The Kenan Institute’s annual Grand Challenge is a concerted yearlong initiative that tackles a vital, pressing issue confronting business and society. We are dedicating the year’s effort to examining the skills gap in the US economy, the difference between the skills that employers demand from their workforce and the skills that employees possess.
The 2025 Grand Challenge will task experts, practitioners and thought leaders from academia, business, government and civic society with publishing, presenting and discussing applied research and lessons learned on the skills gap, its sources and solutions. These experts will share knowledge through written Insights, roundtable symposiums and public lectures, culminating in our annual Frontiers of Business Conference on October 9.
Skill measurement is sometimes a contentious exercise, yet corporate America is clearly telling us that the skills gap is widening: More and more firms report a disparity between the skills their firm needs and the skills their employees have. In Wiley’s 2023 survey of 600 human resources professionals, nearly 70% found a skills gap in their organization, up sharply from 55% reported in a 2021 survey.1 Across industries, the skills gap is spreading, and the array of skills for which shortfalls persist is growing, according to executives and hiring professionals.2
This mounting challenge has far-reaching consequences. As institute Chief Economist Gerald Cohen described in a May 2023 Insight on “Skills in the Workforce,” “[Skill level] is directly linked to economic productivity; not only do you need skills to foster innovation, but the impact of any innovation or technological progress will be severely limited if the workforce lacks the skills to properly use them.” Cohen’s observation underscores that the skills gap is more than a human resources problem – it is a critical economic issue that affects competitiveness, growth and innovation at every level.
Workforce shifts in recent years have compounded skills gap problems. The “great resignation,” marked by extraordinary levels of job switching in the years after the COVID-19 pandemic’s onset, certainly contributed to the gap’s increased prevalence, as surveyed firms confirm that hiring and retaining talent are their most pressing challenges. Beyond the reshuffling, structural changes in the economy and advances in technology have exacerbated skill mismatches, deepening the gap within and across organizations and industries. In the past half-century, computers and digital connectivity grew from technological nascency to permeate every industry, and American work shifted dramatically away from goods production and toward service sectors – with an accompanying tectonic shift in the skills that were in demand.
First, technological innovation and automation are transforming industries. The World Economic Forum predicts that nearly a quarter of all jobs globally will change in the next five years solely because of artificial intelligence and other language, voice and image processing advancements.3 Economists agree that technology-induced disruption generally creates jobs on net, yet these large-scale changes generate new jobs that demand new skills while making some existing skills obsolete. WEF, therefore, is calling for a “reskilling revolution” to address the widening skills gap caused by new and newly applied technologies.4
Second, demographics is a decisive dynamic influencing the country’s labor pool and its inherent skills. The “silver tsunami” is upon us, and as the baby boomer generation has entered retirement, the nation’s labor force participation rate has dropped from a high of 67% in 2000 to less than 63% in 2024.5 As more Americans live longer and retire, the portion of the “working age” population – between the ages of 15 and 64 – is expected to dip below 62% by 2033.6 This demographic trend, found in many developed countries throughout the world, is expected to exacerbate labor shortages and challenge efforts to address skills gaps, as firms draw from a fixed or shrinking pool of young workers to obtain the new skills they need.
Third, cultural shifts in the American workplace translate to changes in the skills that employers demand. These shifts may be more difficult to measure than, say, technological innovation, yet cultural swings reflect structural changes that directly influence the skills that firms seek in their employees. For instance, as the US transitioned from a predominantly manufacturing economy to a service-based economy in the 20th century, “soft skills” became increasingly important. More than communication abilities, soft skills include critical thinking, problem solving, analytical reasoning and time management. Soft skills’ importance is only growing in many industries, as innovations in computing and other technologies makes some hard skills, like programming, accessible to more people.7 As the value of some skills grows and others diminishes in line with cultural shifts, some skills gaps open and others widen, and workers and firms must catch up to a shifting zeitgeist.
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Our 2025 Grand Challenge will examine these and other underlying factors, leveraging cutting-edge research and experience-based expertise to develop strategies for addressing the skills gap now and in the near and medium term. In this process we will analyze and critically discuss known approaches, including skills-based training through earn-and-learn programs and nondegree accreditation as well as on-the-job training offered by employers. We will also assess ways to get more people into the workforce, including adjustments to existing systems and policies and outside-the-box thinking to lower the barrier of entry for potential workers.
A pervasive and urgent issue, the skills gap demands multidisciplinary and innovative methods of problem solving. Meeting this challenge, we call on experts from many different domains and levels of authority to share knowledge and propose solutions designed to help Americans gain the skills demanded by today’s economy.
One key to closing the skills gap in such a dynamic environment is to create solutions that build in flexibility and structural strengths, with policies that promote and incentivize skill acquisition, broad-based education and labor force participation. Economic growth that raises standards of living is a product of people, their work and the skills they possess. To align labor force skills with contemporary demands will require evidence-based planning and a keen intent, qualities that our Grand Challenge will prominently feature.
1 Capranos, D., Magda, A. J. (2023). Closing the skills gap 2023: Employer perspectives on educating the postpandemic workforce. Maitland, FL: Wiley Inc.
2 https://www.adecco.com/en-us/employers/resources/article/skills-gap-in-the-american-workforce
3 https://www.weforum.org/impact/reskilling-revolution-reaching-600-million-people-by-2030/#:~:text=The%20OECD%20estimates%20that%201.1,skills%20mismatch%20in%20the%20future
4 https://www.weforum.org/stories/2020/01/reskilling-revolution-jobs-future-skills/
5 https://fred.stlouisfed.org/series/CIVPART
6 https://www.axios.com/2023/05/08/us-labor-shortage-older-workers?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202023-05-09%20HR%20Dive%20%5Bissue:50312%5D&utm_term=HR%20Dive
7 https://beyond.wiley.com/hubfs/Closing%20the%20Skills%20Gap%202023-Digital-January%202023.pdf