NerdWallet's Smart Money Podcast - Mind the “Middle Skills” Gap: Aligning Education with Today’s Job Demands

Episode Date: July 10, 2024

Discover how to align education with job market demands, tackling underemployment and economic stagnation in “middle skills” jobs. What are “middle skills” and why are they in high demand? What are the economic implications of misalignment between middle skills credentials and job market demands? Hosts Sean Pyles and Anna Helhoski discuss the misalignment in the labor market concerning middle skills credentials and the impact of place-based policies on local economies to help you understand the complexities and challenges in securing middle skills jobs. They begin with a discussion of the misalignment between middle skills credentials and local job markets, with tips and tricks on recognizing high-demand fields, avoiding oversaturated programs, and the importance of aligning education with job market needs. Then, Anna speaks with Zach Mabel, one of the co-authors of “The Great Misalignment,” a new report from Georgetown University Center on Education and the Workforce. He discusses the challenges of place-based policies and their impact on middle skills training disparities. They discuss the racial and ethnic disparities in accessing middle skills programs, the funding challenges faced by public community colleges, and the importance of strategic alignment between educational programs and labor market demands to improve job placement and economic outcomes. Sean and Anna then break down the latest money headlines, including monthly job figures, a federal judge temporarily stopping the Federal Trade Commission’s ban on corporate non-compete agreements, and a new report from the Federal Trade Commission on pharmacy benefit managers. In their conversation, the Nerds discuss: future-proofing, middle skills jobs, job market demands, economic challenges, workforce insights, local economies, middle skills training, labor market alignment, education and job market, underemployment, economic stagnation, blue-collar jobs, business degrees, general studies degrees, place-based policies, racial disparities, ethnic disparities, community colleges, funding obstacles, job placement, economic outcomes, employment figures, corporate non-compete agreements, labor market, job credentials, associate degrees, trade schools, technical colleges, underproduction, credential overproduction, job openings, low-paying jobs, economic mobility, urban-rural divide, institutional employer partnerships, post-college movement patterns, free tuition programs, non-compete clauses, PBMs, the FTC, and middle skills providers. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhasky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about jobs of the future. Is this an episode about how robots will be taking over the labor market in the future, Sean? Actually, no, Anna. We're focusing on labor markets that consist of real, live people.

And according to a recent report from Georgetown University's Center on Education and the Workforce, half of them aren't on track to meet their own demands by 2031. Yeah, more people than ever are educated beyond high school. We're talking certificates, associate degrees, bachelor degrees, and higher. But certain in-demand credentials are missing. They're known as middle skills credentials. Those are the certificates and associate degrees that you might get at a trade school, technical college, or community college. The Georgetown report, titled The Great Misalignment, measured 565 local labor markets in the U.S.

and found that at least 50% of all types of middle skills credentials in local labor markets would need to change in order to meet future demands. For more insight, Ana spoke with one of the co-authors of the report. Zach Mabel is a research professor of education and economics at Georgetown. I started by asking him what happens when middle skills credentials and the local labor market don't align. We hear a lot that employers struggle to recruit skilled workers for the jobs that they need. On the individual side, graduates are at risk of being trained in fields that they actually can't find work in. And so they may find themselves underemployed or overemployed for the work that is available. And local economic growth is likely to be stymied as a result of

these inefficiencies. Not to mention the fact that while alignment by itself doesn't guarantee the expanding of economic opportunity, one thing we do know is that misalignment is contributing to the underproduction of many credentials that in fact are quite high paying and would allow people to experience significant upward economic mobility. As far as the credentials that are being met right now, were there any trends in the specific middle school jobs that are simply not being met across many communities? And on the flip side, are there certificates and degrees from middle skills jobs that are overly conferred?

That is absolutely the case. So we know, for example, that middle skills credentials that are aligned with blue-collar jobs tend to be underproduced. So nationally, we expect that about 23% of job openings available to middle skills workers over the next several years will be available in blue collar jobs. Middle skills providers collectively are producing 12% of their credentials in those fields. And we know that there are some dramatic shortages in many of the programs that are training people for these workers. On sort of the flip side, we see that many students are sort of drawn to enter business programs. That's even the case for folks who are in certificate and associate's degree programs. And we see that as a result,

nationally, middle sales providers, 13% of their credentials are being awarded in management and professional programs, or at least programs that are aligned with those fields, whereas less than 10% of the jobs available to middle-skills workers over the next several years are in those occupations. And so there's a sort of overall credential overproduction there as well. One of the major contributors that we see to the overall levels of misalignment is actually programs that are awarded in general studies programs. So liberal arts programs, humanities programs, these programs oftentimes are designed specifically

with the intention of helping students to transfer to bachelor's degree programs. One of the challenges with that is that because of long-standing and sort of well-known challenges with transferring from two-year to four-year institutions, it's the case that fewer than half of the students who graduate from those types of general studies programs, in fact, successfully transferred to bachelor's degree programs within six years. While those programs don't have a direct occupational match in the workforce, the reality is that many of the graduates coming out of those programs are, in fact, finding themselves looking for work in local economies with those credentials. And so that's a major driver of the overall misalignment that we see and a major challenge in many cases for the graduates with those credentials, because

