The World According to Tim Sullivan
The business leader's unproven idea of a “skills gap” is misleading state policymakers.
In June 2011, Bucyrus International CEO Tim Sullivan gave a dramatic speech to a “packed auditorium of civic leaders” at a meeting of the Milwaukee 7 economic development group in West Bend, as the Milwaukee Journal Sentinel reported. Sullivan made a “confession,” that it was nearly impossible for his company to find candidates for welding jobs, that he couldn’t get the help he needed from MATC, and this was why he moved jobs to Kilgore, Texas.
“You could see how pained Tim was to put that plant in Kilgore,” Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, told the Journal Sentinel.”The message for Milwaukee is to fix the workforce or die.”
Not long after this, MATC welding instructor Larry Gross wrote an op ed for the Journal Sentinel where he claimed that MATC worked with Bucyrus to create “a customized curriculum” to help students pass the Bucyrus welding test. He also noted that Kilgore offered $540,000 in incentives to the company to a build a plant there.
At the time, I expected a follow-up JS story to contrast the quite different claims of Gross and Sullivan. But no such story appeared and a remarkable narrative was established, that despite historically high unemployment, Wisconsin actually had a shortage of workers, a “skills gap” which left employers without the right kind of workers. Sullivan, who had flirted with the idea of running for U.S. Senator, was soon grabbed by Gov. Scott Walker and turned into a kind of czar of workforce training.
Some months ago Sullivan, released a long report, “The Road Ahead: Restoring Wisconsin’s Workforce Development,” that is likely to be very influential with the Walker administration.
But Sullivan’s report is also intended to prove there is a skills gap in Wisconsin, and there he runs smack into a wealth of reports by economists and academics which disagree. That includes one by UW-Milwaukee researcher Marc Levine, whose February report, “The Skills Gap and Unemployment in Wisconsin, Separating Fact From Fiction,” offers a blizzard of statistics that all but buries the notion of a skills gap.
Sullivan at one point in his report asserts there is a shortage of skilled welders in the state, offering the evidence that his company had problems in that regard. But Levine notes that since 2000, “employment for welders has dropped by 25 percent in Wisconsin (and by 45 percent in Milwaukee), and the unemployment rate for welders soared to double digits by 2010.”
Sullivan offers no employment data of his own, but instead cites a projection which says that by 2018 the Milwaukee region will need to fill an additional 1,860 openings for jobs with a welding or machining skill. He notes that MATC has turned out only 56 students per year with one or two-year degrees in welding in recent years. That doesn’t sound good, but given the current surplus of welders, it doesn’t prove a shortage of workers.
Levine notes that real wages for welders have actually declined in Wisconsin since 2000, and in Milwaukee by 9 percent, which suggests there is an oversupply of welders, unless the laws of supply and demand have somehow been abolished. He contrasts that to states like North Dakota, Wyoming and Alaska, “where a chronic shortage of welders, driven by the boom in the energy industry… has lead to a surge in employment and real wage growth for welders.” Wages for welders went up 22 percent in Wyoming, 14 percent in North Dakota, and 25 percent in Alaska.
As for the idea of Wisconsin facing a “competitive disadvantage” in workforce skills, Levine notes that “the educational attainment of welders in Wisconsin is markedly higher than national averages: 35.9 percent of Wisconsin welders have post-secondary education and college degrees, compared to the national average of 27.3 percent. By contrast, only 12.5 percent of welders in Wisconsin do not hold a high school diploma, compared to 22.7 percent in the country as a whole.”
Regarding Sullivan’s contention that a lack of “qualified, factory-grade” welders in Milwaukee led him to move the work to Texas, Levine notes that “the percentage of welders in Texas without a high school diploma is triple the Wisconsin rate” and “the percentage of welders without a high school diploma in Kilgore, Texas, the site of the new Bucyrus plant, is almost double the percentage of welders without a high school degree in Milwaukee County.”
Levine notes the package of incentives offered by Kilgore and the fact that average wages for welders in Kilgore, Texas are far lower than for welders in Milwaukee County. This suggests the jobs were moved because the company saved money.
Levine, however, doesn’t know what the Bucyrus welders are paid in Kilgore. In his own report, Sullivan says his company offered a starting pay of $22 per hour and adds, “There may be companies that do not pay market value for workers, but there are plenty, like Bucyrus, that pay family supporting wages and still have a difficult time finding workers.”
