The Skills Shortage Dilemma: Buy Or Build? (Courtesy of Forbes) — The past few years have been good ones for the U.S. economy, with year-over-year expansion, record low unemployment, healthy profits and stock market prices exceeding expectations. But all this good news masks a nagging concern for employers: a shortage of skilled labor, particularly “middle-skilled,” the type generally developed through two or more years of post-high school education or on-the-job training. And that shortage could put the lid on an expanding economy.
The U.S. Department of Labor estimates that seven million job vacancies now exist in the American economy, confirmed by a near-universal complaint from business leaders, “We can’t find enough people who can do the job.” Of surveyed employers:
- 75% across industry sectors reported a shortage of skilled workers.
- 60% were dissatisfied with the preparation of entry-level job applicants.
- 90% reported the skills shortage is negatively impacting productivity and employee satisfaction, and is exacerbating staff turnover.
- A survey among U.S. manufacturers indicated that the positions most difficult to fill are often essential to their growth plans.
This bad situation is getting worse as experienced baby boomers drift off into retirement, which they are now doing at a rate of 10,000 per day!
To buy or build
How can employers get the skilled people they need when the supply/demand situation is so tilted against them? In some respects, it’s a typical buy-or-build choice. An employer can either “buy” skilled people direct from the labor market or “build” them by training personnel in-house to meet the unique needs of the business.
You might think the “buy” strategy is quicker. But American policy makers are just starting to focus on revitalizing career technical education (CTE) and boosting community college systems. It will take years before job-ready graduates come into the labor market. In the meantime, you’re competing in a very shallow pool for available talent.
So what can companies do to get the skilled employees they need more quickly? A growing number of U.S. firms are choosing to “build” with apprenticeships. For these forward-looking companies, training costs are investments and lengthy training periods are opportunities to develop required skills and organizational knowledge. There are other benefits. Apprenticeship training enhances subsequent innovation at the host firm, lowers long-term recruitment and training costs; and only a small percentage of apprentices will go elsewhere after they complete training.
With these benefits, it’s worth taking a closer look at apprenticeship.
What is an apprenticeship?
An apprenticeship is a work-based training program set up by an employer to train an individual for highly skilled work that meets industry standards and the unique requirements of the sponsoring company.
Modern apprenticeships are characterized by:
- customized, on-the-job training
- in-house mentoring
- wages that rise in step with increasing productivity; and
- related technical classroom instruction.
Apprenticeships are also flexible, accommodating recent high school graduates, college graduates, military veterans and mid-career adults. Most modern apprenticeships vary in length from one to four years. Successful apprentices receive a nationally-recognized credential and, in many cases, college credits leading to an associate or bachelor’s degree. In 91% of cases, these newly-skilled individuals are offered and accept full-time jobs from their employers along with a pay hike.
Who uses apprenticeship?
Apprenticeships have long been associated with carpentry, plumbing, electrical work, machining, masonry and other hands-on trades. And that is where most apprenticeships are found today. However, a growing number of employers in finance, IT, hospitality, health care and other fields are turning to apprenticeship to close the skills gap that has left so many important positions unfilled. Some companies already invested in apprenticeship include Adobe, Mailchimp, Dartmouth-Hitchcock Medical Center, LinkedIn, JPMorgan Chase, Amazon, Dow Chemical Company, Salesforce Software, Interapt, Peterson Automotive Collection, CVS Health and Black Oak Casino Resort.
Adobe uses apprenticeships to fill its ongoing need for talented software developers, and has found it’s also a good way to diversify the workforce, purposely recruiting women and minorities for apprenticeship opportunities. And the company investment is paying off with 96% of program completers have stayed with Adobe.
CVS Health is using an apprenticeship program to tackle its pharmacy technician shortage. According to a company spokesperson, apprentice training brings people up to full productivity more quickly than alternatives. Low turnover is an added benefit. After one year on the job, turnover among apprentice-trained employees is only 15%, far below the 50+% common for entry-level personnel in a retail environment. Since the cost of recruiting and training a single CVS pharmacy technician is approximately $30,000, the company is reaping sizable cost savings. Some of these newly-skilled employees will enter management as they mature and gain experience. Others will continue their formal education and become licensed pharmacists. All to the benefit of CVS Health.
What’s the downside?
Of course, as any business person knows, benefits must be weighed against costs. For apprenticeships, there are three major areas of concern:
- The cost of investment in training
- The time required to bring a new employee up to the desired level of productivity
- A possibility that competitors will “poach” employees in whom substantial time and money have been invested. No one wants to be a training ground for competitors.
In my next post, I’ll talk in more detail about the costs and benefits of apprenticeship, looking at the results of cost/benefit studies done in Europe, Australia and the United States.