Bloomberg News

Workers Lacking Skills Hinder More Factory Gains: Economy

May 14, 2012

Tractor assembly at the CNH Global NV facility in Racine, Wisconsin. Photographer: Daniel Acker/Bloomberg

Tractor assembly at the CNH Global NV facility in Racine, Wisconsin. Photographer: Daniel Acker/Bloomberg

Paul Bonin has no problem getting enough orders to keep his South Bend, Indiana, factory busy. What he can’t find are enough qualified employees to work on the assembly lines.

“The biggest challenge we face is a skilled labor force,” said Bonin, president of Bertrand Products Inc., which makes transmission parts for helicopters. He said he sees opportunities to fill more orders, “but I can’t take the work because I can’t find the workforce.”

The inability to locate employees with the right abilities is holding back manufacturing, the industry that led the U.S. out of the worst recession since the 1930s, just as the economy shows signs of cooling. The number of factory jobs waiting to be filled climbed to 326,000 in March, the most since November 2007, according to data from the Labor Department.

“The manufacturing sector is clearly showing signs of a skills mismatch,” said Dean Maki, chief U.S. economist at Barclays in New York. “It is likely to weigh on manufacturing growth.”

Manufacturing was the only one of the seven seasonally adjusted major industry categories tracked by the government with as many openings in March as in the months before the recession started in December 2007. Openings at factories had been as low as 93,000 in May 2009, the fewest in records going back to 2000.

At the same time, the hiring rate, which is the number of people added to factory payrolls as a share of total employment, was 2.2 percent in March compared with 2.9 percent in November 2007, according to the Labor Department.

Skills Mismatch

“There’s a sharp divergence on what’s happening on the opening side and what’s happening on the hiring side,” underscoring the skills mismatch, said Maki.

Economists like Heidi Shierholz are among those who disagree with the premise that a lack of skills is restraining factory hiring.

“There is always some degree of skills mismatch,” said Shierholz, a labor-market economist at the Economic Policy Institute in Washington, which gets some of its funding from labor unions. “That’s one of the reasons why even in boom times we have 4 percent unemployment. The vast majority of the increase in unemployment is just due to weak demand.”

U.S. stocks fell today as Greece struggled to form a government amid growing speculation the nation may leave the euro region. The Standard & Poor’s 500 Index (SPX) dropped 1.1 percent to 1,338.35 at the close in New York.

European Production

European industrial production unexpectedly declined in March, capping a quarter that probably saw the economy slip into its second recession in as many years. Production in the 17- nation euro area slipped 0.3 percent in March from a month earlier, the European Union’s statistics office in Luxembourg said today. In the first quarter, output fell 0.5 percent.

The Manufacturing Institute, which is affiliated with the National Association of Manufacturers, said in a 2011 report that in the U.S., “shortages in skilled production jobs -- machinists, operators, craft workers, distributors, technicians, and more -- are taking their toll on manufacturers’ ability to expand operations, drive innovation and improve productivity.”

The Washington-based group said 74 percent of its survey respondents “indicated that workforce shortages or skills deficiencies in skilled production roles are having a significant impact on their ability to expand operations or improve productivity.”

That scenario is playing out for Kevin Ahaus.

‘We Could Hire’

“We’re turning down some business because we can only take in so much with the staff we have,” said Ahaus, president of Ahaus Tool & Engineering Inc. in Richmond, Indiana. The company now has 90 employees after taking in 10 more in the past six months. “We could hire five more today” if the right people are found, he said.

A survey by the National Federation of Independent Business showed a net 17 percent of owners said job openings were hard to fill in April, up 2 points from March and close to the almost four-year high reached in January.

Auto-parts supplier Jody Fledderman said his company faces a similar situation.

“We fight the same thing,” said Fledderman, president and chief executive officer of Batesville Tool & Die Inc., a Batesville, Indiana-based firm that supplies both foreign and domestic automakers with brackets, oil pans and suspension parts. “There are very few younger people starting to go into the industry.”

Hurdles for Factories

Bonin, Ahaus and Fledderman are members of the Precision Metalforming Association and the National Tooling and Machining Association. They were in Washington last week with about 100 other small-business owners to meet with lawmakers and discuss the hurdles faced by manufacturers.

Bonin said many job seekers he meets, particularly younger applicants, do not have a mechanical background, nor do they have machinery skills or the math and science aptitude needed to operate the company’s equipment. Instead, he said, “all I’m doing is stealing from the other shops now.”

One reason for the skills mismatch is that “the manufacturing sector over time has become much more technology intensive,” said Barclays’ Maki. The computer comprehension needed to work the equipment “is making it harder to fill more positions,” he said.

Manufacturing, which accounts for about 12 percent of the economy, grew in April at the fastest pace in almost a year, as a pickup in orders signaled factories will remain a source of strength for the expansion. The Institute for Supply Management’s factory index climbed to 54.8 last month, the best reading since June, the Tempe, Arizona-based group said May 1. Readings greater than 50 signal growth.

Factory Employment

Factory employment has helped drive the U.S. expansion. Manufacturing payrolls have climbed 4.2 percent since December 2009, compared with a 2.8 percent increase in total hiring.

Employers in half of the Federal Reserve’s 12 regions “reported having difficulty finding qualified workers, especially for certain high-skilled positions,” the central bank said April 11 in its Beige Book business survey.

Fed policy makers are debating the extent to which a skills mismatch is contributing to unemployment as they consider whether more stimulus is needed to spur hiring.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, says much of unemployment results from structural weaknesses like inadequate training that can’t be fixed by Fed policy. Investing in job training and education may more successfully address labor-market weakness, Lacker said last week in a speech in Greensboro, North Carolina.

Fed Vice Chairman Janet Yellen has said she’s concerned structural unemployment may rise if “the labor market heals too slowly.” Chairman Ben S. Bernanke said that “continued weakness in aggregate demand is likely the predominant factor” in unemployment.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus