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Labor: A Study of the Automotive Industry's Scarce Resource (PART 2 OF 3)

Part 2 of 3: Where will the Skills Come From?

A common theme throughout Michigan Automotive Partnership (MAP; a Michigan Economic Development Corporation Business Roundtable) research of the past four years has been the perception among the general public—and, in particular, educators and their students—that automotive manufacturing takes place in dark, dirty, smoky environments. While in some cases this is still true, many modern manufacturing facilities are vastly different from the factories of the past. Michigan Automotive Policy Survey respondents indicate that this lack of understanding that people have regarding automotive manufacturing and engineering is one of the biggest challenges the industry faces with respect to attracting young people into manufacturing careers. The education system has emphasized—at the cost of technical training—that a four-year college degree is the only way to achieve a good paying, career-oriented job. The results of the wage estimates in Part One of the Michigan Automotive Policy Survey indicate that by learning a skill, many have achieved a good paying job without a four-year degree (Table 1). However, the respondents indicated that the general public and especially K-12 educators have little knowledge of automotive manufacturing and engineering job requirements needed to qualify for these skilled careers.

Table 1:

Table 1: Hourly Compensation for Production Employees (Michigan employment-weighted)
TradesOther Production
OEMs$23.50$19.55
Mich. Component Firms$16.42$10.93
ELM Sample (unweighted)
(Non-Mich. Components)
$13.35$10.44


 

 

 

Solid Wages. Respondent firms are asked to supply their current hourly compensation (not including benefit costs) for two types of production workers: hourly trades workers and other hourly production workers. Results shown in Table 1 below are derived through the use of employment weights for the Michigan industry groups. Non-OEM skilled trades wages in the table range from $16.42 for Michigan component firms to $13.35 for non-Michigan suppliers. Generally, reported skilled trade wages for non-OEM firms remain in a tight range of $16 to $17. A similar narrow range appears to hold for other production worker wages for non-OEM firms located in or out of Michigan. Non-Michigan suppliers report an average other-production worker wage of $10.44, not far below the Michigan parts-maker wage of $10.93. This data strongly suggests that the acquisition of a technical skill can be an acceptable career avenue.

Importantly, the respondents' comments suggest that the lack of quality training by both the vocational education system and company internal training programs have contributed to the current skilled labor shortage. The development of a skilled and trained workforce is a fundamental element of public policy. However, the extent of the training that should be industry-specific is very debatable. Is it the role of public policy to develop an educational system that provides educated, trainable individuals, or is it to deliver a product (graduate) that is already trained in industry-specific skills? The respondents indicate some disagreement on this subject.

The Voc Ed Decline. From the late 1970s through the early 1990s, the Big Three experienced a period of reduced hiring. During this time, many education systems that had traditionally supplied labor to the industry shifted their focus away from vocational education programs. This extended period of reduced hiring has led to a retirement bubble at the Big Three. As described in the 1995 MAP report Driving America's Renaissance (DAR):1 Human Resource Issues in Michigan's Automotive Industry, the average age of the hourly trades at the Big Three in 1995 was 46.8 years with an average of 20.1 years of service. Further, nearly 35% of their hourly trades had over 25 years of service and nearly 73% had at least 15 years of experience. Although essentially all training for Big Three hourly trades is controlled by the individual companies in cooperation with the United Auto Workers (U.A.W.) and is not a responsibility of the local school systems, it is an indication of a larger trend that occurred throughout the industry. In essence, a traditional customer of the education system, the automotive industry appeared to no longer be in need of the skills taught by the traditional vocational education program.

This shift away from vocational education programs, combined with what many respondents suggest is a lack of interest in and respect for manufacturing careers, has led to a current, and forecasted, critical shortage of capable skilled trades. For the OEMs, this shortage may be more noticeable outside of Michigan. There is currently a high concentration of skilled trades in Michigan; therefore, it is possible that OEMs will be able to balance their productivity gains and attrition losses at their Michigan facilities by shifting skilled trades to nearby facilities. Also, for any needs beyond the current staffing levels, the OEMs may take advantage of a large pool of skilled trades at nearby supplier facilities.

The shortage of skilled labor may be critical for Michigan suppliers. The fact that the Michigan suppliers are forecasting a less ample supply of skilled labor than the OEMs may be largely explained by the very different expectation for future hiring. The OEMs forecast a 2.4% decline in skilled trades hiring for 1999, while the Michigan suppliers surveyed forecast a 5.1% increase in hiring for the same period. Due to a lack of a vocational education infrastructure, the Michigan suppliers will likely find little help in the form of pretrained skilled trades. They may be forced to either train from within or hire from competing firms. Since the training required to reach the level of a skilled trade is in the order of years, it is possible that those companies that need skilled trades will be forced to meet short-term requirements through hiring from other firms. This, in turn, may create significant wage pressures on the companies operating in the state.

 

1 McAlinden, Sean P. and Smith, Brett C., Driving America's Renaissance: Human Resource Issues in Michigan's Automotive Industry. UMTRI-95-37. Ann Arbor: University of Michigan Transportation Research Institute, Office for the Study of Automotive Transportation, 1995.