The Global Risk of Disparity Between Skills Needed and Skills Available in the Workforce

By Horst Simon, The Original Risk Culture Builder

In the modern, rapidly evolving global economy, the disparity between the skills required by employers and the skills available in the workforce is an increasingly critical issue. This skills gap threatens economic growth, innovation, and competitiveness on a global scale, increasing the exposure to risk for all organisations. As industries become more technologically advanced and interconnected, the demand for specific skills intensifies, leaving many workers inadequately prepared to meet these new challenges. The convergence of these factors necessitates a proactive approach to addressing critical skill gaps and leveraging innovative technologies to mitigate potential risks and ensure long-term business success and build sustainable competitive advantage. Let us look into the causes, implications, and potential solutions to the global skills gap.

Causes of the Global Skills Gap

1. Technological Advancements

According to a report by the World Economic Forum, by 2025, 85 million jobs may be displaced by a shift in the division of labour between humans and machines, while 97 million new roles may emerge that are more adapted to the new division of labour between humans, machines, and algorithms .

The arrival of automation, artificial intelligence (AI), and digital transformation has fundamentally altered the skills landscape across various industries. Automation has streamlined many manual processes, leading to a significant reduction in the need for low-skilled labour and a surge in demand for workers proficient in operating and maintaining sophisticated machinery. In manufacturing, for example, the implementation of advanced robotics and automated systems has necessitated a workforce that can handle technical tasks such as programming, troubleshooting, and maintaining these complex machines. This shift has created a gap between the traditional skills possessed by many workers and the new technical skills required by modern manufacturing facilities.

The rise of AI has further transformed the job market by introducing new roles that focus on the development, deployment, and management of intelligent systems. Expertise in data analysis, machine learning, and AI algorithm development has become crucial as businesses seek to leverage these technologies to gain a competitive edge. For instance, data scientists and machine learning engineers are in high demand as organizations across sectors strive to harness large datasets to improve decision-making, enhance customer experiences, and drive innovation. This demand for specialised skills in AI and data science has outpaced the supply of qualified professionals, exacerbating the skills gap in the tech industry.

Digital transformation has also expanded beyond traditional IT roles, impacting virtually every sector of the economy. Businesses now require employees who are not only proficient in digital tools and platforms but also capable of integrating digital strategies into their everyday operations. This includes roles in digital marketing, cybersecurity, and digital product management, which require a blend of technical and strategic skills. The rapid pace of technological change means that workers must continuously update their skills to remain relevant, emphasising the need for lifelong learning and adaptive education systems. The disparity between the skills needed in this digital age and those available in the workforce presents a significant challenge for global economies striving to keep pace with technological advancements.

2. Educational System Misalignment

A study by McKinsey & Company found that 40% of employers say lack of skills is the main reason for entry-level job vacancies, and 60% of employers report that new graduates are not adequately prepared for the world of work .

Many educational institutions find it challenging to keep pace with the rapidly evolving requirements of the labour market, primarily due to the traditional structure and slower adaptability of their curricula. While industries swiftly adopt new technologies and methodologies, academic programs often lag in updating their content and teaching approaches. This disconnect is partly due to the lengthy processes involved in curriculum development and approval, which can take years, whereas industry trends can shift in months. As a result, graduates often find themselves equipped with theoretical knowledge (often outdated by the time the graduate) but lacking the practical, up-to-date skills that potential employers seek.

The gap between academia and industry is worsened by a lack of direct collaboration and communication. Educational institutions do not have strong connections with businesses and industry leaders, leading to curricula that does not reflect real-world applications and modern-day needs. For instance, in fields such as technology and engineering, where rapid advancements are the norm, the knowledge imparted can become outdated by the time students enter the workforce. This issue is also prevalent in other sectors where practical experience and current technological competence are crucial, such as healthcare and manufacturing. Without regular input from industry professionals, educational programs struggle to stay relevant and fail to prepare students adequately for contemporary job markets.

To address these challenges, there is a growing recognition of the need for educational institutions to foster stronger partnerships with industry. This collaboration can take the form of co-designed curricula, internship programs, and ongoing professional development for educators to keep them abreast of industry changes. By integrating practical, hands-on experiences and ensuring that teaching methods and content evolve in line with industry standards, educational institutions can better prepare graduates for the demands of modern workplaces. This approach not only enhances the employability of graduates but also helps bridge the skills gap, contributing to a more dynamic and capable workforce.

3. Globalization

The OECD highlighted those countries with rapidly aging populations, such as Japan and Germany, face significant challenges in maintaining a workforce with the necessary skills to support economic growth.

