The Skills Gap Explained

There is a mystery at the heart of Midwestern manufacturing. As the recession ebbs, manufacturing in the Midwest is growing. But the number of manufacturing jobs has fallen and stays low. There are a lot of manufacturing workers who want work. But manufacturing executives say they have empty jobs and can't find workers to fill them.

This is a mystery that has to be solved. It's called the "skills gap" -- the idea that there are good jobs available but few skilled workers. The future of manufacturing and education both depends on finding out whether manufacturing is going to be part of the Midwest economy, and how many people it will employ.

A fascinating -- and possibly flawed -- article in the New York Times Sunday Magazine sought some answers. The author, Adam Davidson, cited a National Association of Manufacturers estimate that there are 600,000 factory jobs available for workers with the right skills.  Anecdotal evidence backs this up: everywhere I go in the Midwest I hear factory owners say their skilled workers are nearing retirement and they simply can't find good, skilled workers to take their place.

The reason, Davidson said, lies in the pay available for these jobs. If there's a shortage of workers, Davidson said, the law of supply and demand says that pay and benefits should rise high enough to lure in a bigger supply. But, he said, this isn't happening. Factories these days demand super-high skills -- high literacy, knowledge of chemistry and math, some understanding of physics and computers. This requires some post-secondary education which, even at community colleges, isn't cheap. But even a candidate with these skills, he said, will be paid not much more than he or she could get flipping burgers at McDonald's.

In other words, Davidson said, employers want high-tech skills but are only willing to pay low-tech wages. No wonder no one wants to work for them.

As an example, Davidson zeroed in on GenMet, a metal fabricator in Mequon, Wisconsin, just north of Milwaukee. He quoted the CEO, Eric Isbister, as saying he starts his workers at $10 per hour, which can go up to $18 per hour "after several years of good performance."

I talked with Isbister (pronounced Eyes-bister), who said he was "extremely frustrated" with the Davidson article. He stressed that the $10 per hour is for a new and unskilled hiree who has to be trained on the job. After that, pay varies widely.

One welder earns $28,000 per year after four years -- McDonald's-level pay. But another four-year employee is making $45,000 per year, Isbister said. Yet another in his sixth year at the firm, makes $59,000.

By his own admission, Isbister is an incautious speaker. Davidson quoted him as saying he doesn't hold with "union-type jobs." By this, he clearly means that his plant, which is non-unionized, is not governed by rules of seniority or pay grades based on experience. Instead, "we pay for performance," and the pay range ends up looking like a bell curve, with a few high earners, a few low earners and the others somewhere in the middle -- mostly about $40,000, he said. Good workers get bonuses, he said -- again, some much more than others.

GenMet also has paid vacations, subsidizes further education and helps pay for health insurance.

Still, finding workers is tough. So far this year, he said, they've fielded 410 job applicants, interviewed 104, eventually hired fifteen and then kept only ten of them. Some applicants didn't have the needed smarts or attitude. But the big problem, he said, is that so few pass the drug test -- an incessant complaint from Midwestern employers in all fields.  

Isbister said he brings in local high school students and trains some of them through a work-study program. He said he and his wife, the company's owner, are evangelists for manufacturing, are urging technical colleges to adapt curricula to meet manufacturing needs, and are trying to convince youngsters that "manufacturing is alive and well and high-tech and sexy" (See Journal Sentinel article).

A conversation with Isbister convinced me that the Times did indeed give GenMet and Isbister a raw deal. But the same conversation also left me feeling that GenMet represents a new face of Midwestern manufacturing that creates as many problems as it solves. It also, I think, may have helped explain that "skills gap," and showed why it won't go away.

First, it's not your granddaddy's factory any more. Earlier generations expected to leave high school, go down to the factory gate and take a job for life that would soon buy a house and car and support a family. GenMet has only 72 employees, including 30 welders. It can't begin to hire everyone who needs a job. Even the few successful applicants will have trouble supporting a family, let alone buy a house, on $40,000 in a relatively high-cost area like metro Milwaukee.

So why doesn't GenMet pay more? In other words, why doesn't it respond to the law of supply and demand by offering starting wages above the burger-flipping level? Because GenMet is competing in the global economy. It can pay more than Chinese-level wages, but not that much more. The firm's website stresses that it is "dedicated to following lean manufacturing practices." Translation: it's not going to hire one person more than it needs nor pay one dollar more than necessary.

"It's every employee's job to make this company go, so we don't lose business to overseas," Isbister told me. "There are 250 businesses within fifty miles of me that do what I do."

What he's saying is that the good old days, when steady but unspectacular work and ordinary skills paid a living wage, are gone. Top performers can do very well. Average performers don't even get hired.

This isn't news. But it needs to be hammered home that, as things stand now, many workers will never have a decent job and most workers can never aspire to a middle-class way of life based on manufacturing.

