New Studies Challenge Conventional Wisdom on Gig Economy, Skills Gap

New Studies Challenge Conventional Wisdom on Gig Economy, Skills Gap

Over the past decade, particularly in the US, there has been considerable debate over whether the labor market trends we were seeing represented fundamental shifts in the economy or business-cycle responses to the Great Recession that followed the 2008 financial crisis and the long, slow recovery. In new studies, two of these trends—the skills gap and the gig economy—are reconsidered in light of new data, with researchers finding that phenomena they once thought were secular may actually have just been products of the recession after all.

Economists Alan Krueger and Lawrence Katz made headlines in 2016 when they released the results of a survey they had conducted the year before, which found a major jump in the number of Americans making a living in “alternative work” arrangements (i.e., not in regular, full-time employment), though gig economy platforms like Uber made up a small fraction of this contingent labor market. At the time, Krueger and Katz found that around 16 percent of the American workforce were engaged in this type of work, compared to 10 percent in 2005. Follow-up work indicated that alternative work accounted for almost all of the jobs created since 2005.

Now, the leading economists of the gig economy say their initial study overestimated its impact, the Wall Street Journal reported this week. In a new paper, Krueger and Katz look at new evidence and conclude that their 2015 survey overstated the size of the contingent workforce because of a weak labor market and the impact of the recession. Many of the alternative jobs they counted were stopgap jobs people took to make ends meet while they were unable to find full-time work. Once the economy and their job prospects improved, these gig workers returned to more traditional employment. The vast difference in the health of the US economy between 2005 and 2015 skewed the data.

Accordingly, the economists now revise their estimate of the growth of alternative work during that period to a 1 or 2 percentage-point increase, not 5. This brings their findings more in line with other recent studies that have painted more modest pictures of the gig economy—including the Bureau of Labor Statistics’ 2017 Contingent Worker Supplement survey, which claimed the alternative workforce had actually shrunk since the last time the survey was conducted in 2005. At the same time, Krueger and Katz argue in their new paper that the surveys used to measure alternative work arrangements, including those conducted by the Labor Department, are seriously flawed (the huge gap in the BLS data due to the dozen years when the survey wasn’t conducted is part of the problem).

Read more

US Job Market Finishes 2018 Strong, but Talent Challenges Remain

US Job Market Finishes 2018 Strong, but Talent Challenges Remain

The US jobs numbers for December, released by the Bureau of Labor Statistics on Friday, exceeded expectations by a wide margin with the economy adding 312,000 jobs last month, while figures from October and November were revised upward by a combined total of 58,000. It was the best month of job growth since February 2018, when 324,000 jobs were created. Economists surveyed by Dow Jones had forecast just around 176,000 new jobs, according to CNBC.

The unemployment rate increased slightly from 3.7 to 3.9 percent in December, but for a good reason: not because workers lost their jobs, but rather because 419,000 new job seekers entered the labor force. The unemployment rate has fallen from 4.1 percent since December 2017, while the workforce expanded by nearly 2.6 million people. With the final report for the year, the US added an average of 220,000 jobs a month in 2018. Wages also grew in December by 0.4 percent over the previous month and 3.2 percent over the previous year, tying with October for the best year-over-year increase since April 2009 and indicating that the tight labor market is finally leading to higher pay for US employees.

“It appears that higher wages are the reason why people are returning to the active labor force in large numbers,” Paul Ashworth, chief US Economist with Capital Economics, commented to CNN, adding that wage growth might spook investors by suggesting that the Federal Reserve would proceed with its planned schedule of interest rate hikes this year. Ashworth added in a note reported by CNBC that the big jump in jobs “would seem to make a mockery of market fears of an impending recession,” while Jim Baird, chief investment officer for Plante Moran Financial Advisors, told the network: “Employers, it would seem, didn’t get the memo from Mr. Market that it’s time to tighten their belts.”

