Higher Rock Education - Economics Blog

Friday, September 09, 2016
""Little changed" summarizes the employment report released by the Bureau of Labor Statistics last week. The unemployment rate remained at 4.9 percent for the third straight month. Approximately 2 million workers are classified as long-term unemployed, people who have been unemployed for 27 months. This figure was also unchanged. The labor force participation rate remained at 62.8%. Only 151,000 jobs were added last month. This is down from an average of 270,000 in June and July.

Employment gains were primarily in the service sector, including food service, social services, professional and technical services and health care. The number of manufacturing jobs fell by 14,000. The mining industries experienced a decrease in employment. See Bureau of Labor Statistics.

All the political candidates have touted increasing employment in the manufacturing sector. I agree - but it isn't as easy as they say it will be. They give the impression that tearing up trade agreements or imposing import taxes is the answer. It is much more complicated. It is troubling that the manufacturing sector lost 14,000 jobs last month, but the majority of these jobs were in low-skilled areas. Higher skilled manufacturing positions are actually in short-supply.

The manufacturing sector has shown modest growth during the past few years. Growth has been somewhat constrained by the lack of skilled employees. Indeed, a job placement service, posts the areas of the economy with the highest job openings. For the past two months, manufacturing has ranked third behind hospitality and transportation.

The challenge for manufacturers is finding qualified workers. Many of the more unskilled workers who lost their manufacturing jobs during the Great Recession are having a difficult time returning to the work force. Manufacturing companies have upgraded their technologies and the workers they let go are no longer qualified to run the equipment. New recruits are better educated and in some cases being hired at high wages. Competition for qualified employees has escalated as more companies upgrade their technology. Mr. Tyler Strayhorn, Continuous Improvement Manager, of ARAUCO, NA noted in a recent interview that ARAUCO, a leading producer of wood products, requires a higher degree of education for more of its plant's employees. Mr. Strayhorn commented, "The biggest change is on the demand side as other employers re-tool and come up to a level of automation and sophistication which is in line with our operations. As this occurs competition for experienced talent increases."

Ms. Anna Louie Sussman provides several examples of how management is constrained in an article she wrote that appeared in The Wall Street Journal on September 1, 2016. I found one example to be of particular interest: Seeking to hire more qualified workers, Boeing Co in Seattle was willing to help with transfer costs for previous Carrier employees following Carrier's announcement of laying off 1,400 workers at its Indiana plant. Unfortunately they only found 60 of the workers had the necessary qualifications.

Deloitte and the Manufacturing Institute recently completed a study which concluded that between 2015 and 2025 it is expected that 2 million jobs will go unfilled in the manufacturing sector and currently over 80 percent of manufacturers report a shortage of qualified candidates for positions requiring the higher skills.

Technological advances bring challenges. No candidate is suggesting that companies do not embrace technology to improve productivity. Society benefits from greater productivity. Lower costs equate to lower prices. It is clear that a large part of the answer is better training and education. 

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