The "Three Million Available Jobs" Canard

I recently heard a guy, apparently the former star of a reality TV show about 'dirty job', purport that there are three million jobs with good wages waiting to be filled, and that they remain open due to a mismatch between job applicant skills and the needs of the employer. He suggested that the root of the problem was that people are turning up their noses at the skilled trades, and thus aren't even considering jobs that could pay them $40,000 - $120,000 per year. Needless to say, something about that claim carried the odor of an equine byproduct.

As it turns out, the "three million jobs" figure is tossed around with some regularity, and it represents a snapshot of the job market at any given time, and does not capture the even larger number of jobs that become available and that are filled each month. It's a bit like looking at a photo of kids playing musical chairs and observing how many open chairs there are - the snapshot tells us how many jobs are available, but many of those jobs are recent vacancies and most of them will be filled. So as it turns out, about 2.5 million of those jobs aren't at all difficult to fill, and the suggestion is that in manufacturing "there are as many as 500,000 jobs that aren't being filled because employers say they can't find qualified workers". Note, we're still a long way from "jobs that could pay $40,000 - $120,000 per year."

When Sixty Minutes explored this shortage of workers, it found that wages were stagnant and manufacturers were unwilling to train workers - that is, they wanted to hire people who were going to be fully productive from day one. They looked specifically at a company called "Click Bond", that has had difficulty getting workers with sufficient skill to run its machines. An executive helped form a partnership with local community colleges to train workers, and "As part of the training program, [participating] manufacturers are willing to pay students for two-day a week internships." The big money at the end of that training?

At the end of the 16 weeks of training, Click Bond offered Ryan Vre Non and Jamie Pacheco full time jobs at $12 an hour with benefits.

So if you complete the training and internship, and perform at the top of your class, you have the chance to earn $12/hour? Not only is that number far short of the great salary the "dirty jobs' guy was touting, it's difficult to believe that somebody who was capable of completing that program at the top of his class could not have found another program that would have resulted in a better-paying job. And really, if you're advertising a job at $12/hour for somebody who already possesses the skill set to be productive with minimal to no training, you're not offering enough to entice that person away from their current job.

Taking a close look at wage data in manufacturing, the Boston Consulting Group recently found that less than one percent of the manufacturing workforce, in a handful of labor market areas, is affected by a skills gap. In its survey of employers, Manpower finds that, among U.S. employers having difficulty filling jobs, 54% report that the reason positions are difficult to fill is that workers are looking for more pay than is offered and 44% report that applicants lack experience.

But such reasons cast doubt on the idea of a skills mismatch, as it is not unreasonable to expect employers to pay the going rate for the skills they need, or to provide opportunities for workers to gain experience doing the jobs they need done. So the driver of current high rates of unemployment certainly does not seem to be the inadequate skills of the American workforce.

Seriously, if the message is "train yourself at your own expense" (or taxpayer expense), or even "train yourself at your own expense, but with the possibility of a part-time, paid internship", students are not going to clamor for those $12/hour opportunities.

In exchange for these math and computer programming skills, which for most people would most likely require some measure of secondary education, Click Bond is willing to pay newly hired employees $12 per hour. In Nevada, the average hourly wage covered by unemployment in 2011 was $20.13.

Pitts also talked with Klaus Kleinfeld, German-born CEO of Alcoa in Whitehall, Michigan. Alcoa employs 2,200 people working three shifts a day, seven days a week, producing parts to make jet engines 50 percent more fuel efficient.... The Alcoa plant currently has 27 job openings, but Kleinfeld says that Alcoa absolutely has no problem with a skills gap, but it sure would be a lot easier if people would “get an education.”...

While there may very well be 500,000 job openings in manufacturing facilities across the nation, these jobs require a specialized skill set that wasn’t required even a decade ago. Kleinfeld implied it, but Hutter made it perfectly clear – employers are not willing to pay to train employees anymore.

When you start looking for the more highly paid jobs where there is a "skills gap", the word "engineer" seems to come up a lot, but not so much "machine operator". If an experienced worker is worth $12/hour, we're not talking about a job with a meaningful career path.

Moving back to "dirty jobs", I personally have no problem with encouraging students to pursue jobs in the skilled trades. I respect that some people are concerned that when you start doing so in high school, you end up tracking students who are more likely to be poor or minority into trade-oriented 'tracks' rather than academic tracks, but the effort doesn't have to occur in high school. We, as a society, can simply accept that the skilled trades are important, can potentially pay as much or better than many white collar jobs, and that it's acceptable and in some cases optimal to pursue a career in the trades instead of seeking a college degree.

