Dr. Cappelli sheds light on the skills gap and discusses the hiring practices that actually diminish a company’s ability to find and employ skilled workers. All of his ideas are based on years of research and are bounded together in “Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It.”
Minding the skills gap: A podcast with Dr. Peter Cappelli about “Why Good People Can’t Get Jobs”
Seamless Workforce (SW): Today we welcome Dr. Peter Cappelli back to The Seamless Workforce to talk about his newest book, “Why Good People Can’t Get Jobs: The Skills Gap and What Companies Can Do About It.” Dr. Cappelli is the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources in Philadelphia. We’re excited to have you back, Dr. Cappelli.
Dr. Cappelli: Thank you.
SW: Congratulations on your new book! Can you give us a little background on what inspired you to write “Why Good People Can’t Get Jobs”?
Dr. Cappelli: What inspired me is that somebody asked me to do it. [Laughs] But it started with some columns I wrote in Human Resource Executive magazine. After reading various reports about skills gaps, I wrote about them, and some folks at The Wall Street Journal read the HRE articles and suggested that I write something for The Journal. We tried it and the piece received a huge response, so The Journal had me write something to follow up on that. After that, my colleague here at The Wharton School Steve Covey suggested that it would make a good book. So I plunged into it and here we are.
SW: Wonderful. Since it got such a strong response, you must have been saying something that registered with companies or employees or job seekers. Can you explain the position that you took in regards to the skills gap?
Dr. Cappelli: I had been reading many stories about how companies can’t find people to hire. And I think the reason why we hear these stories so often is because they have a bit of a man-bites-dog aspect to them. All these people are unemployed and yet we can’t find people willing to work or people who have the skills, and it just seems odd. Therefore it gets attention. And then the explanation you hear for these issues is that it’s because people don’t have the skills, and then that’s because schools are failing.
I’ve been around this topic for 25 years or so, and I knew there wasn’t any evidence for a lot of those things. So I started to look and see where the arguments were coming from, and almost without exception, they’re made up out of thin air. So my view was, let’s think systematically about how these decisions are made and how these judgments came about. Let’s just walk people through, step by step, what the hiring process is like and what we know about how it works and look at the judgment calls that are being made along the way.
Some of the responses were -- not surprisingly -- from people struggling to find jobs. They were very frustrated with the experience with employers. And it’s not just that they’re not getting hired, it’s the reasons they’re told they’re not getting hired, which seemed strange, puzzling, and in many cases really bizarre.
But surprisingly about a third of the 500 email responses I received about The Wall Street Journal piece were from people in human resources. They were basically saying that their processes were screwed up and it was just frustrating and crazy. It was surprising that even the employers were saying that this was crazy. Now, they didn’t want to say it on the record and they are not the people up at the top of the companies. They are the people in the bowels, people who are actually trying to help make the hiring process work.
SW: Interesting. So do you think that there are any industries that are dealing with an actual lack of the talent they need?
Dr. Cappelli: Well let’s begin with the problem, and that’s this idea that job requirements are precise and absolute. In the book I called this the Home Depot view: You need a three-quarter-inch bolt to fit in this particular hold, and there’s no fungibility on that. Jobs and job requirements are not like that. We’ve looked at this over time; you can study what happens to job requirements. When the labor market gets tight and it’s hard to find people, employers ease off on job requirements. When the labor market gets soft and there are a lot of people looking for jobs, employers increase the job requirements.
For example, if you looked at the IT industry when it was really booming in the 1990s, only about 10 percent of people in the IT field had any IT academic degree. Now you can’t get into that field unless you have lots of degrees. But in those days, the whole industry was built on people who were self-taught, or taught by employers, or at the very least didn’t have academic degrees.
So the premise of the argument -- that there is simply one set of needs, and you either have to find those people or you can’t make do without them -- is not right. Secondly, what are you actually looking for? In many cases, job requirements are just going up and up, and the hiring managers are asking for more and more in terms of requirements. I think part of this is because in the downturn we’ve gotten used to people doing two jobs at once, and so we’re trying to find people who can combine two skillsets into one. And those people are hard to find.
We’re also learning that recruiting efforts have dropped and have not come back up even though the economy has improved. Employers are not spending anywhere near as much money trying to get the word out about the jobs they want to fill. The other thing we know is whether you get the right number and the right kind of applicants depends not just on the requirements and not just on your outreach effort, but what you’re paying. In many surveys, a large number of employers report that the real problem is that they can’t get people to take the jobs at the wages they’re paying. So in other words, they’re basically admitting that they are not paying enough and that’s why they can’t get people to take the jobs.
The big issue is that what employers want these days has really changed. A generation ago you used to hear, “We hire for attitudes and train for skills.” That’s out the door. There’s almost nobody actually doing that anymore. Companies want people to be able to hit the ground running, come right into the job and immediately make a contribution without any training or ramp-up time.
