Peter Cappelli of the Wharton School at the University of Pennsylvania
No labor shortage now for U.S. or Minnesota;
the real problem is not enough jobs
A Civic Caucus
Focus on Human Capital
Interview July 10, 2015
Steve Anderson, Paul
Gilje (executive director), Sallie Kemper (associate director), Dan
Loritz (chair), Paul Ostrow, Dana Schroeder (associate director). By
phone: Dave Broden (vice chair), Peter Cappelli, Janis Clay, Randy
It's completely false
that there's a labor shortage facing the U.S. or Minnesota, says
Peter Cappelli, professor of management at the Wharton School at the
University of Pennsylvania. The U.S. population and the labor force
are not shrinking, but continuing to grow. In fact, he says, the
U.S. has never faced a worker shortage, except during WWII. And
people are living longer and healthier and most people facing
retirement would like to keep working in some way, he points out.
The real problem, Cappelli believes, is
that there simply are not enough jobs to go around. And he says
public policy or workforce planning, which is nearly impossible to
do even five or 10 years into the future, will not solve the
problem. He notes that the U.S. is not willing to do things other
countries have done to attack the problem, such as subsidizing
A barricade for many job seekers, he says,
is that employers are increasingly demanding previous job experience
before they will hire people. They no longer are willing to hire
people with potential and train them on the job, as employers often
did in the past. But Cappelli notes that coops and apprenticeships
are in steep decline. And unpaid internships for college students
are an expensive way to get job experience, since colleges charge
tuition for the credits students are earning while working for free.
Where jobs are going unfilled, he asserts,
it's often because employers aren't willing to pay enough to get the
people they want. They want people who meet their increasingly
difficult and specific requirements for the jobs they're trying to
He believes we must get employers and
schools closer together on the local level, so teachers can talk to
work supervisors. What's actually taught in the classes and what's
actually used on the job are what count, Cappelli says. He suggests
that perhaps there could be public financial support for work-based
learning programs at the local level.
Peter Cappelli is the George
W. Taylor Professor of Management at the Wharton School, University
of Pennsylvania, and director of Wharton's Center for Human
Resources. He is also a research associate at the National Bureau of
Economic Research in Cambridge, Mass., and, since 2007, has served
as a distinguished scholar of the Ministry of Manpower for
Singapore. From 2003 to 2005, he served as senior advisor to the
Kingdom of Bahrain for Employment Policy.
He has degrees in industrial relations
from Cornell University and in labor economics from Oxford, where he
was a Fulbright Scholar. He has been a guest scholar at the
Brookings Institution, a German Marshall Fund Fellow, and a faculty
member at MIT, the University of Illinois and the University of
Cappelli was recently named by HR
Magazine as one of the top five most influential thinkers in
management and was elected a fellow of the National Academy of Human
His recent research examines changes in
employment relations in the U.S. and their implications. He has
written a number of publications and books. His 2010 book
Managing the Older Worker (with Bill Novelli) dispels myths
about older workers and describes how employers can best engage
them. Why Good People Can't Get Jobs (2012) identifies
shortfalls with current hiring and training practices and has been
excerpted in TimeMagazine (online) and reviewed in
the Wall Street Journal, The New Yorker, and most major
business publications. Related work on managing retention,
electronic recruiting and changing career paths appears in the
Harvard Business Review. His most recent book is Will College
Pay Off? A Guide to the Most Important Financial Decision You'll
Ever Make (2015).
The Civic Caucus has released
two recent statements on human capital: one
in September 2014 laying
out the human-capital challenges facing the state today and in
coming years and a
follow-up paper in January
offering recommendations for maintaining
a high-quality workforce in Minnesota. The Civic Caucus interviewed
Peter Cappelli to learn more about problems in matching employers'
workforce needs with job seekers.
Matching employers to job seekers is a supply-chain
problem. According to the Wharton School's Peter Cappelli, there
are three major players in the supply chain:
1. Employers, whose demands are job
requirements that change quite frequently;
2. People looking for jobs; and
3. Schools that are training or educating people, generally or
specifically, for jobs that might come down the pike.
