The Dynamic Economy and Labor Market What Does it Means for the Future of the Workforce System?

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1 WORKING DRAFT Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time The Dynamic Economy and Labor Market What Does it Means for the Future of the Workforce System? National Governors Association National Association of State Workforce Board Chairs September 18, 2013

2 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company 1 Contents Jobless recovery: The new normal? The skills mismatch The higher education challenge The solution space

3 The employment decline in this recession was twice as large as other post-war recessions and is still 1.9 million jobs lower than in January 2008 Jul 1974-Jan 1976 Jul 1981-Oct 1983 Decline from peak U.S. employment Percent change from peak month prior to recession Mar 1980-Nov 1980 Feb 2010 Jun 1990-Jan Feb 2001-Jan 2005 Jan 2008-Dec 2011 As of Sept 2013, there are still 1.9 million fewer jobs than before the recession began McKinsey & Company 2

4 The United States is in the third and likely longest jobless recovery of the last 20 years Gap between GDP returning to pre-recession peak and employment returning to pre-recession peak Months Jobless recoveries 39? more months to restore pre-recession peak (at the recent rate of job creation) Recession year McKinsey & Company 3

5 JOB CREATION Workers with the least skills have been hardest hit in the recession Change in number of jobs by education level, January 2008 to May 2013 Million 1 Unemployment rate, May 2013 Percent -1.4 High school dropouts -2.9 High school graduates -0.1 Some college/ Associates year graduates and higher 1 Based on BLS current population survey; data covers workers ages 25 and above. SOURCE: US Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company 4

6 The United States no longer leads the world in tertiary education attainment Share of population with tertiary degrees, older vs. younger cohort, 2009 % 55- to 64-year-olds 25- to 34-year-olds Israel 45 South Korea Russia 44 Canada United States 41 Japan Canada 41 Russia Australia 29 United Kingdom Finland 29 Australia United Kingdom 29 France Japan 27 Israel Sweden 27 Sweden Germany 25 United States 41 OECD average 22 OECD average 37 McKinsey & Company 5

7 The proportion of US degrees awarded in STEM is very low compared to other countries College graduates with STEM degrees % of 2008 graduating class of bachelor s degree holders US World The US produces STEM graduates at less than half the rate of China, Taiwan, and Korea Mexico Taiwan Korea China McKinsey & Company 6

8 In primary and secondary school, US student achievement in international tests falls below the OECD average PISA 2009 math Mean score 1 Shanghai 2 Singapore 3 Hong Kong 4 South Korea 6 Finland 8 Switzerland 9 Japan 10 Canada 11 Netherlands 15 Australia 16 Germany 19 Denmark OECD average United States 487 McKinsey & Company 7

9 Some US states have demonstrated that significant achievement gains are possible within a decade Mean math PISA equivalent scores, 13-year-olds, 2003 vs Mean score Germany 513 (2009) Massachusetts New Jersey Texas Maryland United States Rhode Island Arkansas Nevada Hawaii New Mexico District of Columbia McKinsey & Company 8

10 Improving K 12 student achievement and post-secondary workforce development can add $165 billion to $265 billion to annual GDP by 2020 Impact of worker skill development levers on annual US GDP by 2020 $ billion 2030 GDP impact $ billion 7 15 Industryready short-term training 30 Higher-skilled immigrants Improved outcomes for 2- and 4-year graduates 25 More STEM graduates K 12 achievement gains High estimate Low estimate Total GDP gain ,300 1,700 McKinsey & Company 9

11 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company 10 Contents Jobless recovery: The new normal? The skills mismatch The higher education challenge The solution space

12 McKinsey conducted a global survey across 9 countries and launched an extensive investigation of over 100 case studies ~4,500 youth ~3,000 employers ~1,000 post-secondary education providers These countries account for ~40% of global GDP and ~30% of the population 100 case studies covering 25 countries McKinsey & Company 11

13 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time Preparation of new graduates for the workforce Employers 42% Providers Youth 45% % who agree youth are adequately prepared 72% McKinsey & Company 12

