This week, I was struck by a quote from an Apple (Nasdaq: AAPL ) executive that fellow Fool Morgan Housel shared via Twitter. The executive said, "We shouldn't be criticized for using Chinese workers, the U.S. has stopped producing people with the skills we need." Despite high unemployment, the sentiment isn't Apple's alone; many companies are feeling the pinch of a lack of "skilled" laborers. This was one of the reasons The New York Times cited for the U.S. losing out on iPhone manufacturing.
Caterpillar (NYSE: CAT ) had similar complaints late last year, saying it was having trouble finding technical and engineering employees it needed to hire. After shedding thousands of jobs at the beginning of the recession, the company has added more than 10,000 jobs in the last two years, making it one of the biggest hirers during the recovery so far.
It's no secret that China and other Asian countries are able to provide skilled workers in droves at a cost that the U.S. workforce can't compete with. They'll also work more hours than most U.S. workers. 3M CEO George Buckley once told a group of engineers (including myself) that their jobs would be shipped to China because the workers there would work for a quarter of the price and work twice as hard. There's some truth to this, but there's a flip side as well.
Workers are still available, just not 24/7
What Apple and other companies want isn't more engineers and technicians; they want more cheap engineers and technicians who will work 24/7. In its article, The New York Times describes Foxconn waking workers in the middle of the night to begin iPhone production, as well as the hiring of 8,500 engineers in 15 days.
It's estimated that the U.S. graduates about 150,000 engineers annually. That's probably fewer than we need, but few of them would live in dormitories at a factory or work for Chinese wages. When Apple says the U.S. doesn't produce the workers it needs, this is the kind of workers Apple is comparing against.
Workforce solutions company ManpowerGroup (NYSE: MAN ) says companies need to take a more holistic approach to their workforces, with a need to find innovative solutions to their problems. The company is trying to provide solutions to this problem and has begun positioning itself for a world in which talent, not capital, is the key differentiator for successful firms.
Stigma attached to factory work
Even less-educated workers in the U.S. see a stigma attached to being a factory worker. Welding, operating a production line, and even being an engineer at a plant just don't seem to be jobs that average Americans aspire to. I worked in a plant as an engineer, but only with the promise that it was a two-year stint, so I'm guilty of this as well.
In Asia, factories are where the jobs are. And on-site dormitories are a norm for workers. This contributes to the abundance of skilled labor in China and the lack of the same labor in the U.S.
Follow the money
Let's not kid ourselves that money isn't an issue here as well. A good friend of mine and I often talk about the reasons people chose business over engineering in college. It always circles back to one thing: money.
Look at the highest-paid people in the U.S. today. Many of them are corporate executives, investment bankers, hedge fund and private equity managers, and doctors. Since Ivy League MBAs have taken most of the executive positions that engineers climbing the corporate ladder used to aspire to, there's little upside for engineering students, so why not choose business instead? When you're 18 years old and you have a choice between a career that typically maxes out somewhere around $100,000 per year (except extremely high-paying tech companies) versus one that can pay you $250,000 or more by the time you turn 30, the choice is easy. Especially when it also means skipping differential equations and organic chemistry.
I don't need to look any further than my own career for proof of this. I hold a bachelor's degree in engineering and went back to school in search of greener pastures. My passion for investing was the driver, but the financial rewards of going back to school for an MBA didn't hurt.
For proof that money is part of the problem, look at Silicon Valley. Software and electrical engineers haven't been hard to find for Google (Nasdaq: GOOG ) and Intel (Nasdaq: INTC ) , who have been filling higher-tech positions than those that Caterpillar or Apple factories need. Google helps attract employees with a slew of on-campus benefits, and Intel rated No. 15 in Fortune's list of highest-paying companies, so maybe companies in search of qualified workers need to re-evaluate what they offer to workers.
A simple solution
The U.S. won't be able to compete with China or India on labor costs alone until these countries become much more developed and labor there can demand higher wages.
If companies really wanted to hire workers in the U.S., there's no shortage of educated people here. But when an investment bank is willing to pay double, triple, even 10 times what an engineer makes, then the best and the brightest will end up on Wall Street. It's sad, but that's the way capitalism works.
So next time you hear about a shortage of qualified workers compared to China, consider the conditions workers live in at Chinese factories, the hours they work, and how much they are paid. It isn't an apples-to-apples comparison -- no pun intended -- and what companies are really saying is there's a shortage of highly educated, cheap labor willing to work 24/7. If Apple really wanted to make the iPhone here, it could have, but American workers expect more than the conditions Foxconn offers.
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