Closing the skills gap in high tech manufacturing: Education and training required to meet changing workplace demand

We’ve emphasized the importance of making sure that our state provides young people with training and education required to succeed in a rapidly evolving economy. The Associated Press report today on changes in high tech manufacturing provides another good example. Technological advances have led to a change in labor demand in some of our nation’s most vibrant industries. And, again, the skills gap poses problems for employers and workers. 

American manufacturers have actually added nearly a million jobs in the past seven years. Labor statistics show nearly 390,000 such jobs open.

The problem? Many of these are not the same jobs that for decades sustained the working class. More and more factory jobs now demand education, technical know-how or specialized skills. And many of the workers set adrift from low-tech factories lack such qualifications.

Factories will need to fill 2 million jobs over the next decade, according to a forecast by Deloitte Consulting and the American Manufacturing Institute. Workers are needed to run, operate and troubleshoot computer-directed machinery, including robots, and to maintain complex websites…

the United States for now remains a follower, not a leader, of the trend. Workers in many European and Asian countries are more likely to be working with robots than U.S. workers, studies show. In such countries as Japan and Denmark, robotics and advanced automation have created solid jobs while increasing efficiencies for manufacturers.

In part, the increased use of robotics and advanced automation in Europe and Japan can be attributed to higher labor costs, which have made it easier to justify the costs associated with the shift to automation. As we wrote earlier today, that’s another example of the calculation employers are making when they consider tradeoffs with a higher minimum wage.

For both employers and employees, to successfully navigate the emerging economy it’s vital that the skills gap be closed. AP illustrates the point.

Festo Didactic, the education arm of Germany-based Festo, last year launched two-year mechatronics apprenticeship programs in Ohio with Sinclair Community College, and is already expanding its U.S. apprenticeship offerings. At Festo’s plant in Mason, workers monitor a robotic distribution system that self-adjusts its work flow to prevent backups.

“This kind of factory has nothing to do with the factory we knew in the 1960s or 1980 or even 2000,” said Yannick Schilly, who heads global supply for Festo’s North American business.

But there’s not much demand locally these days for the kind of repetitive tasks done in those factories by workers such as Herbie Mays.

He acknowledged that there are “plenty of jobs out here.

“What you have to do is get training or education.”

We agree. The on-the-ground experience demonstrates the growing importance of receiving a postsecondary certification or some college education. 

NBER Report: Raising the minimum wage accelerates robotics, reducing job opportunities for low-skill workers

A new report published by the National Bureau of Economic Research adds to the compelling research demonstrating that minimum wage increases lead to increased automation, reducing employment opportunities. E21 reports on the study:

A new working paper by Grace Lordan of the London School of Economics and David Neumark of the University of California at Irvine finds that increasing the minimum wage lowers the share of jobs susceptible to automation held by low-skill workers. A $1 increase in the minimum wage lowers this share by 0.43 percentage points.  Increases also adversely affect the workers’ likelihood of being employed and hours worked.

You’ll recall that NBER previously published an analysis of the minimum wage hike in Seattle by a University of Washington research team that found negative effects on low-income workers.

A new report from University of Washington economists finds that Seattle’s minimum wage ordinance has not provided the benefits proponents claimed. Their research was published today by the National Bureau of Economic Research (full report available for purchase). The abstract neatly summarizes the findings:

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. (Emphasis added.)

The report looks at the effect of the wage increases on various demographic groups. 

ounger workers are the focus of much of the minimum wage literature because most of these workers are low-skilled. Unsurprisingly, the authors find that a $1 higher minimum wage reduces the share of automatable jobs held by workers 25 and younger by 0.94 percentage points.  For workers over 40, a $1 increase in the minimum wage reduces the share in automatable work by 0.72 percentage points…

While younger workers see large effects in many sectors, the estimate for manufacturing is close to zero. In contrast, the share for older workers in automatable jobs in manufacturing decreases by 1.68 percentage points in response to a $1 minimum wage increase. Previous minimum wage studies might have overlooked the extent of this effect on this subgroup of older workers.

Along other demographic dimensions, female and African-American workers tended to see larger adverse effects, although the magnitude of these differences varied by industry.

Here’s how the authors describe the results in the abstract (NBER paper available for purchase through the site).

We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

Charles Hughes at E21 points out that the nation is entering uncharted territory, with Seattle in the vanguard.

Many of the proposed or passed minimum wage increases are venturing beyond the pale of historical experience in two dimensions: the increases are larger, and the effects of automation on low-skilled workers is likely higher. Despite the stated well-intentioned goal, minimum wage increases often harm many of the low-income families they are supposed to help, and the net effect could be even worse going forward. 

