Closing the Skills Gap

By Mona Mourshed
Head of McKinsey & Company's global education practice

In an age of skyrocketing unemployment, it may seem reasonable to assume that companies do not have to worry about finding workers. But a recent McKinsey survey of more than 2,800 employers worldwide has underscored just how flawed that perception is. Four out of ten employers said that they cannot find workers to fill entry-level positions in their firms, with more than one-third of respondents saying that their businesses are suffering from a lack of appropriate skills in the labor market.

Meanwhile, young people worldwide are struggling to find jobs. While the eurozone crisis helps to explain why more than half of young people in Greece and Spain are unemployed, rapidly growing economies like South Africa and Nigeria are experiencing similar rates of youth joblessness. In the Middle East and North Africa, one in three young people are unemployed. And, in the United States, roughly half of bachelor's degree-holders under the age of 25 were jobless or underemployed upon graduation last year.

All of this points to the costly skills mismatch at play in today's economy. In the US alone, the opportunity cost of failing to improve education would amount to $1.7 trillion by 2030. Similarly, by bridging its growing skills gap, China could augment its GDP by $250 billion by 2020. So why isn't more being done to ensure that young people acquire the skills they need?

The problem is rooted in divergent perceptions among the various players in the labor market. More than 70% of the educational institutions surveyed by McKinsey believe that their graduates are ready for the job market; more than half of employers and young people disagree. Closing this gap requires that educators and employers work together more closely. Employers should communicate their requirements to educators; educators need to give their graduates the tools that will enable them to meet these requirements. The problem is missed connections, so the solution is to make more of them.

But such synchronization will not be easy to achieve. One-third of employers never interact with education providers, while only 15% do so once a month or more. Both sides would benefit from building strong reciprocal ties, with employers telling educators what they need (and even helping to design curricula and offering their employees as faculty) and educators providing students with practical experience and hands-on learning.

In fact, some promising initiatives are underway. Many employers in the auto, tourism, advanced manufacturing, and shipbuilding industries have taken to "pre-hiring" young people - that is, guaranteeing them a job if they complete a rigorous training program.

A useful example is the cooperation between Brazil's state-owned energy giant Petrobras and Prominp - a coalition of government agencies, businesses, trade associations, and labor unions - aimed at unleashing the full potential of the country's oil and gas sector. First, Petrobras and Prominp develop a five-year personnel projection in specific skill areas, such as shipyard welding, pipefitting, and petroleum engineering. Prominp then identifies an education provider to co-develop an appropriate curriculum with selected companies and train 30,000 people annually. Petrobras pays 90% of the costs, and the government covers the rest.

But such initiatives remain too few in number and too narrow in scope to resolve the global skills mismatch. Moreover, developing effective programs requires far more data about young people's journey from education to employment than is currently available.

Governments can play a critical role in collecting the data needed to determine which skills are in demand and what kind of training is effective. For example, Colombia's Labor Observatory tracks students' progress - including where they attended university, what they studied, when and where they were first employed, what their starting salaries were, and whether they were promoted - for up to five years after graduation. Prospective students can use this information to gain a far more accurate picture of their future prospects.

Of course, young people must become proactive if such schemes are to be effective. Fewer than half of the young people that McKinsey surveyed claimed to have even basic knowledge of average wages or the prevalence of job opportunities in their chosen field. Little wonder, then, that half of them were not convinced that their post-secondary studies had improved their employment opportunities.

Students must take ownership of their education. Before enrolling in an academic or vocational program, prospective students should research job-placement rates and learn how and how often the institution interacts with employers. Furthermore, they should gain a comprehensive understanding of how they can build and demonstrate applied skills in their chosen field. More generally, they should use existing labor-market data to make better-informed choices.

If the world continues on its current course, labor-market imbalances will worsen significantly in the coming years. Indeed, the world faces a potential shortage of 30-40 million college-educated workers in 2020, and a potential surplus of 95 million low-skilled workers.

The economic benefits of rebalancing the global labor market are compelling; the human costs of failing to do so are enormous. The imperative for businesses, educators, governments, and young people to take action could not be stronger.

Copyright: Project Syndicate


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