US unemployment numbers were released today, and the news isn’t great. The 100,000-ish workers added in October are barely enough to keep the unemployment level stable, due to increases in the overall labor pool.  Fully-loaded unemployment, accounting for the full spectrum of unemployed and underemployed, is still tracking around 16%.  Perhaps more telling is that the “employment to population” ratio remains quite low at 58.3%.  Yet, at the same time, corporate profits are at an all-time high, as is the disparity between CEO and average salary.  The income gap between rich and poor has also never been higher.

Much has been written about the political and regulatory drivers that underlie these issues. An equal amount of ink has been spilled vilifying the top 1% and US corporations. One can debate the merits of each argument, but both are relatively superficial. The deeper issues are structural and reflect cumulative changes to the US economy that began as many as 60 years ago. Understanding the real challenges we’re facing is the first step toward addressing them, both as a country and as HR professionals.

The first thing we need to do is frame the problem.  We could say that the problem is unemployment, but that’s not quite right. Unemployment among individuals with a four-year degree is hovering around 4.5%, which is one of the reasons that so many employers are still complaining of skill shortages and flat or increasing time-to-fill for critical roles. Unemployment among individuals with a high school diploma is 9.3%.  Unemployment among those without a high school diploma is 14.3%. Clearly then, unemployment isn’t the real issue – it’s “unemployment among those without a college degree.”

A related problem is long-term unemployment, which, like so many other indicators, is also at an all-time high. Never in our country’s history have so many people been unemployed for so long. Most of these issues are structural in nature, in one of three flavors:

1. sector issues, like the implosion of the housing market
2. the transformation of normal cyclical unemployment into structural unemployment
3. job polarization largely resulting from the continuing evolution from a manufacturing to a knowledge economy

These affects are not trivial: according to a recent paper  by the IMF and the Federal Reserve, 50% of the long-term unemployment numbers can be attributed to structural unemployment.

Sector Issues

A classic example here might be displaced construction workers, home inspectors, and real estate agents from the housing sector. Regulatory and monetary policy combined with legislative decisions and corporate opportunism led to a significant amount of mal-investment in this sector, resulting in an artificially inflated job market that evaporated once the economy adjusted. Many of these workers didn’t just lose a job, they lost a career they had worked in for many years.

A key challenge for these job seekers is lack of job fit for open positions, which presents the opposite challenges for employers – lots of available bodies, but lack of skills.  Historically, the federal government and businesses have all but ignored this issue, effectively placing the onus on the workforce to reskill itself.  In fact, in a recent speech the President of the Federal Reserve Bank of Minneapolis said,

“Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs.  … Whatever the source, though, it is hard to see how the Fed can do much to cure this problem. Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.”

Cyclical to Structural Unemployment

Another structural aspect to this unemployment is the gradual metamorphosis of cyclical unemployment to structural unemployment. The financial and liquidity crisis caused significant collateral damage to all sectors of the economy. Overall GDP contracted by an estimated 6.2% percent in Q3 of 2008 alone, resulting in layoffs and bankruptcies across many organizations.

Many of these companies have since recovered, but due to lingering uncertainty in the market, they have chosen not to invest in more bodies, choosing instead to accumulate cash and drive higher productivity with existing staff. When they do hire, some companies are choosing to set the bar quite high by only considering candidates who are currently employed or who are currently employed and work in the relevant field or even position.

The result, for an unprecedented number of job seekers, is the slow but steady transformation of cyclical unemployment to structural unemployment.  With out-of-date job skills and aging domain expertise, many qualified workers are effectively disenfranchised from their chosen career, not for lack of ability but for lack of opportunity.

Job Polarization

A third type of structural unemployment is deeper and sometimes goes by another name – job polarization. Job polarization effectively describes the hollowing out of the middle class in the US. Primary causes include automation, in both software and robotics, and offshoring. Jobs affected?  A whole lot:

• Manufacturing – robotic automation and a dramatic uptick in software driven process. Offshoring plays a role here too. Textiles went first. Now we also lack the manufacturing infrastructure to build advanced high-end goods like iPads.
• Photo development – all but eliminated due to digital photography.
• Tax preparation – reduced due to software assisted technology, notably TurboTax.  Also increasingly available through offshore talent.
• Customer service – offshored and crowd-sourced.
• Bank tellers – automation through software.
• Programming – offshored and simplified with technology.
• Travel agents – software automation.
• Pharmacist – on the cusp of being replaced with robots.
• Paralegals – on the cusp of being replaced with software advances.
• Administrative assistants – software automation.