Nonetheless, the robust jobs report comes amid market jitters over the possibility of an overheated economy, missed earnings projections from some major US companies, and concerns about the domestic impact of President Donald Trump’s trade policies toward China. In remarks after the report was released on Friday, Fed Chairman Jerome Powell said the central bank was prepared to adjust monetary policy in response to changing economic conditions, meaning it could ease up on raising interest rates if the economy shows signs of trouble. Powell described the jobs report as encouraging, saying the rise in wages “does not raise concerns about too-high inflation” and would not prompt the Fed to accelerate rate increases, the New York Times reported.

Read more

The Talent Ramifications of the Brexit Deal (or No Deal)

The Talent Ramifications of the Brexit Deal (or No Deal)

The UK’s planned exit from the European Union is fast approaching, and a new deal over the terms of that exit faces an uncertain future in the UK parliament. Whatever happens, there will be talent implications for employers and HR leaders in the UK and Europe. Below is our broad look at the background of the process and terms of the latest proposed deal, and what the potential consequences could be — viewing several key issues through the lens of HR, including immigration, employment law, and the risks of a no-deal Brexit.

Fast Facts

  • The UK will formally exit the European Union on March 29, 2019, marking the deadline for UK and EU negotiators to reach a deal on an orderly Brexit transition. UK Prime Minister Theresa May has reached a draft agreement with the EU that would provide for a 21-month transition period, after which the UK would be able to control immigration from the EU, while backstop measures would allow the UK to remain in the EU customs union and enable a soft border between Northern Ireland and the Republic of Ireland if a final trade deal is not reached by December 2020. The transition period could be extended once, into 2022, if the UK and EU agree to do so.
  • A scheduled Parliament vote on the deal with the EU was delayed on December 10 after the May government realized the agreement would most likely be rejected. May then survived a confidence vote two days later, and plans to continue lobbying for the deal, which will not be scheduled for another vote in Parliament until sometime in January.
  • May’s deal, as drafted, would preserve the free movement of labor between the UK and other EU countries for the duration of the transition period, while any EU citizens living in the UK before the end of that period would have a right to stay, but would have to apply for residency documentation. Afterward, EU citizens would no longer have special privileges in immigrating to the UK. May has proposed a skills-based system for admitting immigrants after Brexit, but some business leaders and the National Health Service fear this system will leave them short-staffed in roles that would not qualify as high-skill under May’s scheme but for which native talent is in short supply.
  • The UK government has pledged to uphold employment laws based on EU regulations after Brexit, but some of these laws may be partly amended to be more flexible for employers or to reduce their liabilities. Unions, however, fear that these protections may be weakened substantially.
  • If there is no deal by the March 29 deadline, the UK will face a “messy” exit from the EU—likely causing severe economic disruptions. In the event of a no-deal Brexit, the UK would revert to trading with Europe under World Trade Organization guidelines, reintroducing customs and border controls. A no-deal Brexit can be expected to hurt the pound and cause instability in the British financial sector, which could spread to continental Europe and the rest of the world.
  • In a no-deal scenario, the government has promised that EU citizens’ immigration status would not change before 2021, but it remains unclear what employers will have to do to ensure that their European employees are able to continue living and working in the UK. Many businesses have put contingency plans into action to protect against the consequences of a no-deal Brexit, but most HR managers in the UK are underprepared for this scenario. In any case, Brexit is expected to result in a labor supply shock and make it more challenging for UK employers to fill job vacancies.

Background

On June 23, 2016, citizens of the UK narrowly voted to withdraw their country from the European Union. The “Brexit” referendum sent a shockwave through the British, European, and global economies, and prompted concern and uncertainty at many organizations in the UK and abroad.

Conservative Prime Minister Theresa May, who came to power shortly after the referendum in 2016, has worked to cut a deal with Brussels that preserves the UK’s strong trade ties with the EU, but has also stressed that no deal is better than a bad deal as far as her government is concerned. UK and EU negotiators deadlocked over several key points where London and Brussels are at cross-purposes, and uncertainty over whether and how these obstacles will be overcome has been a major source of anxiety for UK businesses over the past two years.

