You know the feeling. A car alarm is going off in the parking lot and you’re sitting there thinking, “When is someone going to turn that thing off?!”
That’s what the U.S. skills gap has become to many of us: a monotonous bother that we can’t seem to shut off. Eleven million unemployed (BEEP), an ever-increasing number dropping out of the labor market (BEEP), and companies desperate to find qualified people (BEEP).
Why won’t those unemployed people just fill those positions?
In The Talent Equation, authors Matt Ferguson (CEO of CareerBuilder), Lorin Hitt (Wharton School, University of Pennsylvania), and Prasanna Tambe (Stern School, New York University) hit on a key issue that should help to shape our perspective on this issue. “Skills shortages are hard to see when looking at national data – but zoom into the local level, and the talent shortages become very clear.”
Eric Spiegel, CEO of Siemens USA, made the same argument at the inaugural Close It Summit in early November: regions have different strengths and workforces that specialize in different things.
Discussions about the U.S. skills gap often fail to recognize this crucial point. Yes, the skills gap is a big, national issue, but our ability to understand, diagnose, and treat it has a lot more to do with our ability to diagnose and treat problems happening at the regional level. The skills gap is therefore not so much a singular, monolithic problem as much as it’s a multifaceted phenomenon perpetuated by hundreds of regional labor market interactions inside of America’s complex economy.
Essentially, the skills gap is a whole parking lot of different car alarms going off simultaneously. To quiet the noise, we need economic development responses that get at the heart of the local factors creating the problems.
So, how can we actually understand the forces contributing to the skills gap, and can we break those forces down into more manageable forms?
The Big, Diverse, Decentralized States of America
To get started, here are three key distinctives that make the skills gap in the U.S. a hard-to-analyze problem.
The U.S. has a really, really big economy. How is this relevant? Whenever we set out to deal with anything as giant and complex as the U.S. economy, we shouldn’t be naive about what a monumental task it is to analyze and influence direction. For a sense of scale, China, which has over one billion more people than America, has a GDP that is roughly half of the U.S. ($8 trillion compared to $16 trillion).
The U.S. is diverse – The $16 trillion we generate supports about 150 million jobs (including self-employed workers) spread across 1,100 classified industries, which are additionally staffed by hundreds of unique and specialized occupations.
The U.S. is decentralized – The diversity in the U.S. economy also makes it next to impossible to manage and understand from a single point. All the jobs and industry activity are distributed across a highly varied geography. Unlike many other nations, which have just one or a few central economic hubs, the U.S. is chock-full of them. Our economy is formed by 50 states and, more importantly, over 370 metro areas, which manifest very different specialties and essentially operate like distinct nations or economies.
All of these factors translate into a nation that isn’t dependent or driven by just one sector or just one region. We have many unique markets, supply chains, specialties, and industry interdependencies that have the effect of “lifting all boats.” And this, perhaps our greatest strength, is also something that makes it difficult to paint a picture of the economy using purely broad, economy-wide strokes.
The Importance of a Regional Economic Focus
This leads us to the crux of the issue. Regional economic perspectives are key if we want to effectively deal with skills gaps. And if we want to understand how regional economies are set up, we need to understand the industries (the businesses and employers) that drive them. These are the primary factors that create employment.
Just think about aerospace in Seattle, finance in New York, or film in Los Angeles. As those industries form and expand, they eventually characterize the economic base — as well as the employment, knowledge, skills, and abilities — of the region. These industries function as the primary engines for economic growth and stability because they export products and services and import vital dollars. Those dollars then circulate in the economy and support many other local industries and jobs. For a real-world example of this, check out this analysis of the impact of federal employment in Washington, D.C.
And because the economy is largely driven by human capital, the industries that can make (or break) regions have to be able to access the workers and skills they need. Just think, what would happen to the aerospace industry in Seattle if employers couldn’t find qualified people to fill key occupations? Productivity would suffer, which would cause the highly aerospace-dependent economy to suffer.
The Limiting Resources: Four Key Areas
So, when we talk about the skills gap in the context of regions, the issue is really all about the occupations or skills that are limiting resources for important industries. Lack of a key skill can dramatically affect the whole economy.
Since 2009 (and even before), there have been many discussions about a shortage of qualified workers in a handful of areas – manufacturing, health care, technology, and energy, besides core business activities like sales, marketing, customer service, management, and accounting. But for our purposes, there are four sectors that receive the most attention:
- Skilled trades or production occupations, which are spread broadly throughout manufacturing, agriculture, transportation & warehousing, and mining, quarrying, and oil & gas extraction.
- Information technology (IT), which includes specialized areas like web development, software development, and network administration.
- Health care, which includes everything from high-wage, high-skilled positions like physicians to lower-skilled, lower-pay positions like in-home health aides.
- Energy, which is driven by the tremendous growth in domestic oil and gas.
