From my friend Ed Gordon

GORDON REPORT

"How Much Slack Is in the U.S. Labor Market?"

December 2014

OVERVIEW

With last month's U.S. unemployment rate at 5.8 percent, some argue that the number of workers available for hire might get tighter. However, many economists offer the counterargument that plenty of labor slack still exists since employers remain unwilling to raise wages.

It has long been apparent to many analysts that the U.S. Bureau of Labor Statistics' U-6 unemployment calculation proves a more accurate measure of unemployment. This figure combines the number of people unemployed with the part-time workers seeking full-time work with benefits, and people who have become too discouraged to keep looking. The U-6 rate was 11.5 percent in October 2014. Median hourly U.S. wages when averaged across all occupations has fallen 3.4 percent since the beginning of the 2007 recession, after adjusting for inflation. However, there has been some wage growth for critical skilled tech jobs in parts of the United States.

Another viewpoint is that much of the drop in the unemployment rate is due to a shrinking labor force driven mainly by baby-boomer retirements. However, by conservative estimates the unemployment rate would be 7.2 percent if we counted all the jobless working-age adults who should be seeking employment (New York Times, November 14, 2014). Obviously there are many Americans available to fill low-skill jobs. Since 2010 most of the gains in employment have been in low-skill sectors such as leisure and hospitality, temporary help services, and retail jobs.

MOUNTING EVIDENCE OF SKILLED WORKER SHORTAGES

But the picture is very different for many employment sectors with high-skill jobs. An Associated General Contractors survey of October 2014 found that 20 percent of its members had turned away business due to a lack of skilled craft people. This is in an industry that is just beginning to recover! A recent Wall Street Journal survey reported that 43 percent of small business owners indicated that "unfilled jobs were impeding their businesses from growth or expansion." In a November 2014 Deloitte Business Confidence Report, 32 percent of chief executive officers stated that they viewed the shortage of skilled workers as an obstacle to future growth. These are only the most recent surveys reporting that skilled-worker shortages are a major business worry.

With 10,000 U.S. baby boomers retiring each day, this skills-job imbalance will only continue to escalate. The global nature of this huge demographic shift means that every industrial nation is chasing an inadequate supply of younger well-educated and appropriately skilled workers to fill jobs in their tech-driven economies. We tend to forget that each generation's tlaent is not automatically re-engineered to the requirements of the current labor economy.

The U.S. Department of Labor reported that at the end of September 2014 there were 4.7 million open jobs, putting the jobs-openings rate at pre-recession levels (2007).  Yet the unemployment rate then hovered around 4.4 percent. With the 5.8 percent October 2014 unemployment rate, you might ask what has happened to change the U.S. labor market? Is this the result of too many unemployed workers lacking the skills needed for available jobs triggering the fall of U.S. productivity from 2.6 percent  (1995-2010) to the miserable rate of 0.7 percent?

A strong indication that this is the case can be found in the November 2014 J.P. Morgan study, "New Skills at Work." It found that about 2.6 million or 46 percent of working-age New York City residents lack the post-secondary credentials that most companies now require to fill middle-skill jobs. J.P. Morgan has also issued a report on Houston and intends to publish similar reports on seven other U.S. metropolitan areas to spur meaningful reforms for closing this skills-job disconnect. "We've got to invest in this data," stated Chauncy Lennon, the J.P. Morgan study's director, "so that we can get better alignment between what employers are looking for and what trainers are providing."

Until now U.S. business executives have been largely unwilling to commit financial resources to funding realistic solutions for skilled worker shortages. A 2014 Oxford Economics study, "Workforce 2020: The Looming Talent Crisis," reported on the paradox that in the United States though 41 percent of the companies surveyed reported difficulty recruiting employees with base-level skills and 50 percent had difficulty recruiting specialized employees, only 39 percent of American employees receive ample training on workplace technology.

U.S. executives seem to hope that somehow from the large pool of unemployed or underemployed workers, those with the required skills will magically appear. They also continue to grasp at the fantasy that more H-1B visas will satisfy their labor shortfalls, ignoring the fact that a global hunt for these skilled workers has turned into a "skill wars" that no one can win. "Workforce 2020" surveyed executives and employees in 27 nations, and almost half of all executives reported difficulty in finding workers with base-level skills.

