America’s skills gap has been widely discussed. The friction between postsecondary institutions failing to properly prepare job seekers and unrealistic employer expectations has led to seven million unfilled openings. Not surprisingly, the challenge worsened with the COVID-19 pandemic, and there are still nearly as many unfilled jobs with near-record unemployment in a recession.
When the unemployment rate spiked during the spring of 2020, jobs that required a college degree declined more than those that didn’t, and new college graduates were hit the hardest. Not only did postings for bachelor’s level jobs fall the most, but entry-level jobs also dropped farthest and fastest. Analyzing data from Burning Glass, Wharton professor Matthew Bidwell found a diminishing number of entry-level jobs requiring a degree.
As a result, graduates are now competing against millions of experienced workers who have been sidelined due to the pandemic. And while employers want experience, no one wants to be the first to provide it.
Many employers are wrestling with their own Catch-22. With two-thirds of U.S. employees working from home and interacting with colleagues and customers remotely at the peak of the pandemic, many companies began to invest in digital transformation initiatives to address gaps in cloud adoption and cybersecurity. Many predict that the new wave of e-commerce triggered by shelter-in-place mandates will be here to stay, which will further drive demand for software engineering, data analytics, and digital marketing skills, which were already difficult to find. Through 2022, half of all planned cloud migrations will be delayed by two years or more due to the lack of trained talent.
Hiring entry-level digital talent is risky and expensive, however. Approximately 50 percent of college graduates churn out of entry-level jobs within two years—meaning employers lose new hires not long after becoming productive. It’s expensive due to the possibility of making a bad hire, which can cost up to six digits. But for every tech position left vacant for two months (the average time to fill for tech roles), companies lose an estimated $30,000, despite savings from salary. And this number doesn’t account for the toll on employees—and incremental attrition—from taking on additional work due to understaffing.
Add these problems up, and the skills gap is expected to cost the U.S. economy $1.2 trillion of GDP over the next decade. It is top of mind for CEOs; the percentage of them who are “extremely” or “somewhat” concerned about lack of available talent increased from 56 percent in 2011 to 79 percent in 2019. The skills they want have also shifted. In 2008, it was global experience. Today, organizations are struggling to find tech-savvy workers.
Employers have two choices. They could wait for higher-ed institutions to jump through bureaucratic hoops, overcome budget constraints, and fundamentally change their approach to preparing students for their fifth jobs rather than their first. But as my colleague Ryan Craig likes to say, no one has ever gone broke betting against the pace of change in higher education.
A better bet for most employers is to step up to meet colleges and universities at least halfway by building and providing last-mile training for motivated candidates who show general aptitude but lack requisite digital skills and business knowledge.
Even in the midst of a pandemic-induced recession, it is cheaper and more effective for many companies to close the skills gap by recruiting candidates based on potential instead of experience, and then investing in last-mile training. Last-mile training consists of equipping new hires (apprentices) with specific technical skills and business knowledge that, today, are only gained through work experience. The cost of last-mile training and paying a new hire an apprentice-level wage for three months is generally less than $20,000, based on our experience working with these programs. And it appears that investing in last-mile training has a secondary benefit: higher retention. Surveys suggest that employees stay longer at companies that offer formal training pathways.
A growing number of technology companies are creating last-mile training opportunities to eliminate a key barrier to their own growth. Since 2014, Salesforce has spent hundreds of millions of dollars to develop curriculum for Trailhead, its free online learning platform. Amazon launched AWS Educate and AWS Academy to provide students and educators with the resources needed to accelerate cloud-related learning and connect companies hiring for cloud skills to qualified job seekers.
Not all companies can afford to create their own programs, but some are tapping into new services to help them provide last-mile training. Healthcare IT solutions company Optimum (an Achieve portfolio company) recently launched Optimum CareerPath, where candidates from diverse backgrounds are hired from partner universities like the University of North Florida for training on electronic medical record platforms that are not taught at any college or university. Healthcare employers are therefore able to try this talent before they make a hiring decision.
Similarly, Genuent, an IT staffing firm, provides last-mile training on software development and data visualization and places new custom-trained consultants at dozens of large clients. With these models, clients invest nothing upfront, but rather pay as new talent delivers valued services, and can convert them to full-time employees after a period of time.
Of course, employers won’t bridge the gap by themselves. Colleges and universities are likely to evolve to be more focused on employment outcomes—and they will do so under duress. First-year student enrollment fell by 16.1 percent in fall 2020, and overall undergraduate populations shrank by 4 percent.
This won’t be as much of a problem for elite institutions, which will never have a problem with enrollment. But for others, providing work-integrated learning that is tied to opportunities for jobs and upward mobility can make the difference between surviving and folding. These partnerships are emerging. The University of San Francisco, for example, has partnered with Salesforce to build student literacy in cloud computing while giving Salesforce employees access to receive continued education.
Employers, tech companies, service providers, and higher education institutions are learning the lessons of last-mile training and already working together to create new pathways to opportunity and socioeconomic mobility. There is light at the end of the tunnel.