By Chris Engle, Principle, Avalanche Consulting
This article discusses the realities and response to the labor environment seen across the U.S. today. Companies can sharpen their toolkit in evaluating labor markets and finding a current and future workforce. Educators can better understand the needs of companies, particularly in hard-to-fill positions requiring technical or specialized skills. Economic and workforce developers can deploy new attention to the development of talent from within their communities in addition to attracting workers. Collectively, we can all learn how a high-performing economy must be continually supplied with a labor force that is dynamic, responsive, and innovative despite the challenges brought on by technology, demographic change, and uncertainty.
First, let’s take a closer look at today’s labor environment. We have written several articles in recent years about the declining unemployment rate and its impact on industries. Today’s unemployment rate now stands at 3.6 percent, the lowest registered rate in 50 years. We now consistently hear across every part of the country and economy, from highly skilled industries to entry level hospitality, that employers can’t find the workers they need. The low unemployment rate is a function of labor participation, i.e. the number of people seeking work. But, while labor participation rates have increased in recent years, participation remains lower than its pre-recession level. The working age population ten years ago was working or seeking work at a higher rate than today, which indicates many people haven’t benefited from the economic recovery, are living in the wrong location, or don’t have the skills to get hired. Re-engaging this workforce has become the number one opportunity to grow the labor pie today.
Longer-term, we face many twists and turns in right-sizing the labor supply. Baby Boomers are retiring at historic levels, which will drain the labor force. In addition, aging Boomers will create new demand for health care and retail workers as they live longer, drawing workers from other industries such as logistics and manufacturing. Women continue to boost their participation in the labor force as male employment rates decline. Today, forty percent more women than men receive an Associate’s degree and 30 percent more receive a Bachelor’s, with many health-related fields seeing three to five times more female graduates than male.
While age and gender trends are reshaping the face of the labor force, technology continues to demand seismic change from its newest workers as well as experienced workers. The spread of information technology and data analytics has imposed new urgency to find the technology workers and data skills required by companies to compete. Manufacturing resurgence in the U.S. has dramatically boosted demand for production workers as well as maintenance and mechatronic skills to run robotics systems. Health care’s unrelenting growth and quest for efficiencies has placed renewed emphasis on registered nurses, particularly those with a Bachelor’s level of education. Ecommerce and the “Amazon-ation” of retail has placed new warehouses across the country, requiring packers and drivers to move goods. Difficulty in filling warehouse jobs has led to significant wage increases and further drains workers from other industries such as manufacturing and hospitality.
In talking with hundreds of employers across the U.S. in recent months, we hear common themes around labor shortages. Here is our short-list of priority skills and occupations that are difficult to fill for primary industries include:
- Manufacturing: production workers, industrial maintenance/repair, technicians, welders, industrial engineers; and
- Information Technology: cybersecurity, application programmers, data scientists, network engineers; and
- Health care: registered nurses, diagnostic equipment technicians, dental hygienists, doctors; and
- Finance: Bankers, analysts; and
- Logistics: material movers, truck drivers, data scientists.
Still, few skills and occupations aren’t in short-supply today, resulting in an “all-of-the-above” strategy to both find workers (companies) and develop their workforce (communities).
Companies: Focus on Graduates and Young Workers
Today, companies must go where their most important workers are. For a specialized or technology workforce, this means “follow the education.” Today, five million people receive a post-secondary credential or degree. Where can these graduates be found in the fields you need most? Fortunately, the U.S. Department of Education tracks graduates by degree and award level and we analyze the data to uncover significant variation across the U.S.
If you are looking for the largest pool of graduates to draw from, look toward the major markets. Amazon did this when they placed their HQ2 in Washington, DC and New York City (originally). These two markets coincidentally are the Top Two producers of college graduates in software and IT.
If you are concerned about competition for labor (unlike Amazon, who can confidently expect to pay a premium wage), consider locating new operations in regions with a high concentration of graduates relative to population. For highly sought-after software graduates, consider Salt Lake City, Washington DC, Pittsburgh, and Rochester. Think a mid-sized city can work for you? Look toward Akron, Colorado Springs, Omaha, and Syracuse.
Want to recruit health care graduates from smaller metros that produce more than they need? Look to Davenport, Gainesville, Savannah, and Salt Lake City.
If your business relies on a young, innovative workforce, consider metros that are magnets for 25-44 year-olds with a Bachelor’s degree or higher. Seattle, New York City and Austin all had counties that grew their educated, millennial population in both significant net terms and more than 30 percent in the last five years.
