Labor Secretary Elizabeth Hanford Dole sees an American work force in crisis.

An estimated 20 percent of the work force is functionally illiterate, and millions of other workers earn their living with skills that soon will be obsolete. Between now and the end of the decade, demographers predict, 85 percent of new job entrants will be women and minorities, groups still struggling to join the workplace mainstream.

So, under Dole, the Labor Department is focusing on fundamentals. She sees a "window of opportunity" for the government, she said in an interview, to help "provide the skills for a lot of people who have been last in line, people who have been on the outside looking in."

And with the projected shortages of skilled workers, Dole added, "Business clearly has a vested interest in helping to prepare these workers."

The nation is experiencing its lowest work force growth rate in 40 years, with the number of workers entering the job market expected to increase by about 1 percent a year. "What you see is that we've passed the Baby Boom, and you don't have a lot of young people coming into the work force," Dole said.

In an effort to attack the shortage of skills, Dole said the department has undertaken a number of initiatives she hopes will eventually help change public schools' curriculum. Today, nearly half of high school graduates do not go on to college or other forms of higher education. Dole said she considers that group a forgotten element of society in terms of job preparation. In addition, 500,000 teenagers drop out of high school each year, she said.

Dole recently appointed a special commission headed by former labor secretary William E. Brock to develop a set of "national competency guidelines" for high schools so that graduating students will receive the kind of training needed to meet the new skills demanded by industry. The commission's executive director is Arnold Packer of the Hudson Institute, who has directed much of the research for the recent "Workforce 2000" studies performed for government and industry.

The Brock commission is scheduled to report to Dole in May. She emphasized that "this is not a {mandatory} standard; these are guidelines," but said she hoped to have them distributed to all public schools.

"We keep hearing from businessmen and women, 'We've got jobs, but the young people coming out of high school don't have the skills to fill those jobs,' " Dole said. "The key is: How are we going to provide through our schools the kind of training that's needed?"

Dole noted that the United States is "one of the few Western industrialized nations that does not have a formal school-to-work transition program." She said her department, after looking at what other nations are doing, will soon begin a $3 million demonstration program called "Two-Plus-Two," in which employers hire students during their last two years of high school and during two years of community college training.

Another approach being considered by the department is an expansion of apprenticeship programs to a broad range of industries, including some in the service sector. Dole said she would soon appoint a commission to explore that possibility. The Labor Department has jurisdiction over certifying apprenticeship programs.

Dole said the department also is considering a plan to refocus the referral system for the nation's state employment services toward the neediest cases.

Currently, Dole said, the state employment services spend $800 million, funded by the Labor Department, but place only about 4 percent of the non-farm job applicants that seek help. In addition to testing and attempting to find jobs for individuals seeking work, the state employment offices process claims and distribute unemployment benefits.

Questions being debated in the Labor Department over the role of the employment service range from whether the service should concentrate only on people with unemployment claims to whether the service should simply be eliminated because it places so few people in jobs.

"By early next year, we hope to be ready with legislation," Dole said.

The department also is seeking a change in the Job Partnership Training Act, the government's primary manpower program, to focus more on helping the disadvantaged find work. This move has been in the works for some time and has bipartisan congressional support.

The various department initiatives share a common thread in a time of tight budgets. Almost all the training programs being considered are employer-financed.

"It's in their vested interest, and many businesses now realize they have a vested interest," Dole said.