The net impact? A lot of solid, middle tier jobs that used to require only a high school diploma are now gone, and many jobs that require a degree are now threatened as well. Sure, the economy has created new jobs, but they often require entirely new skill sets. When manufacturing work is eliminated due to software advances, it’s not as if manufacturing workers can instantly start applying for programming work. And in many cases, such a leap may not be possible at all due to the worker’s overall aptitude and intelligence. Workers also can’t make the leap when the job in question is outsourced to another country entirely.

In some ways, the challenge of this third kind of structural unemployment mirrors issues related to evolution: one of the key concerns about global warming isn’t whether a species will adapt, it’s whether it will adapt quickly enough. When species successfully adapt, they can thrive within new environments. Those that can’t, disappear — much like the million or so “discouraged workers” in the US who have given up hope and are no longer even looking for work.

To summarize: the real issue is not unemployment in general – it’s unemployment among those with a high school diploma or less. The real issue isn’t cyclical unemployment, it’s structural unemployment, which in turn is a primary cause of the staggering increase in long-term unemployment.

Some Possible Fixes

Given the above issues, the next logical question is how do we fix it? More specifically, how do we fix what we can through our role as HR professionals?

A common thread across nearly all of these root causes is that they can be mitigated through reskilling or retraining efforts. Unfortunately the HR practice has not been leading the way in this area. In fact, according to research by Bersin & Associates, spending on internal training of employees still has not recovered to pre-recession levels, despite unprecedented corporate profits.

The halcyon days of weeks-long and even months-long training are far behind us. In their stead is an expectation to “hit the ground running.” In fact, companies increasingly expect to hire experienced talent who are already in a required role, even for relatively junior positions.  For some companies, this predilection toward hiring for best fit means that they won’t even consider candidates who are unemployed.  According to Christine Owens, executive director of the National Employment Law Project, “anecdotal evidence from job postings, conversations with job seekers and interviews with officials at job placement firms suggests there may be a growing trend of excluding unemployed applicants, regardless of their qualifications.”

At the same time, organizations are continuing to report skill shortages for key roles: 52% say that they have difficulty finding talent for critical roles. Organizations are also reporting increasing time-to-competency numbers (Economist Intelligence Unit, “The Global Talent Index: Outlook to 2015”).  In other words, once people are hired, they  are taking longer to “get up to speed.”  So to recap: we have a large pool of candidates who are effectively disenfranchised from the labor market due to structural unemployment, we have companies sitting on huge piles of cash, and yet we’re still investing less in training than we did before the recession.  This clearly has to change.  I’m not alone in this line of thinking:

As the World Economic Forum recently noted:

“While today’s rhetoric focuses on telling businesses to “create new jobs,” we believe that the creation of new jobs is inextricably tied to providing the right skills for those jobs through education, training and retraining. We must invest in the future by taking on the long-term task of training new talent and retraining existing talent.” (“Global Talent Risk, Seven Responses” 2011)

Similar sentiments have also been echoed by Peter Capelli in a recent Wall Street Journal article :

“To get America’s job engine revving again, companies need to stop pinning so much of the blame on our nation’s education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice.”

And similar comments have been made  by corporations themselves, most notably Howard Schultz, CEO Starbucks who, in a recent interview with CNN Money, said:

“The real issue here is that we have 9% unemployment in America.  It’s almost double that in Hispanic and African-American communities.  People are losing faith and hope in America.  And I’m saying to businesses and business leaders across the country, ‘Let’s not wait for Washington, we too can make a difference.’”

