What is the Skills Gap?

Businesses need a workforce with the exact skills needed to succeed in their roles and help the company bring in profits. But in today's frenzied talent scenario, this desired outcome is often thrown off balance by a growing phenomenon called the skills gap.

A staggering 69% of HR leaders reported a skills gap in their organizations in 2022, which highlights the magnitude of the problem. This trend is expected to continue as the demand for new skill sets—especially since new AI tech is expected to play a role in how we work—expands.

In this guide, you’ll find all you need to know about the skills gap—what is a skills gap, what behind skill gaps, its impact, how to conduct a skill gap analysis, and how to close skills gaps.

What Exactly Is the Skills Gap?

The skills gap refers to the disparity between the skills employers require for their workforce and the skills employees actually possess. When there's a skill gap, the employer's desired skill levels are below what the workforce is currently offering.

This mismatch can create significant challenges for businesses, since it makes it difficult to fill open positions. It also hinders project success, blocks business objectives, and, ultimately, impacts overall performance. We’ll go deeper into these implications in the following sections.

Is the Skills Gap the Same As the Skills Shortage?

No, the skills shortage and the skills gap are closely related but are not exactly the same. The skills gap refers to a qualitative mismatch between the skills employers require and the skills employees possess within a company. On the other side, the skills' shortage refers to a quantitative lack of people with the necessary skills in the broader job market. In essence, while the skills gap is an internal issue within a company, the skills' shortage is a broader issue affecting the entire job market.

Causes of the Skills Gap

The skills gap isn't caused by a single factor, but rather a complex interplay of several causes:

Inadequate Training and Education System Lag

With constant advances in technology, the knowledge and skills needed for many jobs become outdated quickly. The “half-life” of skills—the time it takes for them to become obsolete—is shrinking, which creates a constant need for upskilling and reskilling that adds another layer of complexity to bridging the skills gap.

This situation reflects on traditional training programs and educational institutions. Traditional training sessions often fail to keep pace with the latest advancements in technology and the emerging needs of the job market. Additionally, some companies might lack robust on-the-job training programs, which could frustrate even more employee development.

On top of that, educational institutions also struggle to keep their curriculum current with the latest industry demands. A lack of hands-on learning and practical experience can also leave graduates unprepared for the realities of the workforce.

Retiring Workforce

As experienced generations leave the workforce, they take a wealth of institutional knowledge and technical expertise with them. This creates a gap in senior-level roles that companies struggle to fill with qualified candidates or other skilled employees.

Tech Skills Shortage

The demand for tech skills is increasing at an alarming rate, but educational systems and training programs, as we’ve said, haven't kept pace. This creates a significant digital skills gap between the skills employers need and the skills available in the workforce. According to research from the United States Bureau of Labor Statistics, the tech shortage of available talent will reach 1.2 million by 2026 just in the United States.

Soft Skills Gap

Soft skills like communication, teamwork, and problem-solving have always been highly valued in the job market. However, several circumstances, such as the isolation caused by COVID-19 and the rise of “jobs performed remotely” without genuine human contact, have left the younger generations without these crucial skills.

Impact of the Skills Gap

A skills gap can have a significant ripple effect across your organization, impacting both your bottom line and your employees' well-being. Here's how:

Limited Innovation and Competitiveness

When your workforce lacks the necessary skills, it restricts access to fresh ideas and perspectives. This can slow down innovation and make it difficult to adapt to new technologies and market trends.

Consequently, companies with skilled workforces we’ll be better positioned to embrace forward-thinking ideas and stay ahead of the curve. For this reason, a skills gap can leave your organization vulnerable to being surpassed by competitors who can adapt and evolve more easily.

Decreased Employee Growth and Morale

According to a 2018 report, 84% of U.S. workers believe there is a skills gap and 39% feel personally affected by it. How? Employees lacking the necessary skills hit a roadblock in their career progression. This can lead to frustration, decreased motivation, dissatisfaction, and ultimately, higher turnover.

Financial Strain

Open positions due to a skills gap can lead to a decrease in productivity and lost revenue. Filling these positions with external hires can also be expensive.

Additionally, when employees lack the appropriate skills, they may take longer to complete tasks or make costly mistakes. This inefficiency can seriously strain your bottom line.

Conducting a Skills Gap Analysis

A skills gap analysis is a systematic process for identifying the missing skills in your workforce and developing a plan to address them. Here's a breakdown of the process that you can use as a skills gap analysis template:

Step 1: Planning and Scoping

• Define the scope: Decide if you're analyzing individual skills, team/department skills, or the entire company.
• Identify stakeholders: Involve key decision-makers like C-suite executives, line managers, and employees.

Step 2: Identify Critical Skills

• Consider business goals: What skills are needed to achieve your short-term and long-term objectives?
• Future-proof your workforce: Identify skills needed to stay competitive in the current and future market.
• Gather information: Use job descriptions, company values, industry trends, and employee feedback to pinpoint essential skills.

Step 3: Measure Actual Skills

• Assessment tools: Utilize performance reviews, skills assessments, interviews, and KPI contributions to determine current skill levels.

Step 4: Analyze the Data

• Prioritize skills: Rank the importance of identified skills, focusing on the most critical ones first.
• Compare skills: Match your workforce's actual skills against the critical skills identified.

Step 5: Take Action

• Bridge the gap: Develop a plan to address the identified gaps. This could involve training existing staff or conducting a hiring process for new talent.

How to Bridge the Skills Gap

Once you've identified your skills gaps, you can take action to bridge them and ensure a future-ready workforce. Here are some key strategies:

Training and Development

• Upskilling and reskilling programs: Provide training opportunities to help employees develop new skills or update existing ones.
• Experiential learning: Pair traditional training with hands-on projects and real-world application to solidify learning.
• Mentorship programs: Set experienced employees with mentees to facilitate knowledge transfer and skill development.

Hiring Strategies

• Targeted recruitment: Focus your recruitment efforts on candidates with the specific skills your organization needs.
• Internal hiring: Consider promoting from within to fill senior positions, provided employees have the potential to develop the necessary skills.

Continuous Learning Culture

• Encourage skill development: Promote a culture that values continuous learning and skill development among employees.
• Provide learning resources: Offer employees access to online courses, conferences, and professional development opportunities.

Did you know? According to a survey, 51% of employees would quit a job that didn’t give them adequate training.

Skills Gap Related FAQs

What future trends should businesses be aware of regarding skills development?

There are several future trends businesses must be aware of regarding skills development. Some of them are artificial intelligence or AI, working in virtual reality, and microlearning. Even so, the focus must always be in shifting towards continuous learning and the ability to adapt.

Can technology help in managing the skills gap?

Absolutely. Technology offers online learning platforms, AI-powered skills assessments, and data analytics to identify gaps and personalize development plans. Some HR platforms even offer AI-driven writing assistants that can help companies write good job ads with good job descriptions. This is one of the ways for companies to fill skills gaps.

Can the skills gap influence salary and compensation trends?

Yes, the skills gap can drive up salaries for in-demand skills. Businesses may need to offer competitive compensation packages to attract and retain skilled talent.