#725 – Manufacturing Skills Gap: Myth, or Real Threat to Competitiveness?

Posted on | The Agurban

Much has been written about the skills gap in manufacturing. The following caught our eye, as it takes an alternate view to this issue.

Manufacturing Skills Gap: Myth, Or Real Threat To Competitiveness?
Forbes | Marco Annunziata-Contributor | February 20, 2019

During the early stages of the recovery, the skills gap in manufacturing emerged as a dispiriting paradox: with millions of people still out of work, manufacturers complained that thousands of positions remained unfilled for lack of qualified candidates. The anecdotal evidence was supported by a widening gap between job openings and new hires.

The concern was that a misalignment between the skills needed by employers and those available in the workforce would hold back employment growth.

Fast-forward to today and that concern seems ill-founded: The U.S. economy has created almost 19 million jobs since the current expansion phase started; we have 10 million jobs more than at the previous employment peak before the recession; the unemployment rate has dropped to 4.0%, well below the 2006-07 bubble average (4.6%).

The controversy on the skills gap, however, has heated up. A recent academic paper, showing that when unemployment rises employers increase the level of qualifications required for a specific job, has been hailed as proof that the skills gap was a red herring all along. Both Vox and the Wall Street Journal took this as evidence that companies were simply “trying to stick the government with the bill for training workers”

There are two major problems with this interpretation. First, while unemployment allows firms to be choosier in whom to hire, it does not give them an incentive to leave positions vacant.  Second, the paper finds that higher unemployment explains at most one-quarter of the rise in the required level of skills: in other words, at least three quarters of the rise in required skills has genuinely been driven by jobs becoming more complex because of new technologies or new business processes.

Manufacturers insist that the skills gap remains a problem. The National Association of Manufacturers noted late last year that with close to half a million unfilled vacancies in the manufacturing sector, about three quarters of manufacturers cited the skills gap as their top concern.

We have a large number of unfilled vacancies in the manufacturing sector; most manufacturers say that finding the right-skilled workers is one of their top concerns; and the problem will likely get bigger as a substantial cohort of experienced workers is set to retire in the next few years.

The persistence of this skills gap reveals an additional paradox: manufacturers require greater skills and education in part because they are adopting advanced technologies, from 3D printing to robotics to Artificial Intelligence. But too many of us still think of manufacturing as an old-fashioned, dirty industry—and few young people aspire to a career in manufacturing.

Manufacturing accounts for 8% of total U.S. employment, so this might not sound like a big deal—but it is. Lack of talent could undermine the competitiveness of U.S. manufacturers, and accelerate their efforts to automate. Meanwhile, many new workers will miss out on challenging jobs with above-average pay that can open the way for rewarding careers. And while the employment share of manufacturing has declined to a very low level, several factors could now help reverse this trend: new technologies and lower domestic energy costs incentivize re-shoring of production, and the spread of digital-industrial technologies will increasingly blur the traditional lines between manufacturing and services.

Manufacturing can create many more high-skill jobs, supporting a healthier labor market and stronger wage growth. It will be a crucial test bed to see whether new technologies can complement human skills in new and better jobs, rather than just displace workers. Getting this right will require a combined effort by companies, education institutions and government to reboot education and training. The skills gap is a very important alarm bell—pretending we don’t hear it will not make the problem go away.