Next Time on The Apprentice: The Manufacturing Industry
December 04, 2018
This article explains some of the challenges facing manufacturing companies and attempts to show how an increase in apprenticeships may be a viable solution.
Manufacturing is far from back
The US unemployment rate has been in decline, reaching 3.9% in May 2018, the lowest it has been since 2000. The last time the rate was sustained below 4% was in the 1960s. With openings in the US consistently topping 6 million, many claim that this shows people are finding jobs more easily than they have since the 1980s. This decrease in unemployment, however, has not necessarily been better for companies. Employers are having difficulty finding experienced workers to fill the positions they need for the price they are able to pay.
Despite claims that it is roaring back, manufacturing has been one industry that has been disproportionally affected by the lack of qualified labor. Foreign competitors and rising material prices are forcing the manufacturing industry to evolve in order to remain competitive. Such evolutions often include technological advances and more efficient techniques, both of which require training, experience, and computer or advanced technical skills that are not standard in the current labor market. As the aging Baby Boomer generation retires, unfilled positions in manufacturing continue to rise.
This shortage of qualified employees is stifling production for an American manufacturing market that is trying to expand. The industry has shown yearly growth since the recession, adding 196,000 jobs last year. However, as of January 2018, manufacturing was still 1.2 million jobs short of its pre-recession levels. At this rate, it would take another five years to reach pre-recession levels. Furthermore, labor productivity fell 4.4 percent in the third quarter of 2017, the largest decline since 2008. Over the same period, output decreased 1.1 percent and hours worked increased 3.5 percent.
Apprenticeships provide a viable solution
Apprenticeships are one way to actively create workers that meet the specific qualifications needed. In contrast to President Trump’s admittedly entertaining TV show, apprenticeships allow employees to attend school, usually a technical school or community college, to acquire the skills needed for a position while simultaneously working for the company, thereby picking up on-the-jobs experience needed for the position. Instead of looking to hire qualified workers in the field, companies create the workers they need by training them.
Of course, there are some barriers to the use of apprenticeships. Education is costly and requires the company to wait for fully trained and educated employees. Furthermore, the partnership between the school and the company is not a natural occurrence and therefore requires a lot of coordination and cooperation. Registering a program through the Office of Apprenticeship (Department of Labor) is a complicated and costly process. On top of it all, manufacturing apprenticeships must deal with the stigma from both employers and workers based on misconceptions about the benefits of apprenticeships and the appeal of working in manufacturing. Such barriers have made apprenticeships difficult to implement. In 2003, there were about 489,000 registered apprentices in the U.S., according to the Labor Department. In 2014, there were only 288,000. Unless something is done to help companies deal with these challenges, apprenticeship programs will be unable to grow to the level needed to reform the manufacturing industry. Policy changes promoting the use of apprenticeships would be a logical and effective way to promote such change. In other countries, government policies have led to large improvements across many industries. Germany has a very successful apprenticeship program that combines technical education with on-the-job experience. Through a 1969 law, the government works closely with employers and labor unions to provide funding and overcome challenges to the various industries utilizing apprenticeships. It is therefore not surprising that in 2017 Germany is experiencing its lowest unemployment rates in nearly 37 years.
Increasing the use of apprenticeships, particularly for the manufacturing industry, has been a goal of the Trump administration. Last year, President Trump signed an executive order expanding the role of apprenticeships in the US. The order provides $200 million in taxpayer money to “learn-and-earn” programs through a grant system called ApprenticeshipUSA. It also reduces regulations regarding apprenticeships in order to give companies more flexibility in designing their own programs.
But critics claim that the executive orders do not go far enough to address the problem. Only 0.35% of the 146 millions jobs in America are filled by active apprenticeships in 2016. Significant impact to the labor market would require a much more in-depth and active action from the government, including way more funding. The order also fails to address the need to educate companies and workers about apprenticeships in order to clear up misconceptions that may be causing stigma against them. In order to truly aid the manufacturing labor market, more comprehensive policies are needed.
State level programs may be the key to success
Numerous states have initiated apprenticeship programs in their manufacturing industries that mirror the popular German model, which creates partnerships between the state programs and companies looking to utilize apprenticeships. Direct state funding in apprenticeships has led to successful programs in Iowa, Connecticut, California, Wisconsin, Kentucky, and South Carolina, among others.
South Carolina has been one state that has been particularly successful. Facing a shortage of skilled workers in 2007, the state started “Apprenticeship Carolina. The program offered a $1000 tax credit for each apprentice a company takes on. The state also offered free “Apprenticeship Consultants” to employers who help business start appropriate apprenticeship programs based on a company’s employment needs. Consultants use an extensive network of contacts, including technical colleges, workforce investment boards, economic development organizations, and trade associations to reach out to employers that could benefit from an apprenticeship program and to direct them towards learning about apprenticeships. They streamline the application process from the US Office of Apprenticeships, cutting out costs and hassle for employers. As a result, South Carolina has significantly increased the use of apprenticeships in their state, going from 90 companies and 777 apprentices in 2007 to 670 companies and over 11,000 apprentices in 2014.
Many states have found similar success, yet the nation as a whole has yet to adopt a cohesive apprenticeship plan. States each have their own needs and barriers to entry that require specifically tailored policies. A uniform national policy would both be difficult to apply and highly expensive. Proposed policies involving tax credits for employers hiring apprentices are a necessary first step, but are not sufficient to create such a robust national system. There will be a need for policy measures that create better coordination between states and the federal government, more funding and services from the Office of Apprenticeships, and marketing campaigns to promote apprenticeships to new employers. If such policies are implemented, manufacturing might actually see the “roar back” we have been promised for so long.
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The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.