A new skill development system is beginning to take shape in regions across the US. It’s defining feature is that it’s demand-driven – that is, it focuses on getting the right workers with the right skills to the right place at the right time. This new system has enormous potential to support job growth and to expand opportunity for a broad swath of the workforce. However, I’ve noticed that this new system is mainly focused on filling existing jobs, rather than supporting the growth of new jobs. Why is that?
One reason is because existing jobs are much easier to find and fill. To begin with, there are more of them. Currently, two out of three job openings are for existing jobs, primarily due to the retirement of baby boomers. Also, it’s a lot easier to forecast openings for existing jobs, since retirements are easier to predict than breakthroughs in products, processes, or markets that are responsible for most new jobs.
In addition, openings for existing jobs tend to be concentrated in large companies, which are much easier and more economical to work with. Large companies often have staff available to gather information, help design education and training programs, and serve on their boards and advisory committees. And they are more likely to have enough openings at one time to make education and training programs cost effective.
Smaller businesses, on the other hand, tend to have less time or staff to spare. They are more widely dispersed. Their skill demands are more episodic and varied. And they have less cachet, which makes them less valuable to education and training providers in search of powerful allies to advocate for continued program funding and support.
As a result, the emerging skill development system has ended up mainly focusing on replacing workers leaving existing jobs. Or to put it another way, it has gone after the low-hanging fruit.
That’s been an okay place to start. It has built critical capacity to gather and analyze labor market information, and to respond flexibly to the changing needs of the labor market. It has engaged employers in new ways and built industry partnerships. And it has helped retain existing jobs.
But it has done little to support the growth of new jobs, which will require building additional capacity at the local level to meet the needs of growing businesses. Based on my work in regions across the country, there are three big challenges that regional leaders face.
The first is getting actionable information about the skill needs of growing businesses. Currently, most new job growth is taking place in relatively small businesses spread across a wide range of industries and geographies, making growing businesses difficult to find, particularly since they are unlikely to seek assistance or belong to established business organizations. Analyzing large data sets can provide important clues about where to start looking, but the only way to find out which businesses are actually growing and what their particular skills needs are is to go door to door.
That kind of ground game is sorely lacking in most places. Many economic development organizations have been so preoccupied with their business recruitment and start-up activities that they’ve neglected their outreach to existing businesses. Moreover, when they have reached out to existing businesses, they have mainly focused on large businesses, since losing them would have a detrimental impact on the local economy (and on the careers of local elected officials). As a result, getting actionable information about the skill needs of growing businesses will require radical changes in the way most economic development organizations currently function.
The second big challenge is to respond nimbly to the skill needs of growing businesses, once those needs have been identified. Typically, the demand for new skills in growing businesses is unpredictable and urgent, requiring immediate attention before a window of opportunity closes. In addition, the demand for new skills is widely dispersed across many businesses, affects only a few employees at a time in any particular business, and requires training that is often company-specific.
Very few regions currently have the capacity to respond to that kind of dispersed demand. Over the past several decades, most regions have gotten pretty good at providing customized training to new businesses moving into the area, often in conjunction with their business recruitment programs. More recently, many have been working on aggregating demand across a number of businesses in a particular industry through the development of sector strategies and industry partnerships. Now they need to figure out how to deliver customized training to widely dispersed pockets of workers for whom it is difficult to aggregate demand. That kind of mass customization is going to require radical new approaches to the delivery of education and training services.
The third big challenge is to find funding to retrain existing workers. Growing businesses are heavily dependent on their existing workforce to develop and master new processes, technologies, and products. Studies show that most innovation comes from incremental improvements in existing processes and products, mainly by existing workers. Making and sustaining those improvements requires that workers learn new skills. Therefore, it’s vital that growing businesses retrain their existing workers.
Currently, most small businesses have very few internal or external resources available to retrain their existing workers. Most taxpayer and foundation funded skill development programs focus primarily on preparing people out of work for entry-level jobs. And the incumbent worker training programs that do exist are woefully underfunded, which is ironic, since they hold the key to unlocking the job growth that is vital to expanding opportunity.
Although it seems counterintuitive, it is the investments in retraining existing workers that make it possible to maximize the returns on investments in training individuals out of work, since the result is more job opportunities, not just the redistribution of existing job opportunities. Realizing those returns will require radical new thinking and new priorities in the way skill development funding is allocated.
These are some daunting challenges, and meeting them will require a lot of hard work. But it’s well worth the effort. If these challenges are not met, we could end up with a skill development system that is indeed demand driven, but does very little to support job growth, or ultimately to expand opportunity once the baby boomers retire.
Pete Carlson is president of Regional Growth Strategies