In the old days, employers used to train
people themselves, managed all their human capital internally and
managed the supply chain themselves, because they were the source of
supply. That even included education, Cappelli said. He noted that
in the 1980s, every single executive at U.S. Steel had been hired
without a college degree and sent to college by the company.
A number of things have changed, causing new
1. Businesses now change their job
requirements more than in the past. The complicating factor is
that for the most part, employers are not really interested in hiring
people right out of college, Cappelli said. They'd much prefer to hire
people who've already worked for someone else.
If you go to an online job site like
Monster, pick a job, such as a machinist, and look at the
requirements, nobody is looking to train someone, he said. The job
requirements are very specialized. Businesses want a machinist who
can operate a certain brand of machine tools. "Is it possible for
this to work?" he asked. "Employers want to hire people who already
know what they're doing. Everybody wants someone with five years of
experience. If no one is willing to give people the opportunity to
get that experience, how is this going to work?"
"I think the demands of employers are
unrealistic," Cappelli continued. "How much can we actually do to
meet those demands?"
2. Businesses are changing their
management practices. There are a lot more mergers, acquisitions
and changes in strategy that disrupt companies, Cappelli pointed
out. The big change appears to be a substantial decline in the
extent to which employers are training their own people. "Training
people for a lifetime at a company is over," he said. "Employers
think they can't train people because they'll just lose them to
Employers are filling their jobs much more
from the outside than before, he said. Before 1981, the big
corporations filled 10 percent of their vacancies from outside and
90 percent from within. They promoted people and they moved them
around. Any hiring they did was almost all at the college or high
school graduate level. The figure now is 65 percent outside hires.
"That's a stunning change," he said.
Now employers have a different demand,
Cappelli asserted. They want to hire people who will be able to
contribute today, rather than hire people they can develop into
employees who will eventually contribute. They have dramatically
shortened the kind of supply chain they're operating. Rather than
hire people in with the kind of basic abilities that could be turned
into skills useful on the job, they want to hire people who already
have those skills.
This creates a dilemma for public policy.
In terms of workforce planning, Cappelli asked, what do we do for
kids who are going to leave college or high school? "Employers and
schools need to get closer together," he said. "We must find ways for
employers to provide students with experience." But coops and
apprenticeships are in steep decline. Apprenticeships fell by half in
the 2000s. "That's an astonishing decline in a period that was all
before the Great Recession," he said. He pointed out that many
employers won't take kids for unpaid internships unless they've
already done one for someone else. "They do this because they can," he
said. "They have a huge queue of people trying to get jobs."
Cappelli said this is a big concern facing
public policy. "Unfortunately, the problem is that people believe
public policy can address the problem of there simply not being enough
jobs," he said. "We can't. There are not enough jobs to go around.
Public policy or workforce planning is not going to solve the
There are things other countries have done
that the U.S. is not willing to do to address the problem, such as
We're not good at forecasting where the jobs
are going to be. For example, Cappelli said, the nursing shortage
we hear so much about has been over for a while. The nursing schools
in the Philadelphia area are only placing half their graduates in
jobs. Hospital Corporation of America, the biggest hospital group in
the U.S., is no longer hiring nurses out of college, he said. They
must have experience already.
The problem for a lot of these kids, he
said, is that they were told there is a lot of demand in health care.
Then everybody goes into those fields, oversupplying the market, and
pretty soon there are no jobs left.
"That's one of the problems for public
policy," he said. "We can't solve everything and in some cases, we
might even make things worse."
The shift in business practices has made it
harder to climb job ladders and to learn new jobs by doing them.
"For the most part that's gone," Cappelli said. "We've moved toward
arrangements that are more productive once they get going. People are
all doing similar, relatively high-skilled types of things. We've
combined a lot of simple jobs."
He gave the example that there are no longer
jobs as typists, because people do the typing themselves in their
jobs. That makes it hard for people to enter clerical jobs and learn
on the job.
Schools have responded by having students
work in teams. People learn a lot by working in teams, Cappelli
said. Elementary schools started doing that and are way ahead of high
schools and colleges in terms of getting people into teams, he
asserted. It is, now, growing in both colleges and high schools.
