Dean Barber

So How Real is this Skills Gap?

In Site Selection on November 16, 2014 at 9:10 am

A few weeks ago, I attended the annual conference of the National Association of Industry Specific Training Directors in beautiful Colorado Springs where I was invited to speak.

I gave a presentation on how we are just now entering a new revolutionary age of digital technologies in which there will certainly be winners and losers in terms of employment.

Mine was a stark view of the future, not necessarily pessimistic but not without controversy. I would guess that most economists would not agree with me. They would take a more traditional view that automation which eliminates the use of labor increases incomes, which in turn generates demand for new products and services, which in turn creates new jobs for displaced workers.

Well, I believe that theory holds partly true, but it doesn’t tell the whole story. Abraham Lincoln tells of half and full measures.

“I heard a good story while I was up in the country. Judge D was complimenting the landlord on the excellence of his beef. I am surprised,’ he said, that you have such good beef. You must have to kill a whole critter when you want any.’ Yes,’ said the landlord, we never kill less than a whole critter.’ “

In trying to figure out what’s true and what’s not, I’m not sure I can always offer the whole critter, but we’ll do our best. So bear with me.

A Regional Shortage

When I was attending the NAISTD conference, I learned that there is probably of shortage of 12,000 welders along the Alabama/Mississippi Gulf coast due primarily to the increase in ship building and marine fabrication in that region.

Now there is no reason for me not to believe that this is so. My friend, Ed Castile, director of the Alabama Industrial Development Training, one of the best state sponsored worker training programs in the nation, told me so. And his counterparts in Mississippi confirmed as much.

When I do site selection consulting for a corporate client and economic development consulting for a community, I’m looking for a sustainable pipeline of talent, resulting in both quantity and quality in terms of particular skill sets.

Generally speaking, it is those places that can provide the quality and the quantity, along with that often vague notion of quality of life (it’s different for different people) that will win out.

But here’s where I differ from conventional thinking, and I considered talking about this at this at the NAISTD conference. I happen to believe that fears of the much talked about “skills gap” in the near term are largely exaggerated.

Now that is not to say that companies don’t have trouble finding people for specific jobs in specific industries in certain locales. I’ve run across that before on site selection projects, as no community can be everything to everybody.

A Crisis in the Making?

But if you listen to business community (and I do), this a crisis in the making. In a U.S. Chamber of Commerce study, 53 percent of leaders at smaller businesses said they faced a “very or fairly major challenge in recruiting non-managerial employees.”

In a survey of Inc. 5000 CEOs last year, 76 percent said that finding qualified people was a major problem.

But before we get ourselves worked up, let’s look at the numbers. There were 4.7 million job openings in September, little changed from 4.9 million in August, which was a 13-year high, according to the U.S. Labor Department. We also know there are 9 million Americans actively looking for work. (We’re not counting the discouraged workers who quit looking.)

Politicians and employers explain this disparity by pointing to a skills deficit. But since 2007, the widening gulf between job openings and hiring has come primarily from the retail, hotel and food service industries, where no more than a high-school diploma is generally needed.

Stagnant wages raise further my doubts. If employers were really struggling to fill openings, don’t you think they would be willing to pay more? The fact is that high-school graduates have actually seen their wages fall over the past decade when adjusted for inflation.

What’s more, an increasing number of university graduates are taking jobs historically reserved for lesser-educated people. A Federal Reserve Bank of New York study found that roughly 44 percent of recent university grads are in a job that does not demand a bachelor’s degree.

The Real Problem

Last year, the Boston Consulting Group concluded there is no empirical data at the national level of an economy-wide mismatch between employers’ needs and people’s skills.

“Our research finds little evidence of a meaningful and persistent skills gap in most parts of the U.S., including in its most important manufacturing zones,” BCG stated in its report.

“The real problem is that companies have become too passive in recruiting and developing skilled workers at a time when the U.S. education system has moved away from a focus on manufacturing skills in order to put greater emphasis on other capabilities.”

So why the disconnect between manufacturers’ perceptions and reality?

“Quite often, the skilled workers are available, just not at a price employers are willing to pay, or companies do not bother to recruit at community colleges and vocational schools,” said Harold Sirkin, a senior partner with BCG and a co-author of the “U.S. Skills Gap” report.

“In other instances, experienced skilled workers with good academic training are available, sometimes in-house, but companies are unwilling to invest the time and money to train these workers to use new technologies or specific machines.”

The Blame Game

Here’s another clue that the skills gap is overblown: About 8 percent of executives surveyed said they were considering moving out of the U.S. because of issues related to skills. But almost five times that many were considering moving back to the U.S. because of the presence of skilled labor.

