Analyzing Local Skills Gaps As Part of JPMorgan Chase’s ‘New Skills at Work’ Initiative

Today at the Aspen Institute in Washington, D.C., JPMorgan Chase launched a $250 million training initiative called New Skills at Work, the largest private-sector effort to date aimed at addressing skills gaps in job markets in U.S. and globally by focusing on local data, partnerships with industry, and specialized training programs.

The five-year initiative will use data research, public-private partnerships, and discussions with local leaders and organizations “to accelerate economic growth by supporting training programs that will have the greatest impact.” You can learn more in ” target=”_blank”>the New York Times or in the video below.

As part of JPMorgan Chase’s launch, EMSI produced a briefing on potential skills gaps for middle-skill workers in the nation’s 100 largest metros. The briefing (PDF) was part of lunchtime panel at today’s event moderated by Walter Isaacson, president & CEO of the Aspen Institute, and featuring JPMorgan Chase CEO Jamie Dimon, Chicago Mayor Rahm Emanuel, and former Director of the White House Domestic Policy Council Melody Barnes.

The crux of EMSI’s briefing is simple: The skills gap is a national issue that’s best looked at the local or regional level. Worker shortages manifest themselves differently from region to region, and sometimes from city to city inside a region. The shortages that employers cite in San Antonio likely differ from those in Houston or Honolulu, just as the skills gaps could be different in Santa Monica and Anaheim, even though both are part of the Los Angeles metro.

The following are the four major findings of EMSI’s briefing, which compared estimated labor market demand from 2013 to 2015 with graduated output in related programs for the middle-skill occupations in three key sectors — the skilled trades, technology and engineering, and business and finance.

1. Three Metros Have Particularly Large Projected Mid-Skill Talent Shortages

Washington, D.C., Houston, and Dallas have a projected shortfall of close to or more than 5,000 middle-skill workers in technology and engineering, the skilled trades, and business and finance over the next two years. After these three metros, Boston, Chicago, New York City, and Seattle are poised to face the next-largest deficits of these critical middle-skill workers. All have an estimated gap of at least 2,000 workers per year.

Looking more broadly, 20 metros have projected mid-skill worker shortages of at least 1,000 annually through 2015. This includes smaller metros (e.g., Salt Lake City and Austin), as well as metros that struggled through the recession (e.g., Detroit and Tampa-St. Petersburg).

2. Regional Industry Drivers Help Indicate Potential Shortages

Skill gaps might be hard to diagnose at the national level, but look closely at particular regions and examine the industries that they specialize in, and talent shortages begin to emerge.

The San Francisco economy, for example, is driven by technology and professional services. Sure enough, the most acute projected labor shortage among the occupation groups analyzed for the San Francisco metro are in mid-level technology and engineering technician occupations, where demand is expected to outstrip supply by nearly 1,000. Skilled trades workers, meanwhile, are not expected to be nearly in such high demand in San Francisco, but more of them are projected to be needed in manufacturing-oriented Chicago and energy-driven Oklahoma City.

The industry makeup of regions goes a long way in determining the kind of shortages that exist, if there are any. Houston has a large projected shortage of machinists, welders, and other skilled trades workers. Miami appears to be severely under-producing mid-skill business and finance workers. And mid-skill tech workers are going to be most needed in D.C., Dallas, New York, and as we mentioned, San Francisco.

3. The Aging Workforce Is Exacerbating The Issue

If the skills gap has yet to be felt in some regions, it could just be a matter of time – especially in a number of key sectors (such as skilled trades, health care, and transportation) that rely on an increasingly aging middle-skill workforce. The issue is twofold: a large number of older workers in middle-class jobs are nearing retirement, and many high school graduates are not pursuing the vocational or two-year training needed to enter many of these mid-skill fields.

