Financing the Reskilling Revolution

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Are robots and AI going to destroy more jobs or create more jobs?

This is so often the question that articles and reports debate relentlessly (see here, here, here, here), always eager to come up with the latest estimate of the exact quantification of what impact the Fourth Industrial Revolution will have on the employment landscape.

But there is a question that is arguably more important (that doesn’t come with as catchy of headlines on if the robots are coming for us or not): regardless of the net outcome, if there are going to be millions of jobs destroyed and millions of jobs created, how will we as a society facilitate the significant increase in skills that millions of displaced individuals must achieve in order to be able to successfully shift to these newly created jobs?

Among the numerous challenges that the prospect of successfully and efficiently “reskilling” millions of people poses, how we will finance such a massive amount of skills training efforts (for people who likely cannot afford to pay for that training themselves) is among the largest. At the World Economic Forum in Davos last month, the WEF “Towards a Reskilling Revolution” report was published, which analyzed the impending challenge of reskilling what it estimates to be 1.4 million Americans in the next decade, at an approximate cost of $34 billion. My thoughts the concept raised in that report are below:

1. The Challenge of Financing

As mentioned above, the first premise behind financing being a challenge is that the majority of displaced individuals who need to acquire new skills in order to gain employment will likely not be able to afford the training themselves. According to the WEF report, the average bill for such a task is $24,800 (while this may seem high, to make it more real, think of training someone who has been doing basic data entry to be able to be a successful data scientist — no small task).

While employers may be the most obvious candidate to invest in training the workforce, they may have capabilities and incentives that lead them towards investing in upskilling their existing employees moreso than the general population of potential candidates (except for in the case where a talent shortage for a set of roles becomes extreme).

Some existing workforce development organizations rely at least partially on philanthropic funds — while an excellent solution in the short-term that does contribute towards clear societal benefits, this source of funding has its obvious limits as the challenge becomes much larger.

Given the nature of the challenge is so intertwined with the economy and livelihood of individuals, it is logical to consider government funding as a reasonable way to cover the cost of reskilling the workforce. While this almost certainly will be the case to at least some degree in the future, training providers that wish to rely on this source at scale face the challenges of securing this funding from vastly different government bodies and sustaining it over time amidst changes in leadership of those bodies.

Perhaps the most intriguing funding model in its ability to overcome scale and sustainability challenges is income sharing agreements (ISAs), which typically allow individuals to enroll in reskilling programs at no cost unless the program results in their employment above a certain salary threshold, in which case they pay back a portion of their salary to the training program (or outside investor funding the program). Although organizations like General Assembly and Lambda School have began to successfully implement such models, questions remain on the inclusiveness of such an approach — it remains unclear if such a model could be applied successfully to accommodate more diverse careers, pathways, and people.

To dig slightly deeper into the challenge of inclusiveness in the reskilling space, as employers, governments, and investors consider who to reskill, there will likely be people that it does not make financial sense to invest in. If funders are weighing social outcomes in addition to financial ones, there is the possibility of investing in a “portfolio” of individuals, where the financial loss of some reskilling investments is subsidized by others, but there still remains the risk of a substantial portion of individuals being left behind. How we as a society would accommodate an increasing number of individuals who are permanently displaced is very much an open question.

2. Additional Barriers to Reskilling Success

While the economics of reskilling are a complex challenge to think through, it’s also important to remember that (finances aside) successfully reskilling individuals in a way that empowers them to shift industries is a daunting task that organizations continue to struggle with.

One reason for those struggles is the model of reskilling requires substantial behavior change from both job seekers and employers. For job seekers, the global education system for centuries has promised to equip one with skills to succeed in the workforce for a lifetime — now they may need to continuously re-assess what skills they have, what skills they need, and how to obtain those skills. For employers who are working with skills training providers, it can feel like a substantial (and risky) shift to invest in employees who are learning the required skills for a role in a just-in-time manner.

A second reason that successful reskilling is no small task is because it revolves around one extremely ambiguous term: skills. A job market centered around skills is much more complex than one centered around degrees because there is no common understanding of what skills are and what proficiency in skills looks like (as evidenced by what you may not hire someone to be a leader purely because their LinkedIn profile shows 10 endorsements for the skill of “leadership”).

A third obstacle for the reskilling revolution is that individuals who are being reskilled will likely need many other types of support besides just access to skills training in order to successfully gain new skills and ultimately gain employment. Many individuals who will be displaced in the coming decade may have little to no experience navigating the job market, may need coaching and other personal support to overcome life issues that stand in the way of reskilling successfully, and may not even have the financial resources to afford basic living expenses while going through the training. Our ability to address these challenges will be just as crucial as delivering the skills training itself to truly power a successful reskilling revolution.

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