Employer Incentives and the Skills Gap: Engage and Listen, But Not Too Much
Issues and Solutions...
In our last two posts we addressed the incentive problems that universities and their faculty face as they work to ensure programs prepare students for a successful career and the incentive problems we face in helping students choose their future selves over their 19-year old selves.
This week we tackle incentive problems that universities face when working with employers to narrow the skills gaps.
Let’s start here. Students would be better prepared for long-term career success, and employers would experience smaller skills gaps in their preparation, if ....
Employers interacted more extensively with universities, sharing information about their needs and experiences with graduates, and sponsoring career relevant programming inside and outside the classroom.
Employer Incentives: ‘Trapped’ Students and Shared Information
For an employer, the ideal hire is a highly capable student who has exactly the knowledge, skills and abilities needed for a particular job… and is useless to any other employer. Economists called this “match-specific human capital” – having capabilities that are only useful to your current employer. Having match-specific human capital makes a worker productive in that particular firm but, lacking outside options, it reduces workers’ outward mobility and bargaining power.
Put another way, what is good for an employer is not necessarily what is good for a student.
This incentive mismatch shows up in two distinct questions. First, will firms invest in student programming or provide feedback about educational choices if that builds general human capital and makes students valuable to many firms? Second, how closely should universities listen to employer complaints about students and their preparation?
As we have written previously, we think universities would benefit from deeper employer engagement to understand skills needed in the workforce that are not being provided by university programs. And employers clearly have a strong incentive to hire graduates who will succeed in the jobs they are hired for and to identify the characteristics of both individuals and programs from which they graduate that correlate with that success.
But once this “secret sauce” is learned, what is an employer’s incentive to work with universities to reproduce this success on a broader scale? After all, universities supply employers *and their competitors*. Providing critical business insights that will benefit a competitor is not what successful businesses do.
This argument is doubly true when it comes to engaging in truly costly activity, i.e. not just sharing information but actively engaging the university in creating the human capital that an employer wants to hire. Many employers are small and resource constrained and would need a big payoff to justify deeper engagement with universities. But even for large employers, significant investments on a broad scale benefit many students who the employer will never hire.
The related question is how much universities, or any part of the educational system, should listen to demands of specific employers for changes in curricula. In our leadership roles we repeatedly encountered employers who would make the following series of claims/complaints.
1. The university is not preparing students for the specific roles we want to hire, and so it becomes necessary to invest significantly in students’ training after the university.
2. We are unable to hire students at the (low) wages we prefer to offer.
3. Having hired students, and trained students, they are unwilling to remain in the position long enough to pay back their training and are constantly in search of new opportunity.
These specific complaints don’t strike us as the university’s problem, and we don’t believe that addressing them for these employers would be in the best interest of our students.
We are also wary of the recent (hard) push toward technical education, and especially moves to enable tracking high school students toward specific careers in manufacturing and skilled trades. Yes, it would be nice for these employers (and for the students at least initially) to have a workforce of recent graduates who were skilled in the precise jobs the employers would like to hire today.
But the low labor force participation rates and high disability rates among those who don’t finish college should make us cautious about these moves.
And we should be under no illusions about what those employers will do if rapidly changing technology shifts needed skills or global market pressures push production overseas — employers will let go of those workers in a heartbeat or lower their wages to reflect the diminished market value of their skills.
All in all, this poses a real dilemma for universities. We need to listen to employers, but not too much! And employers need to engage with us, but not too much! How to square this circle?
Solutions: Engage Employers, but Not Too Much.
We think universities should:
1. Make it easier for employers to engage and inform programming, but realize that advice given does not have to be followed. This means we need to recognize the distinction between work requirements that are useful for very specific occupations or employers, and those that are generally valuable to many employers and across a student’s entire career arc.
2. Seek other sources of information about needed skills. This could mean third-party intermediaries such as industry or trade associations or alumni who likely have more allegiance to the university and its current crop of students than to their particular employer. Alumni have the added benefit of seeing many employers and work demands along an entire career arc.
3. Work with employers to expand micro-internships and the use of project-based courses where employers engage with small (3-5 student) teams to solve specific problems. The associated work and deliverables provide context-specific practice of professional skills. Students interested in a particular problem/employer can self-select into that engagement. Employers can invest more deeply in those self-selected students’ capabilities and hire them if that is desirable without worrying about investing more broadly.
4. Pair these employer engagements with an offer of skills certification opportunities for students. Specific skill sets would not be required but the university could offer a menu for students looking to upgrade highly specific capabilities as they work with employers on project-based courses that require these skills. This would also signal to students that receiving a diploma is not the end of learning; it is merely the end of the beginning.
5. Study these student-employer engagements occurring within the curriculum and co-curriculum to draw broader lessons for the kinds of capabilities that are broadly demanded in the work force and how their foundations can be better developed throughout students’ experience at the university.
Consider two examples of these more targeted engagements. Many business schools offer case competitions or data-oriented competitions for teams of students that build all the most important professional skills. In the best of these, a sponsoring company provides a business problem to analyze, proprietary data relevant to that problem, and a significant cash prize for winners. Senior executives work with faculty to structure and judge the competition because it gives them a first hand look at how students think critically, solve problems, work in teams, and communicate their solutions. At Purdue we greatly expanded these competitions and found them highly motivating both to students who upskilled, and executives who uncovered the talent they wanted to hire (sometimes on the spot!) More often than not, students uncovered solutions the company had not previously explored.
Another example we really like is Purdue’s Data Mine, which has engaged hundreds of employers who are looking to upgrade their data science capabilities with thousands of students across all majors on the campus looking to develop their data science skills. These employers work with faculty and students to design projects, provide large data sets and committed mentoring. The student get project-oriented experience and motivation to tackle more challenging coursework that can assist with these projects. The employers get deliverables to drive profitability, insights into faculty research capabilities, and a first look at future interns and employees.
For more ideas on impactful university-industry partnerships aimed at preparing students for the work world, check out the Business Higher Education Forum. This organization of business and university leaders offers a variety of resources on creating productive relationships between industry and academe aimed at developing tomorrow’s work force.
Better information and aligned incentives will help close the skills gap. In our next posts, we will take a deeper look at challenges associated with the current generation of students, and then follow with thoughts on structural barriers to closing the skills gap.
“Finding Equilibrium” is coauthored by Jay Akridge, Professor of Agricultural Economics, Trustee Chair in Teaching and Learning Excellence, and Provost Emeritus at Purdue University and David Hummels, Distinguished Professor of Economics and Dean Emeritus at the Daniels School of Business at Purdue.