Skilled Workers More Important Than Ever for Economic Recovery

Now’s the time, even during a period of tragic unemployment and closed businesses, to focus on rethinking the state’s workforce development strategies to achieve a rapid economic recovery

Economists, business leaders and labor experts have warned for years that a coming wave of automation and digital technology would upend the work force, destroying and de-skilling some jobs while altering how and where work is done for nearly everyone. But as the coronavirus pandemic has caused a near catastrophic economic calamity, New Jersey’s challenges are more acute than ever.

Prior to the pandemic, about two in 10 jobs in the state required a college degree. About 25% of college graduates earned no more than the average high school graduate. Part of the reason, of course, is oversupply of college graduates for an economy that has not made the transition to information-intensive jobs. While technology increased the demand for educated workers, the demand has been consistently outpaced by the number of new college graduates entering the job market. Indeed, much of investments in office technology have not favored college graduates at all. Basic enterprise software has mostly standardized work, creating more routinized, less creative work than ever. The state’s brain drain has been well documented.

Challenges ahead

 Indeed, as 2019 came to a close we were facing the classic employers’ dilemma. As the state was enjoying one of the lowest unemployment rates on record – 3.5% six of 10 employer-members of the Employers Association of New Jersey (EANJ) reported that a shortage of skilled workers was beginning to negatively impact the business.  With a civilian labor force approaching 4.5 million, New Jersey had finally recovered the jobs that were lost during the Great Recession of 2007 – 2009, which officially ended, statistically at least, in 2012. But even as the unemployment rate reached a record low, the survey told a troubling story of a state getting perilously close to being caught in a vicious cycle of low wages, decreased investment and underutilization of human capital.

Hidden below the state’s full employment economy and its competitive advantages of geography, world-class institutions of higher education and the richness of its human diversity, New Jersey ranked 47th in long-term unemployment and 36thin underemployment.

The most recent Employment and Wages Report issued at the time by the U.S. Bureau of Labor Statistics (April 2018) showed the state’s economy at a tipping point. Job growth had occurred in all of New Jersey’s largest 15 counties over three years.  However, in each of these counties, wages had actually gone down. In other words, even as hiring increased, wages in the aggregate declined.

At the time, six of 10 employer-respondents believed that skilled-labor shortages would negatively impact their business. And an astounding 41% reported lack of basic skills/professionalism as an obstacle to hiring, telling us that the necessary skills to hold a job are as much social as technical, with only 35% saying that inadequate technical skills posed a barrier to hiring.

At least one in four employer-respondents admitted that the primary barrier to attracting skilled workers was the below-average wages they were offering. Even so, only about 10% were considering a higher starting wage above the state-mandated minimum wage of $15 per hour.  As a third-generation owner of a manufacturing company stated, “Even though we seek to provide competitive wages, our competitors are located in lower-cost states like Ohio, Wisconsin and Minnesota. The cost of doing business in those states is much lower. As an example, the state minimum wage in Wisconsin is $7.25.  In an effort to provide good wages to our employees we may eventually be too high cost to win the work to keep them employed.”

Competing with limited resources

So, what we have discovered is that skilled people do not want to work for low wages. As for that segment of the lower-wage labor force, the $600 weekly enhanced unemployment benefit (which expired at the end of July) showed very clearly that many workers made more money unemployed than working.

Before the pandemic, the Murphy administration quickly determined that it had inherited an economy that for decades had been losing “middle-skilled jobs,” such as registered nurses, health technologists and most jobs in the trades — jobs that require an educational attainment or credential but not a four-year college degree. Many of those same jobs, by the way, have been deemed “essential” to public health during the pandemic. Not coincidentally, they are also essential to the health of the state’s economy.

Millions of dollars are spent on upgrading the skills of the workforce, often with grants provided directly to employers who must have a plan for worker retention. One-third of EANJ’s employer-respondents identified the state labor department as a training resource.  A statewide apprenticeship initiative was launched by the Department of Labor and Workforce Development that has achieved promising early results. Even now, the apprenticeship program is expanding and reaching a diverse population of on-the-job learners. But by April of this year, 88% of EANJ survey-respondents said they had furloughed, laid off, reduced the hours of, or cut pay to workers. Presently nearly 1.3 million workers remain unemployed. Over $12 billion dollars in unemployment claims have been paid. About a third of EANJ members say that they are waiting for the pandemic to recede before a full recall and about one in four are not planning on recalling any workers.

Conventional wisdom says that the pandemic has thrown us back to a sellers’ market, that employers will have their pick of skilled worker at recession-level wages. But this view is an illusion. Interviews with essential businesses during the pandemic that continued to hire to meet production demand showed that finding skilled workers is still a barrier to expansion. Tragically, the skills of the idled worker depreciate. That is the story of the state’s problem with long-term unemployment.

Getting ahead of the curve

Therefore, now is the time, even during a period of tragic unemployment and closed businesses, to focus on rethinking the state’s workforce development strategies to achieve a swift economic recovery. We have found that the vast majority of small employers assume their own hiring costs and fund their own on-the-job training. With the exception of the present economic crisis caused by the pandemic, government typically supports small businesses through the tax code, not by direct grants. Small-business hiring and on-the-job training routines are simple, direct and efficient — finding a person with basic skills who can be trained in a few weeks or months.

On the other hand, we have estimated that about 5% of private-sector businesses that employ about 25% of the workforce (900,000 workers, pre-pandemic) would benefit greatly from a targeted, streamlined approach to up-skilling, which would include apprenticeships and close partnering with community colleges. They represent key industry sectors — healthcare, life sciences, transportation, logistics and distribution, financial services and manufacturing — employ 100 or more workers, cannot move out of New Jersey because of superior geography, are making capital investments in machinery and equipment and are experiencing a skills gap.  These employers are the indispensable drivers of economic recovery.

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