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Skills Don’t Pay the Bills

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Reposted from The New York Times

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Skills Don’t Pay the Bills

Adam Davidson | November 20, 2012 | NY Times

Earlier this month, hoping to understand the future of the moribund manufacturing job market, I visited the engineering technology program at Queensborough Community College in New York City. I knew that advanced manufacturing had become reliant on computers, yet the classroom I visited had nothing but computers. As the instructor Joseph Goldenberg explained, today’s skilled factory worker is really a hybrid of an old-school machinist and a computer programmer. Goldenberg’s intro class starts with the basics of how to use cutting tools to shape a raw piece of metal. Then the real work begins: students learn to write the computer code that tells a machine how to do it much faster.

Nearly six million factory jobs, almost a third of the entire manufacturing industry, have disappeared since 2000. And while many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers. Those jobs are not coming back, but many believe that the industry’s future (and, to some extent, the future of the American economy) lies in training a new generation for highly skilled manufacturing jobs — the ones that require people who know how to run the computer that runs the machine.

This is partly because advanced manufacturing is really complicated. Running these machines requires a basic understanding of metallurgy, physics, chemistry, pneumatics, electrical wiring and computer code. It also requires a worker with the ability to figure out what’s going on when the machine isn’t working properly. And aspiring workers often need to spend a considerable amount of time and money taking classes like Goldenberg’s to even be considered. Every one of Goldenberg’s students, he says, will probably have a job for as long as he or she wants one.

And yet, even as classes like Goldenberg’s are filled to capacity all over America, hundreds of thousands of U.S. factories are starving for skilled workers. Throughout the campaign, President Obama lamented the so-called skills gap and referenced a study claiming that nearly 80 percent of manufacturers have jobs they can’t fill. Mitt Romney made similar claims. The National Association of Manufacturers estimates that there are roughly 600,000 jobs available for whoever has the right set of advanced skills.

Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour.

The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

In a recent study, the Boston Consulting Group noted that, outside a few small cities that rely on the oil industry, there weren’t many places where manufacturing wages were going up and employers still couldn’t find enough workers. “Trying to hire high-skilled workers at rock-bottom rates,” the Boston Group study asserted, “is not a skills gap.” The study’s conclusion, however, was scarier. Many skilled workers have simply chosen to apply their skills elsewhere rather than work for less, and few young people choose to invest in training for jobs that pay fast-food wages. As a result, the United States may soon have a hard time competing in the global economy. The average age of a highly skilled factory worker in the U.S. is now 56. “That’s average,” says Hal Sirkin, the lead author of the study. “That means there’s a lot who are in their 60s. They’re going to retire soon.” And there are not enough trainees in the pipeline, he said, to replace them.

One result, Sirkin suggests, is that the fake skills gap is threatening to create a real skills gap. Goldenberg, who has taught for more than 20 years, is already seeing it up close. Few of his top students want to work in factories for current wages.

Isbister is seeing the other side of this decision making. He was deeply frustrated when his company participated in a recent high-school career fair. Any time a student expressed interest in manufacturing, he said, “the parents came over and asked: ‘Are you going to outsource? Move the jobs to China?’ ” While Isbister says he thinks that his industry suffers from a reputation problem, he also admitted that his answer to a nervous parent’s question is not reassuring. The industry is inevitably going to move some of these jobs to China, or it’s going to replace them with machines. If it doesn’t, it can’t compete on a global level.

It’s easy to understand every perspective in this drama. Manufacturers, who face increasing competition from low-wage countries, feel they can’t afford to pay higher wages. Potential workers choose more promising career paths. “It’s individually rational,” says Howard Wial, an economist at the Brookings Institution who specializes in manufacturing employment. “But it’s not socially optimal.” In earlier decades, Wial says, manufacturing workers could expect decent-paying jobs that would last a long time, and it was easy to match worker supply and demand. Since then, with the confluence of computers, increased trade and weakened unions, the social contract has collapsed, and worker-employer matches have become harder to make. Now workers and manufacturers “need to recreate a system” — a new social contract — in which their incentives are aligned.

In retrospect, the post-World War II industrial model did a remarkably good job of supporting a system in which an 18-year-old had access to on-the-job training that was nearly certain to pay off over a long career. That system had its flaws — especially a shared complacency that left manufacturers and laborers unprepared for global trade and technological change. Manufacturers, of course, have responded over the past 20 years by dismantling it. Yet Isbister’s complaint suggests some hope — that there’s a lack of skilled workers; that factory layoffs overshot, and now need a reversal. As we talked, it became clear that Isbister’s problem is part of a larger one. Isbister told me that he’s ready to offer training to high-school graduates, some of whom, he says, will eventually make good money. The problem, he finds, is that far too few graduate high school with the basic math and science skills that his company needs to compete. As he spoke, I realized that this isn’t a narrow problem facing the manufacturing industry. The so-called skills gap is really a gap in education, and that affects all of us.