That, at least, appears to be the lesson being learned in Seattle.

AWB publishes concise analysis of why Legislature must reach swift agreement on “Hirst fix,” reports talks continue.

We’ve written before about why it’s important for lawmakers to find a solution to the water rights uncertainty left in the wake of the state Supreme Court’s Hirst decision (for example, here and here).The Association of Washington Business recently published a one-page brief that clearly explains the issue.

Without a legislative fix, the Hirst decision will have significant impacts. During the legislative session, lawmakers heard testimony from citizens who bought a piece of property and designed a home, and even drilled a well, but were then denied a building permit because of the Hirst decision. Banks will also deny loans on projects that do not have guaranteed water. Washington Federal has already announced they will no longer lend on properties that have had wells drilled after October 6, 2016.

Read the whole thing. The current situation is unsustainable and untenable. 

AWB reports talks continue, but no joy so far.

The Senate passed a Hirst fix four times this year, but the House did not bring that bill or any Hirst fix of its own up for a vote. Sen. Judy Warnick, R-Moses Lake, lead sponsor of that Senate bill, met with lawmakers from both sides of the aisle last week, but there was reportedly no substantial progressmade toward a much-needed fix.

And without a Hirst fix, a capital budget in 2017 remains unlikely. A constructive resolution to the impasse shouldn’t be this difficult.

The Lens takes a look at Washington’s supposedly “regressive” tax structure.

Much of the impetus behind the Seattle income tax and calls for a capital gains tax stems from the widely-held conviction that Washington’s tax structure is regressive, imposing a proportionally higher tax burden on low-income taxpayers and treating high-income taxpayers very lightly. In The Lens, TJ Martinell takes a look at the belief and writes that the popular conception may be a tad off. 

Although businesses pay over half the taxes collected by the state and local governments, a frequent claim among some tax reform advocates is that Washington has one of the most regressive tax structures in the country. It’s the impetus behind ordinances such as the city of Seattle’s progressive income tax, approved in part in the hopes of overturning State Supreme Court rulings rendering it unconstitutional. It’s an argument likely to be heard during public meetings with state House lawmakers discussing the state’s tax structure that were funded in the 2017-19 operating budget.

Yet, some fiscal experts say the “regressive” claim isn’t wholly accurate, while warning that progressive taxes lead to revenue volatility.

It’s a good discussion, worth reading in its entirety. As he reports, a report from the Institute on Taxation and Economic Policy (ITEP) is generally citied by those claiming the tax structure is regressive. Yet, the ITEP study has been challenged by tax experts and economists.

However, Tax Foundation Senior Policy Analyst Jared Walczak writes that the ITEP study erroneously treats the B&O tax as a sales tax paid by the consumer, rather than employers.

Similar criticism has been raised by WRC’s Research Director and Senior Economist Dr. Kriss Sjoblom. He told Lens that the study “overestimates the amount that poor people consume, and then as a consequent overestimates the amount of sales tax poor people pay. A lot of those businesses taxes are assumed to be passed on to consumers prices that are being paid by the poor.”

What makes the system “regressive” are the high “sin” sales taxes on liquor and cigarettes, he added. According to the Center for Disease Control, “people living below the poverty level and people having lower levels of educational attainment have higher rates of cigarette smoking than the general population.”

“If you look at the share of income spent on these selective sales taxes, we’re the highest,” Sjoblom said. “If you look at the share of business taxes that the poor are paying, we’re the highest. It’s the businesses taxes and the selective sales taxes that are driving us into this extreme position.”

In reviewing Initiative 1098, an income tax initiative proposed (and overwhelmingly defeated) in 2010, the Washington Research Council examined the regressivity claims from ITEP. The discussion also points out that state and local governments have only a limited ability to redistribute income through tax policy.

Because people and business- es are mobile, state and local governments have only lim- ited ability to redistribute income. Public finance experts who study the appropriate allocation of func- tions within the federal-state-local hierarchy of government conclude there- fore that redistribution—to the extent it is a policy objective—is primarily a federal responsibility.

The federal tax system—and therefore, the overall federal-state-local tax system—is progressive. To quote the Gates Committee: “Analysis by the Committee confirmed that when evaluating the total tax system—local, state and federal—all states have progressive taxes and the differences among states are not as great.”

In conclusion,

The popular conception that Washington’s tax system is the most regressive in the nation is based on a study with serious flaws that bias the comparison to other states. The system is certainly less regressive than the study makes it appear. When federal taxes are considered—as they should be—the tax system is progressive and when expenditures are considered the overall sys- tem is even more progressive.

