Overcoming the Skills Shortage

Overcoming the Skills Shortage
AP Photo/Dave Martin

If President Trump and the Congress move forward with tax reform, U.S. businesses stand to gain trillions of discretionary dollars from lower tax burdens, repatriation of their net profits held overseas, and incentives that would permit the expensing of capital investment. While this would give American businesses the capital they need to buy more equipment, they might still have difficulty recruiting additional workers with the right skills. And without the right labor inputs to match capital investments, productivity will remain low and this business growth initiative will fail.

The current unemployment rate stands at 4.8 percent, a level that is approaching full employment. Nevertheless, the supply for some categories of skill and experience remains tight. And the lack of suitable candidates at the prevailing wage prevents some firms from expanding their sales. It must be emphasized that we do not have a headcount shortage of willing workers; we have a skills shortage. Unfortunately, a “can-do” attitude is no substitute for the right skills.

More than 75 percent of manufacturers report moderate to severe skills shortages and up to 11 percent revenue losses from increased production cost and sales losses due to those shortages. Service industries are hardest hit. Thirty-three percent of small businesses say they cannot identify candidates qualified for job openings. And 43 percent of small business owners say unfilled jobs are impeding their business growth or expansion.

Recent graduates with backgrounds in science, technology, engineering, and math (STEM) can generally find suitable entry level positions because these skills are in high demand. Outside of STEM, however, there are tight markets for qualified physical and occupational therapists, nurses, machinists, electricians, and welders. Most of these jobs require that a suitable candidate have at least a post-high school certification and supervised experience or apprenticeship. The same is true for many factory jobs today. As one manufacturing expert puts it:

“The typical factory today is very automated; it is normal to have programmable logic controllers, computers, robots, palletizers and a host of other automatic packaging equipment. To troubleshoot, operate and maintain this kind of equipment requires apprentice type training that will lead to a journeyman level of skills.”

If the mismatch between candidate skills and business investments to accelerate growth continues, the result will be an “unprecedented period” of slow growth — averaging 1.5 percent per year, according to the Conference Board. If skills do not match investment in equipment and intellectual property, the cost of production will increase, spurring inflation or simply impeding further investment, despite any available capital resulting from tax reform.

A growth rate of 1.5 percent is far too low. We must take steps to address the skills shortage immediately. In addition to revamping the curricula for K–12 education to accommodate the labor market’s needs, we must also look for other, nimbler sources of skilled labor supply in the short term.

For instance, we can retrain some of those currently in the labor force and incentive retirees with the right skills to reenter the labor force. We can invite highly skilled immigrants matched to specific jobs, and lean on the H1B visa system by adjusting the headcount limit to match our skills deficit. H1B visas provide employers with the specific skills they want, temporarily and in quick order. Unlike immigration, the H1B system does not impose a costly stack of permanent entitlement obligations on taxpayers.

Reforming the tax code to encourage businesses to repatriate profits and expense capital investments may generate an impressive wave of funding for business growth. But we are facing a shortage of skills needed to make these investments productive. We need to be creative, flexible, and realistic when coming up with solutions. Above all, we must act quickly.

If we are unable to find and match the prospects for increased investments with employees who have the right skills, those investments will never bear fruit.

Alan Daley writes for the American Consumer Institute, a nonprofit educational and research organization. For more information, visit www.TheAmericanConsumer.Org.

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