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Is There Really a Skills Gap?

10 million unemployed. Yet employers' No. 1 problem is finding the right talent.
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The New York suburb of Mount Kisco has many things going for it--a lively restaurant scene, good schools, horse farms. Olympic champion and Kardashian stepdad Bruce Jenner and Fox’s Bill O’Reilly have both lived there. It’s a lovely place to raise children.

But try running a 95-year-old electronics connector manufacturer in the three-square-mile Westchester County village. Or hiring for it. There are almost certainly more hedge-fund managers in Mount Kisco than there are tool and die makers--and Gretchen Zierick has no use for the Wall-Streeters. But she says she can’t even get the time to talk with students about manufacturing careers, because, well, every kid is above average, as Garrison Keillor would say, and supposed to go to college. “There just aren’t people out there with the skills we need, or the interest in acquiring them,” says the president of Zierick Manufacturing Corporation. She’s begun an informal apprenticeship, contacted a local community college, and is working with temp agencies. Even so, she’s short three tool and die makers.

What’s a 60-employee family-owned company to do?

Join the club, Gretchen Zierick. Business owners everywhere, it seems, complain they can’t find good help these days. It’s a staple of conversation from talk radio to chats over the donuts and coffee at Chamber meetings.

That concern is reflected in numerous recent surveys of businesses--big and small. Almost four in 10 U.S. employers told Manpower, a staffing company, that they were having difficulty filling jobs. The feeling is particularly acute at small and midsize companies. In a U.S. Chamber of Commerce study, 53 percent of leaders at smaller businesses said they faced a “very or fairly major challenge in recruiting nonmanagerial employees.”

And in a survey of Inc. 5000 CEOs last year, 76 percent said that finding qualified people was a major problem.

What’s really interesting about all this is that it’s not just the usual suspects who are complaining about the lack of good workers. You know: software companies that want to hire programmers from India. It turns out that good old manufacturers are having trouble finding excellent employees.

So, what is going on? And why is this happening?

Business owners start by blaming the education system. For example, Hypertherm, a New Hampshire maker of precision-cutting systems, says half of its applicants can’t perform simple math. Adds Jay Moon of the Mississippi Manufacturers Association: “A lot of kids cannot even read a ruler.” Many companies also complain that shop classes are being eliminated, so that few high-schoolers even know what a lathe is, much less how to work one.

And then, of course, there are young people themselves, who are supposedly churlish, selfish, and unmotivated. Robert A. Funk of Express Employment Services, one of the country’s largest temp agencies, told The Wall Street Journal that one in four people who comes to Express cannot pass a drug test, and another significant group is, for lack of a kinder word, lazy. “The American work ethic,” he said, “just isn’t there today like it used to be.”

There is some truth to these complaints. Yeah, the nation’s schools could do better; young people are, alas, imperfect (unlike their elders). But whining about the good old days is hardly useful. And it also obscures an important point: Businesses themselves are a big part of the alleged skills gap.

Why “alleged”? Because, on a national level, the skills gap does not exist. (See Who Says There's A Skills Gap?)

Yes, there are issues finding people for specific jobs in specific industries; for the labor force as a whole, however, the skills-gap “crisis” is no such thing. And to the extent that your business is having problems, to a large degree, the solutions are in your hands. Specifically: Start training programs, pay competitive wages, and work with governments and community colleges. (See How to Build A Skilled Work Force.)


"Graduates of a local job-training program are scarfed up as soon as they finish school." Darlene Miller (above), CEO of Permac Industries, in her factory in Burnsville, Minnesota

Consider, for example, the decline of in-house training programs. You can actually see where some businesses--maybe even yours--have gone astray.

Last year, the U.S. Department of Labor counted just 287,750 active registered apprentices, far fewer than the 488,927 a decade before. (The rate is also less than a 10th of Britain’s.) To be sure, registered apprenticeships are only those recognized by the U.S. Department of Labor, so the figures aren’t exhaustive. But, still…not so good.

And there’s more. In late 2011, only 21 percent of U.S. workers surveyed by Accenture said they had received any formal training at work in the previous five years. According to Training magazine, the share of GDP spent on instruction fell from 0.52 percent in 2000 to 0.34 percent in 2012. Matt Ferguson, CEO of CareerBuilder, surveyed more than 2,000 employers. He estimates that 80 percent of them say they are concerned about a skills gap, but only 40 percent are doing anything about it.

Another problem is that employers may be too picky when it comes to hiring. That may seem counterintuitive, but hang in there with us.

The extensive use of online hiring applications, for example, is not exactly helpful, says Peter Cappelli, an economist at the Wharton School’s Center for Human Resources. Screening software can and does filter out otherwise-qualified people who just don’t have the right title or buzzword in their online résumé--or have six years’ experience instead of seven. Research done by the U.S. Federal Reserve revealed a nice tidbit: When there are lots of applicants, employers tend to raise their standards, hoping to score a way-above-average hire.