BUSINESS ENGAGEMENT THROUGH RETAINS

Progress in overcoming the current U.S. bifurcated labor market depends largely on increasing business commitment to a variety of both short-term and long-term training and education programs. A hopeful sign comes from the 2014 Training Industry Report in the magazine Training that found total U.S. training expenditures jumped 11.7 percent to $61.8 billion. An important short-term strategy for filling today's growing number of vacant jobs is business participation in regional public-private partnerships, which I call RETAINs (Regional Talent Innovation Networks), that are increasing both effective job-training programs and incumbent worker training and education. To prepare the workforce of the future, RETAINs are also helping businesses play a much more active role by supporting internships, apprenticeships, career academy high schools, and career information and education at both the elementary and secondary levels.

Many businesses across America already are helping to foster these methods of developing future talent through their participation in RETAINs. To overcome this skills crisis, particularly small businesses need to become engaged in supporting such partnerships. Rather than facing closure for the lack of key workers, businesses need to take action today to avoid being listed in a future "obit column" of the Wall Street Journal.

Edward E. Gordon is the president of Imperial Consulting Corporation (www.imperialcorp.com). His latest book is Future Jobs: Solving the Employment and Skills Crisis (Praeger, 2013).

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Unfilled Key Jobs Crisis Takes on Worldwide Proportions--- Dr. Ed Gordon

While a preponderance of both U.S. and foreign job concerns are increasingly focused on the scourge of growing unemployment, in face of generally weak economic recovery conditions, little is known, and even less confronted, are the fast-growing number of critical job openings that are remaining unfilled, worldwide. This paradox is caused by the following salient factors:
1) The post “great financial recession” has created a major upward shift toward skilled jobs, that are being urgently needed, as both the nature of manufacturing, especially in the U.S., has shifted dramatically from mass production of construction, automotive, and high volume products, to an evolutionary technology, calling for an expansion of mechanical skills.
2) As the U.S., especially, but several others of the world’s developed and developing nations are increasingly attempting to fill these gaps, the availability factor has simultaneously narrowed, as a combination of trade school closings, combined with the occupational interests of the emerging younger generation, has shifted career interest more into professional services, such as medicine, law, finance, and architecture.
3) As the 2015 U.S. economy expectations swing into increasingly higher gear, both in production and productivity emphasis, as well as the volume of personnel needed, the problem becomes ever more acute. With the demand far exceeding the current candidates available, it is likely that major U.S. multi-national corporations will be bidding for the available talent, driving up salary and benefit structures even higher. This will be further complicated by the shift of manufacturing businesses from Germany, Japan, South Korea, etc. who are establishing “finishing” operations in the U.S., and will be in the competitive race for skilled hands-on mechanized workers to fill this accelerated gap.
The nation’s, and likely the world’s, leading advocate and spokesman for confronting the jobs crisis rationally is Dr. Edward E. Gordon, who, among many platforms already made increasingly available to him, is the author of “Future Jobs: Solving the Employment and Skills Crisis.” As this problem has become more aggravated, his lectures, consultancy, and recent participation on a White House initiative, have put him in the position of advising U.S. businesses and think tanks, who are finding his expertise of enormous help in planning for both long-and-short term problems in increasing numbers.
In our recent discussion with Dr. Gordon on this “professional skilled worker shortage,” increasingly worrisome in the U.S. and other major manufacturing nations, he referred to the Boston Consultancy 2014 report, “The Global Work Crisis,” which reveals the following:
A labor surplus of between 17.1 million and 22 million will exist in the U.S. by 2020 , three times the current shortage level. Other nations facing similar problems of multiplication of this current unresolved problem are:
Germany - 2.4 million by 2020; China - 24.5 million by 2030; Brazil - 8.5 million by 2020, and 40.9 million by 2030; Canada 3 million by 2030. Poland, Russia and South Korea will add millions more to these skilled worker needs, if no resolution is found.
Already considered the global pioneer of calling attention to this fast-developing crisis, Dr. Gordon is much in demand, and is encouraged that business and industry leaders are setting up discussion groups and problem solving lectures to help put momentum behind this ever-mounting crisis. According to Gordon, this problem has been sadly neglected too long by the world’s leading governments, and needs maximum private sector solutions to stem the negative tide.
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A summary of the USCM WDC Meeting in Washington