14 A third of providers are unable to estimate job placement rates; those who do are too optimistic Education provider perspective on job placement rates Ability to assess graduates job placement rate, percent of providers No estimate Able to estimate Percent of graduates who find under 3 months, estimate 74 Provider estimate Youth response 54 McKinsey & Company 13

15 Youth are not well informed when making educational choices Youth knowledge when choosing what to study Percent of respondents agreeing that they knew about the following areas when choosing what to study Percent of respondents, overall average of four areas Saudi Arabia Brazil Mexico India Turkey Germany United States Morocco Family Opinion Job openings Wages Graduation placement United Kingdom 30 rates Ø 45 McKinsey & Company 14

16 One third of employers never communicate with education providers Employer interaction with providers Frequency of interaction, Percent of employers Never At least sometimes Once or twice per year Several times per year Monthly or more frequently McKinsey & Company 15

17 39% of employers say skills shortages are a leading driver of entry-level vacancies Lack of skills as common reason for entry-level vacancies Percent of employers respondents Turkey India Brazil United States Mexico Saudi Arabia Germany United Kingdom Morocco % of employers also reported a lack of skills caused significant problems in terms of cost, quality, and time or worse Average: 39% McKinsey & Company 16

18 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company 17 Contents Jobless recovery: The new normal? The skills mismatch The higher education challenge The solution space

19 Students are increasingly dissatisfied with their higher education experience Our recent survey of 4,900 recent graduates in the U.S. shows the concerns of graduates Over-qualification 4 % 2 1/3 Proportion of graduates from four-year colleges who say they are in jobs that don t require a fouryear degree Regrets 5 % Share of all graduates who would choose a different major or a different school Under-preparedness Proportion of graduates who do not feel college prepared them well for the world of work Disappointment 3 41 % Four in ten graduates of top-100 colleges in the U.S. couldn t get jobs in their chosen field SOURCE: McKinsey Voice of the Graduate survey, May 2013 McKinsey & Company 18

20 Overqualified Nearly half of graduates from four-year colleges are in jobs that don t require a four-year degree Which best describes educational requirements for your current job? 1 Percent Does not require a 4-year degree Requires a 4-year degree year public college year private college Overall 1 Does not require a 4-year degree is the sum of respondents who answered My job does not require any particular amount of education, My job requires a high-school education, My job requires some college education, and My job requires a 2-year degree. Requires a 4-year degree is the sum of respondents who answered My job requires a bachelor s degree and My job requires an advanced degree. McKinsey & Company 19

21 Underprepared A third of graduates of four-year colleges did not feel college prepared them well for employment it s worse when you look at two-year colleges Respondents who did not agree or were neutral to the following statement: College prepared me well for employment Percent Graduates of 2-year colleges Graduates of 4-year colleges McKinsey & Company 20

22 Underprepared Graduates report feeling underprepared in a number of areas Respondents who felt underprepared 1 Percent Technical skills Quantitative reasoning Project management Leadership Oral communication Written communication 4-year colleges year colleges 17 Areas in which graduates feel least prepared Teamwork Percent who responded strongly disagree, disagree, or neutral to the following statement: "College prepared me well for employment." McKinsey & Company 21

23 Regrets More than half of all graduates would do something different If you had it to do over again, would you pick a different major or school? Percent Choose different school Total students who would do something differently Choose different major McKinsey & Company 22

24 Regrets Some students would choose a different school or major If you had it to do over again, would you pick a different major or school? Percent Graduates of 2-year institutions most likely to choose different school 38 2-year institutions Non-top-100, 4-year institutions Top-100, 4-year institutions Almost 40% of students of 4-year institutions would likely choose a different major 38 2-year institutions Non-top-100, 4-year institutions Top-100, 4-year institutions McKinsey & Company 23

25 Haven t done the homework Half of graduates didn t look at graduation rates when picking a college and four in ten didn t look at job-placement or salary records Did you consider any of the following before you chose your school? Percent Not at all Somewhat Definitely Graduation rates Employment rates Starting salaries of graduates Courses offered McKinsey & Company 24

26 Disappointed Almost half of all graduates could not get a job in their desired field Graduates who are not employed in the same field they desired before graduation Percent Non-top-100, 4-year colleges Top-100, 4-year colleges McKinsey & Company 25

