Supply-chain disruptions are on everyone’s mind these days. But there’s one that few people are thinking about. It involves talent, not goods — and it poses a serious long-term threat to our economy.
In the wake of the pandemic, employers are struggling, with increasing exasperation, to find the workers they need. Commentators ascribe the problem to the Great Resignation, a phenomenon comprised of such contributing factors as a surge in retirements, a shortage of affordable childcare, and the reevaluation that many people are making of the role of work in their lives.
But structural shortcomings underlie all of that: We don’t have a good supply chain for talent.
With supply chains, you get what you plan for. Think about, say, ball bearings. To ensure a ready supply, Ford coordinates with its suppliers years in advance. How would it work if the company were only to coordinate with those suppliers on a short-term basis, reaching out at the beginning of each month to source only what it needed for the next month? Anybody with even a rudimentary grasp of business will recognize that idea as absurd. On such short notice, Ford’s purchasing agents would have trouble identifying vendors who could meet the required volume and specifications at a competitive price. But here’s the thing: More or less, this ad hoc approach to sourcing is how most companies today are trying to meet their demand for talent.
Ever since the 1960s, we’ve witnessed a slide toward increasingly transactional employment relationships, with the expectation being that companies can hire and fire at will. In this kind of environment — where there are no pensions, commitments to training, or promises of employment stability — workers naturally change jobs whenever better opportunities present themselves. Some observers argue that such a model offers greater efficiency and flexibility. That may be true, but the ability to staff up on demand depends on the availability of willing workers — a resource that, thanks to the Great Resignation, we only have in very limited supply today.
When labor is scarce, wages go up. But hiring also takes longer, and that matters greatly, because it compromises output. Workers who leave voluntarily aren’t soon replaced, and in their absence the workers who remain have to carry a greater load. This prompts some of them to leave themselves.
Absent a major change in immigration policy, our supply of talent is going to become even tighter than it is today. Between 2011 and 2021, nearly every county in the U.S. saw its working-age population decline. The pandemic is now accelerating these losses. The Pew Research Center estimates that 1.1 million more people retired than expected in 2020, while Bureau of Labor Statistics data show that 2.4 million women dropped out of the workforce during the first 12 months of the pandemic. The number of 18 year olds joining the workforce is also shrinking, which portends even less availability ahead.
Fighting the demographic tide would be hard enough. But our education and training system, the market’s primary pipeline of talent, also isn’t in sync with demand. An ExcelinEd Foundation and Burning Glass analysis found that just 18% of certifications issued through career and technical-education programs were actually sought by employers. At the same time, in some critical occupations, the number of graduates is insufficient to keep up with expected growth.
Consider this example, which relates directly to our current supply-chain troubles. Today, almost 20,000 logisticians are expected to leave the field each year, and we have a projected growth of 56,000 new jobs over the next decade — but only 10,000 people are graduating each year with logistics degrees. More broadly, consider this: The average job has seen 30% of its skills replaced during the past decade, far outpacing change in typical training programs. The graduates of those programs, in other words, aren’t getting trained in the skills that employers are going to need.
The problem has gotten so bad that many tech vendors have had to create their own digital training and certification ecosystems in order to ensure a sufficient supply of talent. They’re doing so to meet not only their own needs but also, perhaps more important, the needs of their customers. Why does Amazon invest so much in its AWS Training and Certification program? Why does Salesforce.com so heavily promote its Trailhead learning platform? In no small part, because they know companies won’t buy software if they can’t hire enough workers who know how to use it.
To return to a healthy balance of jobs and people, we’re going to need to move beyond the ad hoc strategy that most companies have been employing to source their talent.
Managing the flow of skilled workers into the market is a multistep process that requires careful orchestration. And keep in mind: Once you lose workers, they don’t just reappear. If employers want to ensure that they have the workers they need not only for the present but also the future, they’re going to have to get better at sourcing their own talent and actively developing their employees’ skills.
This means recruiting from a wider set of feeder jobs and a wider set of geographies. Some candidates with unconventional backgrounds may not have all the skills needed for a job. Can the rest be trained? Employers will also need to reevaluate job requirements to determine which are truly necessary and which are “nice to have.” Our research shows signs of early progress, with 62% of occupations less likely today to require college degrees than they were in 2017. If that trend continues, over the next five years employers will open 1.4 million jobs to those without a degree.
In many companies, employees find that the best way to move up is to move out, driving up turnover. Only 31% of workers with expertise in emerging technologies today, for example, were promoted from within. Employers need to invest in their workforce in the same way that they invest in R&D, by recognizing that near-term investments yield earn long-term returns. Workers can’t be trained overnight, so companies should invest in preparing them as soon as it becomes apparent that important new skills are emerging. It will always be wiser to have too much talent, too early, than to being reduced to playing the spot market. Building from within also means showing workers how they can move up within the company, giving them a reason to think twice about the attractiveness of jumping ship. The best companies make planning for promotion a part of each performance review.
In the case of talent, these are often community colleges and technical-training academies. As with other suppliers, companies need to share detailed job specifications with colleges, meet regularly with them, provide them with access to relevant experts and technology, discuss their emerging requirements, evaluate their reciprocal performance, and offer data-driven feedback. That’s especially important given the persistent misalignment between America’s community-college system and the job market. A majority of schools emphasize facilitating the transfer of their two-year, associate’s degree students to four-year schools, so they might enjoy the full benefit of college-graduate earnings premium. That’s a noble ambition, but only 17% of community-college enrollees make it all the way to a bachelor’s degree — even though there’s clear evidence that when their programs offer career and technical education, they consistently produce materially better income outcomes than the general-education programs that a majority of students pursue.
Americans have never been willing to accept shortage as a permanent reality. Even though the U.S. labor market is tight, we need not assume that an enduring talent shortage — and the shortage in goods and services that it begets — is foreordained. A complex modern economy requires sophisticated, expertly managed supply chains. It’s time to start building a good one for talent.
This content was originally published here.