 Adam Davidson is co-founder of NPR’s “Planet Money,” a podcast and blog.

14 Responses to “Skills Don’t Pay the Bills”

  1. Joe Brooks says:

    “One result, Sirkin suggests, is that the fake skills gap is threatening to create a real skills gap”

    The short answer. Now the question is; why?

    Short sighted greed, or long term planning, that will allow plant owners to say “Well, no one here to fill the jobs, so we had to move to China, it is the American peoples fault.”

  2. Will Wilkin says:

    Very interesting insight into the lack of rising wages that would normally accompany a shortage of skilled labor in manufacturing, belying that “skill shortage” as the explanation for drastically declining manufacturing employment. Nonetheless, a loss of skills and knowledge and industrial capacity itself is deepening every year as a result of the free trade offshoring of our manufacturing and other high-value-added industries.

    I am not convinced by this part of the article:

    “Nearly six million factory jobs, almost a third of the entire manufacturing industry, have disappeared since 2000. And while many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers.”

    The above quote reflects an idea that has popped up a lot in online discussions recently, namely that out industrial employment collapse has been caused more by automation than offshoring. That is wrong, and it absolves the traitorous “free trade” politicians and policy makers that have indeed OFFSHORED our country’s engines of wealth and prosperity, causing long-term deep damage to American the people by looting our economy in order to benefit the super-rich that fund both the Republican and Democratic Parties.

    Yes automation is a factor but that has not prevented the creation of millions of new manufacturing jobs in Asia. If you want a cell phone or an LCD device (from televisions to a Kindle) you will not find one made in USA, despite LCD technology being invented here. LCD being one of hundreds of examples of industrial capacity lost to America, the list is growing every year.

    Look at our trade with China, their #1 export to us is electronics and tech goods and our #1 export to them is scrap metal and other waste. America is losing the ability to make more and more things we use, that is not automation or “productivity gains,” that is offshoring.

    The argument that our mfg jobs are being lost to automation rather than offshoring has been recently addressed by Paul Craig Roberts:

    http://www.paulcraigroberts.or

    EXCERPT:

    Writing in the October 15 online CounterPunch, John V. Walsh, relying on charts prepared by economics professor Mark J. Perry at the University of Michigan and blogger John Hunter, concludes that it is a myth that US manufacturing is in decline.

    Walsh says that the loss of US manufacturing jobs is due to automation, not to offshoring. Think about this for a moment. Perry’s graph on which Walsh relies shows the sharp drop in US manufacturing employment to be a 21st century experience. However, automation has been around for a long time. The notion that its effect on employment only showed up recently needs an explanation that is not provided. The steep drop in US manufacturing employment that began in 2000 does correspond with the date at which jobs offshoring began to bite hard.

    Why does automation not also affect Chinese manufacturing, especially as most of the Chinese manufacturing technology came from the US as US corporations offshored their production for the US market? If Chinese manufacturing is not up to date with automation, like the US is assumed to be, how do the Chinese, even with cheap labor, undersell US automated factories? How did Chinese manufacturing employment increase in a mere four years by an amount equal to the total manufacturing employment in the US?

    The US Bureau of Economic Analysis shows only 11.2 million full time US manufacturing jobs in 2010. The US Bureau of Labor Statistics shows 11.7 million US manufacturing jobs in 2011, down from 15.3 million in 2002.

    In contrast, China, an industrial and manufacturing backwater for most of my life, had 112 million manufacturing jobs in 2006. In a mere four years (2002-2006), the increase in China’s manufacturing employment was as large as today’s total employment in US manufacturing. As long ago as 2006, China’s manufacturing employment was about 10 times the current US manufacturing employment. The Chinese population is about 4 times larger than the US population, but China’s manufacturing population is proportionately greater–10 times larger. Indeed, Chinese manufacturing employees almost equal the total number of employees in all occupations in the US (Manufacturing and Technology News, December 15, 2009).

    Obviously, something is wrong with Walsh’s article or the graphs on which he relied.