US Conference of Mayors – Workforce Development Council Meeting

September 29^th and 30^th – Washington, DC

Monday

I have just returned to Tallahassee from a marvelous meeting of 2 days in Washington DC. The subject matter for this meeting was to gain additional insight and training on the new Workforce Innovation and Opportunity Act (WIOA) that passed this summer.

Our Monday morning briefing was provided by Rochelle Daniels, Assistant County Attorney, CareerSource Broward on the pluses and minuses of the new law and what implications from her point of view were in the law. For the most part, Florida is already aligned well with this law and so there will not be a lot of changes to the way we are operating currently at CareerSource Capital Region (CSCR). Probably the largest change is in the youth services where 70% of our money will be required to go to out of school youth where in the past that was about what we would spend on in-school youth. These youth will be required to accomplish their goals and be closed out of the system over the next two years in a way that will not hurt our performance.

There will be additional performance measures that have yet to be defined and will probably take some feedback from the system before DOL arrives at a final definition.

The rest of the day was a business meeting for the Council and committee reports.

Tuesday

In the presentations on this day we found out what the vision of this new law was and the concepts and expectations of the writers of the law. This was clarified for us by Scott Cheney who was the lead on the Senate budget committee for WIOA. Here is a synopsis of his comments.

ü  The underlying initiative for the new law is to make the boards at the local level more flexibility in how they manage the system.

ü  It also gives the boards more authority and they are required to sign off of other plans of related federal partners. That means the boards will need to be aware of an overall regional strategy and how the partners fit into that strategy.

ü  In addition vocational rehabilitation will become a full partner and a required partner in the one stops.

ü  The writers envisioned a combined planning effort with economic development, partners, Chamber of Commerce, and those with an interest overall in the workforce system which includes job seekers and employers.

ü  Scott pointed out that some of the training that has already been provided at the national level mistakenly infers that universal service has somehow gone away. That is not true. There is a realignment of priority of service with attention being given to those with disabilities, the long-term unemployed, and the opportunities for apprenticeships being the focus, however, all customers that walk into the Career Centers must be served in some way.

ü  Draft regulations will be coming out beginning of the year and open to feedback and discussion by the practitioners in the system. This will give the Department of Labor quality feedback as they draft regulations that are meaningful and helpful to the system.

ü  It is really going to be incumbent upon the Board of the workforce region to think regionally, to think across state lines, to think how to engage all the partners that have invested interest in the talent and human resources of our region.

ü  The bill continues to stress sector strategies, and in Tallahassee we already have our sector roundtables that the chamber and EDC have organized and supported. This tool should be adequate for us to perform the career ladder engagement and mapping that we will need to do under this new law.

ü  There will continue to be a focus for the next 2 years on apprenticeships in sectors where apprenticeships have not been the usual method of hiring new employees. Look for grants coming out of the Department of Labor that will encourage best practice experiments so that the system can learn and become better at apprenticeships.

ü  The Boards will be required to have a conversation as to what do partnerships mean both in the literal sense and in the mutual relationship responsibilities that that brings them to the table.

ü  Adult literacy is also now included in our law and a plan will be required by the adult literacy folks that must be signed off on by the local workforce board.

ü  Scott was very clear that this law is to encourage creative ways of approaching problems, root cause analysis, and defining in kind services that are reasonable and acceptable.

ü  This law encourages Boards to take an entrepreneurial approach to how they operate.

ü  The system is meant to engage and be focused on credentialing because that is the monetary currency of our businesses.

ü  The law also introduces the idea of business engagement in the fact that the demand side plays a very important role in the system.

Under Secretary of Labor – ETA – Portia Wu

ü  Following Scott Cheney, the under Sec. of labor, Portia Wu gave a presentation on how the Department of Labor sees WIOA and the accountability that goes with the new law.

