The hiring process, with limited candidate information and flawed interview approaches, has always been a challenge for employers. In the currently tight US labor market, the challenge has become even more difficult. More and more workers are leaving their jobs and, according to McKinsey’s recent Great Attrition study, a third of them leave without another job in hand. This level of turnover reflects a significant evolution of the talent market. Workers demand more from employers and vote with their feet when they don’t get it.
When McKinsey asked workers why they were leaving and what they were looking for in their next job, purpose, great co-workers and flexibility were the most common responses. Compensation, with average salaries rising across all occupations, was seen as a table stake. Transfer costs for workers to change companies, especially in managerial positions, have also fallen. With remote or hybrid work becoming much more acceptable, many workers now have a wider range of job options, especially in higher-paying professions with hard-to-find talent.
In such a tight hiring market, companies need to put more emphasis on retaining and developing their own employees. A new approach can begin by reconsidering human capital from the perspective of the individual worker. The McKinsey Global Institute (MGI) reviewed millions of real-world work histories and job postings in four major economies (US, UK, Germany and India) to examine how people accumulate skills. Research has found that globally, skills learned at work account for around half of a person’s average income. This share is much higher for workers without a college degree – the lower your starting salary, the more your lifetime earnings are due to experience. This share is what we call “experience capital,” and people who strategically expand their experience and skills can increase their experience capital and earn more over their lifetime. The remaining portion of lifetime earnings is due to the education and inherent abilities that each person initially brings to the labor market, for example, the years of education needed to become a doctor or a lawyer.
Research has shown that individuals can accumulate more experience and increase their lifetime earnings by changing jobs, especially when each new position expands their skills more dramatically. Making strategic career changes and learning along the way is the best, and often the only, strategy for people starting out in low-wage jobs to earn higher incomes over their working life.
The movement is an integral part of the labor market, and there is no cross-current. MGI data shows that the average worker changes jobs every two to four years, and that was before the Great Resignation. A huge pool of talent is always on the lookout, and companies need to build a reputation to attract the best and the brightest. Surveys indicate that workers are particularly looking for jobs with greater training and growth. In a June 2021 Gallup survey of 15,000 American workers, 61% said the ability to add new skills is an extremely or very important factor in deciding whether to keep their current job.
Companies that make significant investments in training can build the skills of their workforce more systematically, and employees who learn are more likely to be engaged and want to stay. Building experience capital is good for employees and good for companies.
In addition to offering training, employers can retain and develop their talents by facilitating mobility within their organization. It may seem more comfortable or logical to let someone who does a good job in their role continue to do the same thing year after year rather than giving them a new role and a new avenue to grow. But creating career paths is a big lever for retention, and filling vacancies with people who may need to add a few new skills but who already know the company and culture is generally less risky than applying. to external hiring. Even lateral movements can allow people to recharge, expand their skills, or find a position that suits them better.
Fulfilling roles with people who have learning curves, whether internal or external, requires companies to provide effective on-the-job coaching and learning. Learning can take the form of structured, in-person courses tailored to specific employee cohorts or digital content modules that employees can access on their own. However, nothing can replace learning by doing and coaching delivered in the moment. Every organization needs front and middle managers who can teach as well as workers who can learn.
Despite the challenges of hiring right now, mobility is ultimately a good thing, acting as a sort of healthy circulatory system for organizations and economies. It has raised the stakes for companies to retain and develop their own talent. Current pressures in the labor market will hopefully result in workers sensitized to the importance of lifelong learning and employers better able to provide it – and this will be an economy that works much better for everyone.