Says Peter Cappelli, an economist at the Wharton School’s Center for Human Resources: “The only evidence of the skills gap is employers saying ‘I’ve got a problem.’ ”

As a consultant, when a client tells me they have a problem, I have to take that to heart. Manufacturers typically blame the education system, saying that half their applicants can’t perform simple math or that applicants don’t have a good work ethic.

I get that. I hear you loud and clear. But you have to be prepared to step up to the plate to help yourself in developing a skilled workforce. Don’t just bitch without acting. Now why do I say that?

Now What Are You Doing About It?

The U.S. had 200,000 fewer active registered apprentices in 2013 than in 2003, according to the Labor Department. (The rate is also less than a 10th of Britain’s.)

What’s more, in late 2011, only 21 percent of U.S. workers surveyed by Accenture said they had received any formal training at work in the previous five years. According to Training magazine, the share of GDP spent on instruction fell from 0.52 percent in 2000 to 0.34 percent in 2012.

Matt Ferguson, CEO of CareerBuilder, surveyed more than 2,000 employers and estimates that 80 percent of them say they are concerned about a skills gap, but only 40 percent are doing anything about it.

There are sensible solutions at hand. They include starting in-house training programs, paying competitive wages, and working with local government entities and community colleges. But again, a minority of companies are actually taking matters into their own hands.

Instead of waiting for businesses to take the initiative, some community colleges are trying to address local training gaps.

Monroe Community College in Rochester, NY., helped local manufacturers find machinists by establishing an accelerated machining program. Faculty identified the needed skill gaps through intensive data research and surveying employers.

Perfect is as Perfect Does

Finally, many companies hold out for the “perfect candidate” and use screening software that filters out otherwise-qualified people who just don’t have the right title or buzzword in their online résumé. Or they might have six years’ experience instead of seven.

According to a 2013 Career Advisory Board survey of 500 U.S. hiring managers, 67 percent said they “don’t feel like they have to settle for a candidate without the perfect qualifications.”

Perfect is as perfect does, and I submit that’s not a real world view. Investing in your people, training them, giving them new skills to employ the latest technologies. That’s not without risks or costs, but can you ultimately afford not to do it?

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

The Missing Link

In Corporate Site Selection and Economic Development on November 10, 2014 at 9:13 am

Voters identified the economy as their top concern in last week’s mid-term elections, suggesting that despite improving job numbers, many Americans do not believe that all is well.

Sen. Joe Manchin III (D-W. Va.) did not hold back when asked to describe the historic losses by congressional Democrats: “This is a real ass-whuppin.”

Three days after last week’s election, the U.S. Labor Department reported that we added 214,000 jobs in October and the unemployment rate dropped unexpectedly to 5.8 percent — its lowest level since July 2008. Private employers added 209,000 jobs, with the number of unemployed in the nation now at just under 9 million.

October was the 56th straight month of private-sector job gains in the U.S., and monthly gains have averaged about 227,000 so far this year. Analysts say the economic expansion remains strong enough to support the current pace of hiring. Over the past six months, the economy has grown at a 4.1 percent annual rate.

So why did the Dems get taken to the woodshed? They erroneously blamed the Koch brothers for all the nation’s problems, a message that obviously fell flat with voters. By the same token, the Republicans didn’t have a lot of depth or detail to their message either – We’re against Obama.

I’m no political analyst, but I have to believe that most people consciously or unconsciously vote their paychecks.

No Bargaining Power

Coming off the Great Recession, people by and large appreciate, even cherish the fact of having a job. But they are frustrated by not having seen their paychecks grow in years. I believe it is the primary reason why one in three Americans still categorizes the economy as “poor,” according to the Pew Research Center.

Average hourly pay rose 3 cents in October. That’s just 2 percent higher than the average wage was 12 months earlier and is barely ahead of the 1.7 percent inflation rate.

The fact is that job seekers well outnumber actual jobs, and employers don’t need to offer wage increases to get and keep employees. And if they don’t, they won’t.

“While the labor market is improving and in many respects has already healed, employee bargaining power remains virtually nonexistent,” Dan Greenhaus, an analyst at the brokerage firm BTIG LLC, said in a research note.

Adding fuel to the fire, we’ve seen a wave of part-time workers as companies, post-recession, cut down on full-time jobs with benefits. Some 27.1 million Americans now hold part-time jobs, compared with 24.8 million a decade ago. Nearly all of that increase has come from workers who say they’re looking for full-time work but can’t find it.

These folks are the underemployed, and their plight may give us a truer picture of what’s happening with the labor market. In October, the underemployment rate fell to 11.5 percent, compared with 11.8 percent in September and 13.7 percent a year ago.

