Rebuilding and Reshoring: Skilled Workforce, the First Priority - Part 1
Category: Supply Chain • Jun 1, 2021
By Harry Moser, Founder/President, Reshoring Initiative®
A widening skills gap threatens to further erode U.S. manufacturing competitiveness and thus our economy. A talent pipeline with a sufficient supply of properly aligned skills is imperative in meeting U.S. manufacturers’ needs for capacity, productivity, and innovation.
The United States was so rich for so long that efficient utilization of human resources did not seem to be necessary. Not true today. Income is stagnant and declining vs. many other countries, especially for the bottom third of the income distribution. It’s time to enable more of our youth to obtain the technical skills necessary for today’s job market. Doing so will mean that fewer youth pursue liberal arts university degrees.
In part one of this two-part series we examine the manufacturing workforce skills gap and its impact on society, competitiveness, and the U.S. economy.
According to a study by Deloitte, 3.5 million manufacturing jobs will likely need to be filled over the next decade with a skills gap that is expected to leave in excess of 2 million of those jobs unfilled. The gap is a result of an overall shortfall of recruits and a mismatch between the skills needed by manufacturers and the skill-sets of available workers. A surge in reshoring will increase that gap by millions more.
Skilled workforce development is one competitiveness factor over which the U.S. government in collaboration with industry has complete control. It is essential that the United States have a sufficient worker quantity to provide the needed capacity increase for expansion, reshoring, and foreign direct investment (FDI). We need a sufficient worker quality to overcome our lack of cost competitiveness. Most other recommended actions mainly influence our competitiveness and any reasonable mix of lower USD, lower corporate tax rates, or value-added tax would work. Since skilled workforce is also essential for capacity and the Initiative’s goal is a 40% increase in manufacturing, i.e. 5 million manufacturing jobs, it is the sine qua non* of reshoring.
Global manufacturing executives ranked the search for skilled talent as the number one driver of manufacturing competitiveness.
The 2018 Deloitte and The Manufacturing Institute skills gap study found that 89% of executives agree that U.S. manufacturing continues to have a skills shortage, 5% higher than in a 2015 study. This skilled workforce gap threatens the competitiveness and growth of U.S. manufacturing.
Around 2005, I took a group of top U.S. apprentices to see the Swiss apprenticeship system. A manager of one of the machine tool companies mentioned that when they are developing programs for a complex part, they break the process into two setups for the U.S. but one setup for Germany and Switzerland. The typical U.S. operator/programmer cannot handle the more complex process. The result: higher manufacturing cost and longer deliveries in the United States.
Where is the talent?
Baby boomer retirement, along with an absence of new recruits due to factors such as our younger generation’s negative perception of manufacturing, lack of STEM (science, technology, engineering and mathematics) skills among students and workers, a decline of technical education programs in public high schools, and a lack of diversity, impact the availability of suitably skilled recruits.
The Fourth Industrial Revolution (Industry 4.0) is transforming work at an unparalleled pace due to rapidly changing technologies like artificial intelligence, advanced robotics and cognitive automation, advanced analytics, and the Internet of things (IoT). New-collar workers must develop technical and soft skills through nontraditional educational paths including community colleges, vocational schools, software boot camps, technical certification programs, high-school technical education, and on-the-job apprentices and internships as opposed to a four-year university degree. Manufacturers must incorporate lifelong learning into their business plans to develop the future workforce needed for “smart factories.”
Talent shortage root causes
- Availability is an issue in almost all developed countries and increasingly in developing countries. As income rises, students are encouraged to follow their dreams instead of a career with a steady income.
- Manufacturing has an image of dark, dirty, dangerous and boring, consistent with the 1950s and earlier as opposed to the clean, high-tech environment of today’s advanced manufacturing.
- High schools are measured by the percentage of graduates going on to a university, not by income five years after graduation. As a result, teachers and counselors guide students to universities, not to tech schools and careers.
- We graduate fewer engineers and apprentices than nations we compete with:
- China 33% engineers vs. U.S. 5%
- Germany 60% apprentices vs. U.S. 5%
- The nation encourages university education, via grants, loans, etc. but is only starting to support apprenticeships.
- Increasingly, manufacturing needs the students who could have done fine in university and can pursue an engineering or management degree after their apprenticeship.
- Our media, economists, politicians, and educators consistently surround our youth with the message that university education “pays off with $1 million more lifetime income than a high school degree.” It is almost never mentioned that:
- The income difference is significantly correlated rather than cause-and-effect.
- There are other alternatives, such as apprenticeships and certificates, that offer prosperity.
- The high rate of offshoring and resulting factory closings, especially from 2000 to 2010, has convinced many students, parents, and guidance counselors that manufacturing is an unstable career. Publicizing the high rate of growth in reshoring since 2010 helps to overcome this image.
Certificate and license training pays off. Twenty-seven percent of people with post-secondary licenses or certificates earn more than the average bachelor’s degree recipient. Eighty percent of associate’s degree holders earn more than the bachelor’s median income. When asked about the strengths of U.S. manufacturing careers, a survey of manufacturing professionals confirmed that manufacturing provides stability and solid middle to upper middle-class salaries.
Entrepreneurial opportunities are also prevalent. Thirty-five percent of owners of machining and tool and die shops are apprenticeship graduates and 28% are trained machinists. The misperceptions about manufacturing careers must be changed to help communities motivate students and develop a larger, smarter, better-trained skilled manufacturing workforce.
I compared the after-tax cash flow for a tool and die apprentice vs. a university English major. Assuming 50% of the apprentice’s higher income went for taxes and a 7% return on the after-tax savings, the apprentice had a $1 million higher net worth at age 49.
Skilled Manufacturing Technologists or “Middle-Skills”
Words matter. Stop referring to “trades and vocations” for jobs requiring significant post-secondary training such as apprenticeships. Adopt the wording that works in Germany and Switzerland: “professions.”
There is a common belief that a four-year university degree is “the only route to middle income careers” and that vocations/trades training is lower status. The term “middle-skill” is often equated with “middle-wage” jobs and routine tasks or occupations. Defining this part of the labor market in this manner can affect outcomes.
More informative categorizations of certain occupations can result in more recruitment for skills training. For example, terminate the use of “middle-skills” and implement a term such as “skilled manufacturing technologists.” Categorize skill level by the work that is accomplished, not by the number of degrees held by the workers. Is an apprentice graduate CNC machinist or toolmaker lower-skilled than a college graduate working in an insurance company?
U.S. global competitiveness
Our goal to be globally competitive depends upon generating skilled toolmakers, precision machinists, welders, etc. and an engineering workforce as good as those in Germany and Switzerland. Manufacturing executives expect the following five skills to increase significantly within the next three years:
- Technology/computer skills
- Digital skills
- Programming skills for robots/automation
- Working with tools and technology
- Critical thinking skills
As manufacturers increase competitiveness with automation and other Industry 4.0 technologies the workforce will need comprehensive training and corresponding skills to interact and grow. According to the World Economic Forum’s Future of Jobs Report, 50% of all employees will need reskilling by 2025. “Soft skills” such as critical thinking and analysis, creativity and initiative, and problem solving will be equally important.
How do we get there?
A Harvard Business School study determined that leaders from business, education, and government must collaborate and take action collectively to up-skill and reskill the U.S. workforce. In part two of this two-part series, I will examine solutions to develop the U.S. skilled workforce that will provide the essential capacity increase for expansion, reshoring, FDI, and the level of worker quality to overcome the nation’s lack of cost competitiveness.
For help, contact me at 847-867-1144 or email me at email@example.com