What manufacturing skills gap?

Many reasons are given, including the bad image of manufacturing, lack of training in high schools and competition from other economic sectors. All of these reasons seem plausible.

But now comes a study by The Boston Consulting Group, a management consulting firm, that seems to throw cold water on the idea of a serious skills gap. According to the authors, the skills gap in U.S. manufacturing is more limited than many believe. The study is part of BCG’s ongoing “Made in America, Again” study, which examines the changing economics of manufacturing.

BCG estimates that the shortage of highly skilled manufacturing workers in the U.S. ranges from 80,000 to 100,000, which is less than 8 percent of the 1.4 million highly skilled U.S. manufacturing workers. BCG claims that only seven states, including six in the bottom quartile of state manufacturing output, show a significant or severe skills gap. The shortages are local—not national—in nature, according to the report. 

BCG arrived at its conclusions using wage data and manufacturing-job vacancy rates, identifying areas where companies have had to bid up labor rates to find workers. (For more information on the study and its methodology, visit www.bcg.com.)

A “genuine” skills gap would have pushed average annual wage growth 3 percentage points above the inflation rate over the past 5 years, but manufacturing wages instead have grown roughly in line with a below-3 percent inflation rate. In other words, because manufacturing is growing, companies are producing more with fewer workers. While companies could use more skilled workers, they don’t really need them and won’t bust their budgets to get them.

“The problem is very localized,” said Harold Sirkin, a BCG senior partner and co-author of the report. “It’s much less of an issue in larger communities, where supply and demand evens out more efficiently thanks to the bigger pool of workers. Investment in training and skills development needs to be stepped up, but there’s little reason to believe that the U.S. cannot remain on track for a manufacturing renaissance by 2020.”

This explanation makes sense. In all of the discussion of the skills gap, I don’t think I’ve ever heard one person say, “We need to pay more to attract skilled workers.” According to the 2012 CTE Salary Survey, a manual machinist was the lowest paying job in the metalworking industry, averaging $38,294 annually. Assuming 50 weeks of work per year, 2 weeks’ vacation and 40 hours per week, that works out to about $19.15 per hour. That figure is probably high because many machinists work much longer than 40 hours per week.

Trainees are typically paid even less, sometimes as low as $10 to $12 per hour. In many cases, that’s too low to attract the skilled workers manufacturers say they need. 

Eventually, manufacturers will probably have to pay more in wages, in training, or both. BCG cautions that while the current skills gap may be smaller than many people believe, it could become more severe as aging workers retire and as increased manufacturing from reshoring and increased exports push demand up for labor. The average U.S. highly-skilled manufacturing worker is 56 years old. Based on U.S. Bureau of Labor Statistics and BCG estimates, the shortage of highly skilled manufacturing workers could worsen to approximately 875,000 machinists, welders, industrial-machinery mechanics and industry engineers by 2020.

Many associations, schools, government agencies and companies are already recruiting and training the next generation of manufacturing workers. Local shops are doing their part by recruiting at high schools and supporting community college training programs, and more should join the effort. If a storm is indeed coming, it will take all hands on deck to ride it out.