Sullivan may be right about Bucryrus, and may have colleagues who tell them they can’t find workers, but Levine presents a blitzkrieg of evidence (including countless other studies that have disproved the “skills gap” thesis) to prove what should be obvious: in an era of historically high unemployment there is an overall job shortage and an oversupply of well-educated workers. There are a few states (Wyoming and North Dakota) that have a job shortage, but most, including Wisconsin and the Milwaukee metro area, have far more job seekers than jobs, and have seen wages decline since 2000.
So why can’t companies find workers? A 2012 survey by Manpower asked firms why they have difficulty hiring and 54 percent said candidates were “looking for more pay than is offered.” As Atlantic writer Barbara Kiviat put it, in response to such surveys, “When firms post job openings at a certain wage and no one comes forward, we call this a skills mismatch. In a different universe, we might call it a pay mismatch.”
New York Times writer Adam Davidson came to Milwaukee and interviewed Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside the city, who was having trouble finding skilled workers for a starting wage of $10 an hour. Davidson noted that a new shift manager at a nearby McDonald’s can earn around $14 an hour.
“I spoke to several other factory managers,” Davidson writes, “who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. ‘It’s hard not to break out laughing,’ says Mark Price, a labor economist at the Keystone Research Center… ‘If there’s a skill shortage, there has to be rises in wages…It’s basic economics.’”
For 30 years or more, companies have been moving jobs to the South, then Mexico, then China, and paying ever lower wages in real, un-inflated dollars. Perhaps they are so conditioned to paying lowball rates that even the lack of job seekers isn’t telling them they don’t pay enough.
The legacy of manufacturers moving jobs to other countries has also made young job seekers — who may have seen their parents lose their jobs at bottom-line oriented companies — suspicious of such companies.
Davidson writes that Isbister “was deeply frustrated when his company participated in a recent high-school career fair. Any time a student expressed interest in manufacturing, he said, “the parents came over and asked: ‘Are you going to outsource? Move the jobs to China?’ Isbister… admitted that his answer to a nervous parent’s question is not reassuring.”
In an attempt to contest the idea the manufacturers aren’t paying enough, Sullivan does something I’ve never seen in a policy report of this kind, devoting three pages (100-103 in this sprawling document) to prove that the starting pay of $12 per hour offered by Marinette Marine was a livable wage for an 18-year-old, single, high school graduate. Sullivan does a run-down of this person’s likely monthly expenses, and shows there is enough for the person to live on (though the $101 in monthly discretionary income seems pretty thin).
But why would somebody take this job — a job history tells them could get moved to Texas or Mexico or China — if other less onerous, less dirty, more reliable jobs are out there? One could imagine some young people saying I’d rather continue to live at home and bide my time till a better offer comes along.
Levine presents some stunning statistics to illustrate the current economy. In Milwaukee, between 2000 and 2010, the percent of bartenders who have a BA degree or better rose from 12 percent to 26 percent, the percent of retail salespersons with a college degree rose from 17 percent to 24 percent and for stock clerks rose from 5 percent to 9 percent.
The statistics suggest the current economy is sorely lacking in jobs for college graduates. And perhaps, that some of these folks might have been better off getting a technical college degree. But these are also jobs that can’t be moved overseas and that often pay more (with tips) than many Milwaukee companies are willing to pay.
It may be true that there are occasional skills gaps in the state’s economy, but the overwhelming picture is one of an economy with a huge labor oversupply and shrinking wages. Sullivan’s report, in its insistence on a skills gap, is offering a badly skewed picture of the economy that is already having an impact on the policy decisions Gov. Walker is making. This does not bode well for Wisconsin.
-After doing more than a dozen stories on the “skills gap,” giving headlines to Sullivan’s speech and editorializing in favor of the Sullivan report, the Milwaukee Journal Sentinel did no news story covering Levine’s report. Nor has it paid much attention to the overwhelming number of research reports and stories — including the Times story heavily based on Milwaukee — discounting the idea of the skills gap. Clearly the paper is convinced there is only one narrative here, and no other viewpoint will be reported.
-CEOs like Sullivan (who earned as much as $5.25 million annually in total compensation) typically cite the marketplace in defending their ever-escalating salaries. But nowhere in Sullivan’s report does he ever consider the idea that the marketplace is speaking when workers don’t show up to grab jobs for $12 an hour.