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2 Things You Should Know About the Skills Shortage

by May 30, 2012, 3:18 pm ET

A day doesn’t go by that I don’t read a blog, LinkedIn discussion, or business article challenging the existence of a skilled worker shortage.

Just last week I presented a keynote address to the Executive Women’s Roundtable in Dallas, Texas. Most of the attendees were shocked by the statistics and trends I presented about skilled worker shortages. As suspected, I encountered a few objections. Most of the arguments targeted employers. The antagonists say that management in many companies simply refuses to pay qualified workers what they are worth. I can’t argue with them on that accusation. That is absolutely true.

Some employers still don’t get it — that high unemployment does not equal more qualified workers in this new global and technology-driven economy. The bar for minimum requirements has been raised substantially. Many previously employed and experienced workers now fall under the bar. To recruit and retain skilled workers, employers will need to re-examine how they compensate their workforce.

Supply and demand also plays a part. The supply of workers — domestic and international — available to do many task-oriented jobs far exceeds demand. Jobs that were once a sure bet to middle-class wages can now be performed at a fraction of a cost in developing countries or by automation.  For those workers holding a high school diploma or less with no secondary education or trade school experience, I see low-wage, low-skill positions in your future.

But none of these arguments negates the fact that the U.S. has a significant and growing skills shortage. You need look no further than educational attainment, high school dropout rates, and basic literacy to see that U.S. employers are facing an acute shortage of skilled workers.

I can summarize my “case” for skilled worker shortages with two points.

Point #1

While many argue that a four-year degree isn’t the best preparation for many of the new good-wage earning jobs, you just can’t refute that few, if any, skilled jobs can be performed well without the minimum of a high school diploma.

And yet, nearly one out of eight working age adults (12.4%) in the U.S. do not have a high school diploma. For Hispanics, that number skyrockets to more than one in three (35.6%). Since the Hispanic population makes up a growing segment of the total population and is nearing a majority in many states, that situation alone poses a monumental problem when you discuss skilled workers.

The largest segment of working-age adults holds a high school diploma and no secondary education. According to the U.S. Census Bureau, 2011 Annual Social and Economic Supplement, 24 percent of the population fits this category. The number jumps to more than 31 percent for adults 55 and over, nearly 32 percent for blacks, and 27 percent for Hispanic. That means that somewhere between one-fourth and one-third of our working population doesn’t meet the minimum educational requirements for jobs being created or re-created.

The high number of workers with lower educational credentials in and of itself isn’t creating s skilled worker shortage. For those positions, the supply far exceeds demand. Ed Gordon in fact estimates that nearly 123 million workers are competing for 50 million lower-skill, lower-pay jobs.

But when it comes to unemployment for college graduates, the competition gets stiff.

While the media and politicians seem to focus on the 8-plus unemployment rate, that statistic really obscures the real story. As former U.S. Department of Labor head Robert Reich said, “the average height of Shaquille O’Neal and me is 6 feet tall.” That stat is meaningless of course because Reich is a diminutive 4’10” and Shaq is reportedly 7’4”. And that’s my point. Eight percent unemployment hardly tells the real story of unemployment and worker shortages.

Just look at the table below. The overall unemployment rate is skewed higher when you include the 1.4 million out-of-work workers with less than a high school education. Compare that to the 3.7 percent rate for unemployed workers holding a four-year degree or higher. That is well below the full-employment rate of 5 percent. Unfortunately that is nearly double the rate as recently as 2007 but it is nevertheless indicative of full employment.

Less than HS

HS, no college

Some college or associate degree

Bachelor’s degree or higher

% unemployment

12.4

7.7

7.3

3.7

# of unemployed

1,421 M

2,852 M

2,696 M

1,765 M

Source: BLS.gov (April 2012)

The overall unemployment rate is also inflated by age demographics. The hardest hit demographic by age in this economy is the 16-24 year olds, nearly 2.5 times compared to the 35-44 age group and those workers 55 and over.