There are various factors creating demand in these four areas. On top of that, these occupation groups are widely divergent on pay, show highly unique regional demand, and require completely different skills and training. Joshua Wright’s recent Forbes article suggested that “the labor market is becoming increasingly bifurcated, with the number of high- and low-wage jobs expected to expand at or near 5 percent through 2017.” Additionally, an article by Richard Florida showed that some cities are dominated by higher-wage, higher-skill job growth, while other cities are growing because of lower-skilled, lower-paying jobs.
So it all boils down to this: it isn’t whether your region has a skills gap, it’s which skills gap your region has. And once you identify those limiting factors, it just becomes an issue of putting the right resources in place to fill those gaps.
Here are four data examples to illustrate how we can understand and approach regional industry and occupation connections.
1. Skilled trades or production occupations. These jobs are spread broadly throughout manufacturing, agriculture, transportation & warehousing, and mining, quarrying, and oil & gas extraction. The following map demonstrates what cities most specialize in, and therefore are dependent on, production occupations. The regions with the highest concentration of America’s nine million production jobs exist in a dense pack of cities that stretch from Iowa, Wisconsin, and Michigan, down to Mississippi, Alabama, and Georgia.
A good example occupation is machinists. Across America’s 370 largest metro areas there are 377,310 machinists, a common production occupation that employers struggle to find. Since 2009 the occupation has grown by an impressive 12%. Machinists make, on average, $19.30 per hour. Cities like Rockford, Ill., and Saginaw, Mich., which have a strong manufacturing base, depend on these types of jobs.
What’s causing the shortage in an occupation like machinists? First and foremost, the machinist workforce is aging – and not replacing itself. A staggering 58% of machinists in the workforce are over the age of 45, and another 26% are over the age of 55, which means the younger workers are not filling those positions. This is a serious challenge for the industries and regions that rely on those skills.
The lack of labor has a lot to do with perception of skilled trades and the overall trend of production jobs and manufacturing in general. People have been fleeing these jobs because many of the industries that need machinists have been in decline. And this skills gap story is true for many cities that rely heavily on production or skilled-trade occupations.
2. Information technology (IT). IT occupations include specialized fields like web development, software development, and network administration. This map demonstrates what cities are most dependent on IT jobs. These cities are more widely distributed geographically with strong densities along the coasts. The occupations are largely associated with government; professional, technical, and scientific research; and the information sector (e.g., software development and internet publishing).
The story in metros like San Jose, Seattle, Washington, D.C., and Austin is a voracious appetite for occupations like web developers. Right now there are about 130,000 web developers across the U.S.’s 370 largest metros. Since 2009, the occupation has increased by about 15% and pays an average of $28.53 per hour.
Unlike machinists, 67% of web developers are between the ages of 25 and 44. The shortage of labor has a lot to do with the fact that the industries requiring these jobs are fast-growing and employers have a very hard time finding, recruiting, competing for, and paying this talent. And because the industry moves so quickly, educational institutions aren’t meeting the educational and skills needs for these in-demand occupations. As a result, there is often no direct pipeline of workers.
The educational attainment for an occupation is also very scattered. About 43% of them hold a bachelor’s degree, 13% have an associate’s degree, and 30% have no college degree and just a high school diploma.
3. Health care. These occupations represent a broad range of high-wage, high-skilled positions like physicians to lower-skilled, lower-pay positions like in-home health aides. These cities, which are scattered across the Midwest and East, have more health care jobs than we would expect, which means that they are more dependent on health care jobs and health care industries. In these regions industries like hospitals, care facilities, medical facilities, research, and offices of physicians are key drivers of the economy.
The health care arena presents an entirely different set of issues. For instance, radiologic technologist is an occupation being driven by the great demand within the health care sector. Since 2009, it has grown by over 7%, and now has a workforce of roughly 191,000 across America’s 370 metro areas. Forty-five percent of those working in this field have an associate’s degree. Average pay is over $27 per hour.
For radiologic technologists, labor shortages are likely a result of (1) employers and training providers being misaligned geographically and (2) widely divergent pay scales.
In 2012, 374 educational institutions produced 8,000 graduates in radiologic technology. This seems like a good number, but given the growth and turnover in this field, employers still might be hard-pressed to find workers. Right now, based on a measure of turnover and job growth, we estimate about 9,000 openings for these jobs each year – which leaves roughly a thousand positions unfilled due to the lack of graduates. Note: This is a simplistic illustration. There are also other programs, like science-radiation therapist, that could likely supply workers for these jobs. However, what we often observe is that because the U.S. economy is so mammoth, it might be harder for an employer in, say, Louisville to find qualified technologists if the local schools aren’t producing enough of them.
Second, as with many nursing jobs, the pay for radiologic technologists can vary wildly, depending on the region, which means that the areas with higher pay (like major metros) tend to attract more candidates and often have a surplus of these workers. On the flip side, suburban or rural areas, which often have much lower pay, tend to face shortages.
In the table below, we pulled together data on some of the higher-paying and lower-paying metro areas for radiologic technologists.
