To gain a competitive edge, companies in the United States and around the world are increasingly specializing in their core competencies and outsourcing non-core functions. To succeed, this requires more knowledgeable workers with deeper skill sets and the means to manipulate sophisticated new technologies.

Since skills cycles have been significantly shortened—from years to just months—the ability of employees to continually learn and welcome life-long educational programs is key. And the willingness of employers to frequently upgrade their employees’ skills and invest in corporate training programs is critical.

In light of the demands placed on today’s workers, it is not surprising that a skills deficit exists. In fact, this situation has occurred for years. For example, prior to the global financial crisis, in 2007, Manpower Group, a leader in the employment services industry, said 41 percent of U.S. companies surveyed indicated difficulties filling positions. Although current global unemployment levels remain high, the problem has not abated.

According to the Washington, DC-based Manufacturing Institute, last year 67 percent of American survey respondents reported a moderate to severe shortage of qualified labor; they also anticipated the problem to worsen. And recently, the University of Michigan indicated that 600,000 American manufacturing jobs are unfilled due to a lack of employee qualifications. This shortage is further intensified due to U.S. labor mobility being at a 50-year low, McKinsey Global Institute said. This means fewer workers are able to relocate to seek or accept employment. This has a significant impact on competitiveness. Why?

For hundreds of years, nations with an abundance of natural resources were considered to have a competitive edge. Today, this is no longer the case. Human knowledge and skills have taken the front seat. In turn, a company’s only sustainable advantage is the ability of its employees to learn faster, apply new technologies better, and boost productivity more quickly than the competition.

This is not new. Several years ago Federal Reserve Chairman Ben Bernanke said, “Education fundamentally supports advances in productivity, upon which our ability to generate continuing improvement in our standard of living depends.” But what is new is the speed at which knowledge must be obtained and used to improve productivity.

The labor issue reflects a broader problem. Stated by a McKinsey report, “This labor market dysfunction is symptomatic of structural changes that are altering the nature of work and shaping employment opportunities in advanced economies. Put simply, labor market institutions and policies have not kept up with the changes in business practices and technology that are defining what kinds of jobs will be created and where they will be located.”

This change may be as severe as that which occurred in the early 1800s with the advent of industrialization. The shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs and master an entirely new set of skills. But the skills demanded today are far more sophisticated. And many jobs not on the cutting edge are on the losing end.

For example, jobs that require left-brained routine quantitative functions likely will be automated or moved offshore. Those that require critical thinking and reasoning, as well as abstract analytical, intuitive and creative problem solving skills increasingly will be demanded. The problem: there are too few people with the right skill sets to satisfy demand in the United States and abroad.

When both the U.S. and global economies pick up speed and companies wish to hire at a faster rate, the labor shortage will become a much greater challenge. By 2020, McKinsey says the United States may have 1.5 million too few workers with college or graduate degrees, and nearly 6 million additional workers will lack a high school diploma that employers will demand. Other advanced countries are expected to have similar experiences.

What must companies do? Many U.S. employers will need to more aggressively seek the talent that is right for them. And for some corporations, this will mean closely working with local universities and community colleges to ensure courses are offered that satisfy market demands, and expressing job offers before competitors do so. Plus, many firms may need to draw on untapped human resource potential, such as older workers who have previously retired. Today, Americans are living longer, healthier lives and are able to contribute well after their first retirement.

But, finding new talented employees is only part of the problem. Retaining them also is becoming a greater challenge. To do so, companies will need to create even more attractive working conditions and incentives that translate into tangible short-term benefits. And this does not only apply to younger workers with somewhat different expectations. Overall, companies will need to increasingly invest in training programs and continually refresh and upgrade employee skills.

The benefits of hiring and retraining the right employees can mean the difference between corporate success and failure. And the impact on America is enormous. According to McKinsey, if the United States had raised its academic performance of grade-school children to the levels of those of Finland and Korea between 1983 and 1998, U.S. gross domestic product would have been between $1.3 trillion and $2.3 trillion higher in 2008.

This article appeared in International Insights, A Fifth Third Bank publication, June 2012.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the, is a world-recognized speaker, author and an international columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.

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