Chief among these issues are immigration and the free movement of people between the UK and the rest of the EU. May has stressed the need for the UK to “take back control” of its borders, even if it meant losing access to the EU’s single market. Free movement of people is one of the “four freedoms” underpinning that single market; the UK wants to preserve free movement of goods, services, and capital, while regaining the right to restrict immigration from the EU. For its part, Brussels has resisted creating new forms of special treatment for the UK that would make Brexit easier, partly to discourage other EU countries from pursuing exits of their own. Another, related area of disagreement is the border between the Republic of Ireland and Northern Ireland, which forms the UK’s only land border with another EU country. Many businesses on the island of Ireland have supply chains that cross that border every day and employees living on both sides of it; creating a hard border with customs and immigration controls would be costly and complicated for these organizations.

The deadline for reaching an agreement is March 29, 2019. If no agreement is reached, the UK will “crash out” of the EU and trade with the bloc under World Trade Organization guidelines. May announced on November 25 that her Brexit negotiators and their counterparts in Brussels had reached a draft agreement that would solve some of these challenges.

A vote on the deal in the UK Parliament had been scheduled for December 11, but May called it off one day before when it was clear that the deal was going to be rejected. Many MPs opposed the agreement, claiming the proposed Brexit is too hard or not hard enough, or because they believe the country should hold another referendum on the question before proceeding.

Prime Minister May said on December 10 that she would ask the EU for new “reassurances” on the deal, and in particular the backstop plan for the Northern Ireland border, which many MPs said they opposed. The EU has maintained they will not renegotiate the agreement, however. May’s government offered no specific timeline as to when there would be another scheduled vote in Parliament on this or any revised deal — but has said it will not happen until January. There is also a January 21 deadline to present the deal to Parliament. May survived a confidence v

Here is a broad outline of what might happen next and the key issues HR leaders need to understand:

Read more

Labor Department Announces $100M in Grants to Reskill Displaced Workers

Labor Department Announces $100M in Grants to Reskill Displaced Workers

The US Department of Labor announced last week that it was making available $100 million in “Trade and Economic Transition National Dislocated Worker Grants,” which will fund training and career services programs for workers affected by “major economic dislocations.” These grants will be disbursed to states, outlying areas, local workforce development boards, and other entities, by the department’s Employment and Training Administration, and are meant to address a variety of workforce challenges, including:

  • The economic and workforce impacts associated with job loss or employer/industrial reorganization due to trade or automation;
  • The loss, significant decline, or major structural change/reorganization of a primary or legacy industry, such as a manufacturing downturn due to technological advances, including impacts on the agricultural industry due to trade or other economic trends;
  • Other economic transition or stagnation that may disproportionately impact mature workers, putting them at risk for extended unemployment, lower wages, and underemployment.

Applications for grants are due by September 7, and the administration plans to begin awarding funds by September 30. It will continue to fund qualifying applications in the order they are received until all of the allocated funds are spent.

This is the first major initiative from the Trump administration focused on protecting the workforce from automation-related displacement. Treasury Secretary Steven Mnuchin took criticism last year when he downplayed the potential impact of automation on job loss, arguing that technological displacement would not be an issue for another 50 years or more.

Read more

Are Experience Requirements for Entry-Level Roles Too High?

Are Experience Requirements for Entry-Level Roles Too High?

Even with talent in short supply, many US employers are seeking applicants for entry-level professional roles with several years of relevant work experience, disqualifying most fresh graduates, SHRM’s Roy Maurer reports:

A recent analysis of over 95,000 job postings by job-matching software firm TalentWorks revealed how difficult it can be for newly minted grads to find an entry-level job within their experience level. The research found that 61 percent of all full-time jobs seeking entry-level employees required at least three years or more of experience. Similarly, when labor market analytics company Burning Glass Technologies analyzed 25 million entry-level job postings from 2010 to 2016, it found an increase in the number of soft and hard skills being demanded. …

“We saw some employers increase experience requirements during the recession and decrease them during the recovery,” [Alicia Modestino, associate professor at Northeastern University School of Public Policy and Urban Affairs] said. “But another set of employers increased their requirements during the recession and have maintained them since then.” The organizations with those “sticky requirements” tend to be hiring for high-skilled occupations, which also require higher education and advanced degrees, she said.

