Skilled workers are becoming an endangered species. According to the U.S. Bureau of Labor Statistics, 89 million Americans of working age are not part of the labor force. The labor participation rate of 63.6 percent is near a historic low, while the average duration of unemployment remains near historic highs. Internationally, in 2012 the World Economic Forum reported 10 million jobs were unfilled in the manufacturing sector alone.
The world’s three largest workforces — the United States, India and China — all have chronic and growing talent shortages, particularly in science, technology, engineering and mathematics-related (STEM) occupations. Germany, Japan, South Korea, Brazil, South Africa and many other nations now face growing skills and jobs mismatches as well.
There are two principal causes:
1. The continuing spread of digital technology across every business sector raises job skill requirements.
2. A demographic shift is under way. Populations are in decline across the European Union, Japan, Korea and soon China. Further, in many nations the baby boom generation is moving into retirement.
In the United States the birthrate has fallen below replacement level, which will further slow workforce growth. A 2012 MetLife survey reported that Americans aged 65 are retiring at the pace of 10,000 each day. By 2020, 70 million baby boomers are projected to retire, and by 2030 this figure will reach 79 million.
The need to replace retirees already has produced significant talent shortages in American businesses. The pool of manager candidates ages 35 to 45 is inadequate to meet current needs. Likely because of a significant technical skills gap in STEM areas, the National Academy of Sciences has stated that for the first time in American history, the next generation of workers is less well-prepared to take on the challenges of the tech-driven economy.
The high number of high school dropouts — 20,000 per day, 1 million per year according to Education Week; declining literacy in reading, math and writing — according to NAEP, SAT and ACT results; and inadequate post-secondary career education will place a talent squeeze on American business for the rest of this decade. A 2012 McKinsey report found that fewer than half of U.S. employers believe new graduates are adequately prepared for entry-level positions.
Time-tested HR strategies to fill a company’s immediate talent needs are now failing, including poaching from competitors, utilizing foreign direct investment (FDI) to take advantage of the availability of? high-skill workers in other nations, or using H-1B visas to import high-skilled foreign workers. Here’s why.
Poaching has reached the bottom of the skills barrel. There are not enough job-ready people left to replace retirees and handle new growth. FDI was a sound strategy for the last 25 years, but U.N. statistics reveal there are major population declines in many high-skill countries, such as Germany — 100,000 each year; and Japan — 50,000 each year. These and other advanced industrial economies do not have the talent to meet their own skilled labor needs.
H-1B visas were the talent gift U.S. businesses have used to balance their knowledge deficits. India and China had a seemingly bottomless pool of talent ready to work for U.S. companies. No more. China and India are also running short on skilled talent as they move from producing low-value items to offering more complex products and services.
China’s Talent Shortage
China’s manufacturers are moving up the value chain from low-cost, low-wage production to high-tech automated factories requiring higher-skilled workers. But there is a shortage of younger, skilled technical workers due to the three-decades-old one-child policy and the low quality of the technical education system.
The overall standard of education, especially in rural areas, is low. School attendance is only required until the ninth grade. While 70 percent of students start high school, only 24 percent attend a post-secondary institution. These numbers will be insufficient for China to meet its labor market demands for better-educated technical workers across many of its emerging business sectors.
To help cope with these skill deficits, the Labor Ministry of the Chinese government has started a talent hunt to entice some of the 35 million Chinese living overseas to return home. At least 200,000 already have returned. They call them “hai gui,” or “sea turtles,” as the Chinese word for turtle is pronounced like the word for “coming home.” The government offers them high-paying jobs, university fellowships, spacious apartments and chauffeur-driven cars.
The Chinese shortage of skilled talent is structural in nature. For the remainder of this decade, there will be little surplus talent left for U.S. businesses to recruit through H-1B visas or other means.
India: Massive Population, Huge Educational Needs
India has a workforce of 986 million people, the world’s largest. But it faces a severe handicap in developing it, as India has an illiteracy rate of 26 percent. On the flip side, it also graduates 600,000 engineers each year and has 200 foreign-operated research and development centers. But the country faces many educational roadblocks in its quest to develop a skilled workforce that can meet global standards.
