'Skill inflation': What is it and how to avoid becoming victim to it

Since the COVID-19 pandemic, the global economy has experienced signs of progress despite high inflation and uncertainty, generating a cost-of-living crisis and difficult financial conditions in most of the world.

Since the rise of inflation over the past few years, global inflation is projected to decline from 8.7% last year to 6.8% this year – a 0.2 percentage point downward revision – and 5.2% in 2024.

However, another type of “inflation” relating to current labour markets is impeding workforce productivity – “skill inflation,” referring to the rate at which the average level of knowledge and information in an economy increases over time.

Most economists would agree that inflation can diminish the value of certain resources. The skills required for a similar role in the early 2000s are obsolete today. Similarly, the skills that we value today will be worth less in the future.

The World Economic Forum’s Future of Jobs Report 2023 indicates business expectations for how important workforce skills will evolve over the next five years. Creative thinking is reported to be the fastest growing skill in importance, just pipping analytical thinking. Technology literacy is the third-fastest growing core skill.

Whether someone is a newly minted college graduate or a well-seasoned department manager, skills development is one of the most critical catalysts of a successful labour economy.

But to overcome skill inflation, we first need to understand the “talent inflation rate.”

When calculating the general inflation rate, we subtract the past cost of an item or service from its current price and divide that result by the past cost.

Calculating the talent inflation rate (ceteris paribus) requires subtracting the past competence of a service from its current competence and dividing that result by the past skill requirements.

CPI = consumer price index of obtaining education, skills, and tenure in the current/previous period

The most common index and indicator of inflation is the Consumer Price Index (CPI) – a measurement of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

For this discussion of the consumer price index, we should focus on the average change in price to obtain these human capital skills (employee skills, the level of education and professional tenure) in the marketplace.

In a fast-changing environment, there is a never-ending necessity for special talent that can contribute to innovation and growth across all industries. And professionals can avoid the quicksand of skill inflation.

Millions of middle-skill jobs are exposed to the risk of “degree inflation” – the practice of requiring a college degree for traditionally held jobs by workers without degrees. In response to the traditional demands of degrees, college institutions have printed more paper degrees, while students have been inheriting debt to obtain these degrees.

Since the COVID-19 pandemic, business leaders have expressed doubt that matriculated programmes from higher education institutions are graduating students who meet their firms’ needs. Now more than ever, the procurement of lifelong learning, where knowledge is acquired beyond the borders of a classroom, has become more important in this environment.

The education we gain through intangibles can be valuable for determining a person’s ability to deploy new skills and collaborate or lead effectively. We can foster a nurturing environment for talent by focusing on other alternative forms of education to obtain demanding skills.

It is important to see the signs of future trends across every industry. According to a recent report from Deloitte, the manufacturing industry – like many other industries – has been experiencing growth despite layoffs, labour shortages and uncertainty. Nonetheless, leaders are leveraging digital technologies and adaptive strategies for the future of work to remain resilient.

With the evolution of prompt engineering, artificial intelligence has been the most disruptive application of technology. Professionals should advance their technical skills in line with developments to remain valuable.

Moreover, the labour market is transitioning into a non-polluting pattern – yielding millions of “green” jobs. The acknowledgement of this trend should ring the alarm for professionals who want to be more skilled and relatively less vulnerable to automation.

The Forum’s Future of Jobs Report 2023 says that two-fifths of the core skills workers have today will be disrupted by technological change by 2027. Furthermore, more than half of the organizations’ investment will focus on the green transition of their business.

Constant skills changes have led to increased reactivity and widespread burnout in the workplace. In response, companies are cultivating talent intelligence platforms as a skills-based practice to find, engage and retain a diverse staff. Understanding a company’s skills-based strategy gives professionals the ability to know what they are hiring for and how to assess the strength and weaknesses of prospective candidates.

Tailored learning and development programmes based on essential skills can help reskill and upskill employees across the board, eradicating the inflation of obsolete proficiencies. Additionally, this approach can empower professionals to be self-sufficient while having complete autonomy to achieve their short-term and long-term goals based on the skills they want to learn.