    END EXCERPT

    I must note that the major cause of not only the the weak aggregate demand affecting American small businesses, but also the lack of skills as described by industrialists, is the loss of as many as 9 or 10 million jobs in the American economy today compared to what we would have if free trade were replaced with successful BALANCED TRADE policies. Exporting those jobs means an atrophy of skills in the workforce, a loss of skills and knowledge further impoverishing our nation’s industrial ecosystem that was built over many generations. Rebuilding it, once our country finally wakes up, will take a few generations again, during which time the vast majority of Americans will be poorer because of this ongoing hollowing of our industrial capabilities.

    Finally, that loss of 6 million offshored mfg jobs and the millions more multiplier-effect jobs that would have been created, is also the main cause of all the fiscal crises at the fed and state and local levels. Crises that the right are now using to drive home the ideological and self-interested-wealthy agenda of dismantling Social Security and Medicare and social spending in general. The Dems and Repubs are even now ready to aim the first cuts together, in a “Grand Compromise” of the 1% with itself, shoring up their bonds and low taxes by dismantling our retirements and health just as they did our jobs and our children’s opportunities.

    • Mo says:

      If automation caused job losses than more goods would say made in the USA. The problem is the offshoring bubble due to the unsound monetary system in the US. Real interest rates in the US have been kept artificially low to fund consumption of foreign made products offshored by the US multinationals and wars. This has severely distorted the US structure of production. If it wasn’t for unnatural low real interest rates, the US savings rate would be higher and input prices to manufacture would be lower thus allowing the US capital structure to be more domestically oriented towards manufacturing and infrastructure investments.

      When it comes to economics of automation; actually automation tends overtime to increase the number of people employed rather than decrease it. If the industry that automates has products that are elastic which means more people buy the products when the price declines then usually the number of people employed will increase. For example new luxury goods only the rich can afford at first usually have elastic demand when the price declines allowing more people to buy the product. Think luxury goods that more people would buy if they could afford them like yachts. In the past only the rich could afford computers when they first came on the scene.

      If automation occurs in an industry with inelastic demand for the product, meaning demand doesn’t increase when a larger quantity is produced; then usually there will be less employment. For example if the production of a staple good like toilet paper becomes more automated and a larger quantity of toilet paper is not bought; then usually automation would cause a decline in employment for that particular branch of industry.

      Saying that automation causes job losses is guilty of the fallacy of composition. While jobs can be lost in some branches of industries, overall automation can cause a net increase in the total number of people employed. If automation really caused overall net job losses then there would be 99% unemployment since the industrial revolution began.

      If it wasn’t for automation it’s estimated that is would take at least 25 million operators to run the phone system the way it once was with manual switch operators. Another example to look at is the agricultural industry. While only a few million people farm, there are over 25 million people that work in food services that includes people involved with the pharmaceutical, biotech, nano-tech, petrochemical, veterinary medicine, distribution, marketing, financial industries and etc.

      So yes overtime manufacturing should become more automated but just because it does it doesn’t mean it will lose it’s importance. One only has to look at agriculture as an example. As manufacturing becomes more automated then there should be new jobs created for workers to manufacture the machines that make processes automated, to maintain, fix and program the machines, etc.

      When it comes to the skills shortage, there is unemployment rates of at least 5% for highly skilled computer workers and engineers, see link. http://www.economicpopulist.org/content/great-worker-shortage-lie-alive-and-well.

      To see in charts the connection between an unsound monetary system, inflation, taxes and manufacturing job losses check out the document linked below starting from page 35.

      http://www.fame.org/Publications/Dr.%20Lawrence%20Larry%20Parks%20-%20FAME%20-%20TESTIMONY%20BEFORE%20THE%20US%20HOUSE%20COMMITTEE%20ON%20FINANCIAL%20SERVICES%20112th%20Congress.pdf

  3. Bruce Bishop says:

    Re: “The National Association of Manufacturers estimates that there are roughly 600,000 jobs available for whoever has the right set of advanced skills.”

    This is a load of hogwash ginned up to confuse the American people and the half-wit politicians. Just try to FIND some of those 600K jobs. Oh, wait — did you say $10 per hour?!

    There are several reasons why U.S. manufacturers and the China apologists would lie about this. For one thing, it gives them an excuse to outsource jobs to China. For another, it gives them an excuse to import skilled workers with H-1B visas who WILL work for $10 per hour.

    • Will Wilkin says:

      Hi Bruce, Regarding those 500,000 skilled jobs in the USA that NAM says go untaken, and considering your $10/hr estimate of pay for however many such opportunities actually do exist….

      The National Association of Manufacturers might list those jobs and pay, state by state, to help their member companies fill the positions and to help get America working again. Their website doesn’t seem to have any clearinghouse for any employment opportunities except careers with NAM itself. Imagine if they started one, it might become the Monster of Manufacturing resumes.