The WRC brief holds up well as a review of the state tax structure and a primer on analyzing tax burdens. Given the current discussions, it’s once again timely and relevant.

Friday Roundup: Growth pays for growth, small downtowns, NAFTA concerns, missing workforce, broadband, Ex-Im Bank

There are always a few items we’ve read during the week that deserve more attention but don’t make it into our regular posts. So we bundle them for the Friday roundup.

Here’s this week’s bundle:

Seattle Times (Talton): Seattle Candidates: Talk about Sustainable City Budget

According to the League’s July report, Seattle’s government spending has grown 250 percent over the past half century, adjusted for inflation…One of the big misconceptions out there is that Seattle’s growth doesn’t pay for itself. Quite the contrary has been true in recent years.

…Instead of more taxes on development, city leaders should be mindful of the dependence on a revenue source that’s sure to slow down, not to mention the risks to other funding, especially federal.

Washington Research Council: Taking vetoes into account, the budget doesn’t balance over four years

On July 28 the Economic and Revenue Forecast Council (ERFC) met to adopt the official budget outlook. Accounting for vetoes and some changes made by the Legislature, the official outlook leaves unrestricted ending fund balances of $925 million in 2017–19 and negative $57 million in 2019–21. Note, though, that total reserves (including the rainy day fund) are expected to be $1.644 billion in 2019–21. Our report on the budget was based on the numbers as passed by the Legislature. 

CityLab: The Next Big Challenge for Small Downtowns

For downtowns in major American cities, these are boom times. The urban centers of New York and Chicago boast record high employment. In San Francisco and Seattle, there’s an explosion of residential construction, dining, and entertainment options, as well as a commercial rebirth in high-end, white-collar employment.

But in many smaller cities, the downtown renaissance doesn’t rest on such solid ground…

A 2015 analysis by Wendell Cox found that just six cities were responsible for about three-fourths of all major-city downtown employment growth from 2010 to 2013: New York, Chicago, Boston, San Francisco, Seattle, and Houston. This shows the disparity between the major business and tech hubs and all the rest.  

The Lens: Washington’s agricultural stakeholders voice concerns over NAFTA revamp discussions

NAFTA has been very beneficial for our growers, packers and shippers, so the ‘do no harm’ approach is very positive at this point,” said Mark Powers, president of the Northwest Horticultural Council (NHC).

According to Powers, Washington exports approximately 15 percent of its apple crop and 20 percent of the state’s pear crop to NAFTA countries each year, totaling $345 million and $97 million, respectively. Also, Washington cherries sent to Canada and Mexico bring in $105 million annually.

Powers told Lens that the state’s agricultural sector is most concerned with the possibility of new taxes that could be added as a result of an updated trade deal.

“Right now, tariffs are at zero and have been for many years; we want to keep them at zero,” he said.

The Columbian: Ex-Im Bank Needs a Leader

The list of local companies supported over the years by the Export-Import Bank is not filled with household names. There is Conquest Consulting Group, and The Neil Jones Food Company, and Northwest Natural Products, among others — each of them providing local jobs while conducting international business with assistance from the federally operated bank.

It is a story repeated throughout Washington. As Kris Johnson, president of the Association of Washington Business, wrote in a recent opinion piece for The Seattle Times: “The bank provides a lifeline to ensure the health and growth of our state’s critical manufacturing sector. … Since 2012, Washington state’s economy has benefited greatly. In total, 174 companies utilized the bank’s services, representing $78 billion in export value to the state.”

Given the importance of the Export-Import Bank in Washington — and in other states — Scott Garrett represents a disappointingly poor selection to head the agency.

E21: The Missing Millions

The economy now has over six million job vacancies, according to the Labor Department,  that’s a record since the Department began tracking the data in 2000. Openings were highest in the Midwest and West, followed by the South and Northeast. Employers are clearly confident and trying to increase hires…

Although the economy is generating record levels of vacancies, the labor force as a percent of the population is still at 1970s levels and has not returned to prior stages.  This lower labor force participation will eventually lead to slower economic growth and steadily higher federal and state tax burdens, even if Congress reduces taxes and modifies Social Security and Medicare benefits for future retirees.

Daily Yonder: Broadband Economic Benefits: Why Invest in Broadband Infrastructure and Adoption?

In non-metropolitan counties, about 6.2 million households (35.4 percent) lack access to 25/3 fixed broadband. These rural residents are missing out on $11.6 billion per year in economic benefits or $113 billion over fifteen years assuming full coverage and adoption.

On the other hand, the most conservative of scenarios, which assumes full access but only 20 percent adoption, would generate an impact of $4.5 billion per year or $43.8 billion over fifteen years in the U.S. In non-metropolitan counties, this same scenario would yield $2.3 billion annually or $22.7 billion over fifteen years.