Even those who achieve that level can never be sure -- as their fathers were -- that the jobs would last until retirement. Of Isbister's 72 employees, 26 are more than fifty years old. Isbister, like all Midwestern employers, know he must replace these workers in the near future. But in an era of out-sourcing and global competition, can we promise even good, smart, drug-free employees a lifetime job? Probably not. 

Most workers, I think, get it. A few will acquire high skills and put them to use in a factory. But most workers with a good education and some ambition will not seek a future in manufacturing, where jobs are declining.

This means that the "skills gap" will persist. Until manufacturers pay much higher wages and provide "union-type" guarantees, they can't get the workers. But the same manufacturers, confronted by global competition, know they can't do this and stay in business.

Isbister feels, with some justification, that he came off as the villain in Davidson's article. The fact is that he, like his workers, are caught in a new economic era, with a future that doesn't look great for either of them.

Comments

[Andy]

"(T)he big problem, he said, is that so few pass the drug test -- an incessant complaint from Midwestern employers in all fields"

The logical response to this "big problem" would be to DROP THE DRUG TEST.

Davidson's point is not incompatible with yours. These employers can only afford skilled labor at low wages, and the only ways to solve that issue are A) relax American visa & immigration policies, B) move the factory overseas, or C) produce at a smaller scale than they would like. Let's not indulge the employers whining because they can't afford to pay skilled workers competitive wages.

[Aaron M. Renn]

I am very skeptical of the skills gap myself. But in some cases I can very much believe that there are fewer skilled people than employers might prefer at a given point. That's because acquiring skills requires a major investment of time and money. You only make that investment if you think you can obtain a return over time. It may indeed be that there's more demand than usual for high skill labor right now. But workers have seen this movie before. Coming out of recession, companies hire back up, but the downtrend in manufacturing jobs and wages soon resumes. The real question is, can you expect to have a viable long term career if you invest in skills relevant to advanced manufacturing? It's hard to make that argument compellingly, hence the logic of not investing to obtain the skills.

[Richard Longworth]

Aaron, I used to be skeptical of the skills gap, too, but after a while, when a whole lot of people tell me the same thing over and over, I begin to think there's something to it. So, yes, there is a skills gap -- a large number of manufacturing jobs going, in a down economy, but too few qualified and skilled workers to fill them. The reason is precisely what you say, and what my post tried to argue. For all but the truly exceptional worker, these jobs don't pay enough to justify the time and expense needed to acquire the skills. Tom Friedman says that, in the global economy, we all have to be above average. Maybe so, but most people feel that above-average performance merits above-average pay, which is more than $40k. We can argue that employers like Isbister should pay higher wages, but they argue that, given global competition, this isn't possible. Short of auditing their books, I'm not about to say they're wrong. The upshot -- the point of the post -- is that we are in a new and grimmer economy that, in the manufacturing sector at least, is not going to provide good jobs for any but a tiny number of Stakhonovite workers with superior skills. I don't see a realistic solution to this, but welcome any suggestions.

[Richey Piiparinen]

Of course the elephant in the room is that the knowledge sector is not immune to globalization either. Lower-paying options for computer servicing and programming as well as other high tech industries are already happening. So, the question is: work where? The answer: services, like toe-nail painting, or get used to the low-wage and junk product economy.

[Dave]

I would think that apprenticeships would be a possible solution to the problem. I know American companies have benn loathe to offer them because of the relatively high labor mobility that we have here, but this seems to have changed in recent yeras (labor is less mobile than in the past), so this would seem to be the time to approach this potential solution, no?

[Cobo rodregas]

Its interesting to see how an employer doesn't see a low starting wage, a fairly low wage ceiling, and no job security as a detriment.

I think Globalization is more or else an equalizing force. Look back 60 years and you could see similar disparities between states in the USA as you do between countries now. But things are starting to even out, which isn't good news for the average person living in a richer country, because of all the surplus labor available.

[Dave House]

One solution might be if there were a third party that could provide the training at no cost to the employer and only a minimal cost to the employee, such as a promise to pay that third party a small fee out of his or her wages. The employer could go through this thrid party to hire these skilled employees, and that third party could even take care of the drug testing. Of course that third party would want to make sure that the employees were being treated fairly and might even want to make sure that the employer was paying a sustainable wage/compensation package. Any chance there are any third parties like that out there?

[Jason Sprenger]

Evidence is mounting that skills gaps exist and are getting worse in the economy today, and it's prudent for cities, states, businesses and more to invest in solutions. One of them is career and technical education (CTE), which has proven to produce a return in areas like improved student achievement, career prospects, more trained workers for the jobs of today and improved community vitality. If everyone with a stake in this works together, the resulting programs and their benefits will be that much more profound.

The Industry Workforce Needs Council is a new group of businesses working together to spotlight skills gaps and advocate for CTE as a means of bridging them. For stats and other information, or to join the effort, visit www.iwnc.org.

Jason Sprenger, for the IWNC