There are many examples of metros where the effects of an aging workforce are already or will soon be felt:

• In Seattle, New York City, and Cleveland, more than 60% of all machinists – an in-demand skilled trades occupation – are at least 45 years old. Meanwhile in Chicago, nearly a third (29%) of machinists are 55 and older. As these workers begin to leave the workforce and a disproportionately small number of students or displaced workers train to become machinists, the manufacturing firms that rely on these workers could struggle to find talent.
• In Houston, 51% of tractor-trailer truck drivers are 45 or older, while 45% of skilled trades workers are 45-plus. Employers in Houston will be hard-pressed to replace retiring skilled trades workers, given the small pipeline of new entrants into the workforce in these occupations and the perception among students that they’re not stable, well-paying careers.
• In the Washington, D.C. metro, 15% of mid-skill health care workers are 55 or older, and another 22% are 45 to 54. That’s a large segment of an in-demand group of workers who are on the verge of retirement.
• In Boston, 20% of skilled trade workers are 55-plus, and another 30% are 45 to 54. Among tractor-trailer truck drivers, more than half (52%) are 45 and older.

4. Not Every Metro Is Facing A Deficit of Mid-Skill Workers

EMSI’s metro-by-metro analysis identified large cities that will soon be hurting for new mid-skill workers. But we also found a number of metros on the other side of the ledger — cities with a projected surplus of workers in the skilled trades, technology and engineering, and business and finance.

Two metros among the 100 largest have a projected oversupply of at least 500 potential new workers per year – Tulsa, Okla. (632 more graduates than openings) and Baton Rouge, La. (524). Both metros are large-scale producers of certificate holders in the skilled trades, specifically in welding. Note that a portion of these grads will move elsewhere for jobs, specifically since there are much bigger skilled trade labor markets than Tulsa’s or Baton Rouge’s.

Beyond Tulsa and Baton Rouge, five metros have a surplus of at least 200 graduates across the three sectors: McAllen-Edinburg-Mission, Texas (384); Los Angeles (349); Dayton, Ohio (328); Toledo, Ohio (314); and Jacksonville, Fla. (211). We excluded the Phoenix metro from this list because the presence of the University of Phoenix skews the regional graduate total, specifically for programs (e.g., computer programming) in which a large number of online degrees are awarded nationally but are counted in Phoenix.

Some metros, meanwhile, have a projected excess of graduates in one or two of the sectors analyzed, but undersupplies in others. St. Louis, for instance, produced more than 1,100 skilled-trade graduates in 2012, while EMSI estimates just 727 new graduates will be needed each year through 2015. But St. Louis is expected to have a significant shortage of mid-level business and finance graduates (604 more openings than graduates) and a slightly smaller projected gap of technology and engineering graduates (202).

Conversely, in Rochester, N.Y., educational institutions produced twice as many mid-level tech and engineering graduates as the projected need indicates for the next two years. But in the skilled trades (particularly machinists and electricians), Rochester faces a substantial undersupply of new workers entering the job market.

Economic Consequences of the Skills Gap on Regional Economies

In addition to providing a supply-and-demand outlook, EMSI’s briefing looked at the economic consequences of the skill gaps on regional economies. The most obvious effect of a local skills gap is that local industries can’t perform at their full potential. And when key industries aren’t operating at peak potential, the regional economy suffers, both because of the loss of sales revenues and because of the reduction in local supply-chain purchases.

From a microeconomic perspective, the impact of a skills shortage depends on the degree to which the gap reflects an efficiency constraint (i.e., employers are operating in a less than optimally efficient manner because they can’t find necessary talent) or an output constraint (i.e., opportunity exists for a firm to expand output and perhaps market share, if it were not for a shortage of key workers). Either way, a skills gap has consequences for employers, local industries, and the region itself.

Read the full briefing for an example on the potential effects of filling the shortage of machinists in Houston.

For more from EMSI on the skills gaps discussion, check out our recent article in Forbes, an expanded version of which appeared on the EMSI blog, or contact Rob Sentz ([email protected]).