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  • Solange Charas, PhD and Stela Lupushor

Talent Shortage: The Biggest Challenge Facing Companies in the Next Five Years

With unemployment rates at the lowest it’s been in 60 years (3.5% with 1.7 million workers on unemployment benefits), and demographic shifts shrinking the working age population, organizations are and will continue to face a greater challenge of sourcing, acquiring and keeping talent. Not since 2000, when the “war for talent” heated up because of the “dot com” bubble, have organizations felt the squeeze for talent more than they have today – and it’s going to get worse!

Let’s use a data-based approach to add nuance to this challenge.

  • The Good News: According to the US Census Bureau, over the next five years, approximately 2.8 million people will turn 16 and become eligible to work. That’s a growth rate of 0.7%, 66% lower than the prior five years.

  • The Bad News: During the same period, the Social Security Administration (SSA) is projecting that 10.4 million people are expected to retire. Assuming that there is no significant change to immigration, this could generate a net loss of approximately 7.6 million workers in one of the lowest unemployment conditions the US has seen since the 1960’s. (Remember, there are only 1.7 million people on unemployment benefits.)

  • Worse News: Against the net loss of 7.6 million workers, the US economy, according to the Bureau of Labor Statistics (BLS) is anticipated to create 45.3 million new jobs. That’s a shortfall of close to 53 million employees!

The unemployment rate currently at below 3.5% is projected to fall to 3.1% in the next five years.

Based on the projected shortfall of talent in the economy, this means that for every one open position, there will be 33% fewer applicants.

While the overall labor force is growing slower than ever before, the number of employees with college degrees is going to shrink even faster. The percent of the US workforce that has a college degree today is 33.1% and is projected to drop as college matriculation is anticipated to go from 66% to 63% of the population over the next five years.

It will be harder to fill positions and also more challenging to find talent with college degrees (“diploma ceiling”) since more than 33% of open positions of all levels today require a college degree.

Potential Solutions – Upskilling, AI-based Solutions, Relaxing College-degree Requirements

Job Restructuring/Skills Enhancement: Structural unemployment comprises much of unemployment today and refers to a mismatch between the jobs available and the skill levels of the unemployed. Structural unemployment is harder to correct than other types of unemployment and it is harmful to the economy because, as industries evolve, and the requirements for competencies grow, skills-gaps widen. Another negative consequence of structural unemployment is that it increases U.S. income inequality (more on this later).

Solution: Use analytics to understand how jobs can be re-designed to streamline specialized skills requirements. Identify effective interventions to enhance skills development. Invest in upskilling/reskilling workers to be able to perform competently in their roles.

AI/Generative AI. This is the big unknown! According to a study by McKinsey, AI could replace 800 thousand jobs globally by 2030 and create 95 million new jobs – a net job creation of ~94 million! This is going to make the gap between jobs and available workers even bigger than the Census Bureau estimates. The trend is confirmed by the World Economic Forum that estimates job loss of 75 million in the US and 133 million new jobs by 2025 – a net job creation of 58 million.

With US economy projected to grow by 2.8 million and the workforce projected to shrink by 53 million, where will organizations find talent to fill these projected 58 million new jobs?

Solution: Use AI to support workers by either redesigning jobs and/or incorporating AI to perform the repetitive and low value-add tasks in jobs at all levels and across all functions. Let AI allow humans to do more of what humans do best – think, reason, decide.

College Degree Requirement. According to BLS data, there are as many people in the labor force with high school diplomas as there are with college degrees. When organizations require a college degree, half of the labor force is blocked from these jobs, hence the "diploma ceiling." According to the researchers at the Employment Quality Project at Northwestern University, most companies don’t keep information about employee's educational level achieved in their HRIS systems. One can conclude that degree attainment is not informing decisions about mobility/promotion, investment in learning and so on, and instead it is used as a gatekeeper preventing employees from being considered for jobs in the first place.

According to Joseph Fetzer, a PhD student at Indiana University of Pennsylvania, studying the organizational impact of skills-based hiring: “Colleges and universities struggle to keep up with the growing labor demand. Organizations need people, not necessarily a degree, but a person who can learn the job, perform it well, and become an asset to the company. We get there through relaxing antiquated hiring practices to open up opportunities to a wider, untapped talent pool.”

Even more concerning is that this somewhat arbitrary requirement is perpetuating the “poverty divide.” People with no college degree (44% of the US population) are being kept out of financially sustainable jobs because they lack advanced degrees. And it's no coincidence that 43.5% of the US workforce is considered to be a low- or moderate-income earner (LMI).

The good news is that the single largest employer in the US – the Government – has dropped the requirement of a college degree for public sector jobs in 10 states including: Alaska, Colorado, Maryland, New Jersey, North Carolina, Pennsylvania, Utah, Virginia, Washington, West Virginia. A study by the Brookings Institution found that states with more apprenticeship programs (those that don't require college degrees) tend to have lower unemployment rates, and a study by the National Skills Coalition found that the laws that dropped the requirement of a college degree for government jobs have made it easier for people to find jobs in the public sector.

Solution: Rethink your college-degree requirements to unlock new sources of talent. Assess pay practices and pay equity, especially for positions that don’t require a college degree to ensure jobs pay a living wage. Quantify your cost of attrition, which is often 10-50% higher than the cost of raising salaries or achieving pay equity as part of your wage decisions.

N.B. There have been a couple of recent articles (Wall Street Journal and the New York Times) about the value of a college degree in getting a job. These articles are written from the perspective of the degree recipient – indicating that pay rates are higher and job prospects better with a college degree for private sector jobs, and skills vs. college degrees might be better for government sector jobs. Our article addresses the challenge from the viewpoint of the organization needing talent and may contradict the perspective of the other articles.

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