 

Governing magazine asks if automation anxiety is overhyped. It depends. Educated workers will fare better.

We’ve written about growing concerns that technologyrobots – will transform the workplace. A story in today’s Seattle Times looks at Amazon’s use of robots.

Governing magazine examines the issue, reporting that the trend and the job risk is real, but will play out differently across regions and industries. 

To estimate the potential effects of automation in those areas, Governing utilized definitions in a University of Oxford study assessing the automatability of individual occupations, then compared them with the Department of Labor’s most recent occupational employment estimates for the 100 largest U.S. metro areas. About 65 percent of Las Vegas area jobs were found to be susceptible to automation, the highest in any metro area. Much of that stems from the region’s large armies of servers, food preparers, cashiers and other occupations thought to be highly automatable.

Educated workers will do better as the economy transforms, though there are some interesting nuances.

Regions with higher education levels should fare better. But the Brookings Institution’s Mark Muro points out that there’s more to it than that. Physical jobs that are more complex or personalized — the kinds you won’t find on assembly lines — may actually be less vulnerable to automation than routine office jobs. “Often, lower-skill but physical, personal or direct-caring occupations seem quite durable,” Muro says. 

Middle-class, white-collar jobs, on the other hand, can be significantly liable to automation…

Metro Seattle shares characteristics with other cities where automation puts relatively fewer jobs at risk.

Large regions with jobs least susceptible to computerization, using the Oxford study’s definitions, are high-tech centers, such as San Jose-Sunnyvale-Santa Clara, Calif., and Durham-Chapel Hill, N.C. Other metro areas with highly educated workforces such as Washington, D.C., and Boston similarly appear to have fewer jobs vulnerable to displacement. Regional economies relying heavily on education and health care may be less prone to automation because jobs requiring a high degree of human interaction are thought to be among the most resilient.

Governing reports that experts divide on the question of whether the net employment effect is positive or negative.

A 2014 Pew Research Center survey of experts found 48 percent agreeing that automation, robots and artificial intelligence will displace more jobs than they create by 2025.

There are, of course, policy implications.

While there aren’t yet many programs that specifically address automation, some states are engaged in activities that could help alleviate the impact of job losses. Apprenticeships are gaining a lot of attention and are expanding to health care, finance and other fields where they haven’t been common before. “The model is being modified and they’re really trying to ramp it up,” says Scott Sanders, executive director of the National Association of State Workforce Agencies.

For workers displaced by automation, community and technical colleges will play a crucial role in the pursuit of new careers.

In our 2017 foundation report update, we noted the growing importance of postsecondary education and training.

 

Increasingly, the majority of jobs in Washington will be filled by workers with a postsecondary credential (such as a technical or industry certificate, apprenticeship, or degree). Today, just 31 percent of Washington high school students go on to attain such a credential by the age of 26. The mismatch between workforce readiness and job openings hampers our collective ability to take advantage of the potential economic growth that lies ahead.

The rapid evolution of technology creates opportunities for the well-prepared. We’re optimists, believing that the net effect of automation will be positive. Making sure Washington students are prepared to take advantage of those opportunities remains a key priority for policymakers and business leaders.

As more lawsuits challenge Seattle’s income tax, new research examines income inequality and “the 1 percent”

Earlier we wrote of the first lawsuit challenging Seattle’s “illegal” and “unnecessary” income tax. The Washington Policy Center writes that two more challenges were filed yesterday. In his post, Jason Mercier notes,

… two more lawsuits were filed, one by the Freedom Foundation and one by the “Opportunity for All Coalition” represented by former Washington State Attorney General Rob McKenna, former Supreme Court Chief Justice Gerry Alexander, former Supreme Court Justice Phil Talmadge, and Dan Dunne, a litigation partner at Orrick Herrington. Of note in the McKenna legal brief is the fact current Attorney General Bob Ferguson declined a request to take action against the illegal Seattle income tax. From the brief

“On July 21, 2017, certain Plaintiffs made a demand upon Attorney General Bob Ferguson to investigatethe Tax’s illegality, and to file suit on behalf of all Seattle taxpayers specifically and Washington taxpayers generally to enjoin the imposition of the Tax and to obtain a judgment declaring it to be unlawful under state statute and the Washington Constitution . . . On August 3, 2017, Attorney General Ferguson declined to investigate the Tax and challenge its legality in court.” 

Mercier nicely summarizes the issues. GeekWire reports on the Opportunity for All challenge. 

