Manufacturing: Another Look at the Skills Shortage

I spent a fascinating day last Thursday at meeting organized by Atlantic magazine under the title: Manufacturing’s Next Chapter. Here was the most startling piece. According to the Bureau of Labor Statistics, employment in manufacturing fell from 17.1 million jobs in January 2001 to 11.9 million jobs in January 2013, a staggering decline of 5.2 million jobs. And yet the hottest topic at the meeting was the complaint that there is somehow a shortage of qualified workers holding back the expansion of manufacturing in the United States.

The issue of whether a “skills gap” exists in the United States is a difficult one to parse. On the one hand, there are certainly plenty of companies advertising for new employees; at last count there were about 3.6 million job vacancies, up about 1 million from the depths of the recession in 2010 but still about 1 million below the pre-recession peak. It is also true that in manufacturing the nature of the job has been changing, with employers increasingly looking for computer-literate workers with the ability to operate expensive automated equipment. Though there has been only a slight uptick in manufacturing hiring over the past two years – a gain of about 500,000 jobs from the recession lows of 2010 – it is at least plausible that those with the right skills are in short supply.

On the other hand, it’s also clear that U.S. companies aren’t trying very hard to attract workers. Wages for manufacturing workers have been flat for more than a decade, and have fallen behind overall private sector wages. There are some exceptions, like aerospace, information technology and oil and gas, but in most sectors real wages have actually fallen. If there were indeed a serious skills shortage, normally that would be reflected in rising wages as companies scrambled to lure the employees they need. And yet some companies have acknowledged that one of the reasons they are expanding in the United States is that wages are rising in places like China while they are falling in the United States, particularly for new hires.

This conundrum – claims of skills shortages coupled with flat wages – has long puzzled me. Basic laws of supply and demand would suggest that a shortage would drive wages up. Rob Atkinson, the president of the Information Technology and Innovation Foundation, suggested a plausible answer to me. Since most U.S.-based manufacturing is operating in a truly global market, the companies have alternatives to paying higher wages. If a company cannot find skilled workers at the advertised wage, then there are other alternatives to offering a higher wage, such as expanding overseas or investing in additional labor-saving technology.

What does that mean then, for labor market policies? There is no question the United States needs to do a far better job at ensuring that employees have the skills needed for available jobs. David Arkless, a global expert on labor market trends, said that the United States has become “inward-looking”, and has failed to match the rest of the world in developing systems to better forecast labor market needs and to better train workers for the jobs that will be available. U.S. community colleges remain in general under-funded. Arkless argued that government investment in workforce development is among the best strategies available for attracting investment.

Companies too share much of the blame. As Peter Cappelli, director of the Wharton Center for Human Resources, lays out in a fine little book called “Why Good People Can’t Get Jobs,” most U.S. companies have abandoned employee training. The unions that formerly ran many apprenticeship programs have been decimated, and companies don’t want to pay for their own programs, objecting both to the expense and to the risk that a trained employee will  get snatched away by a competitor. But the collective impact of multiple companies behaving the same way is an ill-prepared workforce. Particularly as mature industries like aerospace are facing the imminent retirement of much of their skilled workforce, the failure to train a new generation could be catastrophic. U.S. companies need to start taking a lesson from European competitors like Volkswagen and Siemens who are investing heavily in the United States and partnering with state governments and community colleges to train the workforce they need.

I remain unpersuaded, however, that better training and better alignment of skills and the job market will lead to a flowering of the “good jobs at good wages” that manufacturing boosters promise. They may well be good jobs, and there could well be more of them, but the wages are likely to remain modest.