  4. Joe Brooks says:

    Agreed, Will and Bruce. I was hoping someone would point out the visa/guest worker issue. That is another method to reduce wages, benefits and allegiance to the US.

    I will integrate this particularly into the stuff I try to place in front of others:

    “As long ago as 2006, China’s manufacturing employment was about 10 times the current US manufacturing employment. The Chinese population is about 4 times larger than the US population, but China’s manufacturing population is proportionately greater–10 times larger. Indeed, Chinese manufacturing employees almost equal the total number of employees in all occupations in the US (Manufacturing and Technology News, December 15, 2009).”

  5. William Ryan says:

    I would agree with all the above comment as being accurate and true. The bigger issue is the fact that the manufacturing industry as a whole was sold out to the Chinese by our American greedy elite and or own government. Everybody knows this also to be factual as the sell out involved the so called leveling of the play field for both societies at the expense of manufacturing which was an easily exportable commodity. Also true is the fact that both political parties in Washington support this and rationalize with many tricks and excuses as reported above…If I was young today I would also think twice about going in to manufacturing for a career because there is a much higher probability that you will be sold out during your career. I had to make 3 major changes in my career and was only lucky to get to retire. The point is that America manufacturing paid the price and continues to pay the price for the leveling of the two societies and you might as well throw in India and Mexico as well…I have the skill sets you mention above but I do not hear my phone ringing for anyone calling to hire me ever…This is called a fake or phony government and jobs listings by greedy companies that export the manufacturing jobs part only…Amen.

  6. Tom T says:

    From the article on German employment (our national policy is a scab policy):

    “4. Legal regulations, terms and conditions

    Is there a minimum salary requirement for a work permit?
    There are no restrictions for people from EU countries. For people from third countries with a foreign university degree there will be a minimum salary of 45,000 euros required (at the moment 65,000 euros).

    If I were hired by a company in Germany with a salary less than 45,000 euros, would I not be able to apply for a work visa?
    A minimum salary of 45,000 euros is required. For natural scientists, engineers, medical doctors and IT specialists, a lower salary limit of 33,000 euros per year will be permitted.”

    http://www.study-in.de/en/community/chat/–20652

    Until our politicians start thinking about the interests of the workers, not just the lowest price, we will continue to have problems in our economy with substandard jobs as the oligarchs meld policy to their liking.

    Tom T.

  7. Harry Moser says:

    About 3 million manufacturing jobs have been lost to offshoring. That number brought back would balance the $550 billion/year trade deficit by producing more of what we now import. The Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. Current research shows most companies can reshore about 25% of what they have offshored and improve their profitability.
    Based on the 309 published reshoring articles in our Reshoring Library http://www.reshorenow.org/resources/library.cfm, we calculate that at least 50,000 manufacturing jobs have been reshored. Thus reshoring represents at least 10% of the approx. 500,000 manufacturing job growth since the low in January 2010.
    I was one of the business experts in Pres. Obama’s Jan 11, 2012 Insourcing Forum. I emphasized, and the assembled executives supported, the need for companies to more consistently utilize TCO analysis instead of price variance in making their sourcing decisions.
    You can reach me at harry.moser@reshorenow.org for help using our tools for sourcing decisions and when selling.

    • Tom T. says:

      Harry, I am afraid our current political consensus has not the courage to turn this ship around. They will rattle around the edges trying to make it look like they are doing something but the simple economic equation for them does not seem to be on the side of good governance. It is on the side of selling out for their self interests as long as the public does not have the knowledge that they are doing it and elections are more name recognition, not accountability oriented (those with money and will are holding them accountable to their narrow interests over the country’s interests as a whole).

      Our political economic equation has to change for real change to happen. This last election will allow more of the same unless some of our politicians are held accountable and the “good” ones grow enough courage to overcome the narrow self interests so entrenched in our political/legal system.

  8. Jerrod Sprague says:

    What ever happened to fair trade and creating a level playing field for all workers? We are now reaping the the fruits of these failed policies. Right now no matter how hard I work, even with what should be a well paying job, I can barely cover my very basic living expenses. How could we have let this get so far away from us?

  9. Mo says:

    Some still claim that the decline in manufacturing is related to automation, but if that was true more goods would say made in the USA. The problem is the offshoring bubble due to the unsound monetary system in the US. Real interest rates in the US have been kept artificially low to fund consumption of foreign made products offshored by the US multinationals and wars. This has severely distorted the US structure of production. If it wasn’t for unnatural low real interest rates, the US savings rate would be higher and input prices to manufacture would be lower thus allowing the US capital structure to be more domestically oriented towards manufacturing and infrastructure investments.

