Labor Shortage In The United States Becoming An Increasingly Dire Issue

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by: Global Risk Insights

American economic growth is highly dependent on the quality and quantity of workers. Currently, the United States is facing a severe skilled and unskilled worker shortage that has long- and short-term economic implications.

While President Trump promised 4 percent economic growth, this objective will be extremely difficult to fulfill unless the American workforce begins to meet certain key requirements. Diverse industries are looking for both skilled and unskilled workers to fill immediate workforce needs or else consumers will begin to see food prices increase, longer wait times for product fulfillment, and services uncompleted. In a January 2017 survey by the Associated General Contractors of America, 73 percent of businesses had a difficult time finding qualified workers and 55 percent identified worker shortages as a bigger concern than federal regulations (41 percent) and low infrastructure investment (18 percent). Economists studying the problem feel things may only worsen unless certain changes occur immediately.

Help wanted: more skilled workers

Skilled workers fall into two categories:

  • Highly skilled such as engineers, scientists, and technicians who carry degrees and advanced degrees in their chosen fields.
  • Workers with "middle skills" requiring more experience than just a high school diploma yet less than a four-year college degree such as welders, electricians, or machinists.

The problem is that most companies are needing workers with middle skills that include technical knowledge and a better-than-average understanding of the tools and machines they will operate while also involving a high degree of problem-solving skills. According to a survey of small business owners by U.S. Bank, 61 percent said they were experiencing extreme to moderate difficulty in finding quality skilled workers in order to expand their businesses. The Federal Reserve Bank reported that labor shortages in combination with the need to pay higher wages are "restraining growth" in industries such as manufacturing, transportation, and construction.

There are key reasons for this severe lack of skilled workers. First, older workers are retiring in large numbers and there are fewer younger workers to replace them. These older workers have the experience, knowledge, and skills that they acquired over decades. But with fewer qualified young people to hire, employers are having problems finding replacements. Another key problem is that, while many businesses are crying out for a highly skilled workforce, they are either reluctant to pay for or are cutting back on training expenditures. Many firms want skilled workers with the exact qualifications they require but will not pay for the training. Employee training is necessary for any company that wants to improve the quality of worker knowledge and skills and help the company remain competitive. This lack of investment in employee development will hurt firms in both the long- and short-term. Additionally, there is the situation where more young people are going to college rather than into technical training programs. While a college educated workforce is a vital component to the American economy, the problem is that this has diverted individuals who could still earn a fairly good salary with excellent benefits and have opportunities for employment.

There are ways to solve the skilled worker shortage. One possibility is to have more vocational and technical training in high schools and community colleges. Schools such as Passaic County Technical Institute in Wayne, New Jersey, offers training programs in machine shop practice, as electricians and auto technicians, to name a few. This is beneficial for students who do not feel college is for them but they will have a good-paying job available when they have completed school or go for further training. Many community colleges are entering into partnerships with businesses and industry associations by providing "sector-based" or "job-driven" training in the fields of healthcare, advanced manufacturing, information technology, and other areas in order to expand training and the skill set of future students.

Help wanted: more unskilled workers

If the situation regarding lack of skilled workers in the American workforce is bad, the outlook regarding unskilled workers is probably even worse. Unskilled workers are those who have no formal training but are the farm workers, low-skilled factory workers, landscapers, construction workers, and others in labor intensive jobs. They are the ones who pick the fruits and vegetables Americans eat, clean off the tables at restaurants and diners, and cut the lawns of office campuses and homes across the United States. Trump is trying to put forth legislation to have them deported since many of them are undocumented. Yet the problem is this: who will perform their work when they are gone?

In 2011, there were 6,500 farm jobs advertised in North Carolina state employment agencies, with 265 American workers applying for the positions. Of those, 7 workers made it through the harvest season. Only 7 Americans completed the backbreaking, exhausting work that unskilled workers, who are usually immigrants, perform at low pay.

Farms across the United States are in desperate need of workers to pick the crops that ultimately reach American tables. For example, Limoneira (NASDAQ:LMNR), one of the largest lemon producers in America, is experiencing a severe labor shortage even with new worker benefits, increased pay, and vastly improved living conditions. According to New American Economy (NEA), an immigration reform advocacy group, it is estimated that from 2002 to 2014, the workforce shrank approximately 20 percent and that farm labor shortages were responsible for $3 billion in lost revenues in the same time period. The unskilled worker shortage in the farming industry has caused farmers to allow fruit and vegetables to rot in the fields and eventually be plowed under. The long-term ramification is that since there are no workers to cultivate these crops, there may be eventual price increases for fruits and vegetables for American consumers.

The key reason for this lack of unskilled workers is the decrease in immigration from Mexico and other parts of Latin America. While Trump is calling for the building of a wall between the United States and Mexico, the border should really be thrown wide open since there is a projected huge shortage of unskilled workers. Rather than restricting visas issued to foreign workers, more should be given, and quickly. This means that the H-2A visa program must be greatly expanded. The H-2A visa program instituted in 1986 allows farmers to acquire labor by hiring foreign guest-workers temporarily. The program has seen visas increase from 55,000 in 2011 to 134,000 in 2016. While Trump encourages employers to "hire American," the agriculture industry cannot find enough workers to pick crops or prune vines at wineries.

More workers needed or else...

The bottom line is that America needs more workers or else its economy will suffer. The Bureau of Labor Statistics (BLS) reported that the United States will need 3 million more workers in the next 10 years to fill low-skilled jobs so that the country will achieve economic growth. The problem is that the total number of workers entering the labor force at all skill levels, between the ages of 25 and 54, will be 1.7 million. If this does in fact occur, then the United States will not see 2 percent economic growth for many decades to come.