oftentimes employers don't recognize those individuals as necessarily having the skills to be able to secure work that they're looking higher for. Right, because they were planning on transferring. We know that's, as you mentioned, actually pretty low in terms of percentages, lots of various reasons. What happens to those students? Do they end up just in kind of lower skills positions instead of middle skills positions because they don't actually have the training to meet those middle skills jobs? Every job employs a combination of individuals with different levels of education. In our work, we don't really say that a job is a middle skills

job. But we do know if you look at the earnings returns for workers with middle skills credentials with these general studies programs, we know that their earnings are quite low, especially early in their career. And so it certainly is the case that many of these individuals are working in relatively low paying jobs where not only are they losing out on some of the earnings potential that enrolling in a program with a stronger occupational alignment would probably provide them, but in fact, their earnings returns aren't necessarily that much higher than what they were experiencing even before they enrolled in those programs. And so there's real concerns about what the cost is for individuals who are investing in an education in these particular types of programs

if in fact they don't confer much labor market value if you're not successfully transferring to a bachelor's degree from them. So backing up a little bit in terms of locations, where does misalignment tend to proliferate? Can you explain how it presents in urban versus rural areas? The report had said that providers tend to be spread pretty unevenly across labor markets. We tend to see quite a lot of variation in alignment across labor markets. That's true even if we look at very large major metro areas. So for example, we know that Los Angeles exhibits about 70% more misalignment compared to Atlanta, even though both of those cities are very, very large and they have many, many providers serving them. We also see quite a bit of variation across predominantly rural labor markets. We do, however, tend to see that there is an urban-rural divide

where urban areas tend to exhibit stronger alignment than rural areas. And one of the major explanations for that is the fact that urban areas tend to have a lot more providers serving the area. And some providers intentionally design their programs by collaborating with local employers to determine what training needs to be done in order to meet the specific needs of the local labor market. Can you talk a little bit about that? That's sort of best practice, and we need to see a lot more of it. Right now, what we tend to see is that these institutional employer partnerships oftentimes are one-off, right? So there's a single institution that's partnering with a single employer and they're focused on providing externship opportunities for students in one particular program. Really, this is a question of scale and of being in coordination across multiple entities in a local area to sort of more fully address the needs of providers and to ensure that graduates coming out of those programs

both have the skills and competencies that local employers are asking for and that they also are able to build relationships with those local employers while they are being trained, there's a much more natural pipeline into those jobs coming out of those programs. And how common or I guess uncommon is it for students to stay within their local labor markets after they achieve that degree or certificate? It's certainly not always the case, but we know that nationally about 85% of middle skills graduates will be working within their state within the first year. We also know that many, many, many middle skills students are attending institutions within 10 miles of their home. And so we unfortunately need actually a lot better data when it comes to what the post-college movement patterns of graduates are. That's true across the board,

both for middle skills graduates as well as graduates from bachelor's degree programs. But we certainly know that middle skills institutions, one of their major missions is to be training workers for the local economy. And we know that middle skills institutions, one of their major missions is to be training workers for the local economy. And we know that middle skills graduates are much more likely to be working in their local economy than the graduates of many bachelor's degree programs. And there's a lot more uncertainty when it comes to where bachelor's degrees are headed after they earn their degree. We know that there's a lot more movement there. I know some states have free tuition programs specifically to fill areas of skills gaps. So

students are intensivized to get trained in a specific area, the state pays for it. And in exchange, the students are then required to work a certain amount of time in that state or in a local region. Is that something that there needs to be kind of more of at the state level down in order to fill some of these of at the state level down in order to fill some of these gaps and align a little bit better? I think it could be one of many strategies. And I think these sort of place-based policies, I think it's more straightforward win for the local economies and local employers and probably more uncertain for individuals themselves. And the reason I say that is because if you are a student who is incentivized by one of

these programs to enter a particular program, you graduate and now you have an obligation to stay locally. If staying in that local area, let's say it's a rural area, means that you're earning less and your purchasing power is lower than had you moved to a different labor market where your earnings are higher and your earnings relative to your cost of living is higher, then you may in fact not be better off. And so I think one of the challenges with these types of place-based policies is balancing what you're trying to incentivize. And on the one hand, we certainly want to ensure that our local economies have the sufficient

supply of workers to meet the employer's needs. On the other hand, we need to also keep in mind what is best for individuals and be developing policies to ensure that we're expanding their economic opportunity and their career advancement as much as possible. And so it's not always the case that those types of place-based policies are going to be able to accomplish both at the same time. I think sometimes they can, but oftentimes the devils are in the details. And so it's really about how is that policy crafted and what are the specific eligibility guidelines that people have to adhere to. I'm hoping you can head back and explain some of the racial and ethnic disparities in training and outcomes that the report explores. We know that opportunity is often so closely tied to

where you live, where you learn. We really talk about, you know, a geography of opportunity, we find that just having access to a middle skills provider in your local economy differs by race and ethnicity. And in particular, American Indian and Alaskan Native individuals are anywhere from three to 18 times more likely than individuals of other racial and ethnic groups to live in an area that's not served by a middle skills provider. Then if we look at among working adults who do have access to a local middle skills provider, we actually see that Latino and Hispanic adults are the least likely to live in labor markets that are relatively strongly aligned. So it really has to be this coordinated, collaborative, very intentional effort to meet those needs. What needs to happen next? You know, what does it actually look like? And what are some of the challenges that lay ahead?

