Gordon Report October 2015

GORDON REPORT

October 2015

Confronting U.S. Workforce Decline

The October Jobs Opening and Labor Turnover Survey (JOLTS) produced by the U.S. Bureau of Labor Statistics points to significant long-term trends in the U.S. labor market. In August 2015, the jobs opening rate was 3.6 percent. This was higher than the jobs opening rate registered before the beginning of the 2009 recession at the same unemployment level. Also since February 2015, job openings have exceeded hires for seven consecutive months. In contrast, except for August 2014, hires exceeded job openings from December 2000 to January 2015.

Why is the overall U.S. economy not improving if the job openings rate is increasing? A declining U.S. workforce participation rate seems to be a factor that is casting a shadow across the U.S. economy. In September the unemployment rate held steady at 5.1 percent only because about 350,000 American workers quit looking for a job. Both the number of available prime-age workers and of people employed declined. Not since 1977 has the United States seen a lower share of its workforce looking for a job.

At the same time, the Society for Human Resource Management (SHRM) reported in its September survey that 33 percent of HR professionals are having increasing difficulty filling jobs at all skill levels. Even more telling, this figure rises to 55 percent for filling skilled jobs. SHRM indicated that this trends have been increasing over the past 17 consecutive months.

The National Federation of Independent Business' September survey found that 45 percent of the respondents reported that they had few or no qualified applicants for jobs they were seeking to fill. Twenty-seven percent of these small business owners could not fill open positions during this month.

The September Federal Reserve "Beige Book" noted that almost all its districts reported that there were difficulties in filling skilled jobs. A Conference Board study indicated that in mid-September all business sectors were experiencing a record number of job vacancies they could not fill.

The decline in workforce participation cannot simply be explained by the escalation of baby-boomer retirements. In September the participation rate of prime-age workers (ages 25 to 54) was 80.6 percent, a rate last seen in April 1984. While the number of long-term unemployed has dropped by over 840,000 workers over the past year, there has not been a corresponding increase in employment, thus indicating that these people have given up looking for work. All of these statistics point to the fact that large numbers of Americans do not have the skills employers are seeking. This skills-job crisis continues to grow. Our current estimate is that 8 million jobs are vacant across the United States. If these trends continue, we estimate that by 2020 the United States could have 14 to 24 million vacant jobs.

This mismatch has been building for more than 20 years. It is a structural and systemic economic issue directly related to obsolescent education-to-employment systems at the regional and national levels and the failure of businesses to provide training to new and incumbent workers. According the the 2015 Manpower Talent Report, only 20 percent of U.S. businesses provide training to their employees.

There are talent-creation solutions underway at the local level that I have termed RETAINs (Regional Talent Innovation Networks). But they are not at scale.

After 30 years of so-called education and workforce reforms, we have to go the whole way! It has become very apparent that partial reforms, piecemeal plans, and concession to the status-quo have placed much of the current and future workforce in jeopardy through a "knowledge-starvation diet." 

We need to recognize that there are "New Luddites" among us. They have retarded progress by defending an outdated workforce preparation system designed for a less-demanding 20th-century labor market. That era has disappeared.

The majority of American need to move on. We urgently need new regional knowledge-delivery systems. The RETAIN model can offer more people a better-coordinated, higher quality education-to-employment pathway into a challenging 21st-century labor market.

Edward E. Gordon is president of Imperial Consulting Corporation - www.imperialcorp.com. His latest book is Future Jobs:Solving the Employment and Skills Crisis (Praeger, 2013), which is a 2015 Independent Publisher Book Award winner.

Ed Gordon Report

From my Friend Ed Gordon PhD

Gordon Report

July 2015

Two Perspectives: Greece and China Turn the World Upside & The Talent Hypocrisy Syndrome

PART I: GREECE AND CHINA TURN THE WORLD UPSIDE DOWN

Greek Vote -- Ouch!

The overwhelming Greek referendum "no" vote on its debt payback to eurozone creditors has open a new darker chapter in European Union (EU) history. After two failed bailouts totaling $266 billion and six years of economic austerity, Greek Prime Minister Alexis Tsipas' fiery television interviews in which he denounced the European creditors as "blackmailers" helped to galvanize this negative response.

Will the Greek contagion now spread, as Greece risks default, abandoning the Euro and its EU membership? The answers hang in abeyance as Greece must agree to even more draconian bailout terms than those the referendum so resoundingly rejected.