Three Ways Businesses Can Help

Clearly there is a role for business to play here, and it’s not a bit part; it’s a starring role.  Below are three ways businesses can begin to address the issue of re-skilling and smarter hiring:

1. Hire for “potential” for non-critical roles, then train for skills.
   This means, of course, that you need to know what competencies, experiences and behaviors to look for. It also means that you need to have a robust Recruiting solution to do the necessary pattern matching.  Even better if you have an integrated Performance Management /Recruiting solution so that you can use the competencies and experiences of your existing high performers as a guide when seeking out new talent.  This approach has numerous benefits including more diverse perspectives by hiring for fit rather than by job title.  It also mean that you can more easily identify adjacencies within your job families to support more latticed career options for existing team members.

2. Grow your internal talent pools, particularly as a source for critical roles.
   For decades, HR professionals have been complaining about time to fill and depth of talent pools for critical roles. Why? One reason is that most HR teams work in silos. Recruiting recruits, performance consultants consult, trainers train, and only the most high-performing HR teams connect the dots. But if we step back from our functional roles for a minute, it’s pretty clear that we shouldn’t be staffing critical roles from the outside anyway. Internal hires show a 50% faster time-to-competency in a new role than a new hire, and they are around 17% more likely to be a good fit.  We’re also likely to pay less for internal talent because we’re not paying for talent in the open market, and if we have good succession plans in place and deep talent pools, we‘ll see a significant decrease in the time that a critical position remains open.

   Furthermore, if we have a solid understanding of the relevant career progression that leads to a critical role, the position that we post to the open market should be one characterized by fewer requirements and less organizational dependency, mitigating organizational risk and decreasing time-to-fill for that role too. Unfortunately, due to a lack of training investment and the lack of talent profiles and talent intelligence, most organizations are doing a poor job in supporting talent mobility and succession planning. We need to get serious about understanding the various paths to critical roles, the required competencies and experiences, and the matching aspirations and competencies found in our teams. We also need to build strong pipelines for non-critical roles so we can back fill when we move people into new opportunities.

3. We need to get over ourselves.
   Screening out candidates who are not currently employed is shortsighted. It assumes employment or lack thereof is a proxy or guarantor of quality. While this may be a defensible position in a growing economy or even a flat one, it is patently false in a shrinking one. Good people, even great people, can be caught up in sector disturbances, poor management decisions, or the evaporation of credit liquidity. For those folks caught up in the initial round of downsizing in 2008, there were no jobs to apply for. The whole economy ground to a halt. Their difficult situation was then compounded by firms that screened out the unemployed. Yet hiring after multi-month, even multi-year, gaps isn’t something new – companies have been supporting maternity leaves and extended gaps for working moms for many years now.  We know how to evaluate resume gaps and we know how to reintegrate people back into the world of work.  Let’s put those skills to use.

   A bias against the unemployed is also shortsighted from a big picture standpoint. In the next decade, mature economies will face serious talent shortages. In the US and Western Europe, the World Economic Forum estimates that an additional 25 and 45 million workers respectively will be needed to offset Boomer losses and to accommodate growth.  We’re largely going to be on our own in staffing this talent.  The research arm of the Economist, the Economist Intelligence Unit, is predicting that China will see a 30% decrease in younger talent pools (15-24 year olds) over the next ten years.  It further predicts repatriation for Indians who work abroad as domestic talent is absorbed into an economy growing at 9% per year. What this means is that we need to “grow our own,” which in turn means that we need to get better at hiring for potential and skilling someone up. It also means that businesses should be working a lot more closely with higher education, vocational schools, and even high schools to define needs and baseline skills for the future.

   Those businesses with a bolder appetite for social change or with more pressing talent shortages might also consider creating external learning portals for the public. Why not give training away for free? In exchange, you create brand affinity and grow your own talent pool. You also help expand the overall pool of talent for the long-run, mitigating longer term talent shortfalls on a national level. Best of all, you probably have the necessary training on hand already, which means costs would be marginal as compared to your initial LMS investment.  And once again, we know how to do this.  According to Gartner, 40% of use cases for LMS externally facing – either eCommerce or extended enterprise. A training portal for the public would just be another variation of this model.

Conclusion

Businesses can’t solve the nation’s unemployment challenges entirely on their own. But businesses clearly do have a leading role to play, particularly since so much of our current unemployment is structural and related to job fit. By being smarter about internal mobility, talent investment, new hire investment, deep talent profiles, and their overall talent intelligence, companies can take a lead role in reducing unemployment by rebuilding our nation’s greatest asset – its people.