27 Disappointed Some graduates were likelier to find work in their desired field Graduates who are employed in the same field they desired Percent Health Education Accounting, economics, and finance Business management Biological and environmental science Math, physics, engineering, and computer science Other Visual and performing arts Marketing and advertising Language, literature, and social science 36 Ø 51 McKinsey & Company 26

28 Can I help you? Significantly more graduates work in retail or hospitality than originally planned to Desired and actual job industry, retail and restaurants Percent All institutions 4-year institutions 2-year institutions Desired industry prior to graduation Retail 0.9 Restaurants 1.6 Retail 1.5 Restaurants 0.6 Retail Industries in which graduates were employed 1.9 Restaurants Difference between desired and actual Excludes respondents who did not graduate or who are currently in grad school McKinsey & Company 27

29 Can I help you? Health and business services have the biggest gap between desired and actual employment Desired and actual job industry 1 Percent 2 Desired industry prior to graduation Industries in which graduates were employed Health Business services Education Government Financial services Technology Entertainment Legal services Publishing, printing, media Advertising Retail Restaurants Aerospace and defense Chemicals, petroleum, petrochemicals Construction/contracting Telecommunications Real estate Consumer goods Difference between desired and actual Biggest losses Biggest gains in actual vs. desired 1 Excludes respondents who did not graduate and who are currently in graduate school; includes vocational and for-profit schools 2 Figures may not sum, because of rounding McKinsey & Company 28

30 Liberal Arts Liberal-arts majors fared worse than average in all measures Average graduates vs. liberal-arts graduates 1 Percent My college experience prepared me well for employment 2 Average 70 Language, literature, and social sciences Visual and performing arts Currently employed full time In a job that requires a 4- year degree or more If doing it over, I would attend same school choose same major Average income $ Thousands % % 1 Includes only 4-year private- and public-school respondents; sample size varies depending on category of question 2 Percent who strongly agreed or agreed McKinsey & Company 29

31 Do it yourself Most graduates relied on personal networks, not institutional mechanisms, to find jobs Other institutions Top-100, 4-year institutions 4-year colleges only; respondents who agree or strongly agree with the following statements 1 Percent My college s careerservices offices helped me find a job 27 48% 50% 18 I used my college s alumni network to help me find a job I used my personal network (e.g., family, friends) to help 1 Chart reflects the sum of respondents who agree and strongly agree with the statements; other choices were neutral, disagree, and strongly disagree 2 Excludes those who did not graduate; includes about 2,300 respondents across path to job questions McKinsey & Company 30

32 Do it yourself Graduates wish for better or more job-placement assistance, experience and practical skills 23% 18% 13% of students across all institution types stated their college could have better prepared them for employment with better job placement and career services sought real experience asked for more practical skills development in class McKinsey & Company 31

33 The opportunity agenda Better link campus life to the world of work (experiential learning, workplace skills) Launch an informational agenda so students are better informed about employment and income trends, graduation rates, job placement, and salaries Alternative pathways for students who might not fully benefit from four-year degrees Separately, tackle the issues of cost and access what role for digital education? McKinsey & Company 32

34 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company 33 Contents Jobless recovery: The new normal? The skills mismatch The higher education challenge The solution space

35 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company Innovative and effective programs around the world have important elements in common

36 Successful programs are all defined by education providers and employers actively stepping into one another s worlds Employers pre-hiring before enrollment or providers with off-take agreements Co-developing curricula to ensure industry relevance Providers bring the workplace to the classroom through apprenticeships and simulations Regular feedback from industry on graduates McKinsey & Company 35

37 There are three primary barriers to scale Barriers Constraints on provider resources (e.g., cost, faculty) Difficulty in providing sufficient hands-onlearning opportunities Employers hesitant to invest in training except for specialized skills training Solutions Highly standardized curriculum disseminated using non-traditional channels Serious games as 21 st century apprenticeship model Standardized core curriculum and tailored electives McKinsey & Company 36

38 Last Modified 9/17/2013 9:47 PM Pacific Standard Time Printed 9/23/2013 3:07 PM Pacific Standard Time McKinsey & Company 37 Further reading: Contact