Metros like San Jose, San Francisco, Sacramento, Boston, and D.C. pay significantly higher than the national average for these jobs. Metros like Omaha, Little Rock, Pittsburgh, Wichita, Flint, Mich., and Springfield, Mo., pay significantly lower. There is a $20-per-hour difference between San Jose and Springfield.
4. Energy. The jobs related to energy production are driven by the tremendous growth in domestic oil and gas. The map demonstrates what cities most specialize in jobs associated with energy production (particularly oil, gas, and mining). Notice that some relatively small towns have huge concentrations of jobs. For instance, Williston, N.D., a metro area with an amazing proportion of jobs (nearly 40,000) to residents (25,000) has over 10,000 oil and gas jobs. Oklahoma City, a metro area of 1.3 million people and 660,000 jobs, has about the same number of oil and gas jobs as Williston, with just over 10,000. Also, unlike health care and production jobs, these occupations are more highly concentrated in the middle and western parts of the country.
From 2009 to 2013, the mining, quarrying, and oil & gas extraction industry sector was the fastest-growing sector in the nation. It gained 176,000 jobs (27% growth). In North Dakota the industry grew by an astronomical 320%.
All of this growth has created demand for quite a few occupations, but one higher-skilled occupation seems to come up a lot – petroleum engineers. Across America’s 370 major metros, there are 37,000. They grew by 19% from 2009 to 2013 and make an average of $66 per hour. Cities like Midland, Texas, Williston, N.D., Houston, Oklahoma City, and Lafayette, La., have very high concentrations of petroleum engineers.
EMSI estimates that roughly 2,400 petroleum engineers turn over (retire, switch jobs, etc.) each year. However, only 1,565 people completed degrees related to petroleum engineering in 2012. That certainly looks like a gap as far as the data is concerned.
Local Leadership Is Needed to Address Labor Shortages
What can we do about the skills gap? How do we shut off those alarms? Here is a telling stat: according to The Talent Equation, eight in 10 employers are concerned about the growing skills gap, yet only four in 10 are actually doing something about it. Herein lies our problem. Far too many of us are waiting for that non-specific “they” to solve the problem.
To fill the gaps and get people into the key occupations that will boost industry productivity, everyone from employers to academic institutions to local government needs to identify (using data if possible) the nature of the problems in their regions and seek collaborative responses to prepare people for these in-demand roles. Often, this is done through partnerships between organizations who can develop consensus on what should be focused on, have a vested interest in improving the conditions in the local economy, and can put the right resources in place to develop the types of skills and occupations that will spur productivity for local industry.
Employers often complain that it’s tough to find qualified candidates not simply because there’s a lack of degrees, but because many jobs now require a hybrid mix of higher-order skills – even in areas that didn’t always require them years ago. As Ferguson, Hitt, and Tambe found in a big data study for The Talent Equation, just a small increase in the number of employees with college degrees in certain areas can have a considerable return on investment. For instance, a mere 10 percent increase in customer service workers with a college degree is associated with about $26,000 higher value added per employee at a company. But for other occupations, like information technology roles, there was no correlation between degrees and company performance, likely because (as the authors surmised) skills evolve so fast in technical fields that college attainment rates aren’t the best predictor of a workforce’s success.
When employers and these various groups – educational institutions, government agencies, etc. – use data to understand the unique business or employer climate that defines each region, they are one step closer to building effective regional strategies.
For instance, Monroe Community College in Rochester, N.Y., has taken steps to identify and combat skill mismatches through its Economic Development and Innovative Workforce Services Division. The college performed in-depth data analysis to discover many of Rochester-area’s small manufacturing firms had a strong need for machinists. The research was part of an approach that “emphasizes developing and strengthening public-private partnerships and using data to guide our decisions,” said Anne Kress, the college’s president. “This approach is paying dividends for MCC and our community.”
Similarly, Walla Walla Community College in Walla Walla, Wash., has addressed crucial skills needs through its innovative education program built to foster the region’s growing wine sector. WWCC has been widely recognized as a college that “earns the rare distinction of being an institution of higher education that is reinventing the regional economy from the bottom up.”
Both colleges see regional economic development as an essential part of their missions. And they have taken a leadership role in understanding the key drivers in their local economies, fostering conversations with local industry leaders, and developing training programs that deliver the right skills to students so they can be productive in those important industries.
Community colleges and other region-serving institutions are critical players because they are in a position to assess the local economy, convene employer discussions, develop the right (often short-term, employer-focused) training that is required, and measure the impacts that those activities have on the community.
So, if we want to close skills gaps, we need strong, local economic development strategies built upon an understanding of the types of industries that will drive employment. Seen through this lens, the skills gap is essentially an economic development puzzle that requires the collaborative efforts of those who can embrace the unique qualities of their region, put the right resources (time, money, training, hiring, recruiting and/or communication) in place, and are driven by their vested interest in the improvement of their workforce and economy.
Data and analysis for this post comes from EMSI’s 2013.4 data release. For further questions, please contact us.