Age

All races

16-24

15.4

35-44

6.0

55 and older

6.3

Source: BLS.gov (April 2012)

Breaking this down even further, the rate of unemployment for the youngest workers is more than three times higher between those who didn’t graduate high school and two times higher for those with a high school diploma compared with college grads. The same trend holds true for black workers.

Less than HS

HS, no college

Some college or associate degree

Bachelor’s degree or higher

18-34

9.2

6.0

4.9

2.9

White

8.4

4.1

3.9

2.7

Black

13.2

11.4

9.1

4.7

Point #2

Admittedly education and skills doesn’t always have a direct correlation. The concern over whether colleges are really preparing students for jobs of the future is a good question, and one too vast to cover in this article. But few people can challenge that basic literacy is a must-have requirement for any job today.

More than one-third (37 percent) of the 25-to-54 year old U.S. population does not have the basic ability to write a letter explaining an error on a credit card bill, use a bus schedule, or use a calculator to determine a 10 percent discount (Level 3 literacy).

Tragically, it has been reported that less than half (44%) of 25-to-34 year old high school graduates operate at literacy levels of 3 or higher. That means that more than 4 out of 10 working age adults don’t have the functional literacy skills to perform even the most basic jobs. Worse, nearly 55 percent of workers 55 to 64 year old have literacy skills at level 1 or 2. For your reference, Level 1 literacy is the ability to locate the expiration date on a driver’s license, total a bank deposit slip, or sign their names; Level 2 is the ability to locate an intersection on a street map, understand an appliance warranty, or total costs from an order.

Even if you discount the importance of post-secondary and advanced degrees in job skill requirements, you must be hard-pressed to ignore the basic literacy gap between available workers and open jobs. A study in 2009 revealed that in just the city of Philadelphia alone, more than 50 percent of working age adults lacked necessary workforce literacy skills. More than 200,000 failed to obtain a high school diploma. Statewide nearly 38 percent lacked the skills. This scenario is repeated in nearly every major city and the majority of states.

These startling statistics come at a time when nearly half of all new jobs being created require postsecondary credentials and jobs requiring postsecondary education will nearly double that for jobs that do not require such a credential.

Not only does the U.S. have a skills gap but the gap is growing wider as minimum education credentials increase simultaneously with basic literacy deficiencies and 30 percent high school dropout rates.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Keith Halperin

    Thanks, Ira. I wonder how much of this problem could have been minimized if instead of spending money on the unnecessary war in Iraq and Bush-era tax cuts to the wealthiest, we’d spend a small portion of it on a national public/private partnership to retrain and hire Americans for the new job requirements? As it is, there seems no political willingness to address the situation more than minimally.

    No Cheers,

    Keith

  • http://www.workforcetrends.com Ira Wolfe

    Keith – lots of finger pointing, lots of blame, little action. The wars certainly diverted lots of money. But this problem, like social security liquidity, has been going on for years. I’m not a Bush fan or Republican, but education and literacy shouldn’t be a first lady’s initiative. This is serious stuff and the President and Congress always seem to have higher and different priorities. I just presented in Texas and if texas alone cut their dropout rate in 1/2, it is estimated there would be $1.3 billion in increased home sales, $73 million in car sales, 5,900 new jobs, $1 billion increase in gross state product, and $61 million more in annual state tax revenue. The fact that anyone is even debating the value is crazy. Now who is going to be the 1st to stand up and do something…that’s another story.

  • Keith Halperin

    You’re right, but dropouts tend not to vote, and they certainly didn’t contribute to election super-PACS. Better to cut taxes on rich people and build more prisons- the dropouts that don’t get locked up can guard the ones that do. Better yet, have the convicts hired out- convict labor would entice even more businesses to the Lone Star State.

    :(

  • Jordan Clark

    Thank you Ira for a great article, I honestly find the articles specifically to do with the unemployment/skill shortage within the US to be the most meaningful and important for our upcoming future.