In short, many of the new jobs pay less than the ones destroyed in the recession.

Bring It on Home

So I find it most interesting that in even in states like Arkansas and Nebraska, where voters are generally pretty conservative, that ballot measures were passed last week to boost the minimum wage. That should tell you something.

And that something is this — the great missing link to this recovery is the fact that people are not getting raises. The recovery might feel like a recovery were it not for that fact.

The challenge then is how do we go about sharing the prosperity pie with the vast majority who work hard but see a system rigged against them. This subject matter makes me feel somewhat uncomfortable, as I realize that it might smack of socialism. That is not a road we want to take as it is not in our national psyche to go there.

I think it is clear that most Americans truly believe in a market economy and do not begrudge wealth. This American Dream of ours, which has been historically attainable to those willing to work hard, is based largely on wealth accumulation so that we could lead the good life, whatever that is. (And, of course, it differs from person to person.)

And the good part was that you didn’t actually have to be rich get to the promised land. Being middle class was perfectly fine, and being rich was, well, all the better.

Approaching an Extreme Threshold

But moods have been darkening around kitchen tables across this land, when people read about how America’s top 1 percent controls 35 to 37 percent of the country’s total wealth. Even for those who don’t begrudge the rich, that sounds, well, too extreme.

The actual income gap in the U.S. has been worsening and now is approaching an “extreme” threshold that threatens to hamper long-term economic growth. Now that’s not just some wild-eyed Occupy Wall Street protesters saying that, but rather the stalwart rating agency Standard & Poor’s.

According to an S&P report released in August, the huge gap between the haves and have-nots is crimping the U.S. economy, with the agency cutting its 10-year U.S. growth forecast to 2.5 percent, down from its forecast of 2.8 percent five years ago.

Dampening Growth

The wealth gap undermines economic growth by dampening social mobility and creating a less-educated workforce unable to compete in the global economy.

“Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring,” the report said. “The current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.”

Bottom line: this is not good for the business climate of our country, which is why even Wall Street is starting to worry about the common man.

“Without a real acceleration in wages it is hard to get a meaningful pickup in consumer spending,” said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch, in an interview with The Wall Street Journal.

An Unsustainable Divergence

A Harvard Business School study released in September said that while U.S. companies were recovering their competitive edge on the world stage since the financial crisis, workers would likely keep struggling to get better pay and benefits.

“We argue that such a divergence is unsustainable,” according to the report, which was based on a survey of 1,947 of Harvard Business School alumni around the globe.

Some 47 percent of the survey respondents said they expected U.S. companies to be both less competitive internationally and less able to pay higher wages and benefits over the next three years, versus 33 percent who thought the opposite.

My Favorite Governors Win

I was pleased to see that my favorite economic development governors were re-elected. Rick Snyder in Michigan; Nikki Haley in South Carolina, Dennis Daugaard in South Dakota, and Rick Scott in Florida, all prevailed over their challengers.

It just so happens that all are Republican governors, although I don’t put too much stock in that. I have seen governors from both parties show both great interest and great indifference toward economic development, despite their campaign rhetoric.

But these governors have actually walked the walk with economic development. They have revived the competitive business climates in their respective states, improving the economies and thereby the lives of the people living there.

Snyder’s efforts in particular have been noteworthy. Had it not been for him, certain prohibitive business taxes would not have been repealed and Michigan would not be a right to work state. That in itself is revolutionary.

But Snyder was also the impetus in forcing Detroit to file for bankruptcy in order to face the realities of a financial meltdown that had been kicked down the road too long.

Detroit, where there is very much an economic vitality happening in the downtown, is by no means out of the woods yet, but it is poised to exit bankruptcy within weeks. I am reminded of Winston Churchill’s famous quote:

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

There’s Something Happening Here

In Corporate Site Selection and Economic Development on November 2, 2014 at 6:15 am

It was nut cutting time. I had to make a decision.

I was to speak the next day at the National Association of Industry Specific Training Directors (NAISTD) at the Cheyenne Mountain Resort in beautiful Colorado Springs, Colo.

These are the good folks who administer the various programs that states offer companies to train both incumbent and new workers. These training programs are typically offered in relation to a capital investment project – either a company expands an existing plant or is establishing new operations.

As an enticement or an incentive, most states offer companies some level of training assistance, especially if there is job creation involved. To people like me, a site selection consultant who helps companies find optimal places from which to operate, these training programs can be of vital importance and a factor to be weighed in the site selection process.

Should I Mention the Chimp?