Simply put, employers pile on so many requirements that finding a match is like hunting for a white elephant: They do exist but are vanishingly rare. Employers, in fact, are not shy about saying this is what they are doing. According to a 2013 Career Advisory Board survey of 500 U.S. hiring managers,
67 percent said they “don’t feel like they have to settle for a candidate without the perfect qualifications.” So if they don’t find the white elephant, they will keep hunting--even though there are willing elephants ready to do the job.

Then there’s another problem: You may not be willing to pay enough to attract even the B elephants, argues Cappelli. (The Manpower survey confirmed there was something to this; more than 10 percent of employers said that applicants wouldn’t take jobs at the pay offered.)

In the Cappelli camp is Carey Smith, head of Big Ass Fans, which makes, yes, massive fans, up to 24 feet across, in Lexington, Kentucky. “These complaints about the ‘skills gap’ drive me crazy,” Smith says. “We don’t have a problem finding people,” because Big Ass Fans pays well and has earned a reputation as a good place to work (no layoffs during the recession will do that for you). It seems to be working. From 2009 through 2013, Big Ass Fans increased its work force by more than 30 percent a year (to 489 employees), and the company reports a retention rate of 88 percent.

The logic is powerful, but no amount of academic study or Fed-speak or even testimony from the Chief Big Ass (Smith’s title) is going to convince some business owners that the skills gap is a fantasy. Because, to be fair, for some of them it does exist.

It is not so much that the U.S. has a skills gap, but that there are specific issues in specific places: Wichita does not have enough mechanical drafters, Seattle enough computer systems designers, South Carolina enough nuclear engineers, or Brownsville, Texas, enough hydrocarbon mud loggers. And, of course, poor Gretchen Zierick has to hunt for the next generation of tool and die makers among the progeny of the soccer parents of Mount Kisco.

One way to look at the problem, then, is to systematically figure out how to bridge what is, to a large extent, a training gap in certain jobs and geographies.  

This can be done, as long as businesses themselves are willing to take the initiative. It is not enough to expect to hire people who can “hit the ground running without any training,” as Cappelli puts it. The Chief Big Ass is characteristically direct: “Rather than complaining about the fact that someone somewhere didn’t do their job, businesses ought to get off their duff, get involved, and make a difference.”

Hypertherm has set up its own apprenticeship program, training 16 people at a time in a nine-week immersion course in computer-numeric-controlled machining. During training, employees are paid $13 an hour; if they finish, they qualify for a $14-per-hour job, a wage that could easily reach more than $17 in a couple of years.

Since 2003, the number of apprentices has declined sharply, partly because of cost-cutting.

The common objection to such programs is that a company could go to considerable expense Hypertherm’s program costs about $9,000 a person--and then see the worker lured away by some competitor. That does happen. But evidence suggests it’s still worth doing. The Urban Institute asked almost 1,000 apprenticeship sponsors about their experiences: Almost half did not consider poaching a problem, and even among those who did, 85 percent still recommended being a sponsor.

A study of apprenticeships in Canada found that employers received a benefit of $1.47 for every dollar invested. “On-the-job training has always shown very strong positive returns,” says Robert Lerman, a labor-market specialist at American University. It is also more efficient than education in terms of improving productivity, because, as Lerman puts it, “The closer you get to the stream, the more fish you get.”

Jim Miller, Hypertherm’s head of manufacturing, puts it slightly differently: “The more we invest, the better off we are.”

On a larger scale, South Carolina has taken the apprenticeship bait and is seeing results. In 2007, working with the Chamber of Commerce, the state started an apprenticeship program, featuring a modest tax credit ($1,000 per position for four years). When Apprenticeship Carolina started, there were 90 companies participating; now there are more than 630, and the goal is 2,000 by 2020. “Apprenticeship is an integral part of the reason that manufacturing is on the rise in the state of South Carolina,” says Brad Neese, head of the program. “There seems to be an announcement every day.” When a company in need of workers contacts Neese, he helps find them or create programs to suit.

One such company is United Tool and Mold, an 85-employee provider of engineering and repair services for the plastic injection and blow-molding industry, based in rural Duncan (population 3,200). It wanted to create a pipeline of new employees on the shop floor but had struggled to develop an apprenticeship program on its own. In a matter of weeks, Apprenticeship Carolina helped start one. Without that, says Jeremy Arnett, United Tool's production administration manager, “I don't know if we would have got off the ground.”

There is an adult version, but the most ambitious program targets high school juniors with an interest in manufacturing. Arnett speaks to classes and invites the students to see the factory. Those selected work for United Tool over the summer for $9 an hour; in their senior year, they do a co-op program. And they are hired upon graduation. “We are not offering a job, but a career,” Arnett says.

