The Independent Investor: Mind the Gap, Please

As the unemployment rate drops toward full employment, the growing skills gap between business and labor is becoming a huge problem in this country. Fully 80 percent of manufacturers and small business owners can't find qualified staff.

Over the years, I've written several columns about this growing problem, but now the economy is picking up and unemployment, at 5.1 percent, is coming close to full employment. Both corporate and government leaders are realizing that in in some industries, such as utilities and aerospace, the skilled labor shortage may hamstring America's ability to do business in the years ahead.

The Harvard Business Review estimates that 47 percent of all new job openings over this decade will fall into the middle-skills range. Middle-skill jobs usually require postsecondary technical education and training and, in many cases, require college math and science courses if not a degree in those subjects.

Although the manufacturing sector today only represents 18 percent of total GDP, every dollar spent in manufacturing adds $1.37 to the U.S. economy. And every 100 jobs in that sector create an additional 250 jobs in other sectors that support manufacturing. The vast majority of manufacturing executives believe this growing skills gap will impact their ability to meet customer demand in the future. They say they are ready and willing to pay well above market rates for qualified employees, yet six out of 10 positions go unfilled.

Back in the day, skilled workers had two avenues to obtain marketable work skills. They could learn on the job through a cooperative apprenticeship system developed by management and company unions. But as unions declined (less than 12 percent of the total U.S. work force is represented by unions), so did the system of this on-the-job training. At the same time, the landscape has changed from gradual and incremental upgrades easily learned on the job to new skills requiring a quantum leap in technical and behavioral understanding. Things like problem solving, communication, teamwork and leadership.

That's where the second avenue of learning new workplace skills would be useful. Colleges were supposed to be the place where young people can absorb these massive breakthroughs and develop the rules necessary to excel in a modern-age professional work life. We were told to major in a field that suited our interests and talents.

Unfortunately, thanks to a high school system that has failed to adequately prepare our students in science and math, plus an American prejudice against just about anything that was not in the liberal arts field, fewer and fewer college students choose a career that is needed in the job market. Over the last two decades only 15 percent of U.S. college graduates majored in science, technology, engineering or math and that, my reader, is where the jobs are.

As the gap widens, a number of initiatives between government, education and the private sector has sought to remedy the situation through training and hiring of graduates, so far with varying degrees of success. The old system of apprenticeships, although trial-tested, is difficult to maintain, given the small number of unions remaining throughout the country.

In-house job training has also been met with some success in major corporations that have the time and money to bring a new employee up to the level of skilled competence necessary for their job requirements. However, small businesses, the main engine of employment and prosperity in this nation, do not have the time, money or number of skilled employees necessary to teach and/or train the unskilled employee.

A crisis always seems to light a fire under those who know what to do, but have just not got around to doing it yet. I think we are getting quite close to the point where everyone in the private and public sectors is going to have to roll up their sleeves and focus on this issue.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.