Colleges are twisting themselves into knots
trying to meet the demands of employers and it's not clear it's a good
idea. Cappelli said his new book, Will College Pay Off? A Guide
to the Most Important Financial Decision You'll Ever Make, asks
whether college is the best place to teach job skills.
"It's hard to argue that it is," he said.
"For parents, an unpaid internship in college is a very expensive way
for their students to get work experience. You're paying for college
credit for the privilege of working someplace else for nothing. If you
do one internship a year, one-quarter of your credits are basically
unpaid work somewhere." He said employers don't have to pay for the
internships if students are getting college credit for the experience.
"For employers, it makes perfect sense to
get someone to work for free," he said. "But is it good public policy?
There are real limits as to what students should expect from
internships." He said students looking at colleges have no way of
knowing whether graduates of those colleges are getting jobs, because
colleges aren't required to report that information.
Harvard Business School used to teach a
stakeholder model in its corporate governance course, but it dropped
that course around 1985.
Cappelli said the corporate governance course taught that
corporations had to balance their responsibilities to shareholders,
customers, employees and the community. After Harvard dropped that
course, the school instead created a course in finance that held the
only responsibility companies have is to shareholder value. And, he
said, no other required course said otherwise.
This is a real problem for a public that
doesn't necessarily agree with the shareholder-only view. "If
you get outside the U.S., I don't think there's any country where
people believe that model," Cappelli said. "The employers and the
business community in the U.S. are disingenuous about this. They
say, 'We only have a responsibility to our shareholders. If you
don't want us to do bad things otherwise, you better regulate us.'
That might be a perfectly reasonable approach: to assume companies
are only going to act in their financial self-interest and that they
have to be regulated to do things in the public interest."
Cappelli said the business community says
different things to different groups. To the investors, they say
it's all about the shareholders. To the community, they talk about
their good works, corporate responsibility and social
responsibility. "Understandably, they're trying to have it both
ways," he said.
Northeastern University in Boston and
Drexel University in Philadelphia are still the only colleges
running coop programs where students get paid work experience
without paying for college credit. Responding to an
interviewer's comments about Northeastern's coop program, Cappelli
said, "Everybody says it's a great model. But why will no one else
These schools are integrating the
students' work experiences with their classroom experiences, he
said. They're teaching students things they can use on the job and
giving them work experience. To do this well it takes a fair amount
of effort from the schools and the employers.
"The programs at Drexel and Northeastern
are terrific, but it's hard to bring them to scale," he said. "How
much of that is a lack of interest on the part of the colleges? We
don't know. But we do know it's hard to get employers engaged and
keep them engaged."
It would be ideal if we could get
employers and schools closer together and could get work experience
for people. According to Cappelli, employers say they want
people coming out of college and out of high school who can
communicate, get along with others, plan and make decisions. The
problem is the employers also want work experience.
The answer, he said, is for employers and
schools to get closer together, but not at the level of national
associations. "The only thing that seems to work," he said, "is when
local employers get together with local schools and teachers talk to
supervisors. It's what's actually taught in the classes and what's
actually used on the job that count. When you get those folks closer
together, you can really make progress. And the evidence is kids
learn academic material better when they see how it relates to real
Philadelphia started a model for
businesses and educational institutions working together started
during the 1960s. Cappelli said during the 1960s riots,
Philadelphia civic leaders told the business community that they had
to help young black men in particular, and young people in general,
get jobs or the city would "blow up."
The community created a series of high
schools targeted toward particular industries, he said. There is a
health care high school, for example, where kids learn the same
content as in other schools, but in the context of health-care
problems. Employers provide some coop experiences or other
work-based opportunities for students by the time they are seniors.
Cappelli said this became a model for the rest of the country.
The dual role human resources (HR)
departments used to play in representing both management and
employees is completely gone. "That's history," Cappelli said.
"There's no place where you could get an HR person to say part of
their role is advocating for employees."