Small businesses may find such apprenticeship programs expensive. But all is not lost--if they work with local institutions, such as community colleges (see “Walla Walla,” above), and other businesses, including the competition. That was the case in Minnesota, where manufacturers were desperately seeking machinists and not finding them. So Darlene Miller, CEO and owner of Permac Industries in Burnsville and a former member of the President’s Council on Jobs and Competitiveness, contacted the Manufacturing Institute to develop a fast-track program, Right Skills Now. Area companies worked closely with two community colleges to create a 24-week intensive course, including internship, that launched in October 2012.

Permac Industries in Burnsville, Minnesota recruited workers like Mike Hunter through a local training program.

So far, businesses are happy with the result; graduates “are scarfed up as soon as they finish,” Miller says. The program has spread to eight states; four groups of 18 to 20 people have finished in Minnesota, with a placement rate approaching 95 percent.

In upstate New York, the process worked in the other direction. Rochester’s Monroe Community College reached out to employers. MCC’s Economic Development and Innovative Workforce Services division created a database of 2,600 local businesses and does regular skill-assessment surveys, with an emphasis on defining clusters of “middle-skilled” jobs. Then MCC breaks down each cluster into specific occupations and evaluates demand versus supply.

MCC’s analysts found that the region was producing about 80 entry-level machinists a year, while there were 375 openings. So MCC created an accelerated program and is working with employers to finance an additional facility. “Industry has to recognize they have some of the responsibility for the educational mission,” says MCC’s Todd Oldham, who runs the economic development division.

It also helps to think in down-to-earth terms about what you need: Forget about hunting the white elephant; find an elephant. Cappelli points out that the single most common complaint from hiring managers about the work force is lack of experience. That is not the same thing at all as lack of skills, or lack of willingness to learn them. In a widely reported study by Deloitte and the Manufacturing Institute, 80 percent of 1,123 manufacturing executives surveyed said they worried about finding skilled production specialists--but only 20 percent were focusing on recruiting for their specific needs.

If businesses hired for skills, not experience, they could expand the pool of talent and also expand the ability of providers to get them the people they need. That is the market niche that Shereef Bishay, once a lead software developer with Microsoft, has identified.

Bishay is a founder of Dev Bootcamp, a for-profit enterprise that develops what Bishay calls “world-class beginners” in Web development and software engineering. Says Bishay, “We are a vocational school in the most honorable sense of the word.” In its first year, 2012, there were 100 graduates; in 2013, there were 370, and this year, the projection is 750. There are sites in San Francisco and Chicago; New York is scheduled next.

Bootcampers do nine weeks of intensive training (plus nine weeks of online prep before the course); working pros teach them Ruby on Rails, HTML5, CSS, JavaScript, and other skills. No specific background is required, but most participants have a college degree of some kind; the key attributes are the desire to code and what Bishay calls “a commitment to personal awareness.”

The idea is to graduate coders who not only have technical skills but whose human operating systems are also in working order. There is a 95 percent graduation rate, and essentially those graduating get jobs as soon as they want one, with an average starting salary of around $80,000; employers include Twitter, Google, and Apple.

The point is not to graduate with a degree--Bootcamp survivors get a set of dog tags on their last day rather than a diploma--but to demonstrate mastery of a particular skill. The emphasis is on extreme employability, not prestige credentialing; students bring their code to job interviews. In a sense, Dev Bootcamp is a New Agey trade school for the high-tech economy.

One of the areas in which there is undoubtedly a skill shortage now (and a bigger one looming) is welding; the average age of a welder is 55, and the country could be short as many as 291,000 of them by 2020, according to the American Welding Society.

So beginning in 2008, the organization began, in effect, to sell the trade. It encouraged its 70,000 members to go into high schools to explain what welders do, and to connect with local media to get the word out about these high-skilled, well-paid jobs. The AWS bought a trailer that travels around the country showing a virtual-reality exhibit of welding; it’s a big hit at state fairs. And the effort is paying off. In the 2009-10 school year, 42,000 kids completed welding courses; in 2012-13, 80,000 did.

In the end, businesses have to accept more of the burden of training-;either through in-house programs or in cooperation with others. They also have to market their jobs as creatively as they market their products. Advanced manufacturing these days, for example, is not only clean, but it’s pretty darn cool, replete with computers and robots. There are well-marked career paths and good pay.

“These are not,” says Permac’s Darlene Miller, “your dad’s factory jobs.”

IMAGES: Gallery Stock, Getty Images, Corbis, Ackerman + Gruber
From the April 2014 issue of Inc. magazine

CAIT MURPHY

Cait Murphy is a New York-based writer. The author of two non-fiction books, Crazy '08 and Scoundrels in Law, she has previously worked at the Asian Wall Street Journal, the Economist, and Fortune.




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