There is plenty of blame to share on both sides. Lenders gave Greece too much money based on the risks inherent in a weak national economy and failed to monitor how these funds were spent. On the other hand, the Greeks have shown little interest in reforming the nation's widespread acceptance of tax evasion and government corruption or in diversifying an economy in which government is the prime employer and tourism its top industry.

This is only the most recent crisis as Greece and its creditors insist on playing Russian roulette. At the eleventh hour fifty-eighth minute before GREXIT, the Greeks offered a string of concessions previously sought by the EU. At the fifty-ninth minute the EU offered a bailout that includes a large-scale takeover of Greek assets to payoff the debt. The Greek parliament must agree to these terms. But if passed, will the Greeks implement these reforms? They have been down this road before and nothing really changed, thus precipitating a bigger crisis. Meanwhile, ideological divides among EU members threaten the cohesion of this coalition.

The China Syndrome

While the Greek economic implosion continues to dominate world news, the Chinese stock-market bubble is also becoming a source of concern. On June 12, 2015, China's equity market peaked, doubling in size in just one year. Recently China's stock market has nosedived. On July 9, 2015, over $3 trillion in value vanished. This is more than six times the Greek foreign debt or equivalent to 14 years of Greece's GDP. While massive governmental intervention had led to a minor market uptick, its future course is uncertain.

Frederick Neumann, co-director of Asian economic research at HSBC, had provided this assessment of events in China: "While turmoil in Greece had added to investor jitters of late, China's stock market slide could prove ultimately more damaging for the world economy." I am reminded of the 1979 movie, "The China Syndrome," as the Chinese government employs more and more desperate measures to stop the epic sell-off. In the film, Jack Lemmon, the manager of a nuclear power plant, desperately tries to stop its core from melting down into the earth.

How might this end? When any nation's equity markets are based largely upon speculative euphoria, they cannot be indefinitely propped up solely by the government's monetary policies and direct intervention. This has never worked in the past twenty years.

The stock market rout is but one in a growing string of crises in China today. The real estate bubble persists with millions of apartments sitting empty in zombie buildings. Other challenges include major environmental problems, widespread labor unrest, endemic government corruption, and rural/urban imbalances. Are dark days ahead for China's state capitalist economy? Will it muddle through or will a real collapse in confidence usher in regime change?

PART II: THE TALENT HYPOCRISY SYNDROME

In June 2015, the U.S. unemployment rate fell to 5.3 percent. This is the lowest figure since April 2008. But the underlying numbers take away any cause for celebration:

• Number of people employed was unchanged
• Available number of U.S. workers declined by 432,000
• Labor participation rate (people working or looking for employment) fell to 63.6% -- the lowest since 1977

Currently 92,380,000 people are not in the U.S. workforce. While 50 million are retirees, prime-age workers (aged 25-54) are a growing proportion of this rising figure.

Why are so many Americans staying on the employment sidelines? A July 8 headline in the Chicago Tribune for an Associated Press article says it all: "Job Openings Stay High, but Hiring Falters: Employers May Be struggling to Find Skilled Workers." In a 2015 Well Fargo Small Business Survey, almost 60 percent of U.S. small business owners reported that they are having difficulty finding skilled applicants. The Conference Board's study, "From Not Enough Jobs to Not Enough People," (May 2015) details significant skills shortages as baby-boomer retirements escalate. A JPMorgan Chase study, "New Skills at Work," found that only 54 percent of Chicago-area workers have the qualifications for middle-skill jobs or better.

What about the next generation of workers? While high school graduation rates have risen, the same cannot be said for the educational attainments of the graduates. The scores of 12th graders on the NAEP exams (National Assessment of Educational Progress) have basically remained flat from 2005 to 2013 (the latest year this test was administered). The 2013 results are hardly encouraging:

Math

35% Below Basic

39% Basic

23% Proficient

3% Advanced

Reading

25% Below Basic

37% Basic

32% Proficient

5% Advanced.

Between 2015 and 2020, 60 million baby boomers will retire. How many of these graduating high school seniors will be able to fill their shoes? Even if GREXIT or a China meltdown slows the U.S. economy, most of these jobs still will need to be filled with an appropriately skilled person just to keep day-to-day America running.

The Global Talent Picture

The latest PricewaterhouseCoopers survey of CEOs in 77 countries reported that 78 percent of these executives ranked skills shortages as the greatest threat to their companies; this was a 10 percent jump from the 2014 results. Moreover, 81 percent of the CEOs said their firms were looking for a much broader ranges of skills than previously.