The global nature of modern economies has intensified competition among workers, as they now vie for opportunities on an international stage. This globalization of the labour market means that skills in demand in one region may be abundant in another, creating imbalances and regional disparities. For example, while advanced technological and digital skills are highly sought after in developed economies with robust tech industries, such skills may not be as crucial in developing regions where the focus might still be on foundational infrastructure and basic manufacturing. This creates a scenario where the skills gap is not uniform but varies significantly across different parts of the world.

Economic globalization has also led to the migration of skilled labour towards regions with better job opportunities, often leaving their home countries with a shortage of essential skills. This brain drain intensifies regional disparities as developing countries lose their most talented professionals to more developed nations. Consequently, these countries may struggle to advance their own economies and industries due to the lack of skilled workers. For instance, many healthcare professionals from developing countries move to more affluent regions in search of better salaries and working conditions, leaving behind a critical shortage in their home healthcare systems.

To address these disparities, it is crucial to adopt a global perspective in skills development and workforce planning. This involves not only enhancing the quality and relevance of education and training in all regions but also creating policies that encourage skill retention and attract talent. International collaborations and exchanges can play a vital role in this context, helping to distribute skills more evenly across the globe. Programs that facilitate the transfer of knowledge and technology from developed to developing countries can help build local capacities and reduce regional skills imbalances. Encouraging industries to invest in local talent development through incentives and support for education can create more balanced global economic growth and reduce the disparities in skill demand and availability.

Implications of the Skills Gap

1. Economic Impact

The National Skills Coalition in the United States reported that middle-skill jobs, which require more than a high school diploma but less than a four-year degree, account for 53% of the U.S. labour market. However, only 43% of workers are trained to the middle-skill level, leading to a significant shortage.

The skills gap significantly impacts productivity and economic growth, as companies struggle to find employees with the necessary skills to perform their jobs efficiently. When organizations cannot fill positions with adequately skilled workers, it often results in decreased operational efficiency and lower overall productivity. Tasks that could be completed swiftly by skilled employees take longer, and the quality of work may suffer, leading to reduced output and potential loss of business. This inefficiency directly affects the bottom line, hindering the company’s ability to grow and compete effectively in the market.

The shortage of skilled labour forces companies to incur higher operational costs. To bridge the skills gap, businesses often need to invest heavily in training and development programs to upskill their existing workforce. While this can be a positive long-term strategy, the immediate costs associated with developing and implementing these training programs can be substantial. The recruitment process also becomes more prolonged and expensive as companies search for qualified candidates, often offering higher salaries and benefits to attract scarce talent. These increased expenses can reduce profitability and limit the funds available for other critical areas such as research and development, innovation, and expansion, ultimately stifling economic growth.

2. Unemployment and Underemployment

In the European Union, the mismatch between education and job requirements affects about 40% of tertiary education graduates, who end up in jobs for which they are overqualified, while 20% of the workforce is underqualified for their current roles.

Workers who lack the necessary skills for in-demand jobs often face higher rates of unemployment or are compelled to take lower-paying positions that do not fully utilise their potential. This underemployment means that individuals are not able to contribute to the economy as effectively as they could if they were in roles that matched their skill sets. For instance, a highly educated worker may end up in a job that requires much less expertise, resulting in a significant waste of human capital. This mismatch not only hampers personal career growth, personal wellbeing and job satisfaction, but also leads to a less dynamic and less efficient economy.

Underemployment also has broader economic implications, as it contributes to financial instability for individuals and families. Workers in lower-paying jobs often struggle to meet their basic needs, let alone invest in further education or training to improve their skills. This can create a vicious cycle of limited economic mobility and perpetuate income inequality. On a larger scale, widespread underemployment means that a significant portion of the workforce is not generating the economic value it could be, leading to reduced consumer spending, lower tax revenues, and a potential drag on overall economic growth. The resulting economic inefficiencies highlight the importance of addressing the skills gap to ensure that workers are adequately prepared for available job opportunities.

3. Social Inequality

In developing countries, the World Bank noted that access to quality education and vocational training is often limited, contributing to high youth unemployment rates and hindering economic development.

The skills gap can significantly aggravate social inequalities, particularly affecting individuals from disadvantaged backgrounds who often have less access to quality education and training programs. These individuals may attend underfunded schools that lack the resources to provide a comprehensive, up-to-date curriculum or have limited access to vocational training and higher education opportunities. Without the necessary skills, they are less likely to secure well-paying jobs, perpetuating a cycle of poverty. This situation is compounded by the fact that disadvantaged individuals often have fewer networks and resources to pursue opportunities that could lead to upward social mobility.