    The other side of the issue that you address about the unemployment % that the President and Congress so love to spout and refer to when trying to impress voters is that the data does not accurately reflect the number of people as you said above that have been forced to accept a lower paying position within their field if not having to change career fields all together.

    A prime example I have kept track of for some time has been the unemployment rate for “Law Students.” There has been some similar distrust between students and Law Schools with lawsuites more recently making the news in which the schools, similar to the politicians, use a number from the DoL to demonstrate the potential for future employment. The issue that has been raised with law students in particular is that while there may only be a 5% unemployment rate within that career field those students who attended law school with the idea of becoming attorneys are graduating and stepping into jobs in which they recieve no income, positions as para-legals which requires half the time and money to earn the qualifications, or part time/contractual jobs. While they may infact be “employed” and there by are not represented in the 5%, their employment is of no significant benefit to them.

    I think what we need to see (and it will come eventually when the 18-34 demographic becomes the largest group of voters in the future and their is enough unrest to force a political decision) are government incentives to not only promote higher wages, but to promote universities and institutions of higher learning to provide significant incentives for students to persue college degrees within the STEM related career fields, or those career fields with significant skill shortages (similar to China spending big money to bring back their STEM majors from the US.) If you make earning a STEM major easier and more affordable and more of an opportunity than all the other liberal arts degrees people will take advantage, but the continuing problem is the message “get a degree and you’ll earn more money.”

    One of the most deceptive things I see advertisements of all sizes expressing about higher education is that a degree = more money, which as many current unemployed college graduates will tell you is not the case. The qualifications need to be stressed, not a “degree.”

    Thank you for reading and thanks for your article, keep them coming!

  • Keith Halperin

    @ Jordan: Well said.
    “The qualifications need to be stressed, not a “degree.”
    Exactly. I am currently associated with a multi-month long program which trains individuals to be qualified, fully hireable entry-level SQAs. If I may self-promote a non-profit:
    http://specialistsguild.org/

    Cheers,

    Keith

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  • Robert Dromgoole

    Keith, the truth is the U.S. government spent $6-trillion, and 15% of that money is spent on education (more than on defense). Defense accounts for only about 14% of expenditures. The illusion that this money could have been ‘diverted’ is a false one. In addition, the Bush Era Tax Cuts, which Obama renewed were needed to create and maintain any type of growth. The truth is we’re collecting in revenues about $5-trillion and spending $6.3 trillion. We’re way in debt. Even if the Buffet rule passed taxing the wealthiest more would have collected a tiny tiny fraction (enough to pay for less than several weeks of spending).

    But the skills shortage is real. In 2008, the entire U.S. graduated only ~500 nuclear engineers, only a small fraction with Ph.D. My clients need to hire about 16,000 of them in the next 10 years. Did you know that the U.S. produces only about ~50 Ph.D.s in Physics per year?

    We need to end the subsidies for liberal arts degrees, and offer degrees related to Science Technology Engineering & Math for free. Make technical degrees free, but liberal arts degrees pay at real cost.

    The country doesn’t need more liberal arts majors, but we need more scientists and engineers to fill the skills gap.

    The government though will not solve this problem.

    The good news is that from a recruiting point of view, we’ll be needed for many years to come because this shortage will only get worse.

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  • Dale DeThomas

    Why do people always simplify issues by turning them into a political agenda? The problems with education are not that simple. We used to spend much less on education and we were number one in the world so its definitely not an money issue as some people want to make us believe (again political agenda). Education has been dummied down to accomadate those who were not capable of grasping the cirriculum. Most of the HS dropouts are from single family homes, again nothing to do with the government. When kids who do graduate cannot read or write whose fault is it? It is certainly not due to lack of money. Parents need to become involved in their kid’s education. The schools need to raise expectations and colleges should stop accepting kids who are not capable to do the work instead of lowering the bar.

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