Cracking the job code

It has always been difficult to know with certainty that someone will be a good fit for a job until she or he is in the role and actually doing the work.

For that reason, the hiring process can require both candidates and employers to take a leap of faith – which is especially true today, when labor shortages and fast-changing technologies are making traditional hiring practices even less effective.

Firms need a new lens for evaluating talent – and must step up their commitment to developing skills through onthe-job coaching.

Businesses should start by better understanding how workers move between jobs and what that process means for them. In recent research, the McKinsey Global Institute examined millions of de-identified work histories, as well as job postings, across four major economies – the United States, Germany, the United Kingdom, and India – to see how people accumulate skills over the course of their careers.

The study found that skills and improved job matches acquired through work experience are linked to almost half of the average person’s lifetime earnings. That share is typically much higher for people without college degrees who start in low-paid jobs.

For example, professional experience contributes more than 90% of lifetime earnings for Indian workers who begin their careers as construction equipment operators, but less than 30% for the country’s health-care professionals, whose lifetime earnings are primarily determined by their education.

For people who start out in low-wage jobs, making strategic career moves and learning along the way is the best – and often the only – route to higher earnings over time.

The data also showed that labor-market mobility is greater than many people realize, with the average worker switching roles every 2-4 years. Even more tellingly, 80% of all job changes made over the pre-pandemic decade involved people moving from one employer to another.

And that was before the Great Resignation heightened millions of workers’ awareness of their own agency and gave them a new willingness to vote with their feet. Employers must tailor their hiring and retention strategies to the reality that talented people will always look for opportunities elsewhere.

Changing jobs is ultimately about looking for a better match. For many workers, that could mean seeking a position that improves their lifestyle and makes them happier, perhaps as a result of a more empathetic boss, greater flexibility, a shorter commute, or more stable hours.

But surveys show that workers are increasingly focusing on opportunities to gain new skills and advance.

Crucially, MGI’s research found that the most upwardly mobile workers not only changed roles more frequently; they also stretched their skills further with each move. But individuals can make bold job moves only if an employer is willing to take a chance on their potential.

Unfortunately, this makes cautious hiring managers uncomfortable. Many employers still recruit from tried-andtrue sources and familiar backgrounds. They write up job descriptions with long lists of requirements and look for candidates already doing exactly the same tasks at another company.

Self-defeating

But searching for someone who wants to replicate their current job in a different environment for a slight bump in pay can be self-defeating.

New hires who have no learning curve – and are an immediate perfect fit – are rare. Instead, firms should recognize that many workers are trying to “ladder up” and broaden their portfolio of work experience.

The most ambitious, adaptable individuals can be a major asset to any organization, even if they appear to be unconventional candidates. Companies have to get better at evaluating not just what someone has done in the past but also their characteristics, related skills, and ability to learn.

But hiring for potential works only if a firm’s managers and programs also offer effective on-the-job coaching and apprenticeships. When they do, companies can improve their productivity and employee retention while providing the growth opportunities workers want and need.

MGI found that employers that perform well on metrics linked to organizational health, training, and internal advancement seem to propel people forward; their employees were more likely to go on to be upwardly mobile for the remainder of their careers.

While education systems do respond to the constant shifts in the skills that companies need in the face of new technologies and business models, curricula adapt slowly and touch only the next generation of workers.

In more dynamic economies, businesses play an underappreciated role as skills incubators by developing more of the talent and abilities they require from the pool of experienced workers. Firms that fail to play this role risk being put at a competitive disadvantage.

Of course, investing in an employee’s development may make that person more attractive to other employers. But firms must become more comfortable with the flows that govern the labor market.

One company’s loss of a good employee is another company’s gain, and in a large market these movements even out, benefiting more proactive and innovative employers.

Doubling down on learning and development at a time when workers are becoming more mobile may seem counterintuitive. In fact, it is more important than ever.

Christopher Pissarides, a Nobel laureate economist, is Professor of Economics at the London School of Economics and Political Science. Anu Madgavkar is a partner at the McKinsey Global Institute.

© Project Syndicate, 2022. www.project-syndicate.org