By Josh Keefe
Rackspace Hosting, a San Antonio-based cloud computing company, is one of many companies moving the world’s data to the cloud. Its OpenStack cloud computing platform was launched in 2012. IBM, Intel and Hewlett-Packard adopted the technology for use in their cloud infrastructure. Rackspace was growing and it needed workers, which was a problem.
“We couldn’t find the talent we needed locally, even to fill entry-level positions,” said Deborah Carter, a senior manager at Rackspace and director of Rackspace’s Open Cloud Academy.
The company was hiring employees from all over the country and moving them to San Antonio, which cost an average of $15,000 per employee. To make matters worse, most of those employees only stayed with the company for two years.
So Rackspace decided to try something American companies used to do, but have more or less given up on over the last 30 years: It decided to train its workers.
The Rackspace Open Cloud Academy was launched in 2013 and since then it has graduated 378 students, 177 of which are now working for Rackspace, Carter said.
Through the Open Cloud Academy, Rackspace trains people with little or no background in technology to produce a workforce economists describe as “middle skilled.” Middle skill workers have more education than a high school diploma but less than a bachelor’s degree. Finding these workers has been a problem for not just the tech industry, but much of the American economy. The problem has been dubbed the “middle skills gap.”
Shouldering the responsibility for creating a work force is rare among American employers. For three decades, American companies have been slashing training budgets while complaining about a lack of needed skills among workers. These complaints have become shriller over the last decade. Now, with the labor market tightening for the first time since the recession, it might finally be time for companies to commit to developing solutions to close the middle skills gap.
“If you look at the relationship between job postings and unemployment rates, it’s the highest it’s ever been,” said Joseph Fuller of the Harvard Business School. Fuller is leading the school’s three-year Middle Skills Gap Initiative, announced in January. “I’ve probably talked to 500 employers, and almost none of them say they have no problem.”
The Manpower Group, a multinational human resource consulting firm, has been publishing a “Talent Shortage Survey” for more than a decade, and the 2015 version found 32% of U.S. employers reported difficulties filling jobs due to talent shortages and that 48% of U.S. employers think talent shortages have a medium to high impact on their business. According to another 2015 survey of recruiting agency professionals, 75% of respondents said they saw a “skills shortage” for the industries they recruit. Some projections say there will be a gap of three million jobs by 2020 as baby boomers retire.
Demand for middle skills technology jobs will continue to grow over the next decade. (Data from the Bureau of Labor Statistics).
But despite of all of this concern about a skills gap, companies have been very reluctant to take measures to close it. That same Manpower survey found that in the Americas, the percentage of companies providing additional training and development to existing staff fell from 33 to 22 percent from 2014 to 2015 and that only 5 percent of employers increased starting salaries to attract more talent.
“Employers have to recognize the consequences of not investing in training,” said Chauncy Lennon, head of workforce initiatives at JPMorgan Chase, which launched the $350 million New Skills at Work program in 2013 to improve job training pipelines nationwide. “If they don’t signal what they are looking for, if they don’t help support a kind of training system or education system that’s going to produce those skills, those workers aren’t going to be there.”
Corporate spending on training is tough to track, but Peter Cappelli, the Director of the Center for Human Resources at The Wharton School, says the burden of training employees has shifted from the employer to the employee. In the middle part of the 20th century, companies hired workers out of high school or college with no skills and trained them, knowing they would stick around for the long haul. This relationship between employer and employee changed during waves of corporate downsizing in the 1980s.
“They found they could hire downsized people with experience when they needed to fill jobs,” Cappelli explained. “So their own training departments withered.”
That trend has only been exacerbated in recent years. In 2011, Accenture surveyed U.S. employees and found that only 21% had received any employer-provided formal training in the previous five years. As the workplace has changed, increasing amounts of smaller training budgets have been devoted to sexual harassment, diversity and LGBT sensitivity training, Fuller said..
Many blame the country’s educational system. Schools have eliminated vocational tech programs that prepare students for middle skills careers while an entire generation has been told that a four-year degree is the only way to get a good job in the modern economy. Meanwhile, automation has raised the skills needed for entry level manufacturing jobs.
“If you elevate the skill set, eliminate training programs, and don’t encourage anybody to go into it, it’s pretty clear that over the long term you are going to run short on labor,” said Gardner Carrick, vice president of strategic initiatives at The Manufacturing Institute, a nonprofit affiliate of the National Association of Manufacturers that specializes in developing and attracting talent in the manufacturing field.
Union apprenticeship programs are a major driver of training to middle skill workers in manufacturing and construction trades. As union membership has declined over the last three decades, so has the training unions provide. (Data from the Bureau of Labor Statistics).
If companies can’t find the workers they need, and aren’t willing to pay to train the workers they need, then basic economics would dictate that companies should raise wages to attract workers. But companies don’t seem to be doing that either, which leads some researchers to wonder if a skills gap really exists at all.
“If employers were able to offer higher wages they would find that a lot of the difficulties hiring people would be gone,” said Liesel Eathington, an economics professor at Iowa State University. Eathington is co-author of a paper that found no evidence of effects one would expect to see if employers really couldn’t find skilled employees: mainly higher wages in jobs with a shortage and migration patterns to regions where there were shortages. “They are fishing with the wrong bait. Just because workers aren’t biting doesn’t mean they aren’t there.”
In spite of the alarm bells being sounded about the skills gap, complaints about the skillset of American workers have been around for a long time, said Michael Handel, an associate professor of Sociology at Northeastern University.
“The idea that people can’t find trade workers goes back 50 years,” said Handel. “This isn’t new.”
As the economy has bounced back from the recession and the labor market has tightened, it’s increasingly the public sector and outside organizations, like JPMorgan Chase, that are investing in developing solutions. In 2010, the Obama administration committed $2 billion for community colleges and career training. Last year, the administration pledged $175 million to support apprenticeship programs.
Some economists note that by sounding the alarm on the skills gap, industry groups can effectively act as lobbyists to secure public funding for training.
“It’s not so much the individual employers who are misled or are misleading, it is their associations and the consultants who support them,” Cappelli said in an email. “They tell their members/clients what they want to hear. At the top executive and board level, it’s a comforting narrative to think that there are good jobs out there if only people would get the skill in school to be qualified.”
In the end, inaction could be worse for workers than employers. Fuller noted that the skills gaps creates incentive for employers to invest in technology that eliminates jobs that employers can’t fill. It could be the best solution for eliminating the gap between workers and skills is to eliminate workers altogether.