This post by Heidi Bush, CFA; Craig Metrick, CAIA and Katherine Pease of Cornerstone Capital Group is part of a series in which IEN members will share their thinking about intentional endowment investing in the face of this global pandemic. Follow along to get insight into the new challenges and opportunities we as a network are facing

Implications for the Economy, Policymakers, Investors and Higher Education

Heidi Bush, CFA; Craig Metrick, CAIA; Katherine Pease

With the advent of artificial intelligence (AI) and increasing automation placing at risk a broad array of jobs, it is incumbent upon businesses, individuals and policymakers to collaborate to promote lifelong learning in order to mitigate the consequences of worker displacement. Even highly educated workers in professional fields will likely be at risk. Our collective challenge is to avoid both massive worker redundancy and a shortage of skilled workers.
The current global crisis is starting to shine a light on companies that look to the future, have a culture of learning, and prepare for the unexpected. Forward-looking companies may prove to be more resilient than others that don’t embrace change, training, and education. Impact investing, or investing using an ESG lens, may help identify these more resilient companies that can rebound from adversity faster and stronger than others. Investors can also consider investing in funds that focus on upskilling and reskilling, including innovative education platforms that are cost-effective and increase access to learning and skills development

     The Unrelenting Advancement of AI, Robotics, and Automation

At the start of the 20th century, more than 75% of the U.S. population worked on farms. Today, that figure has dropped below 2%, driven in large part by industry consolidation into large, technology-driven enterprises. Given the rapid evolution in artificial intelligence, robotics, and automation, many of today’s jobs might be handled by a much smaller percentage of the population by 2060. Conversely, while many jobs will be eliminated, new ones will likely be created. 

The rise of artificial intelligence (AI) is affecting the professional job market in much the same way automation and robotics impacted production and service jobs over the past decade. The current turmoil in the global economy may temporarily slow the pace of change but could trigger accelerated adoption of AI as economies recover and companies seek to reduce reliance on personnel. As technology advances and the required workforce skills change, will there be enough skilled workers to fill those future jobs? How can workers acquire the skills needed in the new paradigm?

If AI and automation replace human jobs at an accelerating rate, including those requiring complex thought and interaction, people may have to change their jobs, their companies, and even their careers. Further, the jobs of tomorrow will require at least some competency in the STEM fields — science, technology, engineering, and math.

Increasing automation results in frictional technological unemployment. This means there are still jobs, but not everyone is skilled enough to do them. Before the current crisis, U.S. unemployment was low at 3.6%, but the participation rate (the number of people employed or seeking employment) was depressed, with one in six men of working age having dropped out of the workforce – double the level in1940. The reason was likely a mismatch of skills: men have been losing jobs that may be automated and have been unwilling or unable to take on jobs that are seeing growth, such as nursing, teaching, housekeeping, and hairdressing.

Who is most exposed to career risk from AI and automation? Nearly all workers face some impact. Men with less formal education, young workers, and some racial/ethnic groups all appear likely to face significantly more challenges from automation near term than do educated men and women, prime-age workers, and whites. But in the medium and long term, many vocations and demographics face a challenge from evolving AI which can automate a wider range of jobs.

The solution to closing the skills gap may lie in upskilling and reskilling. The term upskilling refers to the expansion of people’s capabilities and employability, typically in their existing role, to fulfill the needs of a rapidly changing economy. Reskilling teaches new skills and trains individuals for new jobs in the evolving economy.

The economic crisis due to the coronavirus is starting to shine a light on companies that look to the future, have a culture of learning and prepare for the unexpected. These forward-looking companies may prove to be more resilient than others that do not embrace change, training and education.

To prepare for the future, companies will need to engage in retraining (upskilling) employees either inhouse or in partnership with educational institutions or organizations. They might redeploy workers with certain skills to different roles that might be more impactful to the company or operation.

The challenge for higher education 

The U.S. education system focuses on preparing students for higher education. Yet fewer than one in five young Americans moves smoothly from high school to college to career. Many who enroll in colleges never finish.

Approximately 53% of job openings are “middle skill,” requiring less than a four-year degree but more than high school education. This includes carpenters, plumbers and electricians, as well as dental hygienists, paralegals and licensed practical nurses. Only about 43% of the current labor force fits that educational profile. 

