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Skills Gap Could Cost US Economy $2.5 Trillion Over Next Decade

Nov. 20, 2018
"We have seen a noticeable increase in companies starting to feel the impact from job openings, especially for second and third-tier suppliers that are struggling to keep up with orders," explains Paul Wellener of Deloitte.

Last  Deloitte and the Manufacturing Institute issued a report, 2018 Skills Gap Study, showing that 2.4 million jobs will likely go unfilled over the next decade.

To put that in terms of the monetary effect on the U.S. economy, the study showed that it could jeopardize $454 billion of economic output in 2028 or more than $2.5 trillion over the next decade.

Already, manufacturing executives are feeling the impact of the talent shortage and anticipate this skills gap will get up to three times worse over the next three years, largely due to the time required to fill skilled positions:

  • Manufacturers say it takes upwards of three months to fill openings for engineers, researchers, and scientists, and;
  • More than two months to fill positions for skilled production workers;
  • In turn, these vacant positions impact several business areas, notably productivity (51%), growth (47%), customer service (42%) and innovation (43%).

IndustryWeek talked with Paul Wellener vice chairman, Deloitte LLP, and U.S. Industrial Products and Construction leader to gain further insights about some aspects of the study.

IW: Are companies already experiencing restrictions to growth due to lack of talent? Will companies try to increase hiring from abroad?

PW: When we say the growth in the manufacturing industry is a double-edged sword, it really highlights the current situation. On the one hand, U.S. based manufacturers, from ten-employee machine shops up to diversified global corporations, are seeing new orders not only domestically, but from across what has become a complex, global supply network. On the other hand, we have seen a noticeable increase in companies starting to feel the impact from job openings, especially for second and third-tier suppliers that are struggling to keep up with orders.

One of the executives we interviewed for the study shared that they were running out of options to outsource projects to other shops because their typical options were already scheduled beyond capacity. Although companies are still being very resourceful, the situation is reaching a breaking point.

Fewer than one-quarter of companies say they view outsourcing as a key solution to mitigate the skills gap. Instead, companies are more often adopting broad human resources management practices, investing in learning and development programs and building knowledge transfer programs to help circumvent the skills gap.

IW: How are company ensuring that knowledge is being transferred as to improve skills? 

PW: One example from our study is a large industrial goods company that employs advanced digital technology to enhance the skills and productivity of its em­ployees. Leveraging technologies such as AI-enabled headsets, the company provides on-the-job training to its 24,000 service engineers. The technology helps engineers with visual cues on assembling and disassembling the latest company products in a 3D space, and with viewing equipment schematics in the field while being connected with specialists via a voice call. The technology improved service times by a factor of four. Several other industrial manufacturers also employ similar AR technologies to upskill and provide live assistance to their workers.

IW: How are companies creating short-term project opportunities for retirees?

PW: We have seen encouraging examples of large manufacturers formalizing programs that retain some of the talent that is naturally leaving due to retirements. For example, one company successfully leverages the knowledge and experience of its retired workforce through a dedicated retiree program. The company conducts an off-boarding interview at the time of retirement exits and enquires if the professional would be interested to work in some capacity after their retirement. The names of interested professionals are shared with the various business units within the company, enabling the units to contact the retired employees for short-term project work. Through this unique strategy, the company has added ap­proximately 250 people to its overall headcount of 19,000 in the United States.

IW: What action steps should companies be taking now to tackle this issue? 

PW. The actions we recommend, based on our research and working with leading manufacturers to develop talent management and human capital programs for the future of work in manufacturing, include increasing in-house training and learning courses, along with on-the-job training, which our study identified as the preferred training methods, a finding consistent with our prior study.

Despite manufacturers’ focus on internal training programs, the pace of change still exceeds the extent and capacity of the training programs. Man­ufacturers should consider increasing investment in training programs and integrating digital tech­nologies to add relevance, helping employees move ahead on the digital curve.

Exposure to a skilled trade through an apprenticeship has shown to be a promising pathway for filling many of the skilled jobs that lie open in the manufacturing industry. The govern­ment and manufacturers together can fund such education and apprenticeship programs to develop a job-ready stream of qualified workers.

The path forward also includes manufacturing organizations forging long-term partnerships with public education, industry associations, and agencies to develop programs that build a strong connection with the industry, creating a skilled talent pool for tomorrow’s manufacturing environ­ment.

Along with the approaches sug­gested above, industry leaders should explore ways to provide exposure to robotics, automation, and computer programming to primary school students. While companies often focus on middle and high school, engaging primary school students can be important to building the foundational skills and abilities needed to succeed in programs in the secondary grades.

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