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Manufacturing's 'skills gap' has its skeptics

MINNEAPOLIS — To judge from the job listings, welders are in high demand.

Manufacturers across the Upper Midwest will tell anyone who listens that they have jobs to offer — more than 2,000 welding positions in Minnesota alone — but not enough solid applicants. They point to a "skills gap" between the jobs available and the people out looking for work.

Textbook economics says this should be good news for anyone who can strap on a helmet and make the sparks fly. If good welders truly are hard to find, employers should pay more to get them on board.

Yet that isn't happening, leading some economists to question whether the skills gap is really the issue.

"If there is a shortage of something, you would expect the price of that something to increase over time," said Steve Hine, director of labor market information for the state of Minnesota. "It doesn't matter if that's skilled welders, or the market for beer."

Instead, the average hourly wage for a welder in Minnesota grew just $1 between 2005 and 2011, to $17 per hour, according to Minnesota Department of Employment and Economic Development data. Take inflation into account, and that's a pay cut.

And welders in Minnesota make more, on average, than they do in Wisconsin, Illinois and Iowa, all states where firms complain about a skills gap. Average inflation-adjusted pay for machinists has risen only 9 cents per hour in the past seven years in Minnesota. Hourly wages for factory assemblers and fabricators have risen just 10 cents, and pay for computer-controlled machine operators has fallen $1.61 per hour.

Still, many employers say the skills gap is real and is holding back the economic recovery.

The state of Iowa issued a report in May arguing there aren't enough people to fill jobs that require more than a high school diploma but not a four-year college degree.

"The vast majority of folks think there is a skills gap," said Mike Ralston, president of the Iowa Association of Business and Industry.

While Minnesota manufacturers have added 11,600 jobs since the beginning of February, the people who run these companies say hiring is a struggle. A January survey by Enterprise Minnesota showed 26 percent believe a shortage of qualified workers will affect their bottom line. And 58 percent said attracting qualified candidates had become either somewhat or very difficult.

In Wisconsin, the shipbuilding company Marinette Marine just north of Green Bay said earlier this summer it held open 40 spots for entry-level workers and reached out to local schools, but could only find seven workers.

Why hasn't this driven up average wages? In part because the new manufacturing economy doesn't spread rewards evenly.

Blowtorches hiss, grinders whine and foremen zip around with clipboards at Code Welding & Manufacturing, a job shop in the woods southeast of Blaine, Minn. The company, which employs about 25 people, illustrates how manufacturing rewards versatile, highly skilled workers while leaving one-dimensional workers behind.

Several projects were under way on a recent weekday. One welder built hydraulic tanks with multiple pipe fittings, one welded parts onto a chassis for an airport truck, another put the finishing touches on pump housings for water jet cutters and another fused together bins that sort industrial materials. No two welders in the shop worked on the same project.

"Four years ago, that was not the case," said Curt Simonson, one of the company's owners. "We would have two or three people on the same job."

Pre-recession, the company mostly did jobs that could be performed by a worker with basic welding skills. But the downturn hit hard. Reliable customers went out of business. Co-owners Simonson and Steve Johnson felt the company's survival was at stake.

They decided to become more nimble, build more complex parts, and cultivate a broader, more sophisticated group of customers. They sent welders with the aptitude and interest to specialized training. As workers mastered higher standards, began to inspect each other's work and learned to run other machines in the shop, the company became faster, more flexible, more cerebral.

Four years ago, about 20 percent of the company's business required special welding certifications. Now, 80 percent of the company's business is specialized — work for defense contractors, water treatment facilities, machines that handle industrial materials, and the oil and gas industry.

The average wage for a Code welder is higher than $17 per hour, the owners said. But not everyone gets paid the same.

"If you're just laying a bead in a joint and it's just a matter of pulling a trigger and doing what you do, I think those wages are probably staying pretty flat," Johnson said. "The person who can think, who can adapt, who can learn and who really cares about doing their job, they have been moving up and will be moving up in their wages."

This structural shift is part of what drives both the skills gap narrative and demand for versatile, highly-trained workers. But it doesn't mean all production workers are in high demand, or that everyone will see pay increases.

A worker who can read blueprints, program a machine or fix it when it breaks will earn more money in this environment, said George Gmach, director of compensation and benefits at Trusight, an employers association in Plymouth, Minn. Wages will languish for a worker whose skills haven't evolved.

Trusight has data to support this. A worker in Minnesota earning $45,000 has seen wages rise by 7 percent in the past two years, according to a 2012 survey of manufacturers in the region. That's not going to make the worker rich, but it beats inflation in tough economic times.

Workers who earn $25,000 have seen wages rise 5 percent n the same period, an inflation-adjusted pay freeze.

"The lower the skill, probably the lower the movement," Gmach said. "Over time, what you're seeing is greater differentiation between lower- and higher-paid workers."

Structural shifts in manufacturing aren't the only factor preventing workers from making more money. Sometimes higher-paying jobs are available if a worker will travel. In the Bakken oil fields of North Dakota, demand has led to a real spike in welder wages. But many welding students can't leave their families, have underwater mortgages, or simply don't want to move.

Finally, what some might call a skills gap in some cases turns out simply to be a pay gap. Companies want to pay a certain wage, but can't find good candidates willing to work for that wage. Shops say they can't raise wages without raising prices for customers, which would lose them business. So manufacturers are stuck with the shortage of workers they've complained about for years, and workers are stuck with sluggish wages.

"Companies can only pay what they can pay, because we can't get increases through our supply chain," said Paul Huot, owner of Huot Manufacturing in St. Paul, Minn. "It's very difficult for us to push through increases to our customers."