So there’s no shortage whatsoever of smart and capable people, and there’s no shortage of people who are motivated and willing to learn. What’s happening on the employer side is that they’re tying their own hands. They are constraining what they want so severely that it makes it very difficult to hire people. In practice this means that employers are saying, “We want to hire people who are currently doing this job someplace else. We don’t want to look at people who are unemployed. We think their skills might be rusty. Maybe we’re worried about why they’re unemployed.
“So we don’t want to look at those people, and we don’t want to look at people who might be able to do the job with some training or ramp-up time. We want people who can do it right now. The only way we can be sure of that, we think -- although actually there’s no evidence for this -- is to see if the candidate is doing exactly the same job right now.”
That means that the only people you’re willing to look at are people who are currently working for your competitors and doing the same job. So that makes it pretty difficult to find people. But it’s all self-imposed.
SW: Have you seen this before? Or do you think this is a new issue that’s unique to our time?
Dr. Cappelli: It goes on in every recession. This time I think that employers’ expectations have really just gotten out of line. They are willing to keep searching, almost indefinitely, to see whether they might be able to find somebody who could do all these things and do them at the wage they want to pay.
I think there’s something else that’s different now than in previous recessions. The internal accounting systems that give companies guidance on what to do are, on one hand, pretty sophisticated when it comes to cost. On the other hand, they are really unsophisticated when it comes to benefits. For example, companies can tell you to the penny what it costs to fill a job and what the labor costs are. But they have no idea what the cost is of keeping the position open. And when they do their own internal accounting they see that my unit, my P&L looks good if I keep the jobs open and don’t fill them.
But that’s partly because the way we measure this stuff is not very precise. We’re not accounting for the possible employee burnout and the turnover we’re going to have when these people burn out and the labor market improves. Some of the data now suggests that the vast majority of people say they’re going to look for a new job when the market improves.
And companies also are not assessing, or are not able to assess, lost opportunities -- in other words, the work that’s not getting done, the customers that can’t be served, etc.
So part of what’s different this time is that employers have mixed incentives about selling the jobs given the way modern accounting systems work. Some of this is a question of degree. Because this recession is so much worse, I think companies’ expectations are so much higher that there has to be somebody out there who can do this job at the wage we want to pay, and who can do two jobs at once and has all these wonderful credentials.
SW: In “Why Good People Can’t Get Jobs,” you mention that as the economy recovers, the gap between employers and job seekers might grow wider and unemployment numbers will remain high. Can you explain why you think this is?
Dr. Cappelli: We know this is true from prior recessions. The unemployment rate only counts the people who are actively looking for jobs. So if you’re unemployed and give up, you’re not counted as unemployed anymore. You’re counted as withdrawing from the labor force. And there’s a ton of people at the moment who have withdrawn from the labor force, but they actually want to work. They’re just not counted as unemployed.
So as soon as business picks up a bit and employers start to hire again, all these people will come back into the workforce, and the unemployment rate could pick up a bit. And I think this is one of the reasons why unemployment is so stubborn right now. There’s this huge backlog of people who are not counted as unemployed, but actually are unemployed.
SW: What do you think could remedy the issues that we’ve been talking about?
Dr. Cappelli: I think the first issue is basically just to get at the heart of the real problem. To what extent is it really the case that employers want to hire and are not hiring? A lot of the vacancies that are posted are not necessarily real. And that’s not unusual now; it’s always been the case. Some companies don’t really intend to hire, but they post notices because they always post notices. And maybe they’re just fishing to see who’s out there. In some cases they want to remain in the game. For example, employers go to college campuses sometimes even when they don’t have jobs because they want the next cohort of people to know who they are.
So if we’re looking at those cases that are real -- that is, employers are saying we would like to hire but we can’t find the people we want -- some of this problem will self-correct. This is a market. If I was trying to buy a car, and I came back and told you, “I can’t find what I want; there’s a car shortage,” you’d look at me and say, “Are you nuts? Let’s look at what you’re asking for.” And you’d find that I’m asking for a lot of things in a car. Then you’d ask me, “What are you looking to pay?” And it turns out I’m not willing to pay much even though I’m asking for a lot. Well, eventually, when I really need that car, I start to lower my requirements a bit and increase what I’m willing to pay and the problem takes care of itself. That’s how markets work. So some of that will probably happen with the hiring process.
The real issue though is when employers have gotten out of the business of training, and they’re not expecting to hire anybody out of school and give them experience. They simply want to hire somebody else’s experienced worker. It creates a serious economy-wide problem. We have to try to do something about this.
The best solutions are for employers to get closer to schools and for employers to figure out ways to make training pay. There are lots of ways in which training does pay, and many employers have figured this out. Apprenticeship programs, for example, can certainly work for employers. The answer is to find ways to let people learn as they work, learn as they contribute. And you can do that.
Some of it also involves partnering up with local schools and creating more co-op programs. Those seem to work pretty well, and employers seem to like them. More internships. Increased efforts to help schools teach the kinds of things that you want taught.