Deloitte's 2015 Global Human Capital Trends report surveyed and interviewed 3,300 business and HR executives from 106 nations, and 85 percent rated the talent challenge as "very important" or "important," a 21 percent increase from 2014 results. Yet only 28 percent of those surveyed said their businesses were prepared to deal with this talent deficit.

These surveys clearly show that the global nature of the skills-jobs disconnect makes it very unlikely that American businesses can find the skilled workers they need simply by recruiting them from abroad. In general, it seems that larger family-owned and employee-owned businesses, partnerships, non-profits, and leading edge technology-driven companies are recognizing that they need to invest in education and training to meet their talent needs. On the other hand, many publicly traded for-profit companies are still relying on poaching and H-1B visas to obtain skilled workers and are cutting their training and development expenditures.

What is triggering this talent hypocrisy syndrome among such companies? On the one hand, they complain about skilled worker shortages and trumpet the value of their human capital; but on the other hand they don't "walk the talk." At least in part, the Federal Reserve's ultra-low interest rate policy has unintentionally encouraged short-term talent fixes. It has helped to fuel the current $2.15 trillion merger and acquisition surge. Businesses are using M&A partially to buy up other company's skilled talent and fill their vacant positions. Many companies are borrowing at low rates to finance stock buy-backs which may reach an all-time high of $1 trillion in 2015. This tactic along with increased dividend payments has kept stock prices high and has pumped up top executive salaries and bonuses that also are on track to reach a record high this year.

Janet Yellen continues to signal that the Federal Reserve is likely to raise interest rates later this year. Their Quantitative Easing Programs I, II, and II were designed to push increasing investment in the U.S. economy. Instead, businesses have mainly used cheap money to drive up short-term profits, not to make long-term physical and human capital investments.

Once the cheap money spigot is turned off, perhaps business leaders of large publicly traded corporations will move beyond only paying lip-service to the importance of human capital to actually making substantial investments in education and training solutions that build the skilled talent needed for today and tomorrow. Investing in human capital can increase employee retention and drive higher levels of worker performance, thus raising an organization's productivity and profits. U.S. economic growth will be significantly enhanced when a higher proportion of the U.S. population participates in its labor market and a restructured education-to-employment system equips these American workers with the skills required by today's high-tech workplaces.

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) which is a 2015 Independent Publishers Book Award winner.

From my friend Ed Gordon

GORDON REPORT
Two Perspectives: Message Abundance & Where Are the Skilled Workers?

May 2015

PART I: YOU CAN'T CLICK FOR BRAINS -- MESSAGE ABUNDANCE IN A COMMUNICATIONS DESERT

Let's say you need to contact a client or prospective client. First, you e-mail them. No response. Then you call and leave a voice mail. Still, no response. Your next step might be to text them or contact them on a social media site. Perhaps your blog or client newsletter will elicit a response. Finally, you give up and move on. Three weeks later you get a cryptic e-mail, "Buried in work messages. Sorry, Try me later!"

Electronic technology has created more and more channels of communication. Yet, the new normal seems to be that people are sending out many more messages, but in the final analysis, are communicating less and less. E-mail has proliferated to the point that most in-boxes are overloaded, sometimes to the point of being unmanageable. The sad reality is that most messages are filtered out, deleted unread, or skimmed over and forgotten. No interaction takes place. There is no real exchange of information.

As workers are equipped with more and more communication devices as well as the ones they use for personal messages, their ability to concentrate is in jeopardy. They are constantly being beeped, buzzed, rung, or vibrated and often addicted to the habit of incessantly checking their myriad devices. They are expected to be instantly on call at work and fear that if they don't respond to every message immediately, there might be repercussions. Everything centers around NOW, thereby jeopardizing attention to long-term priorities and goals.

In many workplaces or in college libraries, younger people sit cocooned by the latest technologies. Wearing pilot-type headphones they soar through the digital ether. Silence reigns supreme. They feel powerful and connected to a lot of people. But how many of these on-line communications actually result in person-to-person conversations that build relationships?

Recently an adolescent who spends most of her time texting or playing video games said to me, "Someday, I guess you need to teach me how to have a live conversation!" As children and adolescents we learned from watching adults about reading the facial and body language of others during a conversation. This apprenticeship in live conversation was always part of growing up. Watch a table of adults and children in restaurants today. While the adults are conversing, often the children are glued to their electronic devices playing games or texting. They are missing out on learning the subtleties of human interactions in the real world of adult conversations.