K-12 education in the U.S. is not doing
nearly as badly as most people think. The evidence is that the
K-12 system is doing slightly better these days, Cappelli said. The
system hit bottom during the 1970s. "The system has been doing more
or less better, maybe not well enough, on objective measures of
performance since then," he said. "We're in the middle of the pack
internationally, where we've been for some time. Whether that's good
enough is a little bit hard to say. But we're not falling relative
to our competitors."
People around the world want to attend
higher education in the U.S., whether that makes sense or not.
Cappelli said it would be helpful to have information on how
colleges are doing, what college students are learning, and, in
particular, whether people are getting jobs and where those jobs
Singapore is doing well in terms of public
policy and workforce issues. Cappelli said Singapore just
released a model to encourage people to get skills in lots of ways
other than going to college. The country is putting in more
apprenticeship programs, more polytechnic programs in colleges, and
more ways to get people retraining. "I'd say they're doing the
best," he said.
It's completely false that there's a labor
shortage coming in the U.S. "It's just ridiculous," Cappelli
responded when an interviewer asked about the issue. He said the
U.S. population is not shrinking, but is continuing to grow. He
noted that the largest high school class ever was graduated five
years ago. "The echo of the baby boom is as big as the baby boom,"
he said. "It's simply not true that the population and the labor
force are shrinking." He asserted that Minnesota is not facing a
skilled worker shortage, either.
The U.S. has never faced a worker
shortage, except during WWII. Productivity growth means doing
more with less, Cappelli said. Today's U.S. workforce, he noted, is
only twice as big as during WWII, even though the economy is four
times larger. "It's absolutely not true that Minnesota or anybody
else is running out of workers," he reiterated. "I would not listen
to the pundits and the associations on this."
Also, people are living longer and
healthier and they want to keep working. Cappelli pointed out
that the average American now is living seven years longer than our
parents did. Older workers, he said, have systematically wanted to
keep working. About 77 percent of those approaching retirement say
they want to keep working in some way. But, he said, only about a
quarter of those are actually able to do it, because of
discrimination against older workers.
In fact, he said, the evidence is uniform
that older workers are better than their younger colleagues on every
single dimension of job performance, except doing things like taking
IQ and SAT tests. "The discrimination against older workers is
simply unbelievable," he said. "It's bad for the economy, it's bad
for older workers. It's about people thinking older workers can't do
this or can't do that, without ever looking at the data."
It doesn't work for government to do
traditional workforce planning. Cappelli explained that
workforce planning means trying to see what jobs will need to be
filled in five years and then trying to create the workers to fill
those jobs. The reason it doesn't work, he said, is that employers
have no idea what they'll be doing in five years. "Most corporations
have business plans that go out only a year or two and they update
those plans every quarter," he said. "That means their actual plans
are only three months out."
"From there, we're going to do workforce
plans five years out?" he asked. "We're kidding ourselves. You just
can't do it. It would be a terrible mistake for public policy to
spend a lot of time and money trying to direct people into fields,
based on a guess of workforce needs five years or 10 years out. It's
just a waste of time."
What public policy can do is try to bring
employers and schools closer together. In addition, Cappelli
said, perhaps there could be public support for work-based learning
programs at the local level.
A large proportion of jobs that employers
say they can't fill are vacant because they're not paying enough to
get the people they want. Another reason is that employers don't
want to train people, Cappelli asserted. "It may be a problem, but
it's not a public-policy problem," he said.
He noted that the wages companies are
paying machinists have dropped by 40 percent in real terms over the
last generation or so. "Maybe the reason people aren't applying for
machinist jobs is because the pay has dropped, while companies are
now requiring both machinist skills and computer skills," he said.
The Civic Caucus
is a non-partisan,
tax-exempt educational organization. The Interview Group
includes persons of varying political persuasions,
reflecting years of leadership in politics and
business. Click here
to see a short personal background of each.
S. Adams, David Broden, Audrey Clay, Janis Clay, Pat Davies, Bill
Frenzel, Paul Gilje (executive director), Dwight Johnson, Randy Johnson, Sallie
Kemper, Ted Kolderie,
Dan Loritz (chair), Tim McDonald, Bruce Mooty, Jim Olson, Paul Ostrow, Wayne
Popham, Dana Schroeder, Clarence Shallbetter, and Fred Zimmermany,