The Skills Gap Is a Myth

The real issue is that employers need to provide more on-the-job training.

By Peter Cappelli Nov 28, 2017
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Reports of the skills gap have been greatly exaggerated. That’s not to say that U.S. businesses aren’t having a tough time. Surveys show that most employers are struggling to find and hire qualified people. But the solution is in their hands: provide the training needed to get the workers they want.

Is hiring really more difficult today than in the past? Let’s take a closer look.

For the last 10 years, companies have enjoyed one of the strongest labor markets in almost nine decades. Qualified applicants who were laid off during the Great Recession were beating down employers’ doors, and attrition wasn’t a problem as nervous workers stayed put. That’s changed in recent years as the economy has improved and employees have regained leverage. Some of the difficulty businesses face today, then, may just be due to a return to a normal labor market.

Normal, Again

In a normal market, more people quit their positions to take jobs elsewhere—and most employers are happy to have them. Surveys suggest that more than 90 percent of job openings are for people with experience. So, as companies hire seasoned workers from competitors, they create attrition problems for one another. That means they have to recruit more people than before just to keep up with their own turnover.

And even in the best of times, hiring isn’t easy. It’s not supposed to be. It’s hard to know who will be a good fit for an organization and a job, and it’s also difficult to find qualified candidates who can step in without significant training or ramp-up time. None of this is new information, except perhaps to some younger managers who have grown used to low turnover.

Those same managers may be surprised to hear that there isn’t anything fundamentally different about the labor force now than in the past. Workers continue to get more education, partly because they feel they need more credentials to compete for limited jobs. It’s also true that, in recent years, more people, especially men, have stopped looking for work after years of being discouraged when positions were harder to come by. But that is starting to turn around as more jobs become available.

The Training Deficit

What’s different today has occurred mainly on the employer side. Company-provided training, even for experienced workers, was decreasing before the Great Recession. While formal apprenticeship programs seem to be up over the past three years after decades of decline, they are still a drop in the bucket—just 200,000 new apprentices per year in a labor force of 160 million. This long-term decline in training has been especially acute in the skilled trades, where union-based apprentices used to be commonplace. At the same time, management training programs—tracks for new college graduates that were once offered in organizations of all sizes—are now anomalies associated with only the biggest companies.

While employers say they can’t afford to train new workers, they also say they can’t pay higher wages or find the money for sophisticated recruiting. That alone may be enough to explain why hiring is difficult for U.S. businesses.

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What to Do

Many people would say this is not a public-policy problem but rather a natural consequence of capitalism and open markets. As we know, wages have been stagnant and even declining, when inflation is taken into account, since the 1980s. However, as with anything else that organizations buy, there is no guarantee that the price of labor will remain low. Eventually, employers will figure out that, to solve the problem, they will need to raise wages and train workers.

Meanwhile, businesses are lobbying for government help. Tech companies, for example, want more temporary H-1B visas so that they can hire people from other countries who are already trained.

The evidence suggests, however, that that approach becomes a permanent crutch, not a stopgap measure: The U.S. Commerce Department calculated that, during the 1990s, 28 percent of all computer programming jobs in the U.S. were held by workers with H-1B visas. That kind of reliance on foreign talent distorts the labor market, just as it did decades ago in the nursing industry.

Are schools the answer? They have been criticized for failing to produce employable graduates. But there’s little real evidence to support that: In recent years, U.S. secondary school students have been performing slightly better on standardized tests than in past decades. Besides, surveys show that few employers are interested in hiring new high school grads, and when they are, academic skills are simply not that important to them.

One problem with trying to get our educational institutions to produce the students employers want is that there is no guarantee that anyone will hire them when they graduate. Telling young people to major in, say, petroleum engineering, which was among the hottest jobs this decade, turned out to be bad advice when demand fell off. It’s also incredibly inefficient to try to learn work-based skills in a classroom setting.

I don’t see any way to make progress without engaging employers, including HR professionals. They must be deeply involved in the process of skills development—just as they were in the past. But how can we get decentralized employers to help provide work-based learning experiences in some structured way for people who are not already their employees? That seems to be the challenge, and it’s a big one.  

Peter Cappelli is the George W. Taylor Professor of Management at The Wharton School at the University of Pennsylvania and director of Wharton’s Center for Human Resources.

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