recently hit a thirty-year low.
This backup is particularly frustrating because there's a sense the unemployment rate should be dropping more quickly. More lanes should be clearing. While still low by historical standards, demand for labor has increased significantly post-recession. The Bureau of Labor Statistics (BLS) counts the number of open jobs at the end of every month. In late 2012, there were anywhere between 3.5 and 3.7 million openings—up from 2.2 million in the summer of 2009. This should be welcome news. More opportunities lead to more unemployed workers heading back to work. Higher demand intuitively leads us to believe the economy is heating up.
However, many job seekers are still left idling. The pace of hiring—now four years after the end of the recession—remains too slow for a vibrant jobs recovery. In early 2013, unemployment remained too high given the demand for labor at the time. If this economic downturn followed similar historical patterns, the unemployment rate should be somewhere between 5.5 and 6 percent. This chapter explores why this is the case and what it means for recruiting and human resources (HR). As we'll see in the coming pages, severe implications exist for both organizations and the economy when the labor market is simultaneously faced with millions of job vacancies and persistently high unemployment. In this discussion, we'll track present and projected shifts in the labor market, as well as what employers can do to attract high-level talent in spite of a competitive recruiting landscape.
There are a number of theories seeking to explain the apparent anomaly between labor demand and job creation. Many hiring managers are taking longer to fill positions. They are under pressure to find the perfect hire and are willing to wait for the person with the right skills mix. Also, it's possible that the housing market crisis created a geographical imbalance between unemployed workers and available positions. Relocation may have become more difficult with so many underwater homeowners. Some labor experts contend that wages offered aren't good enough to attract workers who may have had a much higher paying position before the recession and are willing to stay on unemployment benefits rather than take a severe salary cut. There's likely a bit of truth to all of these ideas. However, there's one more explanation that's received a lot of attention in the press as of late: a structural mismatch between the skills employers need and the skills unemployed job seekers possess—commonly referred to as the skills gap.
The skills gap is a complex issue. While economists are often skeptical of the argument that skill shortages are behind slow job growth, business leaders and hiring managers consistently say they're confronted with a deficit of high-level talent. A 2012 nationwide survey of more than 2,000 HR managers and hiring managers conducted by CareerBuilder and Harris Interactive found that nearly four in ten employers had open positions for which they could not find qualified candidates. Eight in ten employers cited they were concerned by an "emerging skills gap." Based on this data, and countless news reports and anecdotal stories of hiring managers and executives stating they can't find the right talent, it seems to us the skills gap narrative is the most popular explanation for the hiring traffic jam among talent acquisition professionals.
On the ground level, the explanation seems to make sense. Even in the most frustrating jams there seems to be one outside lane that moves a little faster than the rest. Some of these drivers are workers from other lanes merging into new industries or are fortunate enough to find new work, but the majority possess niche skill sets or are highly educated, seizing on the immediate demands of the recovering economy. These include medical professionals, technology workers, engineers, finance and accounting experts, and business development professionals. Many of the best jobs to emerge in the recovery favor science, technology, engineering and math (STEM) skill sets, potentially placing those without these skills in the other lanes of traffic at a disadvantage. Opportunities for some high-skill jobs are growing quickly, while demand for many middle-skill roles lag behind, and in some cases may never come back. Even jobs in the skilled trades are threatened by skills gaps as their predominantly older workforce nears retirement.
The human cost of this situation is summed up by millions of eager and available workers who could be working, but aren't. The job market condition appears to be affecting the long-term unemployed the most. As of December 2012, the share of unemployed workers who've been searching for 27 weeks (about seven months) or more was 40 percent—representing nearly five million people, according to the BLS. This is troublesome because the longer workers remain inactive, the greater the odds normal cyclical unemployment will become structural. Recent college grads aren't able to put new knowledge to work in their field of study. Laid off experienced workers often retire earlier than planned. Discouraged workers stop looking for jobs, and in turn, aren't counted in the unemployment figures despite a desire (and personal need) to contribute to the economy. For all of these workers, skills atrophy over time, making it more difficult to get back in the game.
