Youth Unemployment, Hult Labs

The Youth Unemployment Crisis—And What Businesses Can Do About It

Posted Dec 05, 2013 by Guy Larkin
There’s been a great deal of discussion lately about the global problem that is youth unemployment. Persistent youth unemployment causes a variety of problems for a country or society, not the least of which is “scarring”, the long-term effect on lifelong earnings of unemployment when there is a delay in entering the workforce. 

Business professors Terence Tse and Mark Esposito have published on this topic on the site neweurope.eu, and in The Guardian. They call for greater coordination between educational institutions, business employers, and in the case of the European Union, more flexible employment laws. They also cite statistics that indicate that the skills business leaders want the most from MBA students aren’t emphasized (or in some cases not even taught) in business schools.

While there’s no doubt that colleges and universities could be more innovative and responsive to the rapidly-evolving needs of the modern workforce, there’s an even greater disconnect inside businesses. According to a 2011 study by Accenture, an employee of an American company in 1979 typically received 2.5 weeks of training per year. In 2011, only 1 in 5 workers reported receiving any training in the previous five years.

At the same time that companies are investing less in their employees, real incomes have been stagnant (the lowest-earning 40% of the workforce has seen real income declines). Peter Capelli notes that the oft-cited “skills shortage” is actually an unwillingness to pay wages acceptable to workers with the requisite skills. All this at a time of record profits for American businesses.

Ok, so that’s a lot of information to process. Can we boil that down? Let’s see, we have:

  • Persistent unemployment levels (especially for young people) that are so high and long-lasting that policy makers are worried and are beginning to take action
  • Businesses are making record profits, while at the same time claiming that they can’t find workers with the skills to fill vacant positions
  • These same businesses are so worried about a “skills gap” that they are lobbying Congress to allow them to hire more foreign workers
  • These same companies are investing practically nothing in improving or maintaining the skills of their current workers, while—
  • Refusing to hire workers with the skills they need at acceptable wages
  • All of this is regularly blamed on a failure of educational institutions to respond to the needs of businesses

Now, why on earth would businesses stop investing in their employees?

Publicly-traded companies are under enormous pressure to meet quarterly targets. Moreover, the market holds these companies accountable (via selloffs) not only for the company’s own projections, but for “analyst estimates”. That is, equity analysts who follow the company predict how they think a company is going to perform, and if the company doesn’t meet their guess (there, I said it: anyone who has studied corporate finance can tell you that a prediction of this sort is a guess) of financial performance, then investors sell the company’s stock, decreasing market cap and their access to capital.

This happens quarterly—every three months. Many of these same companies have hiring processes for single positions that last longer than that. Anecdotally, it takes about four months from start to finish to get hired at Apple. If it takes that long to hire someone, how can any meaningful operational change happen in under three months? It can’t.

A former employer of mine took over two years to roll out a new sales and pricing structure. The development cycle for a new car is three years. Given the long lead times for the simplest of business activities, does it make any sense for companies to be held to account for quarterly results? No, it doesn’t.

But companies ARE held to that short-term thinking, which leads to short-term decisions. Like holding wages down, even if it means leaving needed positions unfilled. Like cutting internal training programs, even if in the long-term that leaves the company with critical skills gaps.

Seemingly obvious business decisions to reduce costs can have huge knock-on effects. And maybe that’s the real skills gap that we have: the inability to establish clear long-term business objectives and incentivize managers to achieve them, even if short-term results suffer.

But, didn’t we start off talking about youth unemployment? Let’s get back to that. Companies’ preoccupation with short-term focus could be leading to a real crisis in the not-too-distant future. Those unemployed young people, already accused of being unprepared for the work force, aren’t getting any more prepared sitting at home praying someone is going to read the resume they just sent out. A generation of future managers and executives is currently very busy NOT learning how to productively contribute to a company or society.

When the much-discussed demographic apocalypse of baby boomers retiring (or dying off) hits, who is waiting to take their place? A whole bunch of young people with “no skills” and no experience, because they can’t find work right now. If companies think there’s a skills gap now, just wait 10 years.

So, managers, CEOs, boards of directors, heed this call. If you want your company to survive long-term, make an investment in the future, and hire an unemployed young person. You’ll be saving us all a lot of grief.

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