Issues in Brief

Skills Gap Confusion

Research and Council Director
June 11, 2013

The manufacturing “skills gap” seems to have developed a small credibility gap. The perceptions and experiences of manufacturers have been challenged by industry and academic research. What was at first a relatively straightforward discussion has become more nuanced and political.

The skills gap issue was on display at a recent forum at the Aspen Institute in Washington. The event brought together a number of stakeholders from industry associations, job training groups, and economic and policy think tanks for a presentation updating a Deloitte study on the difficulty manufacturers have in filling critical positions. A panel discussion on approaches to workforce development featured participants from the National Science Foundation, the Center for Energy Workforce Development (an initiative of the electric utility industry), and the University of Phoenix.

An early major study of the skills gap was conducted in 2011 by Deloitte for the Manufacturing Institute and financed in part by MAPI. The consulting firm polled 1,100 executives and identified current shortages in three key areas—skilled production workers, technologists, and engineers. Looking ahead three to five years, a significant share of survey respondents expected the difficulty of finding qualified workers in each group would increase. In the case of skilled workers, 69 percent of respondents said shortages would increase. One caveat: the companies in the poll were relatively small—78 percent reported annual revenues under $100 million.

Deloitte reported serious concerns about demographic changes as baby boomers retire and younger workers with a less favorable view of manufacturing enter the workforce. This observation is supported by a May report in IndustryWeek that describes several initiatives undertaken by large manufacturers to manage this transition and sidestep a looming skills gap.

But there are some dissenting voices, and they have compelling data as well.

A study released last fall by Boston Consulting Group examined wage data and job vacancy rates in manufacturing. The idea was to determine whether wage growth in key job categories was exceeding inflation, because that would indicate that manufacturers were bidding up the price of labor to overcome a shortage. BCG looked at a five-year period across regions. They found shortages of welders, machinists, and industrial machinery mechanics, but only in 5 of the 50 largest manufacturing centers—Baton Rouge, Charlotte, Miami, San Antonio, and Wichita. BCG observed, however, that just as manufacturing is ramping up, an aging workforce may shrink the pool of workers in key trades.

In the past year, researchers at MIT conducted surveys and interviews to assess the extent of a shortage of skilled workers available to manufacturers. The nationally representative sample of nearly 1,000 manufacturers revealed that “problems centered in jobs requiring skills not generally available in the region; jobs requiring advanced math skills; and very small companies.” The last point appears to be consistent with the Deloitte sample of smaller manufacturers. But the MIT team found that 75 percent of the companies in the sample are not experiencing any issues related to labor shortages.

Two surveys conducted as part of MAPI’s council program have explored the challenges of filling engineering positions and manufacturers’ general workforce needs. In the engineer survey, we concluded that responding manufacturers have difficulty finding mid-career engineers with appropriate experience and skills. Key areas of concern are among electrical, controls, and mechanical engineers. Manufacturers must compete with more attractive industries for high-skill engineers, whether recent graduates or experienced workers. Employers are focused on finding experienced engineers with two to seven years on the job; engineers with more than 15 years of experience are available but not strongly in demand. A wave of retirements sufficient to seriously deplete the ranks of engineers in manufacturing does not appear to be in the offing.

The survey of workforce needs found that of the production positions requiring basic or entry-level skills, vacancies for welders, machine operators with no computer skills, and crane operators were ranked as necessitating the most time to fill. Among the production positions requiring intermediate or advanced skills, vacancies for controls techs, engineering techs (not degreed engineers), and toolmakers were ranked as taking the most time and resources to fill.

All these reports present a mixed bag. The skills gap is serious or moderate, national or local, affects mostly small companies but worries large ones, and may or may not be exacerbated by demographic shifts. Take your pick.

One more consideration: the skills gap is increasingly an ideological issue.

Analysts on one extreme assert that the skills gap is a thinly veiled effort to “blame the worker” for stubbornly high rates of unemployment throughout the economy. A study from the University of Wisconsin-Milwaukee takes the argument further, claiming that “the skills gap trope . . . diverts attention (and policies) from the deep inequalities and market fundamentalism that created the unemployment crisis, and focuses on a fake skills gap that had nothing to do with the surge in joblessness since 2007.”

Robert Samuelson, an economics columnist with The Washington Post, counters by noting that the unemployment rate in manufacturing is a function of risk aversion, even though manufacturing’s post-recession demand picked up earlier than that of other sectors. “Businesses,” he writes, “have become more risk-averse. They’re more reluctant to hire. They’ve raised standards. For many reasons, they’ve become more demanding and discriminating. These reasons could include (a) doubts about the recovery; (b) government policies raising labor costs (example: the Affordable Care Act’s insurance mandates); (c) unwillingness to pay for training; and (d) fear of squeezed profits. In practice, motives mix.”

Back at the Aspen Institute, the discussion turned to whether the skills gap can be cured simply by raising wages. One response—if wages rise too rapidly or too far, how long before jobs once again begin to migrate abroad or more capital displaces more labor at home? The safer consensus is that the fate of U.S. manufacturing will be influenced by the workforce of the future and by policies that provide both economic stability and an able workforce.

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