The Opportunity for All Coalition is filing today’s lawsuit on behalf of several individuals, according to McIlwain. As Madrona’s managing director, McIlwain invests in a wide range of software-focused companies, like Accolade, Extrahop, Qumulo, and Smartsheet. He also sits on the board of the Fred Hutchinson Cancer Research Center and Washington Policy Center.

“I believe there are times when you need to serve your community,” McIlwain told GeekWire when the Opportunity for All Coalition launched. “In defeating the city income tax, we can help maintain a system of opportunity and job creation for innovators and workers.”

With the purported focus on reducing income inequality and taxing “the rich,” an article by Manhattan Institute fellow Brian Riedl provides some timely myth-busting perspective. We encourage you to read the whole, brief, piece. Among other observations, Riedl points out:

Overall, lifetime incomes show much less inequality than random snapshots in time. IRS data show that three-quarters of the top one percent fall out within six years. And measurements that focus on consumption rather than income — which take into account taxes, government benefits, and the lifetime smoothing of consumption — show little change in inequality across the quintiles between 1960 and 2014.

All that said, Piketty, Saez, and Zucman make a useful contribution to the study of income inequality. The major policy question (assuming one accepts the data) is whether this pulling away of the top 0.5 to 3.0 percent is really a “problem” to be “solved.” After all, the economy is not a fixed pie whereby one person’s wealth creates another person’s poverty.

In an observation particularly relevant to Seattle, he writes,

Bill Gates, Steve Jobs, and other computer revolutionaries set in motion a process that created enormous global wealth, revolutionized the economy, enhanced communications, and improved countless lives. That they retained a small fraction of this wealth and thus increased income inequality does not undo any of these societal benefits.

And with respect to the “fair share” arguments,

America already has the most progressive tax code of all OECD nations. The top one percent of taxpayers – which closely approximates the group pulling away from the rest – already pays 39 percent of all federal income taxes despite earning 15 percent of the income.

Although he’s writing about the federal income tax, his closing warning should resonate here.

Not enough taxpayers exist at those high incomes to solve the long-term budget deficit, much less finance new spending. Consequently, lawmakers who begin by calling for millionaire taxes often end up reaching much further down the income scale – where nearly three-fourths of income is earned outside of the richest five percent. Therefore, taxpayers hearing calls for “tax increases on the super-wealthy” should guard their own pocketbooks.

Right. 

BCG Report on Early Childhood Education: How and Why Cities are Rethinking Their Approaches

In our 2017 foundation report update, we emphasized the importance of early childhood education.

According to the Washington State Board of Education, less than half (or 44.2 percent) of entering kindergarteners in 2015–16 were able to demonstrate the six characteristics of school readiness (as measured by the Washington Kindergarten Inventory of Developing Skills, or WaKIDS assessment). The numbers are lower for some populations (fewer than one in three Hispanic students is kindergarten ready, for example) and low-income students.

The state’s goal is to increase the percentage of school-ready kindergarteners to 69 percent by 2020. To get there, the State Board of Education advocates for expanding access to high-quality early childhood education. We agree. Today, only 40 percent of the state’s three- and four-year-olds enroll in early learning programs, a rate that puts Washington in the bottom quartile of states.

Focusing on kindergarten readiness is a cost-effective way to help ensure students begin their academic careers on a level playing field, thus increasing their potential for consistent individual growth, a successful K-12 experience, and completion of postsecondary programs. The state should continue to make targeted investments to expand early learning options for children most at risk of entering kindergarten unprepared.

So we were interested in – and wanted to call your attention to – a brief article from the Boston Consulting Group discussing how and why cities are rethinking early childhood education. It’s a good read, with examples from cities across the country. Here’s the frame:

Research shows that high-quality early-childhood education (ECE) is a critical factor in childhood development and long-term success, in reducing the achievement gap between children of different races and economic groups, and in creating strong communities. The Annie E. Casey Foundation, for example, has found that children who are reading on grade level by the third grade are far more likely to graduate from high school than those who are not, and that children who participate in high-quality ECE programs are more likely to hold stable employment and less likely to need public assistance as adults. Evidence suggests that ECE helps create better and safer communities and increases local tax revenue over time.

To get the desired outcomes, it’s important to provide the right ingredients. The article offers good lessons. We won’t attempt to summarize it here. The authors conclude,

ECE has long been recognized as a powerful—and needed—educational force. At the same time, many efforts have failed to meet their full potential: ensuring that each child has the necessary foundation to learn and grow. While there is no silver-bullet solution to ECE, local stakeholders should consider new approaches to building strong early-childhood systems. This means taking care to develop the whole child, focusing on the birth-to-third-grade continuum, and ensuring that each sector involved in childhood development is collaborating for the success of every child.

Makes sense.