While India’s best universities, such as the Indian Institutes of Technology, are on par with U.S. Ivy League schools, there are only 16 of them. There has been a four-fold increase in the number of students in India’s engineering colleges, from 390,000 in 2000 to 1.5 million in 2011, but this expansion has come at the expense of quality. A 2011 study by India’s National Association of Software and Services Companies found only 25 percent of engineering graduates are readily employable for IT positions.
India’s rural education system is also problematic. Compulsory school attendance for children aged 6 to 14 was only mandated in 2009. Teachers frequently fail to show up and instructional materials are often nonexistent. Many schools lack drinkable water. India’s 2010 “Annual Statistics of Education Report” found 50 percent of fifth-graders read below the second-grade level. Only 36 percent could perform long division. Between 5 million and 9 million children are not attending any school.
In 2009, the World Bank indicated India had less than half of the skilled talent required to support a modern infrastructure and expand its economy. To help hunt down the needed talent, the Indian government established a Ministry of Overseas Indian Affairs and a Return and Resettlement Fund. A Harvard University study predicts some 100,000 expatriates will return to India by 2014. Wages are rising, and jobs abound for skilled talent. India may or may not find the talent it needs, but for this decade a declining pool of the country’s most talented people will be attracted to jobs in the United States.
Growing U.S. Talent
Fluctuations in H-1B visa applicants (Figure 1) make the current strategy of importing foreign talent seem problematic. Some HR executives argue this is due to the downturn in the U.S. economy, while others say tighter U.S. immigration policies and higher fees are discouraging applicants.
However, many industrialized nations are trying to attract the same limited supply of skilled talent. Canada, Germany, the United Kingdom, Singapore, Brazil, Australia and others have sophisticated talent search programs offering attractive employment opportunities.
Businesses across America are experiencing increasing difficulty finding and keeping skilled talent. Even if the economies of China and India experience temporary economic slowdowns that increase the emigration of their talent to the United States, this will do little to solve the structural collapse of the U.S. talent creation system or to encourage long-term solutions.
For decades, U.S. businesses have been able to look abroad for skilled talent, but those days are over. As wages become more competitive in China, India and elsewhere, U.S. businesses will find the competition for top international talent increasingly difficult. Sustainability will become an open question.
No single company can win this talent battle alone, which is why across the United States regional collaborative partnerships are forming to forge local talent-creation systems. Regional Talent Innovation Networks (RETAINs) are broad-based community initiatives that include large and small businesses and a host of community organizations.
Often they begin through local chambers of commerce, Rotaries, workforce boards or local foundations. They seek to help companies fill vacant positions and to improve long-term regional economic development by developing more skilled local talent. RETAINs do this by organizing job-training programs and establishing career education and information programs at local K-12 and post-secondary institutions for students and their parents.
RETAINs act as regional intermediary agencies to reconnect workers and students to local jobs by rebuilding outdated education-to-employment systems. Examples across the United States include: High School Inc. in Santa Ana, Calif.; the Vermilion Advantage in Danville, Ill.; and initiatives across North Dakota and in cities such as Chicago and Philadelphia.
During the past 20 years, about 1,000 RETAINs have been formed across the United States. Local businesses and other community organizations are expanding local human capital by investing in these talent creation systems.
If the U.S. business community fails to address the long-term consequences of the current global talent crisis, the survival of many companies is doubtful. However, the dynamics of the American free enterprise system have long encouraged civic activism. About 100 years ago it was businesspeople who led the movement to establish the first education-to-employment system in each American state. Today they need to help renew a talent-creation system for a 21st-century, knowledge-driven economy.
RETAINs are an example of how businesspeople can work together to help their communities and nation move beyond the jobs crisis. RETAINs will help each state to develop and adopt new career-training mandates, business regulations and tax policies that support that state’s businesses.
Talent leaders can be central drivers in developing strategic workforce plans for their organizations. They also can be the representatives within regional RETAINs to help plan long-term career education and career information strategies that connect potential future talent to area businesses.
A decade of opportunity is in view for business leaders capable of forming partnerships focused on local talent creation to better compete in a 21st-century global economy — if leaders act now before America falls off a talent cliff.
Edward E. Gordon is president of Imperial Consulting Corp., a talent and workforce development company in Chicago, and the author of 18 books, including the forthcoming Future Jobs: Solving the Employment and Skills Crisis. He can be reached at email@example.com.