Skills Shocks: The New Normal

An enduring image from the 1970s was of gas lines — panicked motorists waiting for hours to fill up their cars as fuel became scarce. A pair of oil shocks caused short-term disruptions to day-to-day life and long-term repercussions for the American economy.

Today, the United States is facing another shock whose effects might be just as far-reaching — this time in the labor market. A booming economy has made companies want to hire more workers, but they aren’t able to find people with the skills and talent they need. The so-called Great Resignation has contributed to record job openings and exacerbated worker shortages in industries such as healthcare, cybersecurity and manufacturing. In December alone, 4.3 million Americans left their jobs. The conflict in Ukraine will only exacerbate the need for talent – particularly in technology fields — as a natural consequence of geopolitical instability is a reluctance to move work offshore.

The gas lines of the 1970s and the labor market issues of today are both the results of chronic imbalances in supply — of oil back then, of workers with skills that companies are seeking today. Just as the oil shocks reshaped the energy and automotive industries, the current labor shock will have major implications not only for organizations looking for talent but also for colleges that help produce the nation’s workforce.

The oil shocks of the 1970s happened in two phases, first in 1973 and again six years later. Americans also reacted in two phases. They first took immediate steps to manage scarcity and high prices: They turned down their thermostats, drove less and bought gas only on designated days. The federal government cut the interstate speed limit to 55 mph, created the Strategic Petroleum Reserve and for the first time set fuel-efficiency standards for new vehicles.

Next, consumers found lasting ways to need less of things that were both scarce and expensive. Toyota, Honda, and Nissan became household names for selling fuel-efficient compact cars, and during the 1970s the U.S. market share of Japanese automakers climbed from about 4% to nearly 20%. Energy producers, meanwhile, invested heavily in new sources of fuel (natural gas and renewables), created new methods of accessing oil (fracking), and found new partners to produce oil.

Over the long term, the market corrected this supply imbalance. After oil prices rose sharply throughout the 1970s, an oil glut caused prices to fall precipitously in the 1980s. The skills shock we’re seeing now will also, eventually, be corrected. In economist Herb Stein’s words, if it can’t go on forever, it will stop.

Of course, the analogy between these two supply-side shocks isn’t perfect. But it’s instrumental nonetheless.

Much like how oil shocks forever altered how our nation produces and consumes energy, the skills shock could lead to fundamental changes in how the U.S. seeks out and develops talent. In particular, it gives higher education a much-needed opportunity to reshape its purpose as the public questions its ability to prepare graduates for prosperous futures.

We are already in the first phase of the response: Companies are offering more benefits, flexible working conditions and higher pay. The second, long-lasting phase of the skills shock is just beginning.

Whole industries have undergone a decade’s worth of digital transformation since the onset of the COVID-19 pandemic. In healthcare, for example, patients now use telehealth 38 times more than before the pandemic. Companies are quietly accelerating touchless commerce and robotic process automation to compensate for lower labor availability. It’s already clear that the skills we need today aren’t likely what we’ll need in the future.

Higher education must respond quickly and agilely. What colleges are currently doing is providing painkillers for a headache we’ll still have in four years. Instead, we must support and scale quick-turnaround programs that award stackable credentials and/or industry-recognized certificates for tech, healthcare, advanced manufacturing and other sectors that most need skilled workers.

Both sides need to find new ways to diminish the false distinction between “student” and “worker” by offering company tuition support, on-the-job learning, corporate training and work-based learning. Because the number of high school graduates is soon projected to start a years-long decline, filling jobs also will require reaching the older adults who suffered unprecedented job losses early in the pandemic and the nearly 36 million Americans who have some college credits but no credential.

Short-term work-aligned alternatives, such as coding bootcamps, are attempting to fill the gap, and companies like Google and Amazon are offering their own certifications. Too often, though, the savvy learners taking advantage of these new opportunities already have a path to economic security and do not represent a new talent base.

Colleges must build that new base. To do so, they will have to ask themselves tough questions: How do we help learners refresh credentials as the skills they need to succeed change over the course of their careers? How do we translate the roughly 550,000 non-academic credentials available in the U.S. into academic programs? How can we integrate these new opportunities into education and career pathways that make sense to real people, especially those in the most need of education to advance economically? How can we better link corporate training and education to advances in skills-based and competency-based learning? How do we stay in touch with the changing realities of a digitized workplace?

The oil shocks permanently changed the energy and automobile industries. Asian manufacturers now produce nearly half of all cars sold in the U.S., and Canada is now the U.S.’s top source of foreign oil.

The current skills shock has made it clear that the ground is permanently shifting underneath higher education. If colleges want to remain a key segment of our country’s workforce development pipeline, they need not only to respond to that shift, but also embrace a future that will be much different from the past.

Tom Monahan is president of DeVry University. He has served as chairman and CEO of CEB, a global tech-enabled data and content firm, and on the board of several other current and former NYSE-listed companies, including Transunion and Convergys.