That said, some of the jobs we're talking about aren't just dirty, but are dangerous. A friend who owns a small factory described the toll on his body from his years of running industrial machines. He has severe degeneration of his back and knees - and he's the boss. Talk to some retired pipefitters about their aches and pains. Talk to some auto mechanics about the injuries they or their peers have suffered on the job.

We can't pretend either that everybody is capable of working those jobs, or even that some of the people who aren't applying for those jobs are declining the opportunity because they enjoy being unemployed. Somebody who has become unemployed after a couple of decades of working one job that wore out his body is not necessarily going to be capable of entering another job that carries a similar physical toll - even for $12/hour plus benefits. And for the theoretical job that starts at $40K and could pay $120K with an employer that purports itself to be willing to train, if they can't get enough applicants it's not because there's a shortage of skilled workers - it's because of what the prospective employer and his pitchmen aren't telling you - such as the level of physical danger, travel time and isolation.

Control Freaks vs. Commoditization

In relation to Microsoft's plan to become a manufacturer of tablet computers, Paul Krumgan observes,

[I]f you contract with other people to build equipment, they may be unwilling to invest in quality in the belief that you will use your sole-buyer status to extract the benefits.

And that, apparently, is exactly what has been going on with Microsoft; its reliance on other people to build computers using its software worked very well for a long time, but lately Apple’s control-freak approach has been winning out.

I agree with Krugman and his reference to Hart, but from my experiences in the hardware market I think Microsoft's primary difficulty emerges from the commoditization of personal computers, both desktop and notebook, and the reluctance of third party manufacturers to take a long-term, quality driven perspective through which they can profit from selling premium products.

I bumped into a friend recently and noted that he was using a MacBook Pro. I commented that he had traditionally used PC's. He responded that he is OS agnostic, and suggested that his principal motivation for switching was quality. I started to comment about the decline in the quality of the Dell notebooks I've owned and he cut me off, "Dell computers are crap!" So there he was, a guy with enough money to buy a premium computer of any brand, as long as it worked, and he was turning to Apple because, all else being roughly equal, its products are reliable.

The difficulty for Microsoft is that if it builds high-end products, sold alongside third party Windows tablets built to be sold as commodities, even if quality is accepted as a matter of faith it may have difficulty maintaining a premium price point. But perhaps Microsoft accepts that its move may alienate third party manufacturers, and that those third parties will compete more directly with Amazon and... it would appear Google as well, for the lower-end tablet market, while it focuses on a premium product that can compete with the iPad, or at least give Microsoft an opportunity to establish itself as a tablet manufacturer for enterprise customers while it fashions additional products that may have greater appeal to consumers.

Quality? If it wants to offer tablets that can truly be classified as premium, I don't think Microsoft has much choice but to make its own hardware. For any other company, such an approach would involve a significant risk with much of any eventual benefit flowing to Microsoft.

Do Right-To-Work Laws Hurt State Economies

We all know the conventional wisdom on right-to-work laws:

"Proponents argue that it creates jobs, on the theory that there are a bunch of anti-union employers who will flock to whatever state passes the law ... Opponents dispute that claim, and argue that all it does it allow employers in those states to pay workers less and give them fewer health and pension benefits. They claim it is part of the race to the bottom that corporations encourage and that Republican politicians are more than happy to implement in exchange for the huge political contributions to their campaigns."

Under either philosophy, the idea is that jobs shift from union to non-union states, and for decades that pattern was beyond dispute. But in this post-NAFTA, internationalized era, might the story have changed?

Only one state has passed right to work since NAFTA: Oklahoma in 2001. (Before that, the most recent was Idaho in 1985.) About a year ago, Lafer and economist Sylvia Allegretto published a report for the Economic Policy Institute* exploring just what had happened in the decade since Oklahomans got their "right to work." The results weren't pretty.

Rather than increasing job opportunities, the state saw companies relocate out of Oklahoma. In high-tech industries and those service industries "dependent on consumer spending in the local economy" the laws appear to have actually damaged growth. At the end of the decade, 50,000 fewer Oklahoma residents had jobs in manufacturing. Perhaps most damning, Lafer and Allegretto could find no evidence that the legislation had a positive impact on employment rates.

Given that the U.S. can no longer win a "race to the bottom" in terms of wages, perhaps we've moved into an era in which it's more important to offer communities sufficiently attractive to professionals and skilled labor than to offer the cheapest domestic wage for factory line workers. A company that has so little loyalty to state and community that it will relocate half-way around the country to save money on labor will have no more regard for the new community when the total cost of production is cheaper outside of the United States. Whether or not you believe there is a moral factor involved, that's the story of modern manufacturing and a company that doesn't shave production costs is apt to be undersold by cheaper imported goods.

