Skills Shortage Continues to Negatively Impact American Employers

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Transportation, construction, retail trade, professional and business services, and manufacturing of durable and nondurable goods are among the industries most impacted by the skills shortage throughout the United States. While the Great Recession took millions of American jobs in a matter of months, regrowth of the economy is in its ninth year and despite the adding of jobs, it’s the labor pool that is now shrinking. It could potentially be decades before the labor pool recovers. This is due to the fact that another baby boomer retires every nine seconds and finding skilled workers has become increasingly difficult.

Unemployment is currently sitting at a 17-year-low of 4.1%, which is great news for workers based on the more robust wage growth projected to continue through the end of this year. The problem is that there simply are not enough workers to employ to meet the production demands of the U.S. demand for goods and services. From 2017 to 2027, the nation faces a potential shortage of 8.2 million workers, based on analysis from Thomas Lee, head of research at Fundstrat Global Advisors. This would be the most substantial shortfall in 50 years or more, based on percentage of the population.

The Q2 2018 ManpowerGroup Employment Outlook Survey found that employers expect to increase payrolls primarily in the Leisure & Hospitality, Transportation & Utilities, Professional & Business Services, Wholesale & Retail Trade, and Durable Goods Manufacturing industries. In Q1 2018 hiring intentions in the Transportation & Utilities sector nationwide were the strongest reported since the first quarter of 1982 when the survey started reporting seasonally adjusted figures. At the national level, employers in the Construction and the Durable Goods Manufacturing sectors report the strongest Outlooks for more than a decade. Employers in the Professional & Business Services sector report the strongest national Outlook since the sector was first analyzed nine years ago.

While these hiring intentions are great news for workers, skilled trade workers, drivers, laborers, accounting & finance staff, engineers, technicians and, restaurant & hotel staff continue to be some of the most difficult positions to fill, based on the most recent ManpowerGroup Talent Shortage Survey. The problem isn’t simply lack of skills, but lack of workers altogether. The labor force participation rate, a measure of the percentage of the adult population that is working or actively seeking employment, has fallen to 63% from 67% in 2000.

This labor shortage should not have come as surprise but the effects were delayed by the 2007-2009 recession, which created an employment slump that was longer than usual. During this time labor was inexpensive and abundant as the jobless rate was above 5% for over seven years. Many workers were forced to delay retirement due to loss of investments and retirement savings during the stock downturn. Employers did not have any incentive to invest in upgrading machinery or processing to boost productivity to prepare for tighter labor markets to come.

Labor is still fairly cost effective with average hourly earnings rising by an annual pace of below 3% for over eight years. Low wages are also preserved by the fact that few people are quitting their jobs to accept higher paid positions. This supports theories that there may not be a labor shortage, however, while some industries may not be affected as severely, while others are in dire need of workers. Simply taking an average across every industry in the nation cannot show where the shortages are being most strongly felt.

Many large retailers and food service organizations are announcing wage increases for customer facing positions to encourage an increase in applications to staff both existing and new stores. And while minimum wage is on the rise throughout the United States, in some areas to as much as $15 per hour based on new legislature that is beginning to take effect, most of the raises being referred to are for above-minimum-wage positions. For example, the average compensations for carpenters in Houston, Texas has increase 57% in just three years, based on wage surveys. While the average wage gains may seem meager, nonsupervisory and production workers who make up roughly 80% of the workforce are experiencing accelerated wage gains.

“We’re seeing solid, demand-fueled growth across the U.S. as the economy continues to strengthen and the labor market tightens at pace,” said Becky Frankiewicz, president of ManpowerGroup North America. "The competition for skilled talent is set to heat up and a just-in-time approach isn't always getting employers the skills they need when they need them. Now is the time to invest in people by upskilling America’s workers. We should also seek untapped talent sources with adjacent skillsets that can adapt to fill in-demand positions. At ManpowerGroup we accelerate people's careers offering skills development to help people access in-demand opportunities. Our MyPath™ offering has provided 120,000 U.S. associates with advice and opportunities to increase their skills and earnings. Upskilling the workforce and building employability will be the solution to the Skills Revolution.”

Employers are already combating this lack of skills availability by identifying the current and potential skills shortages in their own businesses. When opportunities to retrain and upskill existing staff are recognized and anticipated investment in training and the development of new skills can help to augment the skills gap without losing staff that have valuable industry experience as well as seniority as well as a positive relationship with their employer.

As the skilled workforce is projected to shrink over the next decade a focus on upskilling the labor force as many experienced workers retire over the next decade will decrease the skills gap and the effects of the talent shortage. However, manufacturing will likely experience a worker shortage of approximately two million by 2025, based on research from the Manufacturing Institute. Some organizations are having a hard time, even today, due to lack of available labor - both skilled and unskilled labor. The transportation industry has an existing shortage of some 51,000 truck drivers, a number expected to triple by 2026, per the American Trucking Associations. While construction continues to struggle to find enough skilled labor to complete jobs, labor costs and an availability are cited as problems by 82% of builders, according to the National Association of Homebuilders. This even as the pace of new home construction remains more than 10% below the normal rate.

As the US labor market tightens, employers report sustained demand for skilled workers, something a 3% increase in the working-age population by 2030 will not remedy. Upskilling the existing workforce while providing training and skilled trade education for the emerging workforce will be crucial in the skills revolution set to take place over the next couple decades in the United States. Finding the skills needed by employers will be the main concern for organization in the future as positions require more highly skilled workers and credentials for tasks such as commercial driving and subcontractors for construction. Without these skills, the labor force could swell and the United States will still suffer perceived talent shortages due to the lack of skills, not simply the availability of working age population. Efforts to engage existing resources and train employees who are currently working to complete legacy processes in encouraged. This practice allows employers to transition employees who have been upskilled for new processes while retaining their experience and internal knowledge of the business.