This widening skills gap can limit social mobility, reinforcing existing socioeconomic disparities. When access to education and skill development is unequal, individuals from lower-income families face significant barriers to improving their socioeconomic status. This lack of mobility not only impacts individual lives but also perpetuates broader societal inequalities, leading to a less inclusive economy. As high-skill, high-wage jobs become increasingly concentrated among those with access to quality education and training, the gap between the wealthy and the poor widens. Addressing these disparities requires targeted policies and investments aimed at providing equitable access to education and training for all, ensuring that everyone has the opportunity to develop the skills needed to succeed in the modern workforce.

Strategies to Bridge the Skills Gap

1. Revamping Education Systems

The European Commission’s New Skills Agenda for Europe emphasizes the importance of education systems that respond to labour market demands, promoting vocational education and lifelong learning opportunities.

Educational institutions must adapt their curricula to incorporate more practical and relevant skills to better prepare students for the evolving job market. This adaptation involves updating course content to include the latest technological advancements and industry practices. For example, integrating subjects such as coding, data analytics, and digital marketing into the curriculum can equip students with the skills currently in demand across various sectors. Additionally, practical, hands-on learning experiences, such as lab work, simulations, and project-based assignments, can enhance students’ ability to apply theoretical knowledge in real-world scenarios, making them more job-ready upon graduation.

Closer collaboration between educational institutions and industry is crucial for ensuring that academic programs align with current and future job market needs. This partnership can take many forms, including advisory boards composed of industry professionals who provide insights into emerging trends and required skills. Internships, co-op programs, and apprenticeships facilitated by companies can offer students invaluable on-the-job training and exposure to real workplace environments. These experiences not only enhance students’ practical skills but also help them build professional networks that can be beneficial when they enter the job market. Regular feedback from employers regarding the performance of graduates can also help institutions continuously refine and update their programs.

Educational institutions can benefit from incorporating industry-specific certifications and credentials into their curricula, allowing students to gain recognized qualifications that demonstrate their proficiency in particular areas. Partnering with tech companies, for instance, can help schools offer certification programs in software development, cybersecurity, or cloud computing. By aligning their educational offerings with industry standards and expectations, institutions can ensure that their graduates possess the competencies that employers are actively seeking. This approach not only enhances employability but also contributes to closing the skills gap, fostering a workforce that is adaptable and equipped to meet the demands of a rapidly changing global economy.

2. Promoting Lifelong Learning

Singapore’s SkillsFuture initiative provides citizens with credits to pursue a wide range of skills training programs, helping to ensure that the workforce remains adaptable and skilled.

Continuous education and training opportunities are essential for workers to remain relevant and competitive in their careers, especially in an era marked by rapid technological advancements and evolving job requirements. As industries evolve, the skills required to perform jobs effectively also change. Workers who engage in lifelong learning are better equipped to adapt to these changes, acquire new competencies, and stay ahead in their fields. This ongoing process of education and skill development not only enhances individual employability but also contributes to overall economic growth by ensuring a skilled and adaptable workforce.

Governments can play a pivotal role in promoting lifelong learning by implementing policies and initiatives that support skill development across all stages of life. These policies might include funding for adult education programs, tax incentives for individuals and businesses investing in training, and the establishment of public institutions dedicated to workforce development. For example, programs that provide financial assistance for continuing education or retraining can help workers transition to new roles or industries, especially those displaced by automation or other technological changes. Effective government partnerships with educational institutions and private sector organisations can help create targeted training programs that address specific industry needs.

Organisations also have a responsibility to foster a culture of continuous learning within their workforce. By investing in employee development programs, companies can ensure that their staff remains competent and competitive. This can include in-house training sessions, sponsorship for external courses, and access to online learning platforms. Encouraging employees to pursue further education and providing opportunities for professional development not only enhances their skills but also boosts job satisfaction and retention. Companies that prioritise lifelong learning demonstrate their commitment to employee growth and adaptability, positioning themselves as forward-thinking employers in a rapidly changing job market. In this way, both governments and organizations contribute to creating an environment where continuous education is valued and accessible, ultimately bridging the skills gap and promoting sustained economic prosperity.

3. Encouraging Private Sector Involvement

IBM’s P-TECH (Pathways in Technology Early College High Schools) program combines high school and college education with workplace experience, preparing students for tech careers and addressing the skills gap in the technology sector.