Communities: Grow Your Own
Today’s labor shortages are across the country, and economic developers grapple every day with the challenge of convincing people to stay in their community, relocate, or develop themselves into the workers our companies need. With today’s unemployment rate so low, retain/attract strategies can feel like a zero-sum game, that my win is your loss. Companies too bristle at the high rates of churn they see from mobile workers (new relos, no roots). More must be done to increase the size of the workforce pie.
The best answer long-term (and again, labor shortages will be a fact of life even with future economic slowdowns), the “win-win” solution, is to prioritize first a “develop” strategy for your community. Smart economic developers help assemble technical workforce training for growing or expanding companies, particularly as part of an RFP process. But more must be done; we have to ensure our local education systems delivers the full range of skills needed by the local economy.
How do we do this? We must find new fervor to preach the benefits of graduating with the *right* post-secondary credential. Students can’t assume that achieving a 4-year degree in any field (which is difficult and costly) will deliver the optimal result for them. Stackable degrees appear to be the future, particularly when students can earn an Associate’s degree when they graduate from high school in technical fields.
We must bring companies closer to educators, students, and parents to clarify which skills and occupations are most needed. We must use labor demand forecasts to guide colleges and universities to fill local job demand with intention. And, we must encourage students to consider the job market as much as they consider their “career passions.”
Underperforming levels of labor participation are one area to attack. Despite a decade of job creation, labor participation rates are still lower than their pre-recession peak as mentioned before. In real terms, if we had a rate seen in 2009 (one percent higher than today), we would have 17 million more people available to fill jobs in the U.S. In one mid-sized metro client of ours, we estimated 10,000 people were missing from their workforce.
Another even more significant cause of labor shortage is the lack of alignment between new graduates’ skills and labor demand. Too many students graduate with degrees of marginal value in today’s job market, putting them in low-wage jobs that don’t use the education they are indebted for (aka underemployment). In one economically diverse client community, we estimated than nearly 40 percent of graduates get degrees in fields with limited to zero local job demand. Will they find jobs that use their education? Unlikely. Will they relocate for jobs or be underemployed? Very likely.
Also consider this example: 70 percent of Psychology Bachelor’s graduates in the U.S. do not continue on to get their master’s or PhD, which is required to practice Psychology. While some graduates will get jobs in related fields, like social work, this is but one example of a pipeline of workers that could get redirected into other, high-paying fields.
At Avalanche Consulting, we’ve been working for many years on how to best measure the “supply-demand gap” in a local community’s education pipeline, calculating the extent to which graduates are either undersupplied or oversupplied in specific fields. While “What Color is Your Parachute” worked well in the past (bless Richard Bolles, who passed away at 90 years of age in 2017), we now need to look at the “flavor and temperature” of job demand where students plan to live. University graduates may relocate for jobs, but most community college graduates stay where they graduate. Economic developers know their job prospects better than they do, or even their career counselors. Preach the gospel of smart career and education decisions.
Companies and Communities: Come Together
Companies are learning more than ever that investing in education partnerships is in their long-term interest. Community colleges and manufacturers have a long history of creating programs to teach the technical skills they need in real-world learning environments. Companies “coach” colleges and universities through industry advisory councils on the types of skills, technologies, and education make graduates most employable.
Still, much more should be done. In a fast-moving business world, quality information often doesn’t make its way to educators. A company (often a single HR director) can’t advise dozens of K-12 districts and colleges in their region – who has the time for this when they are doubling efforts to recruit much-needed workers? Consider too that hearts and minds of students must usually be changed at a young age, which means that jobs that kids don’t see on TV must be brought to them via career days at company locations and thorough career planning at the middle-school level. Parents too must be part of this discussion to ensure students have a diverse set of career ideas to choose from.
Community leadership must now step in to organize and optimize the relationships needed for educational alignment in order to ensure a balance, available workforce for years to come. In some communities, the chamber of commerce takes on this role as lead convener of conversations and warehouse for information. Other communities are led by a group of non-profit training providers and foundations to help workers who may struggle to get trained and keep a stable job. For now, an “all-of-the-above” approach may fix short-term needs, but a systems-level, regional approach will yield the best long-term result.
Companies and communities must now come together to plan for future needs, build new education programs, and communicate out to the students, parents, and career counselors guiding career decisions. With labor shortages in so many critical, globally competitive industries today, we are now all in the career planning business. Our economic future depends on it.