Statistic of the Month: Investigating the Skills Mismatch

Source: Accenture. (2011). No Shortage of Talent: How the Global Market is Producing the STEM Skills Needed for Growth; McKinsey Global Institute. (2012). The world at work: Jobs, pay, and skills for 3.5 billion people.

Judging by the headlines in many developed economies—especially the United States and the United Kingdom—there is growing concern that they are not producing enough STEM workers (people with degrees in science, technology, engineering or math) to meet the growing need for such people.  We often hear of a global “skills mismatch”; millions of new workers are entering the labor force every year, and millions of new jobs are being created, but many jobs are going begging because the available workers do not have the skills for the new jobs.  A recent report from Accenture, “No Shortage of Talent: How the Global Market is Producing the STEM Skills Needed for Growth,” refocuses this argument, contending that the skills mismatch is one of location, rather than overall supply and demand.  The authors of this report argue that while jobs requiring STEM knowledge and skills are growing at nearly twice the rate of other occupations in the United States, just 13 percent of American college students choose a STEM major.  In China, on the other hand, more than 40 percent of college graduates have STEM degrees; this figure is nearly 50 percent in Singapore (see figure 1).  In addition to the East and South Asian power players in the STEM field, countries like Brazil are also experiencing a rapid increase in the number of students who choose to pursue STEM degrees; by 2016, Brazil will have surpassed the United States in the number of engineering PhDs produced every year.  Furthermore, countries like Germany, with strong vocational education programs at the secondary level, are holding their own in terms of STEM degree production, with more than a quarter of students in higher education choosing a degree in these fields.

The benefits of producing a strong STEM workforce are myriad.  In another recent report, “The world at work: jobs, pay and skills for 3.5 billion people”, the McKinsey Global Institute found that in the United States, a STEM worker will earn, on average, $500,000 more over a lifetime than a non-STEM worker.  However, despite the benefits to both STEM workers and to national economies, the authors of this report also found that countries approach the issue of creating STEM workers very differently.  In the United States, there is a laissez-faire approach; students are free to choose their majors or specializations after being admitted into a university, and the vast majority of students do not choose STEM majors.  Many other countries, by contrast, require students to apply for places within a college or a university in a specific specialization in order to be admitted, thereby allowing the country to have a greater degree of control over degree production.  In Singapore, for example, the government estimates the fields in which workers will be needed and the number that will be needed in each field and then allocates the slots in its first year classes in its higher education institutions accordingly, in an effort to align supply and demand as closely as possible.  Individual students can still choose freely among careers for which they want to train, but the government controls the number of slots available in any given field.  This policy clearly has a bearing on the Singapore’s position on the league table above.  This capacity to align supply and demand this way is associated with countries that pay all or most of the cost of higher education—which happens in some countries but by no means all.  Several countries that have such policies, including Singapore, also have in place bonding schemes where the government pays for a student’s higher education in exchange for the student’s agreement to work in the country, sometimes in the public sector, for a certain number of years following graduation.

Source: McKinsey Global Institute. (2012). The world at work: Jobs, pay, and skills for 3.5 billion people.

The issue of a skills mismatch does not end with STEM degrees.  The McKinsey report estimates overall future job shortages and worker surpluses for the global workforce in 2030.  They suggest that there will be an overall shortage of nearly 40 million high-skill workers, or 13 percent of the global demand for people with higher education, as well as a shortage of 45 medium-skill workers (15 percent of the total demand) and a surplus of about 95 million low-skill workers, all of which means large number of people out of work and employers unable to fill positions unless more is done to raise the skills of low-skilled workers, entice more students to enter STEM and other high demand fields, and match employers with the workers they need.  The same countries that are producing high numbers of STEM workers, particularly China and India, are also adding the majority of new workers to the workforce.  China and India alone added enough new workers between 1990 and 2010 to represent 37 percent of the total workforce growth of 706 million; between 2010 and 2030, China’s workforce growth is expected to decline slightly to just 13 percent of all new workers, while India’s workforce growth is expected to grow to 28 percent of all new workers.  Young developing economies including Bangladesh, Pakistan and many African nations, along with young middle-income economies (such as Brazil, Mexico, Vietnam and Indonesia) added half of new workers between 1990 and 2010, while advanced economies (for example, the United States, Japan, Hong Kong and Australia) contributed just 11 percent (see figure 2).  The primacy of developing economies in workforce growth will continue through 2030; in this period, advanced economies are projected to add just 5 percent of new workers to the global workforce (see figure 3).

Source: McKinsey Global Institute. (2012). The world at work: Jobs, pay, and skills for 3.5 billion people.

Of course, not all degrees – STEM or otherwise – are created equal.  A separate 2005 McKinsey report, “The emerging global labor market: The supply of offshore talent in services – Part II” found that just 10 percent of Chinese engineers and 25 percent of Indian engineers are educated to a global standard – that is, suitable for hiring by a multinational corporation, whereas about 80 percent of engineers educated in the United States are considered globally suitable.  This finding is corroborated by the 2011 Aspiring Minds National Employability Report, which found that the majority of Indian engineering degrees are not awarded from the top 100 universities, which tend to be the main institutions that large, multinational corporations recruit from.  Other datasuggest that large portions of these degrees are what the world would consider “sub-baccalaureate.”  However, despite the concerns over the quality of some of the millions of STEM degrees being awarded in China and India, Accenture calculates that even if just 20 percent of Chinese STEM graduates are qualified to a world standard, this would represent more than 700,000 graduates by 2015, as compared to just 460,000 in the United States.  Additionally, while both McKinsey and Accenture recommend putting policies in place to facilitate the immigration of STEM workers to the countries with large STEM shortages, this strategy seems unlikely to address the skills mismatch in the long term.  Developing economies that want to progress by creating successful technology-driven companies within their own borders, must invest in raising the quality of their own education systems and do this while providing the vast majority of their populations with the opportunity to excel in high quality learning environments.  Countries with historically strong economies must work to produce STEM majors at a much higher rate by giving students the knowledge, skills and tools they will need to succeed in STEM courses in compulsory

Source: McKinsey Global Institute. (2012). The world at work: Jobs, pay, and skills for 3.5 billion people.

education.  However, as Marc Tucker has written in his Education Week blog, Top Performers, it is virtually impossible for a country to produce large numbers of high quality STEM graduates from mass education systems that were designed to produce mainly relatively low-skilled graduates overall.  It may be useful to think about the developed world as containing two categories of countries.  In one category there are nations with education systems that are still designed to produce large numbers of students with little more than a basic education and relatively small numbers of students who have what could be termed elite skills, the United States and the UK are in this category.  In the other category are countries that have redesigned their systems to educate all their students to the elite skills standard.  Countries like Finland, Japan, Korea and Singapore are in this category.  Countries in the first of these two categories will find it very difficult to greatly increase the proportion of high quality STEM graduates without redesigning their education systems using the strategies employed by the countries in the second category to provide elite skills to all their students.  This is a tall order for developing countries, and that is the reason that the highly industrialized countries, though small in population relative to the largest developing countries, are likely to have a disproportionate number of high-quality STEM graduates for a while.