But suggesting there's a skills gap is not to say unemployed workers are without skills. Nor is it to say the workforce is incapable of competing at a global level, or even that the skills gap is the biggest factor holding back the labor market. Eventually demand for labor will increase and all lanes of hiring will speed up. Saying there's a skills gap or a skills shortage is simply acknowledging that businesses sense a growing imbalance between the supply and demand of highly skilled or specialized labor for certain occupations.
However, conversations about the skills gap shouldn't be married to the present-day labor market. Reconfiguring the skills and education mix is essentially the story of what the labor market will need to do in order to remain competitive and innovative in the coming decades. The longer the economic slump continues, the more we know that this recession was different. More and more economists and business leaders are making this message very public. Economist and scholar Jeffery Sachs, looking at recent trends, concluded in the Financial Times:
"In short, we need new economic strategies to overhaul broken systems of finance, labour markets, taxation, ecological management, budget management and investment incentives ... The new approaches must be long-term, structural, sensitive to inequalities of skills and education, aligned with the need for more sustainable technologies and 'smarter' infrastructure (empowered by information technology) and congruent with long-term demographic trends."
The cost of job vacancies to a company stems largely from lost productivity and lost revenue. The cost to the economy is measured in slower growth and fewer opportunities. For these reasons, any mismatch—no matter the cause—should be met proactively. If you're in a position related to talent acquisition, whether that's your full-time job or you occasionally need to hire a new worker to your team, it's important to know that the talent mismatch is a human capital challenge that can be largely addressed through careful planning and honest evaluation of the workforce. In this chapter we discuss how mismatches between the job seeker and the employer can be averted:
* First, we'll briefly explore how the labor market has shifted over the last four decades, and how this shift indicates where it's headed in the future.
* Second, we'll identify where skills gaps exist according to recruiters and HR managers, and what they see as potential causes.
* Third, we'll discuss how companies can use data-driven solutions to fill vacancies more efficiently and avoid mismatches.
* Finally, we'll discuss the potential positive economic impact of job creation in high-skill areas.
THE LABOR MARKET—PAST, PRESENT, AND FUTURE
The diversity of the U.S. economy and the breadth of opportunity it affords its citizens is one of the pillars of the nation's success. But changes to the global economy (and the changes wrought by the recession) threaten the idea that one's children should always be left in a better place. If we follow the story of where new jobs are likely to be created, however, a path forward emerges that has stood the test of time: the acquisition of skills and education for a greater share of the workforce.
The potential for this to succeed, in part, hinges on the realization that technology and globalization are changing the composition of the U.S. workforce to a great extent, and are consequently shifting the skills required by the contemporary economy. The work we do now is markedly different than the work we did 40 years ago, and the work we'll do in 10 years will be markedly different than the work we do today. As shown in Figure 1.1, the picture of where Americans work, then and now, tells this story.
What can we take from the shifts represented in Figure 1.1? First, it's clear that the most noticeable change occurred in manufacturing. The share of jobs there has dropped precipitously since 1972—from 24 percent of all jobs to about 9 percent today. There are six million fewer Americans working in the sector than 40 years ago; however, manufacturing remains vital to America's global competitiveness. In terms of pure output, the U.S. remains the global leader, neck and neck with China, but technological advances have decreased the demand for labor at individual firms.
The decline in manufacturing jobs over the last four decades was offset by major growth in private education and health care (20 million jobs in 2012 from 5 million in 1972), business services (18 million jobs in 2012 from 6 million in 1972) and leisure and hospitality (14 million jobs in 2012 from 5 million in 1972). The employment shift represents a steady movement away from the tradable goods sector toward a workforce dominated by the service sector.
But Figure 1.1 is merely a snapshot of two very different points in U.S. economic history. What it doesn't tell us is how the recession changed the landscape of the U.S. labor market. For instance, the percentage of jobs in construction is now below 1972 levels, but this is most certainly a result of the national housing bust and budget crises at the state level. There are two million fewer construction jobs available today than in late 2007—the official start of the recession. When the housing market begins its inevitable turnaround (and there are signs that it's already underway), many of these jobs and other jobs in the supply chain will come back, giving a much needed jolt to the economy. Berkshire Hathaway Chairman and CEO Warren Buffett voiced confidence about the prospects of a housing recovery. In 2012, he announced plans for a nationwide real estate chain that will open 1,700 offices. "People say construction is only four percent of the labor force, but it extends way beyond that," he said in an interview with Fox Business in early 2013, noting that industries ranging from paint to masonry and flooring will benefit. "Those are not construction workers but they [represent] activity in fields that feed off construction. I think that construction coming back is a very important force in the economy."
