Skills Gap Plagues U.S. Manufacturing Industry

Because of a lack of qualified applicants, as many as 600,000 manufacturing jobs remain unfilled.

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Pick up the latest issue of the popular car enthusiast magazine Road & Track, and you'll find a letter written by David MacNeil, founder and CEO of MacNeil Automotive, based in Bolingbrook, Ill.

In the ad, he's photographed in one of the company's newest U.S. factories. MacNeil writes, "The exporting of American jobs is a trend that must be stopped and reversed." He goes on to say, "So in 2007 we transferred all of our floor mat manufacturing back to the United States. Today, we build the best fitting, highest quality automotive floor mats in the world, right here in America." MacNeil's message is clear: Rather than save a few dollars in the manufacturing process by outsourcing work overseas, he's determined to do his part to bring manufacturing jobs back to the United States because he believes the industry is vital to the country's economic health.

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The U.S. manufacturing industry has its work cut out for it. Since 2001, the country has lost almost 5 million manufacturing jobs, according to economic consulting firm Economic Modeling Specialists Inc. (EMSI) of Moscow, Idaho. Of the 460 sectors EMSI tracks, only 50 sectors added jobs over the past 10 years. A big concern is that many of the industry's most rapidly growing areas are heavily subsidized by the government. For instance, the ethyl alcohol manufacturing industry, which produces ethanol, currently employs about 11,000 workers and grew by more than 7,400 jobs, or by 227 percent, over the 10-year period, the biggest percentage leap of any group. Another big growth sector: military armored vehicle, tank, and tank component manufacturing, which grew by 84 percent and added almost 5,000 workers over the same time period.

Last year was an important milestone for U.S. manufacturing, as the number of jobs in the industry increased for the first time since 1997. Still, those gains fell well short of the number of jobs needed to revive the sector. Since 2010, the number of manufacturing jobs has increased by about 150,000, which brings the industry total to just over 12 million jobs.

Two major problems plague the industry. Technological advances in manufacturing have resulted in fewer positions. And, as MacNeil points out, many companies have chosen to outsource a lot of low-skilled labor to countries with lower labor costs. "As a global trend, dramatic increases in manufacturing productivity mean that the same volume of goods are produced with less labor," says Hank Robison, chief economist at EMSI. "In addition, China's cheap yuan policy makes U.S. goods expensive relative to Chinese, and U.S. labor costs are among the highest in the world."

That's led to a shift in the number of manufacturing workers who have moved into service-sector jobs, Robison says. In 1950, 30 percent of all U.S. jobs were in manufacturing, while 63 percent were in services, according to EMSI. Currently, 9 percent of jobs are in manufacturing, and 86 percent are in services. Many job openings in the manufacturing sector are "replacement jobs"—meaning openings are for positions that already exist.

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But the news isn't all bad. Recent research from global consulting company Accenture found that many companies are reconsidering their rationale for shipping many jobs overseas. In the study, 61 percent of respondents, which included more than 200 manufacturing executives from a wide range of industries throughout the world, reported that they were considering more closely matching supply location with demand location by onshoring or "nearshoring" manufacturing and supply. Executives said they're focusing more on where consumer demand is coming from and relocating accordingly, says John Ferreira, executive director of Accenture's North American manufacturing division. Being closer to the customer base allows for more flexibility, and as labor rates and transportation costs rise in other countries, U.S. companies are reassessing their decisions to offshore. "Decisions have often been made to move offshore without a complete understanding of the impacts of total costs," Ferreira says.