April 19, 2013    Volume 20, No. 5

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MIT Drills Into The Manufacturing Skills Shortage And Finds That It Doesn't Really Exist

By Richard A. McCormack

The widely reported and discussed shortage of 600,000 skilled workers for current vacancies in the manufacturing sector is a myth. No shortage on such a scale exists, according to "fact-based and concrete" research conducted by the Massachusetts Institute of Technology. Where there are shortages of manufacturing workers, the skills they need can be attained by enrolling for one or two years at most of the nation's community colleges.

"The argument that there is a widespread skills shortage is flawed," says Paul Osterman, professor of human resources and management at MIT's Sloan School of Management. "There are so many millions of unemployed blue-collar workers out there that it's hard to believe that firms can't find somebody."

If a shortage of skilled manufacturing employees did exist then, in a market-based economy, the wages of workers in demand would be rising. But they are not.

Potential workers viewing career options understand principles of supply and demand and would start training themselves for the hundreds of thousands of open positions in manufacturing. But they are not.

"Elementary economics says that if there is a shortfall of a factor of something that you need, you raise the price to get it, but you don't see that" happening in the manufacturing jobs market, says Osterman, whose research is part of the large-scale "Production in the Innovation Economy" (PIE) research project taking place at MIT.

If there was a shortage of skilled workers, companies would increase their internal training programs, but there is evidence that companies have, in fact, reduced such programs.

In a survey of manufacturing firms, MIT found that 75 percent of them are not experiencing any issues related to labor shortages. Well less than 10 percent had long-term vacancies (jobs open for three months or more) for less than 5 percent of their job openings. About 15 percent had long-term vacancies for 5 percent or more of their job openings.

Only 15 percent of manufacturers said that the lack of access to skilled workers is a major obstacle to their financial success.

Almost two-thirds said that over the past five years there has been no increase in skill levels required for workers.

"Between 60 percent and 75 percent require basic reading, writing or arithmetic, but only half require all three," MIT found. Only 23 percent of the jobs require writing; 38 percent require math; 42 percent require computer skills; and 53 percent require reading.

Only 21 percent of the firms surveyed require workers with a combination of one advanced math skill, the ability to read more than a simple instruction manual and the ability to use a computer once a week.

Manufacturers that have long-term vacancies tend to be smaller firms; are looking for skills that are not used by other companies in their region; and engage in frequent product innovation. The MIT research says the country needs to care about these firms because they are the most innovative and because the coming retirement wave of baby boomers "may create a problem for even more establishments." But they represent a relatively small slice of American manufacturers.

Companies could solve their skilled workforce problems by raising wages, but they are loathe to do so. Most companies continue to feel pressure to reduce costs and prices of their products in order to stay competitive with overseas rivals. But even this is an "exaggeration," says Osterman, "because in much of advanced manufacturing, wages are not a large percentage of the cost of the product and there is enough margin to raise wages to attract more people. By not raising wages and not increasing their internal training companies are shooting themselves in the foot in terms of their long-run needs," he adds. "They are acting in what they think is their short-turn interest and not in their long-run interest."

In its survey of manufacturers, MIT found that the median time to identify a candidate for an open position was four weeks and once a candidate had been identified, the success rate in hiring them was 95 percent.

Trying to attract additional workers into the manufacturing sector is not that easy, as manufacturing continues on a long-term decline as a percentage of the total workforce. Younger workers see this trend along with the volatility that has existed in the manufacturing sector -- as it lost one-third of its employees over the past decade -- and understandably stay away from pursuing careers in manufacturing.

If they do decide to go into the sector, the skills they need can be easily attained from attending a community college. "They are not Bachelor of Science skills" that are required, says Osterman. "Production workers can get a job with a solid year or two of community college education."

MIT found that companies have cut their internal training programs due to decreasing firm size, the weakening of the human relations function and shorter job tenures. As a result, they are relying more on external training. Yet connections to outside training organizations "are weak and inconsistent," says the study. Only 24 percent of manufacturers used community colleges to train employees. "Half of all establishments feel that community colleges do a poor job of communicating with industry," says the Production in the Innovation Economy study, which will be released later this year.

The preliminary report is located at http://web.mit.edu/press/images/documents/pie-report.pdf.

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