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Skills Gap Remains Top Impediment to Middle Market Growth, Report

August 31, 2017, 07:13 AM
Filed Under: Economic Commentary

Nearly four out of 10 middle market executives say a lack of talent constrains their companies’ ability to grow, according to "Help Wanted," a report released by the National Center for the Middle Market (NCMM), in conjunction with the Brookings Institution’s Metropolitan Policy Program. Middle market firms (those with annual revenue between $10 million and $1 billion) are employment powerhouses, responsible for about one-third of U.S. private sector jobs and 60 percent of new hires—but they report difficulties with recruiting, hiring, developing, and retaining workers with the skills they need.

The chief reason cited by middle market executives for the lack of talent is a clear gap between supply and demand, with 44% saying a lack of candidates with the necessary skills makes it difficult to recruit. Other challenges include competition from other employers, a low number of applications and limited work experience among those who do apply, and qualified candidates who are outside of the company’s salary or wage range.

With high demand for skilled talent, middle market companies are especially affected by the apparent lack of supply of it. Indeed, talent management issues—including acquisition and recruitment, training, and retention—top mid market executives’ list of key challenges quarter after quarter, according the Center’s quarterly Middle Market Indicator.

What’s more, 37%, or nearly four out of ten middle market executives, say that their companies’ ability to grow is constrained by a lack of talent,  with higher shares in the services, construction, and healthcare industries. Middle market companies specifically have a hard time securing the managerial, technical, professional, and sales skills they need to grow. So-called soft skills—or skills that help workers effectively interact with others and succeed in the workplace, such as communication, conflict resolution, problem-solving and teamwork skills—are also an issue

Health care has been hit the hardest, with 49% of middle market health care companies responding that lack of talent has had negative effects; construction and service firms come in a close second with 46% feeling the impact.

“Middle market companies have added jobs at a 3.7% annual clip for the last five years, and the rate is accelerating,” said NCMM Executive Director Thomas A. Stewart. “In fact, the rate was 5.7% over the last year alone. That makes the talent shortage particularly painful and makes it difficult for these companies to reach their growth objectives.”

The report finds that middle market companies typically have lean human resources systems that are more operational than strategic. They frequently lack scale or capacity to carry out functions like skills mapping, succession planning, developing career ladders, and recruitment planning.  

On a related note, they do not always have the resources to build partnerships with educational, training, and job placement organizations, or to join forces with other firms or trade associations. In partnerships with other employers, firms can identify common needs, aggregate demand, and create economies of scale in shared workforce initiatives.

Moreover, the workforce and education system of public agencies, universities, two- and four-year colleges, high schools, and nonprofit organizations can be confusing and time-consuming for firms to navigate. Nor do these organizations have strong incentives to meet the workforce needs of middle market firms in particular.

“Middle market companies typically have more complex workforce needs than small companies, but lack the HR capacity of larger companies to recruit, assess, hire, and train the talent they need,” said Martha Ross, a fellow with the Brookings Metropolitan Policy Program. “Additionally, they don’t have the brand power or hiring volume of larger companies, and educational, training, and job placement programs are not always responsive.” 

Click here to read the report in its entirety

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