Is it surprising that employers report that among the soft skills they find deficient in today's job applicants are verbal communication and writing abilities? Too many elementary, secondary, and even post-secondary institutions have reduced or even given up on developing their students' speaking and writing abilities. Learning to use electronic social media is fine, but it cannot replace developing fundamental oral and written communication skills.

PART II: WHERE ARE THE SKILLED WORKERS? WHY WE NEED THEM!

The 5.4 percent U.S. unemployment rate in April 2015 was the lowest since mid-2008. However, wage growth continues at a slow pace. Six years after the nation emerged from a severe recession, the percent of the U.S. population participating in the workforce remains stuck at 62.6 percent, a historically low level. U.S. productivity has also taken a major nose-dive. The economy is barely growing. What is behind this lackluster economic picture?

In April 2015, 17. million U.S. workers were unemployed, underemployed (working part-time and want full-time), or did not search for work in the past month. All these people are counted in the U.S. Bureau of Statistics' U-6 unemployment rate which at 10.8 percent was double the official unemployment rate which only includes persons without a job who are actively seeking and available for work.

Two other aspects of the unemployment report deserve further scrutiny. One, 29 percent of the unemployed has been out of work 6 months or more. Although this figure has declined somewhat over the last five years, it is still well above average. Second, the labor participation rate of Americans classified as prime-age workers (ages 25 to 54) remains at 81 percent, a very low level historically. This indicates that the overall decline in labor participation cannot be solely due to retiring baby boomers or those pursuing education full-time. A Brookings Institution paper, What Happens to the Long-Term Unemployed?  found that after 15 months, 34 percent had withdrawn from the labor force, i.e., were not working or looking for work. Possible reasons for leaving the workforce include their skills have atrophied, their skill sets are not in demand, or their long absence from the workforce is viewed unfavorably by potential employers.

There is no doubt that there is a significant skills gap, especially as the demand for STEM workers continues to grow. Another Brookings Institution Report, The Hidden STEM Economy, estimates that 20 percent of all U.S. jobs, about 26 million, require a high level of knowledge in one STEM area. Recent surveys continually show that both executives of large U.S. corporations and small business owners report finding appropriately skilled workers is one of their biggest worries, and they only see this problem getting worse. Yet, while some state that they intend to increase their training expenditures, this is happening too slowly for the labor force to significantly advance in attaining the skill levels demanded by modern workplaces. We estimate that there are currently over 7 million vacant jobs across the United States.

U.S. business lack of investment in physical capital, research and development, and human capital is being driven by uncertainty at home and abroad. The continued growth in U.S. government regulation and taxes as well as political polarization is paralyzing U.S. business. Turmoil in the Middle East, strains in the European Union, and most of all, a significant slowdown in the economic performance of China are dampening trade and investment opportunities.

Furthermore the chronic weakness in capital investment can be traced to the $1.73 trillion horde of cash being held by major U.S. corporations with multinational operations. Of this about $1.1 trillion is being held overseas. Corporate boards are reluctant to repatriate this cash without the incentive of tax reform.  Instead, this continue to tap domestic debt markets at current low interest rates to fund stock buy-backs and mergers and acquisitions.

While short-termism still dominates U.S. business thinking, global demographics and advanced technology are now significantly impacting the U.S. labor market. The U.S. Bureau of Labor Statistics projects that between 2012 and 2022 U.S. businesses and organizations will need to find and hire about 50 million people. Even if the world economy falls flat, about 34 million current workers will need to be replaced just to keep the doors open. Technology will replace some of them, but this will raise the skill/education requirements of the remaining workers. Where will they come from? Knowledge workers are in short supply in all the major industrial nations.

Professional and trade associations can be important forces in raising business and community support for increasing training and implementing meaningful education reform. Recently I had the opportunity to deliver a luncheon keynote address at the annual meeting of IEEE-USA, an association that encompasses all fields of engineering.  The audience response to my message that the knowledge base of the U.S. workforce needs to be significantly upgraded was overwhelmingly positive. Members of this profession are acutely aware of the high level of STEM knowledge required to enter any engineering field and the necessity for obtaining continued education and training to maintain their licenses and certifications. Most people are just beginning to realize that life in the 21st century requires more knowledge, education, and skills as we transition to a new labor-market era.

Edward E. Gordon is president of Imperial Consulting Corporation, www.imperialcorp.com. His latest book is Future Jobs: Solving the Employment and Skills Crisis (Praeger, 2013) which is a 2015 Independent Publishers Book Award winner.