Executives at recruiting and staffing firms tell Maurer that these experience requirements are often excessive and cause employers to discount candidates who would be successful in these roles. Skills learned at one job are not always immediately transferable to a new job, even in the same field, so the benefit employers gain from being able to train experienced recruits more quickly may not make up for them missing out on qualified entry-level talent without that experience. Besides, if every entry-level role required experience, where would newly-minted graduates work?

Read more

Can US Employers Close the Skills Gap With Higher Wages Alone? Probably Not.

Can US Employers Close the Skills Gap With Higher Wages Alone? Probably Not.

In a recent column at BloombergView, Michael Strain, an economist at the American Enterprise Institute, asserted that US businesses, particularly manufacturers, protest too much about the skills gap. Their inability to source skilled employees could be solved, he argued, if they were simply willing to pay higher wages for the talent they need:

Wage growth is picking up, but it is lower than what many economists expect in light of overall economic conditions, and it is not soaring for specific industries.

Simply put, if businesses can’t find workers — or can’t find workers with the right skills — they should raise their wage offers. Basic supply-and-demand logic suggests that doing so will broaden the pool of workers interested in the job, and will make the job more desirable to applicants. In addition, raising wage offerings would likely draw in some of the millions of Americans who report they want a job but are out of the labor force. So unless wage growth picks up, the warnings about labor shortages will fall flat.

Strain is not the first economist to argue that the skills gap is a simple supply-and-demand problem that could be solved by raising the price of labor, or that the problem is on the demand side (not enough attractive jobs) as well as the supply side (not enough skilled workers). Stagnant wage growth may be a factor in US employers’ labor market woes, but in focusing exclusively on wages rather than training and hiring barriers, Strain’s claim oversimplifies the challenge employers are facing. Years of research consistently tell us that while competitive compensation is a large component of what attracts candidates to jobs, there’s no simple formula by which you can convince any given candidate to take a job simply by offering a high enough salary.

It’s easy to point to “basic supply-and-demand logic” to criticize manufacturing companies when you don’t actually understand their experiences in local labor markets, but who says manufacturers aren’t trying to raise wages already anyway? A 2015 study by the Manufacturing Institute and Deloitte showed that 80 percent of manufacturing companies were already willing to pay more than market rates to reduce the skills gap—especially for more skilled labor, such as machinists, craft workers, and industrial engineers. Yet according to our own research at CEB, now Gartner, only 23 percent of heads of HR in the manufacturing industry believe they can close critical skills gaps over the next 12 months.

Read more

Intel Foundation Invests $1 Million to Train Refugees for Tech Roles

Intel Foundation Invests $1 Million to Train Refugees for Tech Roles

The Intel Foundation has made a $1 million grant to the International Rescue Committee to retrain 1,000 refugees in Germany for jobs in the tech sector through a program called Project CORE (Creating Opportunities for Refugee Employment), Ben Paynter reports at Fast Company:

In general, the training program will have several tracks that allow trainees to first gain the sort of basic skills they may need to gain entry-level jobs, (and immediate income) in data entry, programming, and IT work. Then, many will hopefully move on to advance their education through other services that will be offered. …

Trainees won’t necessarily be limited to just Germany-based jobs either. Having strong computer skills means that refugees who have other commitments at home or need flexible hours can join international companies or the gig economy. Even if no one worked remote, though, there are enough jobs for everyone in Germany. IRC and Intel have studied the country’s economy and, unlike resettlement areas in Jordan, there’s a booming tech sector that’s hungry for new employees.

Germany has taken in more than 1.5 million refugees from war-torn countries like Syria, Iraq, and Afghanistan since 2015. The lack of stable work for these refugees, many of whom are young men, has contributed to high levels of unemployment within the refugee community as well as a relatively high incidence of violent crime. If it proves successful, Project CORE could go a long way toward improving the quality of life for Germany’s refugees and their families, in addition to helping address the talent shortage in the European tech sector.

Read more