Consultants at Accenture just released results of a survey that confirmed a troubling belief among U.S. manufacturers: the scarcity of skilled workers may inhibit the growth of the domestic economy. While some economists maintain that stubborn unemployment is due to the absence of aggregate demand and not the lack of a skilled work force, the Accenture study provides real evidence from private enterprise, where the rubber really meets the road.

 

Here are the highlights:

 

A total of 75 percent of survey respondents reported a moderate to severe shortage of skilled workers -- those with a two-year associate degree or 12 to 24 months of training and/or experience. About 45 percent of U.S. manufacturing roles fall into the skilled category.

 

And 80 percent noted a moderate to severe shortage of highly skilled workers -- those with a bachelor’s degree or 36 months of training and or experience. About 35 percent of manufacturing jobs are considered highly-skilled.

Only 20 percent of manufacturing roles are described as unskilled or semi-skilled. Few unskilled jobs exist in today’s high tech goods-producing economy.

Revenue losses that result from the skills shortage are costing companies up to 11 percent of annual profits. The primary impacts cover the entire spectrum of critical production concerns: quality, overtime cost, down time, cycle time, scrap, and order fulfillment time. The survey found the largest financial effect to be the overtime required to backfill production steps requiring skilled input. Manufacturing sectors of the economy, unlike others in services, are running an average of 3.5 overtime hours per week according to recent statistics.

The work force is aging toward retirement with an average age of 44.1 years.

 Many have rightfully bemoaned the departure of manufacturing to low labor cost countries. Goods production is a critical sector of our economy. Domestic manufacturing accounts for $1.8 trillion of the $17 trillion U.S. economy and, taken by itself, would rank as the world’s tenth largest economy. And the average goods-producing worker earns $1,036 working 40.5 hours per week versus his service sector brethren, who is paid $799 for a shorter 33.3 hour work week. Manufacturing jobs are clearly more valuable than many other roles in our economy.

 

With production costs escalating around the world, the opportunity to re-shore more manufacturing operations is growing in many industry sectors. Converting those prospects into reality will require continual gains in U.S. labor productivity. Increasing output per man hour entails the combination of the best available process technologies and materials with skilled workers to man the machines. Installing the best equipment is the easy part. Ensuring a steady supply of smart workers will prove more challenging but nevertheless essential.

One reason behind the current re-shoring opportunity stems from the narrowing gap between wages in foreign countries, which are growing at double-digit rates, and those in the U.S, which recently have been stagnant.

But remember that wages are only part of our labor cost. Fringe benefits costs are on the rise in the U.S. Given that, the trajectory of the wage gap between the U.S. and foreign competitors may, in fact, reverse to the detriment of any re-shoring trend. In any case, offsetting the labor cost differential will demand not only smart workers but clever managers.

 Any remedy for the skills gap must also address the shortage of new entrants into the goods-producing workforce. Currently we face a perception problem among those in the millennial generation just entering the labor market. These young adults must be convinced that today’s work places are well-lighted, clean, and cool not the dirty, dark, and hot factories of their grandfathers’ era. They already use technology in their daily lives and are just the people whose skill gaps can most easily be remedied. Video game players make great candidates for high-tech machine operators.

 The inability of U.S. goods producers to secure a steady flow of skilled workers is the consequence of many other factors:

 

    The declining math and science proficiency of high school graduates
    The emphasis of high schools on preparation for college over vocational training
    Policies that limit the inflow of immigrants with manufacturing skills
    The inability of public work force training programs to keep up with rapidly changing manufacturing needs
    The failure of industry itself to establish internal training programs such as apprenticeships

There is plenty of blame to go around.

 

While Accenture’s survey covered companies with more than $100 million in annual revenues over a wide range of goods-producing sectors, its lessons can be learned by even the smallest companies in value-added wood products manufacturing. The presence of an aging work force, for example, may be a larger challenge in our industry sector than many others. Taking advantage of the wealth of high tech woodworking gizmos now available demands an immediate uptake of highly skilled workers to gain the optimum benefits. The skills problem belongs to U.S. manufacturers of all size and shape.

Bottom Line: As the Accenture report says, filling skilled job openings is not as simple as putting out help wanted ads.  We’re talking about a huge challenge that necessitates changing the minds of educators, elected officials, bureaucrats, and ourselves. Creating and maintaining a pipeline of employees with the requisite skills requires planning and real action. Time is of the essence. Every American will suffer the consequences of doing nothing. Ways to solve this challenge are the subject of the October Raymond’s View. Stay tuned…

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