Labor: A Study of the Automotive Industry's Scarce Resource (PART 1 OF 3)
The Michigan Economic Development Corporation (MEDC) (formerly the Michigan Jobs Commission) sponsored the Michigan Automotive Policy Survey in September 1997. The survey and subsequent report are part of an overall contract granted to the Office for the Study of Automotive Transportation (OSAT) to assist the organization in maintaining a special industry roundtable, the Michigan Automotive Partnership (MAP). Two sets of Michigan automotive firms currently participate as members of the MAP: the state's largest vehicle-producing firms (General Motors, Ford, and DaimlerChrysler), and a representative group of 25 automotive component, engineering service, and capital equipment firms. The constant purpose of the MAP is to provide a forum for the MEDC to communicate with the state's major industry, especially with regard to the state's economic policy.
The Michigan Automotive Policy Survey's main purpose was to obtain information and develop industry consensus on a range of state-level policy issues through a representative, multi-round survey of Michigan automotive firms, as well as a comparison group of parts-making firms from outside of Michigan. The policy domains for this study were suggested in site visit interviews and through the use of a short policy-rating poll of the MAP membership in the winter of 1997-1998. The policy domains include an automotive human resources forecast; issues in education and training for the auto industry; factors in the expansion and location of automotive facilities; the impact of global climate change policy on the automotive industry; and a measurement of health care programs in the auto industry.
Over the next few months, I will use this column to highlight several findings which co-author Dr. Sean McAlinden and I identified in the course of survey and follow-up interviews.
Rating the Problem.
Complaints of automotive labor shortages and tight labor markets were rife in Michigan's auto industry during 1998—a situation that was characteristic of labor markets throughout the Midwest in recent years. A major motivation for this study was to determine whether any new public policies might alleviate the extent and consequences of such severe labor shortages in automotive manufacturing and related industries. Therefore, one of the most critical elements of the Michigan Automotive Policy Survey was to put in to quantifiable perspective the labor scarcity issue. Respondents were asked to rate their firms' current experience in several U.S. and Michigan labor markets. Tables 1a and 1b show the respondent's ratings of those labor markets.
The responses highlight several human resource challenges raised by the reported labor scarcity. Interestingly, these challenges are in some ways very different for the OEMs, Michigan suppliers, and non-Michigan suppliers. It is apparent that the OEMs are experiencing little difficulty in acquiring general production labor or supervisors, other specific technicians, business managers, and clerical/office workers. Although the OEMs rate the Michigan labor market for general production labor and other specific technicians as slightly more scarce than the rest of the U.S., they reported a far more ample supply of general production for both regions than did the suppliers.
The OEMs did report moderate to severe labor scarcity for computer programmers/computer software specialists and IT systems support technician labor markets. For these technical labor markets, the OEMs reported scarcity similar to that reported by both suppliers groups for the U.S. labor markets, and more scarce in Michigan than did the Michigan suppliers.
There are at least three possible factors contributing to the OEMs experiencing an ample supply of the production skills, both at labor and supervisor levels. Several OEMs are attempting to become more competitive through productivity gains. Through efficiency gains, they are reducing the number of employees necessary, and thus may not be experiencing the need for hiring that others may face. Second, the OEMs offer the highest wage rates in the industry, and thus for purely economic reasons are probably able to draw from a large labor pool. Finally, the labor market for a production job is likely more local than a market for some of the other labor categories. The higher wages and benefits offered by the OEMs likely increases the geographical area from which they can draw compared to companies that pay lower wages. In a sense, the OEMs are positioned at the top of the human resource food chain for the production labor market, and thus are able to hire labor as needed.
The IT Demand.
The same may not be true for IT systems support technicians and computer programmers and software specialists, both labor categories for which the OEMs report labor scarcity. The labor market for these jobs is much more national in scope. Not only do OEMs face competition from beyond the local labor market, they also face severe competition from other industries. The labor market for IT technicians, computer programmers, and software specialists is truly national in scope. It is also currently ultracompetitive. The rapid rise of technology has forced industry—all industry—to become acutely aware of their information systems infrastructure and the general scarcity of qualified labor. In many ways, the automotive industry suffers from an image problem with respect to IT workers. Many IT and software specialists, due in part to their scarcity, are highly mobile, and automotive manufacturing is viewed by many in this group as an unattractive industry. According to at least some respondents, this impression of the industry is compounded by its location in America's Rust Belt.
Suppliers face pressure from the OEMs and suppliers in higher tiers for production workers, and the OEMs and other industries for IT and software specialists. Therefore, it is not surprising that they report relative labor scarcity for many of the job categories listed. It is interesting to note that the suppliers report a slightly lower scarcity than OEMs for IT technicians and software specialists in Michigan, and for IT technicians for the rest of the U.S. It is possible that the suppliers have more pressing needs, such as meeting current production goals. The concern is that these suppliers may be focusing on current manufacturing issues at the expense of future technology challenges.
Survey respondents indicated that a significant portion of the current labor shortage is driven by the economic strength of the economy. Yet they also indicated that the lack of recent graduates and the unpopularity of manufacturing are contributing to the scarcity.
Both Michigan and non-Michigan suppliers note the lack of recent graduates as contributing to the reported scarcity of labor. It is interesting to note that suppliers are more inclined to blame the reported shortages on the quantity of recent graduates than they are the quality of those graduates. As noted, this age cohort group of recent graduates is one of the smallest cohort groups in decades. This, combined with the reported unpopularity of manufacturing jobs, has made a tight labor market even tighter.
Results indicate that the OEMs believe wages may be a contributing factor in their reported labor scarcity. However, the suppliers, both Michigan and non-Michigan, indicate that wages are less of a cause of the reported scarcity. Given the wage differential between OEMs and suppliers, especially of production employees, it is interesting that the OEMs, who likely pay more, are more apt to say that the wage rate is more of a factor. This may be indicative of the ultracompetitive nature for the technical skills needed by the OEMs. It also may present opportunity for future discussion regarding the economic forces acting upon the supplier system.
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