ü  Data that is coordinated and verifiable will be important to the system strategic planning by the local workforce board is at the core of the expectation of the new law.

ü  Community colleges are recognized as key partners in this system and need to be engaged in the determination of strategies for the region.

ü  Ready-to-Work partnership grants will be coming out soon as will a registered apprenticeship grant (usually called learn and earn) which will be out in the next week or two.

ü  Additional strategies by the Department of Labor include continuing Youth Build and strengthen in the employer connections to that program, integration of ex-offenders strategies at the local level, and how the American Job Centers fit into the justice system.  The Board must work more closely with education providers so that ex-offenders coming out of the jails have skill sets that are recognized and certified and shows they are ready to be employed. I suggested with this cohort that there also be an effort to use a program similar to start up quest because many of those in jail are very entrepreneurial and may be far more successful as small business owners then trying to maintain a job.

ü  We also discussed the idea of don’t check the box, which most employment applications have on past criminal history because it serves as a deterrent for the business community to hire someone with a blemished past.

ü  This Secretary was very clear that the Congress was pleased the fact that during 2008 to 2009 Great Recession our system served 20 million jobseekers.

Gerri Fiala- Deputy Assistant Secretary ETA

ü  Ms. Fiala, who has been with the Department of Labor for quite some time made a presentation from the working group’s point of view and the Department of Labor and she included for strategies that she feels are most important for success.

ü  The 1^st is a shared strategic planning which is a four-year strategy. Department of Labor will be looking for fundamental analysis and each workforce region’s organization in order to achieve common goals. July 1, 2015.

ü  The next pillar is shared governance

o   the boards will be more agile

o   a lot better positions them to meet the local needs

o   New activities will include the local elected officials and their engagement in the system in a more productive way

o   There will be career pathways and sector strategies that need to be embraced in the plan

o   There is an expectation that the local elected officials County commissioners and Mayor would be committed to make sure that the workforce investment boards are successful.

ü  The 3^rd pillar is integrated performance management. The federal government is moving forward more and more to develop evidenced-based programs that show results and that have measures that can be compared across state lines and regional lines.

ü  The final pillar is customer focus service delivery – it will take an assessment of the indirect intake and management systems that are currently in place an expectation is that new and better ways of tracking and measuring performance will be developed over the next few years.

Commissioner Janet LaBreck and Deputy Assistant Secretary Jennifer Sheehy – Vocational Rehabilitation – DOL

Vocational Rehabilitation is another mandated partner in the new WIOA law. In the past here in Tallahassee vocational rehabilitation has had a presence in our 1 stops in an intermittent way. With this new law that are now mandated to become a full partner in the career center system. It was suggested and I will follow up on reaching out to the vocational rehabilitation person here in Tallahassee to discuss how we might integrate their services in a more uniform fashion. About 3 weeks ago, the governor sent his disabilities task force to tour our S. Monroe Career Ctr. I suspect that this tour was because of this change in the law. I know from the feedback, that the people who came through our one-stop were very pleased to see that we were pretty accessible to anyone with a disability. The key in the future is how we raise the awareness of the business community so that the disabled (or other abled as my priest friend would say) are competitive and are accepted to positions that best utilize their skills. That’s really the question that I posed to Commissioner LaBreck. At the federal level it would be helpful if DOL/VR put together PSA’s that show the success stories that dot the country where people with disabilities have been hired and businesses have thrived with the quality of work provided by these folks.

This meeting was one of the best meetings and best attended meetings by 45 different workforce professionals and an excellent networking event. I sat next to the city of Chicago workforce executive as well as Orlando’s executive. I also was part of the presentation on startup quest to the entire group is a peer-to-peer best practice and continue to suggest that the entrepreneurial training is something that the workforce system needs to do more.

The discussions were rich with questions on the new law and how we will carry it out as a system.

The Congress of the United States has put into place a challenge to our ever evolving system to get better at what we do, to have more business engagement, and to create the data points to show progress and success that we have every day.

I would appreciate any comments you may have. - Jim