Even with an associate’s or bachelor’s degree, graduates may languish in jobs that don’t require higher education or remain unemployed, as employers seek candidates that already possess the skills they need. In earlier decades, companies often hired college and even high school graduates into company training programs. Today, companies use computerized tracking systems to hire candidates with specific skill sets. As a result, before the current economic crisis, nearly half of all recent college grads were either underemployed or unemployed because they lacked the required experience or skill set. Meanwhile, employers were competing for a limited pool of skilled potential employees.

As the costs of recruiting and job churn continue to rise, however, it is becoming cheaper for employers to train candidates to fill skilled job openings. The relationship between education and work needs to evolve to meet the needs of this changing landscape.  Educational technologies and creative business models are emerging.

Closing the skills gap may require creating or using intermediaries between those looking to hire and those looking for good jobs. This may entail a public or private workforce accelerator or training program, a community college, or other organizations that could partner with companies to train people.

One accelerator seeks to close the skills gap with training designed to create better access to good technology jobs. Such partnership-based programs could culminate in paid internships, free skills training offered by prospective employers, or salary-sharing arrangements whereby a portion of the new employee’s salary is used to pay for the training program.

Investing in Access to Education

How can investors facilitate access to education, worker training, upskilling and reskilling to ensure that all demographics are prepared for the future of work? Cornerstone Capital Group’s Access Impact Framework™ illustrates how our clients’ portfolios can align in support of the UN Sustainable Development Goals. The framework links the Sustainable Development Goals (SDGs) to investment activities through a focus on access — access to the natural, human and economic resources that will create a more regenerative and inclusive world. The access theme of “Access to Education” focuses on access to inclusive and quality education for all —including employment training and continuing education. This access theme relates to several SDGs including (but not limited to) SDG 4: Quality Education and SDG 8: Decent Work and Economic Growth.

To measure whether asset managers and their respective funds foster access to education, we evaluate fund managers’ investment approaches and shareholder engagement activities. Are they asking the right questions to the management teams of portfolio companies regarding training, reskilling and upskilling? We believe that asset managers should try to determine if the companies they invest in have a culture of continuous learning to develop their employees’ skill base for the future of work at their companies. Cornerstone can suggest some funds and fund managers who focus on Access to Education. Most tend to invest in venture capital and private equity. 

Investors in public equities can also hold corporations accountable for meaningful workplace training programs that provide employees with effective technological skills to meet the companies’ changing needs, either through direct engagement with management or indirectly through their asset managers. 

By using their rights as shareholders to address the widening skill gap between the demand for and supply of technologically adaptable workers, shareholders and asset managers might ask the following questions of company management: 

• Does the company offer and require training to develop its desired skill sets? 
• What type of training is the company providing to its existing workforce and to entry level workers? 
• Has the company invested in reskilling or upskilling its existing workforce so they may adapt to the company’s evolving business needs related to automation and technology? 
• If so, what types of programs is it investing in and what percentage of capital expense is dedicated to this training? 
• If not investing in reskilling/upskilling or training, how is the company addressing its current and future need for a technologically adept workforce? 
• Is the company considering investing in this type of program or planning to work with an educational institution or local government to develop the skills needed for the current and future workforce?

These are not only critical questions needed to address the skill gap challenge we face as a society, they can also help investors assess a company’s sustainability, namely its capacity to generate economic value over the long term.  

This article is adapted from Cornerstone Capital Group’s recent report Investing in the Future of Work. Cornerstone also recently held a webinar on this topic, engaging experts in education and tech-enabled training/education solutions. Click here for access to the video replay. For more information please visit cornerstonecapinc.com.

1.  https://www.quantumrun.com/prediction/after-age-mass-unemployment-future-work-p7
2.  https://www.bls.gov/news.release/pdf/empsit.pdf
3. https://www.npr.org/2016/09/06/492849471/an-economic-mystery-why-are-men-leaving-the-workforce
4. https://www.brookings.edu/wp-content/uploads/2019/01/2019.01_BrookingsMetro_Automation-AI_Report_Muro-Maxim-Whiton-FINAL-version.pdf#page=44
5.  https://nces.ed.gov/fastfacts/display.asp?id=40
6.  https://www.wsj.com/articles/how-to-get-american-men-working-again-11574436197
7.  https://www.governing.com/topics/mgmt/gov-work-study-student-debt-apprenticeships.html
8.  https://www.whitehouse.gov/wp-content/uploads/2018/07/Addressing-Americas-Reskilling-Challenge.pdf
9.  https://thehill.com/opinion/white-house/418934-how-to-train-2-million-americans-for-high-skilled-jobs-for-free
10.  Interview with Daniel Pianko of Achieve Partners (formerly called University Ventures)