Wanted: Skilled U.S. Laborers

Our regular readers will not be surprised that we’re encouraged by the potential of the U.S. manufacturing sector.  We recently wrote about the Labor Department’s January Employment Situation report which showed that the growth manufacturing jobs was one of the truly bright spots in the U.S. economy over the course of 2011.

What may be even more encouraging is the view from Deloitte Consulting’s October 2011 report on the skills gap in U.S. manufacturing.  In its survey Deloitte asked, “For which employee segments have workforce shortages or skill deficiencies had a significant negative impact on your company’s ability to expand operations or improve productivity?”  Nearly 75% of all respondents cited “Skilled Production (machinists, operators, craft workers, distributors, technicians).”  The next closest?  Production support (industrial engineers, manufacturing engineers, planners, etc.), which was identified by 42% of respondents.  In third place was “Unskilled production” at 23%.

Think about that for a minute: almost 3 in 4 American manufacturers would hire more skilled production associates, except they can’t find them.  These  same manufacturers won’t hire skilled labor because of short-term tax incentives.  They’d hire them to grow their businesses by meeting higher demand for their products or to improve overall productivity.

In economics class, we learned that unemployment comes in three flavors: frictional, cyclical, and structural.  Frictional unemployment is the normal state in which employees find themselves when they’re between jobs, and it’s not regarded as a threat to the economy.  Cyclical unemployment is related to the business cycle: during a contraction, certain companies cannot, for a time, support all their labor costs.  Structural unemployment is the most problematic: it sometimes occurs because of cataclysmic economic changes—entire methods of production become obsolete, or industries die for lack of demand—and the remedy is workforce “retooling”, to meet new demands.

The way a government responds to unemployment (to the extent that it ought respond at all) should depend on the type of unemployment at hand.  Low interest rates, for instance, may be a means of inducing companies to hire cyclically unemployed laborers but it won’t have much of an impact on structural unemployment.

Washington has largely been in denial about the present structural unemployment.  Low interest rates at the Fed have led to low interest rates at banks, but commercial and industrial lending—though growing—hasn’t rebounded like we hoped it would.  Moreover, Congress keeps extending unaffordable unemployment benefits.  No one wants to cut someone’s lifeline, but to be truly effective, we should’ve conditioned those extended benefits on evidence on retraining for new manufacturing demand.

We are enthused about what we see in American industry: an opportunity not merely for unemployed Americans to gain an earned income, but for the impact that retraining our workforce will have on our industrial manufacturing competitiveness for years to come.  Would it be nice to get some help from Washington?  Yes, though we believe employers and workers will find one another eventually, regardless of government action.

Posted in Current Updates