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The Skilled Worker Shortage Fallacy

t's time to set the concept of a skilled workforce shortage aside -- unless, of course, it's applied to current status of Congress.
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America has a serious shortage of skilled workers and that is a primary cause of our lack of job creation. Right? Wrong!

We have been bemused for the past few years as an ecumenical group of business leaders, academics and experts have put forward the argument that training and developing a more skilled workforce would help drive job creation. It seems to us that this is a basic misunderstanding of cause and effect.

We can have a philosophical debate about which came first -- the chicken or the egg. But when it comes to job creation there should be no such argument. Organizations and individuals who create new organizations are the chicken -- they are the job creators. Employees and skilled workers are the eggs -- they are the job holders.

That's not to say that we don't need skilled workers in the United States. But, as a wide variety of recent studies have demonstrated, the extent to which the skills of the workforce influences business decisions is a modest one and the actual "skill deficiencies" of the current American workforce may be significantly overstated.

For example, in a March Harvard Business Review article, Michael Porter and Jan Rivkin reported that a survey that they had done revealed that by far the leading reason that a company would move out of the U.S. was "lower wage rates in the destination country -70 percent." Thirty-one percent of the survey respondents cited "better access to skilled labor" as a "reason for leaving." But 29 percent cited "better access" as a "reason for not leaving." So, that makes "skilled labor" a "push" rather than a clear and compelling driver of job creation for the United States.

After examining labor demand data from the Chicago Federal Reserve, Matthew O'Brien, associate editor of The Atlantic, in June wrote, "We should expect wages to be rising much faster in sectors where employers can't find enough qualified workers. ... But that hasn't been the case." Instead, in the period from May of 2006 through May of 2011 there has been a "general shortfall of demand" for the "low, medium and high skill workers" that has moved "more or less in tandem."

Professor Peter Cappelli of The Wharton School supports O'Brien's position in a June 12 article for Time Business titled, "The Skills Gap Myth: Why Companies Can't Find Good People." After analyzing a Manpower survey, which showed that "roughly half of the employers were reporting having trouble filling their vacancies," Professor Capelli astutely notes, "roughly 10% of the employers admit that the problem is that the candidates they want won't accept the position at the wage level being offered." He continues to observe for those who indicate there is a skill shortage, "by far the most important shortfall they see in candidates is a lack of experience doing similar jobs."

The Bureau of Labor Statistics reports that there currently 3.4 million job openings in the United States. Our careful review of the top 50 occupations with the most projected openings for 2010-2020, posted by the CareerOneStop of the Department of Labor on its careerinfonet, shows that the majority of the current and future job openings are "low skill" requiring less than high school or high school degrees.

So, if skill shortage is not central to the country's job creation dilemma, what is? In our opinion, America has had significant problems since the beginning of the great recession on the following five key factors that drive significant job creation:

  • Small businesses and entrepreneurial start ups: Although Congress has passed some legislation aimed at assisting small businesses, they still indicate difficulties in getting loans and financial assistance. Our analysis of the Business Employment Dyanmics statistics from the The Bureau of Labor Statistics shows that there was a steady decline in the number of reported new business establishments from a high of almost 670,000 in 2006 to a low of about 507,000 in 2010 with a slight increase to 536,00-plus in 2011.
  • Large corporate growth and development: In general, American businesses and the multinationals have continued to expand and create more jobs outside the country while learning to do much more with less and replacing people with technology here. Our byzantine tax system creates incentives for doing business abroad and provides loopholes which can bring a company's effective tax rate down to zero.
  • Government investment: State and local governments across the nation continue to be cash-strapped and to cut government jobs (teachers, police, fire, agency employees) and to eliminate public works and other types of projects that create private sector jobs. The stimulus bill provided a little short term relief from 2009 until 2011. But, its transitional benefits are gone now.
  • Clustering and construction: After prior recessions, new construction -- both commercial and residential -- has been at the heart of economic recoveries. In the early 2000s, America was significantly over built so that can not be the case in the near term. Our infrastructure is crumbling but we lack the political wherewithal to deal with that condition.
  • Consumer demand: According to a June 18 U.S. Census Bureau press release, "U.S. median household net worth declined by 35 percent between 2005 and 2010." As reported in Business Insider on June 12, almost 24 percent of mortgages nationwide are still "under water." People are struggling to make ends meet and do not have discretionary income. In the cover article for its July 14-20 issue, The Economist states that in the period from 1982 to 2007, consumer spending "on goods, services and houses rose from 67% of GDP (growth) to 74%. It goes on to note that in the three years since the recession ended, "Consumer spending and housing contributed just 65% of growth."

Small businesses and entrepreneurial startups, large corporate growth and development, government investment, clustering and construction, consumer demand: those are the key factors in the job creation algorithm. Appropriately weighted and aligned they produce the output which is jobs. They are out of synch now. We need to correct this.

On July 9, Thomas Kochan of MIT wrote a The Huffington Post blog titled "The Jobs Crisis: Time to Treat It as a National Emergency." In his post, Professor Kochan recommended developing a "Jobs Compact" and major investments in job creation. We called for a similar comprehensive and sweeping approach in our 2010 book, Renewing the American Dream: A Citizen's Guide for Restoring Our Competitive Advantage.

The citizens and the country have begun to mobilize and there is an emerging consensus that this is a complex demand side issue that must be addressed in an integrated and coordinated manner. It can and will not be corrected simply through training and development or increasing the supply of skilled workers. It's time to set the concept of a skilled workforce shortage aside -- unless, of course, it's applied to current status of Congress.

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