College and university enrollment is falling fast. With the National Student Clearinghouse Research Center recording a 16% drop in freshman enrollment in fall 2020, there’s been a lot of talk about how this decline will impact higher education. It’s the cause of a lot of hand-wringing on public radio, but the implications reach far beyond the financial health of universities.
The squeeze on the labor market could apply just enough pressure to force a major economic contraction.
Businesses need fresh talent, and even small disruptions to the labor market can have significant downstream effects. This last fall, we’ve seen a 13.7% decline in freshmen enrollment at four-year public colleges and a 22.7% decline at community colleges. Saddled with debt and out of work, many students are dropping out and moving back in with their parents.
The sudden plunge in enrollment poses a serious risk to the talent pipeline. Even as job pathways evolve and self-led training programs gain popularity, most businesses still rely on colleges churning out a steady supply of fresh, eager talent. A sudden shortage of college graduates could disrupt the economy for years to come.
The 1918 Pandemic’s Lingering Effects
To understand the cascading effects of a labor shortage, it’s helpful to study the impact of the 1918 flu pandemic, which killed an estimated 50 million individuals globally. Mortality rates were highest among young children, people 20 to 40 years old, and those 65 and older. The pandemic severely restricted economic activity — with impacts that were felt years later.
A few key features of that pandemic could prove gloomily prophetic: First, the geographic areas with the highest mortality rates experienced labor shortages and a relative increase in wages following the pandemic. Second, the pandemic had a long-term negative impact on productivity, brought lower returns on capital, and led to a rise in poverty.
A Decline in GDP
That strain of influenza was especially lethal for those of prime working age, and after the pandemic, most countries saw a 6–8% decline in GDP. (For comparison, the U.S. GDP shrank 9.5% in the second quarter of 2020.)
It may seem counterintuitive that an increasing demand for talent could actually slow the economy — until you consider that the economy needs three things to grow: capital, technological innovation, and an increase in labor inputs.
Currently, there’s no shortage of capital due to the Federal Reserve’s stimulus efforts, and technological innovation is happening at an exponential rate. Despite all this, a contraction in the labor market will restrict economic growth, and that’s bad news for young people who may be graduating late, not at all, or with more debt.
Studies show that initial market conditions can impact the earnings of college graduates for years. In a typical recession, when unemployment rises by 5 percentage points, graduates entering the workforce can expect a 9% loss in earnings initially. Recessions also lead to lost productivity and de-skilling due to prolonged unemployment.
An Inequitable Effect Within Minority Populations
Just as COVID-19 affected minority populations at unequal rates — the decrease in community-college enrollment disproportionately affects students of color. Black student enrollment is down by 12.1%. Hispanic and Native American registration and enrollment is also on the decline. The tech industry was struggling to hire diverse talent before the pandemic.
If companies don’t start reevaluating their hiring practices, the disruptions in higher ed could set inclusivity efforts back years.
The subsequent talent shortage will affect businesses in every sector — but especially companies in smaller metro areas or suburbs with businesses that recruit primarily from a handful of universities. For these employers, even a small decrease in college graduates is a huge hit to recruitment.
The Tech Talent Squeeze
To make matters worse, the talent squeeze comes at a time when our workforce is rapidly becoming more technical. Higher ed was already struggling to keep pace with the breakneck speed of technological innovation, and the pandemic has forced a greater reliance on digital channels.
The need for a workforce with technical skills will only grow. The U.S. Bureau of Labor Statistics predicts that the job outlook for software engineers will grow 22% by 2029. If college enrollment continues to decline, companies will have a much harder time hiring mid-and senior-level engineers in the next five to 10 years.
The result is that companies will have to pay up to attract talent and that there will be fewer experienced workers to mentor junior employees.
Leaders must shift their thinking from finding candidates with the perfect skill sets to hiring nontraditional candidates who are malleable and adaptable to continue to grow amid the talent shortage.
Alternative Talent Pipelines
An alternative talent pipeline might mean hiring the single mom who excelled at her coding boot camp or the younger candidate who doesn’t have a four-year degree but comes highly recommended from an apprenticeship program.
Businesses must start tapping now into these alternative talent pipelines to prepare for a coming shortage.
Employers must also begin upskilling and reskilling their current workforces.
Upskilling and reskilling starts with identifying employees with the drive to move into new roles and investing in ongoing education. Apprenticeship programs give employers a low-risk way to equip junior talent to meet their workforce needs.
If college enrollment continues to be sluggish, employers could face major recruitment bottlenecks.
Companies need to rethink their recruitment strategies and start looking for promising nontraditional hires to get ahead of the talent squeeze and avoid slowing the pace of growth.
Image Credit: avi richards; unsplash
Fintech Kennek raises $12.5M seed round to digitize lending
London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.
According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.
The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:
“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”
The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:
“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”
The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.
The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.
Featured Image Credit: Photo from Kennek.io; Thank you!
Fortune 500’s race for generative AI breakthroughs
As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.
Goldman Sachs’ Cautious Approach to Implementing Generative AI
In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.
According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.
One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.
To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.
Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.
Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!
UK seizes web3 opportunity simplifying crypto regulations
As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.
Streamlining Cryptocurrency Regulations for Innovation
To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.
The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.
Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.
The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.
Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!