Funding is a real challenge, right? Middle skills providers in general, public community colleges receive very little funding per student compared to four-year institutions, for example. Their missions are much more multifaceted and complicated than many other types of institutions. So I think we need to be sort of clear-eyed what, in fact, it will take in terms of providing these institutions with the resources for them to achieve outcomes that look different than they do today. And oftentimes, we sort of build accountability measures that are trying to incentivize institutions to do things differently, but we don't actually provide the resources that are necessary to enable them to do things differently. So my last question has to do about the limitations of achieving alignment in terms of the individual,

in terms of opportunity and financial security for workers. You know, I think the report mentions it's definitely not a cure-all, even if it is obviously important. Absolutely not. Alignment is in no way an assurance of security, economic mobility, high earnings, any of the sort of outcomes that we sort of would hope to be cultivating for individuals, alignment is really providing a snapshot of how well supply and demand are coming together. And in many cases, we see that middle skills providers are producing enough credentials in programs that are aligned with particularly low-paying occupations like in food and personal services. So where I think alignment can be particularly helpful is as a tool to understand where in fact is there an underproduction of

credentials in programs that are particularly valuable and have really strong pathways to high-paying occupations. And because that's really where there is sort of low-hanging fruit, untapped potential, economic opportunity is being lost. And if we can find a way to expand credential production in those programs and to help get more students into those programs, that provides the best chances that both employer needs are being met and where we can ensure that individuals are going to be coming out of those programs ahead of where they started. And we'll probably set them up for strong success over the course of their entire career in terms of experiencing wage growth for several years to come. Zach, thank you so much.

I really appreciate the opportunity to talk with you. Up next, a few money headlines in the last few days. So, Ana, the government released its latest employment figures on Friday, and it had its own post-July 4th fireworks. Yep, another solid rapport on the labor market. The economy added 206,000 jobs in June. That marks the 42nd straight month of growth for jobs in this country. Most of the gains came in government work, health care, social assistance, and construction. The unemployment rate, though, ticked up to 4.1% from 4% in May. A year ago, that rate stood at 3.6%. This is the first time unemployment has topped 4% since November of 2021.

Wages saw a bit of a bump, with average hourly earnings rising by $0.10 to $35. Over the last 12 months, that figure has jumped by almost 4%. All of this is more fodder for the Federal Reserve as it decides whether to start bringing down interest rates as the year goes on. Some listeners may remember an item we discussed a while ago when the Federal Trade Commission issued a rule banning corporate non-compete agreements. This is basically when you sign a contract with an employer that says you're banned from jumping to a competitor, at least for a certain amount of time. Well, a federal judge in Texas has temporarily blocked that rule, saying the FTC didn't have authority to issue it. The rule was supposed to take effect September 4th, but is now

on hold until the court issues a decision on a case that was brought by the U.S. Chamber of Commerce and a global tax consultancy headquartered in Texas. A ruling in the court case is expected by the end of August. And finally, Sean, I don't know about you, but whenever I go to pick up a prescription, I hold my breath before looking at the bill. Now, fortunately, we have insurance here at NerdWallet, but it still can be a crapshoot when it comes to what's covered and how much. Yeah, and that's something millions of Americans have to deal with every day. Prescription drug prices are a huge issue. There are a lot of reasons for that, but here's one folks might not know about. Something called pharmacy benefit managers, or PBMs. Yeah,

these are essentially middlemen between drug manufacturers and your insurance company, and you. You might have heard of some of them if they're part of your health insurance plan. CVS Caremark, Express Scripts, and OptumRx are the biggies. And they're responsible for everything from negotiating drug prices with pharmaceutical companies to deciding with your employer what you'll pay out of pocket for a given drug. They also determine what's going to be covered and not covered. The Federal Trade Commission issued a 71-page report this week skewering these pharmacy benefit managers. It accuses them of inflating drug costs and squeezing Main Street pharmacies. Yeah, that's even in the title of the report. FTC Chair Lina Khan said in a statement that these middlemen can hike the cost of drugs even for cancer patients. It says

the agency will continue to look at the role of PBMs, but stops short of saying it will take any enforcement action. That's it for this week's money news. We always welcome your money questions and comments. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. Today's episode was produced by Tess Vigeland and

edited by Rick Vanderkneife. Sarah Brink, Mixer Audio. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.