And yet the story of the recession also tells us that the economy is growing most quickly in industries that increasingly require a larger share of high-knowledge, high-skill workers. Figure 1.2 shows average monthly job creation numbers in the years preceding the recession compared to the years during and after the recession for the major sectors listed.
There are a number of intriguing stories embedded in this graph. For one, we can see how the basic tenets of supply and demand operate in recession-era economies. The restaurant, travel, and retail sectors took a significant dip in the 18-month recession. As consumers rein in expenses, businesses have been forced to adjust the size of their labor pools accordingly. Leisure and hospitality has made up losses incurred in this period, but retail continues to struggle in spite of small gains. The shift toward e-commerce is a likely culprit, as consumers continue spending more of their dollars online year-over-year. On a different path, government employment started declining just as the private sector began heading in a positive direction, primarily because the state aid provisions in the stimulus bill delayed or eliminated the probable layoffs of millions of public sector workers—primarily in education and law enforcement. Unlike the federal government, which can sustain large deficits for longer periods of time, most states' constitutions require that their governors pass balanced budgets, which meant severe cuts when stimulus funds ran dry.
Movement in a few sectors—professional and business services, education, health services, and manufacturing—gives us a significant clue as to where the labor market is headed. For that reason, each needs to be called out in more detail.
The Endurance of Health Care and Private Education
Compared to other major sectors, job creation in private education and health care is a pure outlier. These segments were adding jobs quickly before the recession, they were the only private sector areas to add jobs during the recession, and they continue to add about 13,000 jobs per month. At a time when labor opportunities in every other industry and sector were faltering, education and health services endured, placing themselves on the mantle as truly "recession proof." We first saw evidence of these sectors' durability during the 2001 recession, when education and health services added 50,000 jobs per month. There are a few big reasons for this continued growth. First, demand for health care employment exists outside the lines of normal cyclical economic fluctuations. The demand for medical professionals and health care support positions, especially as the U.S. population ages, won't be as elastic as the demand in other sectors simply because health care decisions take priority over consumption of other goods and services. Meanwhile, private education, including online universities, weathered the most recent recession because many laid off workers often took unemployment as an opportunity to retrain and reskill. Likewise, many new graduates deferred entering a weak labor market, instead choosing graduate school.
But a key reason health care and education services hold a larger share of overall jobs is that, unlike many goods and services, every community needs them. "About half of the jobs created between 1990 and 2008 (before our current downturn) were created in education, health care, and government," wrote Derek Thompson of TheAtlantic.com in August 2012. "What do those sectors have in common? They're all local." In short: They can't be offshored or consolidated in other areas of the country. Globalization hasn't yet changed the demand trajectories for these key segments of our economy because every local economy needs nurses, doctors, child care workers, and educators. Low-skill labor in retail and hospitality can also be grouped this way. An important caveat to this is that there's no guarantee the locality of these jobs will remain permanent. As video, broadband networking, and other web technologies evolve, it's easy to envision labor in many support or administrative functions being replaced by non-local workers in the coming decades in certain areas of education, health care, and retail.
In order to sustain robust economic growth, U.S. businesses must continue to deliver innovative, valuable goods and services. Our value to the world economy will be closely tied to what we give to the world economy. The post-recession data shows that growth is also possible in areas of manufacturing and business services.
(Continues...)
Excerpted from THE TALENT EQUATION by MATT FERGUSON, LORIN HITT, PRASANNA TAMBE, RYAN HUNT, JENNIFER SULLIVAN GRASZ. Copyright © 2014 CareerBuilder, Lorin Hitt, and Prasanna Tambe. Excerpted by permission of McGraw-Hill Education.
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