And I presumed that it is because of my role as the all-knowing, guru-like consultant that I was asked to speak. But I was torn on my subject matter. Should I talk about how important a skilled workforce was for my corporate clients in determining where to set up shop? Well, heck, these were veteran folks working side by side with their state economic development counterparts. They would already know that.

Should I tell them how we use GIS and computational analysis in site selection, after the preliminary phase of having a chimpanzee throw a dart at a map? No, probably not. Too much inside baseball.

I was to be the final speaker on the second day of the three-day conference. I had the benefit of listening to most of the training directors talk about the various training programs that their states offered to companies. In essence, it was a bench marking exercise for them to compare notes and learn from each other.

After hearing their presentations, I came away appreciating the beauty to straightforwardness and simplicity. To be frank, some of the criteria of the programs I heard sounded a bit too complicated.

Like SEC Football

I also found it interesting that of the 18 states represented and presenting at the conference, nine were from the old Confederacy. But from my experience, that is not too surprising.

Generally speaking, and there are exceptions to what I am about to propound, economic development in the Southeast (and you should throw Texas and Oklahoma in the mix, too) is more aggressive and more deal oriented than other parts of the country. I liken it to SEC football – hard and fast.

And not surprisingly, the training programs that caught my eye are those offered in South Carolina, Alabama, Louisiana and Mississippi. Those states commit the dollars and the resources to make training work and don’t require that a company jump through too many hoops in order to access their programs.

South Carolina’s apprenticeship program is of particular interest, to which I will probably write about at some future time. I know that it caught the attention of my friend Ed Castile, director of Alabama Industrial Development Training and this year’s president of NAISTD.

While I listened to these state directors explain their training programs, I thought about what they might want to hear from me. While they may want my feedback about their programs, they were going to get it from other consultants/observers on the third and final day of the conference.

Down to Two Topics

I was weighing two topics about which to speak – both thought provoking and somewhat controversial, as there is disagreement on each. One was this idea of a so-called skills gap, which has become a mantra from industry and to which there is some basis of fact but not a lot.

Indeed, I am of the belief that this is an overblown crisis, and one largely of the making of industry itself. But I ultimately decided that is for another day and another time. (And another blog.)

Instead, I chose to speak about the future of work and how advances in digital technology is both creating and destroying paths by which people will be able to work. In short, there will be winners and losers in a new machine age, where bits and bytes bump into atoms, and weird stuff results.

In order to keep my audience awake, my PowerPoint presentation was replete with interesting if not ridiculous images making the point that “there’s something happening here. What it is ain’t exactly clear.”

A Not So New Disease

In a 1930 essay entitled “Economic Possibilities for our Grandchildren,” John Maynard Keynes wrote of a “new disease” that by which “technological unemployment … due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

Fast forward to today in which a PlayStation, Xbox or a smartphone is more powerful than a computer that our military would have employed just a generation ago, and you get the idea of the swiftness and the scope of how digital technologies have and are changing our lives.

Computers are ever getting faster and better and have become a game changer in ways that I think we are only now starting to fathom.

Still, a majority of economists continue to argue, as they always have, that by raising productivity, any automation which eliminates the use of labor will increase incomes, which in turn will generate demand for new products and services, which in turn will create new jobs for displaced workers.

Some of that has to happen no doubt, but I cannot but help to think that all is far from well in the world of work. Note that we have been seeing essentially flat wages in rich countries like the United States, Germany and Britain for decades now. Recent research would suggest that this is largely due to the fact that more companies are increasingly substituting capital for labor through automation.

As a result owners of capital have captured ever more of the world’s income since the 1980s, while the share going to labor has fallen.

Also, consider that the proportion of American adults participating in the labor force recently hit its lowest level since 1978. While some of this could be attributed to the aging of the population, former Treasury Secretary Larry Summers believes the trend is also partly due to “capital that effectively substitutes for labor.”

Smarter, Faster Means Fewer Needed

In this digital age that I think we are just now entering, the machines are not just smarter, they also have access to far more data. The combination of big data and smart machines will take over some occupations wholesale and will allow companies to do more with fewer people.

A 2013 paper by Carl Benedikt Frey and Michael Osborne at the University of Oxford contends that jobs are at high risk of being automated in 47 percent of occupational categories. So if this is indeed happening, what does it or should it mean to our training directors and the rest of us? Good question and one that I have been struggling with.

In their book, “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies,” Erik Brynjolfsson and Andrew McAfee, two MIT professors, write this:

“Technological progress is going to leave behind some people, perhaps even a lot of people, as it races ahead. As we’ll demonstrate, there’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value.

“However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.”

My rather lame advice: join (and train for) the special skills club.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

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