For a state like Michigan, my approach might be to try to create an environment in which certain hub communities, offering a good lifestyle to workers, a highly educated and highly skilled workforce, and other factors that could attract workers at the top of the market, are at the center of a manufacturing hub, such that manufacturers can have a reasonable expectation of being able to find local (or near-local) suppliers, labor, and support. I don't know if it will work, but it seems to beat trying to drive down labor costs to compete with other states, starving communities of the tax base they need to fund schools, recreation, roads (already bad enough in Michigan), and other factors that make for an appealing community. If the effort fails, it all falls apart anyway, so why not try?

Manufacturing, Outsourcing and Jobs

Forbes recently ran a series of blog posts examining, among other things, how Dell's focus on short-term profits led to their outsourcing more and more of their business, to the point that the company to which they had outsourced their operations effectively became a competitor. The issue, according to the author, is less that Dell outsourced and more that they focused on costs and profit margins without considering what they were bringing to the consumer experience:

This comment is in fact an illustration of the mental guide-rails generated by cost accounting. There is an automatic assumption that when faced with a market challenge the way to be more competitive is to cut costs. The possibility of adding more value is unconsciously eliminated. It would be wrong though to say that cost accounting is the main cause of these problems. But it is a contributing factor. With decisions and thinking and values based on cost-accounting and short-term profits, Dell’s fate was sealed. If decisions and thinking and values had been based on how could Dell deliver more value to customers sooner, the outcome would not have been predetermined, as Apple [AAPL] has shown.

The articles explain how, due to outsourcing, an economy can bleed high tech jobs to the locations at which the outsourcing occurs:

The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:

• The flex circuit connectors are made in China because the US supplier base migrated to Asia.
• The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
• The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
• The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
• The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
• The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.

An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.”

The series is offered under the theme, "Why Amazon Can't Make A Kindle In the USA", which, as the counter-example of Apple indicates, is not the principal problem. The problem is that when you outsource high tech manufacturing, you make it more likely that a lot of the jobs associated with any given technology will end up being located in the foreign nation. It's much less of a concern that Kindles (and Apple products) are assembled in Asia, or even that components of those products are manufactured in Asia, as compared to the loss of the industrial design, software, and similar jobs associated with the products and industries. This is the source of my skepticism of the conceit of Michael Boskin, that it is irrelevant to our nation's future whether we manufacture computer chips or potato chips. It may be that on the factory floor, there's little difference between making $10/hour frying potatoes as opposed to $10/hour assembling iPods, but when you start thinking about what our economy needs to sustain a healthy middle class, let alone to be a future leader in the design and production of high tech products, you need to avoid exporting the design and manufacturing expertise associated with those products. The articles note that even as our nation talks about developing future technologies, we tend not to ignore the fact that the associated manufacturing job opportunities are most likely to arise in other nations:

The lithium battery for GM’s [GM] Chevy Volt is being manufactured in South Korea. Making it in the U.S. wasn’t feasible: rechargeable battery manufacturing left the US long ago. Some efforts are being made to resurrect rechargeable battery manufacture in the U.S., such as the GE-backed [GE] A123Systems, but it’s difficult to go it alone when much of the expertise is now in Asia.

It's not "all bad" to export manufacturing jobs, particularly low-skilled jobs in dirty industries. Leaving issues of the environment and worker exploitation in those countries aside for the moment, there is a domestic gain in obtaining certain components and products from other nations at lower prices, while minimizing the domestic impact of many of the environmental issues associated with those industries. Even back in the 1980's, computers were packed full of components manufactured in overseas factories.

The view that the migration of mature manufacturing industries away from developed countries like the USA is just part of the healthy natural process of economic evolution that allows resources to be redeployed to new, higher potential businesses is certainly widespread. It is however mistaken. As Pisano and Shih point out in their HBR article, “It ignores the fact that new cutting-edge high-tech products often depend in some critical way on the commons of a mature industry. Lose that commons, and you lose the opportunity to be the home of the hot new businesses of tomorrow.” For instance: once silicon-processing and thin-film deposition capabilities are gone, it’s hard to become a major player in solar panels.

As the author puts it, focusing on "short-term financial gain at the expense of core capabilities is a very dangerous way to go if the company wants to survive." Apple almost died at the hands of its bean counters who, having forced Steve Jobs out, neglected product development and quality control, and authorized clone-makers only to yank the carpet out from under them the moment they realized that the clone-makers were building cheaper and arguably better machines. I don't know if Jobs had to remind people of that history as he rebuilt the company, or if by the time Apple was again turning real profits the major shareholders decided that you don't argue with success. While I have no particular reason to be optimistic, let's hope that at least some U.S. companies are taking a longer view of profit and asking, "Why can't we be more like Apple?"