Businesses can play a pivotal role in addressing the skills gap by investing in employee training and development. By prioritizing the continuous professional growth of their workforce, companies can ensure that their employees possess the up-to-date skills necessary to thrive in a rapidly changing market. This investment can take various forms, such as offering in-house training programs, subsidizing external courses, and providing access to online learning platforms. These initiatives not only improve employees’ competencies but also enhance job satisfaction and retention, as workers feel valued and supported in their career growth. Moreover, a well-trained workforce can significantly boost a company’s productivity, innovation, and competitive edge.

Public-private partnerships are essential in creating more effective and comprehensive training programs that cater to the needs of both employers and workers. By collaborating with educational institutions, industry associations, and government bodies, businesses can help design curricula that are closely aligned with industry standards and future job market demands. For example, companies can provide insights into the specific skills they require, which can then be integrated into academic programs and vocational training. These partnerships can also facilitate the creation of apprenticeship and internship programs, offering students practical experience and exposure to real-world work environments. Such initiatives ensure that the training provided is relevant and immediately applicable, bridging the gap between theoretical knowledge and practical skills.

These public-private partnerships can also help secure funding and resources necessary for the development and implementation of large-scale training programs. Governments can offer financial incentives and grants to businesses that invest in workforce development, while educational institutions can provide the infrastructure and expertise needed to deliver high-quality training. By pooling resources and expertise, these partnerships can create robust training ecosystems that are responsive to evolving industry needs and accessible to a broader population. This collaborative approach not only enhances the skill levels of the current workforce but also prepares future generations for the demands of the global economy, ultimately contributing to sustained economic growth and social prosperity.

4. Leveraging Technology in Training

Coursera and edX, online learning platforms, offer courses from top universities and companies worldwide, enabling millions of learners to acquire new skills at their own pace.

Innovative technologies such as e-learning platforms, virtual reality (VR), and artificial intelligence (AI) have revolutionized education and training by offering more accessible and personalized learning experiences. E-learning platforms provide individuals with the flexibility to access educational materials anytime, anywhere, using digital devices such as computers, tablets, or smartphones. This accessibility eliminates barriers such as geographical distance and time constraints, making education more inclusive and reaching a wider audience. Furthermore, e-learning allows learners to progress at their own pace, accommodating different learning styles and preferences. By offering a diverse range of courses and resources, e-learning platforms cater to individual needs, interests, and skill levels, thereby enhancing engagement and effectiveness.

Virtual reality (VR) technology immerses learners in simulated environments that replicate real-world scenarios, providing a highly interactive and engaging learning experience. VR-based training programs allow individuals to practice skills and techniques in a safe and controlled environment, without the risk of real-world consequences. For example, healthcare professionals can use VR simulations to perform surgical procedures or diagnose medical conditions, enhancing their proficiency and confidence before working with actual patients. Similarly, VR can be employed in sectors such as manufacturing, aviation, and emergency response training to simulate complex tasks and scenarios that require hands-on experience. By offering realistic and immersive training opportunities, VR technology bridges the gap between theoretical knowledge and practical skills, ensuring that learners are adequately prepared for real-world challenges.

Artificial intelligence (AI) has the potential to revolutionize education and training by providing personalized learning experiences tailored to individual needs and abilities. AI algorithms analyse learners’ performance data, preferences, and learning styles to deliver customized content, feedback, and recommendations. For example, adaptive learning systems adjust the difficulty level of exercises and quizzes based on learners’ progress, ensuring that they remain challenged yet not overwhelmed. AI-powered tutoring systems provide real-time assistance and guidance, helping learners overcome obstacles and misconceptions more effectively. By harnessing the power of AI, education and training programs can optimize learning outcomes, increase retention rates, and foster a deeper understanding of concepts and skills.

The global disparity between the skills needed by employers and those available in the workforce is a multifaceted issue with far-reaching implications. Addressing this skills gap requires a coordinated effort from governments, educational institutions, businesses, and individuals. By revamping education systems, promoting lifelong learning, encouraging private sector involvement, and leveraging technology in training, we can work towards a more skilled and adaptable global workforce. Bridging this gap is not only essential for economic growth and competitiveness but also for fostering social equity and ensuring a prosperous future for all.

References

• World Economic Forum. The Future of Jobs Report.
• McKinsey & Company. Education to Employment: Designing a System that Works.
• Organisation for Economic Co-operation and Development (OECD). OECD Skills Outlook.
• National Skills Coalition. United States’ Forgotten Middle.
• European Commission. Education and Training Monitor.
• World Bank. World Development Report: The Changing Nature of Work.
• European Commission.  New Skills Agenda for Europe.
• SkillsFuture Singapore.
• IBM. P-TECH: Pathways in Technology.
• Coursera. Coursera’s Impact on Education.