    When it comes to economics of automation; actually automation tends overtime to increase the number of people employed rather than decrease it. If the industry that automates has products that are elastic which means more people buy the products when the price declines then usually the number of people employed will increase. For example new luxury goods only the rich can afford at first usually have elastic demand when the price declines allowing more people to buy the product. Think luxury goods that more people would buy if they could afford them like yachts. In the past only the rich could afford computers when they first came on the scene.

    If automation occurs in an industry with inelastic demand for the product, meaning demand doesn’t increase when a larger quantity is produced; then usually there will be less employment. For example if the production of a staple good like toilet paper becomes more automated and a larger quantity of toilet paper is not bought; then usually automation would cause a decline in employment for that particular branch of industry.

    Saying that automation causes job losses is guilty of the fallacy of composition. While jobs can be lost in some branches of industries, overall automation can cause a net increase in the total number of people employed. If automation really caused overall net job losses then there would be 99% unemployment since the industrial revolution began.

    If it wasn’t for automation it’s estimated that is would take at least 25 million operators to run the phone system the way it once was with manual switch operators. Another example to look at is the agricultural industry. While only a few million people farm, there are over 25 million people that work in food services that includes people involved with the pharmaceutical, biotech, nano-tech, petrochemical, veterinary medicine, distribution, marketing, financial industries and etc.

    So yes overtime manufacturing should become more automated but just because it does it doesn’t mean it will lose it’s importance. One only has to look at agriculture as an example. As manufacturing becomes more automated then there should be new jobs created for workers to manufacture the machines that make processes automated, to maintain, fix and program the machines, etc.

    When it comes to the skills shortage, there is unemployment rates of at least 5% for highly skilled computer workers and engineers, see link. http://www.economicpopulist.org/content/great-worker-shortage-lie-alive-and-well.

    The following link below explains and shows in charts the connection between an unsound monetary system, inflation, taxes and manufacturing job losses starting on page 35.

    http://www.fame.org/Publications/Dr.%20Lawrence%20Larry%20Parks%20-%20FAME%20-%20TESTIMONY%20BEFORE%20THE%20US%20HOUSE%20COMMITTEE%20ON%20FINANCIAL%20SERVICES%20112th%20Congress.pdf

  10. Mo says:

    There are some that still claim most manufacturing job losses is related to automation but if that was true then more products would have made in USA label. The problem with manufacturing job losses is the offshoring bubble due to the unsound monetary system in the US.

    Real interest rates in the US have been kept artificially low to fund consumption of foreign made products offshored by the US multinationals and wars. This has severely distorted the US structure of production. If it wasn’t for unnatural low real interest rates, the US savings rate would be higher and input prices to manufacture would be lower thus allowing the US capital structure to be more domestically oriented towards manufacturing and infrastructure investments.

    When it comes to economics of automation; actually automation tends overtime to increase the number of people employed rather than decrease it. If the industry that automates has products that are elastic which means more people buy the products when the price declines then usually the number of people employed will increase. For example new luxury goods only the rich can afford at first usually have elastic demand when the price declines allowing more people to buy the product. Think luxury goods that more people would buy if they could afford them like yachts. In the past only the rich could afford computers when they first came on the scene.

    If automation occurs in an industry with inelastic demand for the product, meaning demand doesn’t increase when a larger quantity is produced; then usually there will be less employment. For example if the production of a staple good like toilet paper becomes more automated and a larger quantity of toilet paper is not bought; then usually automation would cause a decline in employment for that particular branch of industry.

    Saying that automation causes job losses is guilty of the fallacy of composition. While jobs can be lost in some branches of industries, overall automation can cause a net increase in the total number of people employed. If automation really caused overall net job losses then there would be 99% unemployment since the industrial revolution began.

    If it wasn’t for automation it’s estimated that is would take at least 25 million operators to run the phone system the way it once was with manual switch operators. Another example to look at is the agricultural industry. While only a few million people farm, there are over 25 million people that work in food services that includes people involved with the pharmaceutical, biotech, nano-tech, petrochemical, veterinary medicine, distribution, marketing, financial industries and etc.

    So yes overtime manufacturing should become more automated but just because it does it doesn’t mean it will lose it’s importance. One only has to look at agriculture as an example. As manufacturing becomes more automated then there should be new jobs created for workers to manufacture the machines that make processes automated, to maintain, fix and program the machines, etc.

    When it comes to the skills shortage, there is unemployment rates of at least 5% for highly skilled computer workers and engineers, see link. http://www.economicpopulist.org/content/great-worker-shortage-lie-alive-and-well.

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