All those things make perfect sense, and they’re used around the world. The puzzle to workplace experts around the world in regards to the U.S. is why we don’t do more of these training programs. Why does the U.S. seem to have such a weak apprenticeship program and such a weak work-based learning program?
Frankly, the reason is it has to do with the employer side and a lack of engagement by employers. I’m not suggesting employers are bad guys and that it ought to be their civic responsibility to do this. Rather, I’m suggesting there ought to be reasons for thinking that it is in their economic interest to do this. But for lots of reasons, some of them attitude, some cultural, maybe some having to do with the economics of the way things operate in the U.S., it’s just harder for U.S. companies to do this.
SW: Do you think that using contracted or other forms of temporary labor can help with the skills gap issue in a manner that employers might be more apt to be interested in?
Dr. Cappelli: Well one of the things that a lot of folks don’t know -- in fact I think most folks don’t know -- is that the staffing industry actually provides a lot of training. And the reason they do is because they can make it pay. If your employees are more skilled, you can charge more for their labor. Actually the temp industry, the staffing industry more generally, has been a bright spot on this because it has figured out ways to train people. A lot of the training is sort of voluntary. You make it available to people, and if they want to do it, they can. You don’t have to pay them while they’re getting the training. So I’d say that’s the good news about the staffing industry for the broader economy and the extent to which employers make use of that. It is contributing to training and skill development.
SW: I remember a section in the book where you talked about applicant tracking systems and the ways that applications are getting to companies. And we’ve been talking a lot about that here at Yoh, so I wanted to pose a question: Do you think that employers are too reliant on technology when it comes to recruiting and hiring?
Dr. Cappelli: I think, as with all aspects of technology, we have to be mindful of what it’s good at and what it’s not good at. And I think the technology has to be part of what employers use today. Part of the reason is that in the 90s, when employers were trying to get lots of applicants and the market really was tight, they made it really easy to apply. And so with a stroke of the key, punch of the button, you can apply and send your resume off to lots of different employers these days. And as a result, now when unemployment is high, employers are just overwhelmed with applicants and have thousands of applicants for each job. If they had to sit down and read them all, they’d be absolutely overwhelmed. So they’re understandably using technology to screen those applications.
I think the overuse of technology is when you assume that that screening is going to do everything for you. Software is getting smarter all the time, but it’s not that smart yet. It can look for certain things, but it can’t imagine all the ways in which somebody might be qualified to do a job. It can’t consider all the different experiences that a candidate has that together demonstrate that he or she can do this job. And as a result, it ends up being pretty dumb and does crazy stuff. These are the things you hear from applicants -- like you had to have exactly the same job title before as this job, or they won’t look at you. That you have to have exactly this particular grade point average or this particular set of credentials or the company won’t consider you.
The reason that is nutty is that we don’t actually have any information that suggests that those things predict who’s going to be good. It would be one thing if we could say, “If you don’t have this prior experience, you just don’t work out or you don’t work out nearly as well.” But we don’t have that, and so this is going on hunches. The recruiting process is being driven by the limitations of the software because we don’t want to hire anybody to impose a little human judgment on this.
I think this is penny-wise and pound-foolish. We’re ending up with unfilled positions and are annoying lots of potential applicants who have long memories about these things. All because we don’t want to put any humans on it because we don’t want to spend the money.
SW: You sound hopeful that employers will find a balance with technology as technology improves.
Dr. Cappelli: Well, I think the balance could be there right now. The balance is that you use the software for initial screening, and then you look through those folks that get through the screening, and you decide which of these you want to pursue and interview. That’s the way that the people who designed the software see it being used. I think the clients are trying to push it too hard, trying to eliminate all of the people from the process and automate it. And it’s not working.
SW: Makes sense. And before we close things up, I wanted to see if there’s any final thoughts you’d like to leave us with, either about anything we’re already spoken about or something else?
Dr. Cappelli: The overall view here is that employers are not bad guys. They have a big problem. Finding good people to hire is really tricky. We’re not really very good at it. We actually used to be better at it as an economy and as an industry a generation or two ago. Why was that? We spent more time and energy on it.
At the moment, what we’re doing is not working for employers, and it’s certainly not working for applicants. It may not be good for the economy. But it’s not even working for employers. So we ought to be able to solve this problem -- that’s the good news. What’s not going to get us anywhere is blaming the victims on this, such as suggesting that suddenly all those people who were employed three or four years ago have something wrong with them and are just unemployable now. It just doesn’t have any face validity.
SW: I’m sure a lot of job seekers are nodding their heads along with that advice as well. So we’ve been speaking with Dr. Peter Cappelli, renowned researcher and thought leader on U.S. workforce issues and employment relations. We’ve been discussing his new book, “Why Good People Can’t Get Jobs.” Thanks so much for your time, Dr. Cappelli. We really appreciate you coming on and sharing your thoughts with us today.
Dr. Cappelli: Thank you.
