Our flawed human capital system

A couple of postings last week commented on issues in the U.S. labor market. Follow on that same theme, I recently came across an article at Knowledge@Wharton that raises a number of interesting points on how the labor market is failing as a means of fostering human capital. The article (“Why Good People Can’t Get Jobs: Chasing After the ‘Purple Squirrel'”) is an interview with Peter Cappelli whose new book (Why Good People Can’t Get Jobs) takes on the issue of the “skills gap”:

I think the story that one hears, particularly around the policy community, is that employers can’t find the people they want to hire because schools are failing and kids aren’t coming out with the right academic degrees and the right knowledge. If you actually look at the data from employers themselves when they report problems they’re having with recruiting, they never talk about academic skills as being near the top of the list. In fact, their complaints have been consistent for the 30 years or so that I’ve been looking at this. And their complaints are the ones, frankly, that older people always have about younger people — they’re not conscientious enough, their workplace attitudes are not diligent enough, they don’t want to work hard enough — those sorts of things. They’re not actually looking for young people out of school at all.
When you look at what they want, they want experience — everybody wants somebody with three to five years’ experience. What they’re really after are the skills that you can’t learn in a classroom, that you can only learn by doing the job itself. So, the craziness about the hiring requirements is that in most cases, employers are looking for somebody who is currently doing exactly the same job someplace else.

What companies are doing, says Cappelli, is searching for the “purple squirrel” — the unique, unusual, and perfect candidate.
Part of failure is institutional in the companies:

I think that part of the story is that the HR departments have been gutted over the last 20 years. Particularly in this recession, there’s a lot of downsizing, but especially in HR. The training departments are largely gone out of most companies, and a lot of the recruiting functions are gone as well.

Cappelli also makes an important point on understanding the value of intangible assets:

the internal accounting systems in most organizations are so poor that they can’t tell what it costs them to keep a position vacant.

If Cappelli is correct in his analysis, then we need to re-think our approach to labor market policy. Attacking the perceived lack of workforce skills has been the centerpiece of public policy. But if that is not really the problem, then we need to re-focus on what we can do to create incentives for companies to increase in-house worker training. As I have argued before, we need a knowledge tax credit that would apply to company expenditures on worker training and education — just like the R&D tax credit applies to expenditures on research activities. Better for companies to create their own “purple squirrels” than wait around to that elusive creature to show up on the doorstep.

One thought on “Our flawed human capital system”

  1. Interesting post. Data shows too that another reason for the emerging skills gap is the retirement of Baby Boomers and others leaving these kinds of skilled jobs. As they move on, those “purple squirrel” candidates aren’t there to replace them, either because they haven’t been properly trained internally or the educational systems haven’t turned out enough of the right kind of applicants. Whatever the case, the skills gap is emerging…and won’t be bridged unless everyone gets together and works on it.
    For more information on the skills gap and what some American businesses are doing about it, visit the website of the newly created Industry Workforce Needs Council at http://www.iwnc.org.
    Jason Sprenger, for the IWNC


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