Business Best Practices
Mr Milz overhauled
this 100 years-old grandfather clock.
Despite having an unacceptably high unemployment rate, the US manufacturing sector has over 600,000 unfilled jobs. This is due to the fact that our educational system isn’t producing graduates with the skills that are sought by employers.
Nancy Hoffman, author of the book Schooling in the Workplace: How Six of the World’s Best Vocational Education Systems Prepare Young People for Jobs, argues that the United States should adopt a European-style education system, in which students in their last two years of high school have the option of participating in highly structured workplace apprenticeships that involve working for pay several days per week, and spending the rest of the time in the classroom. This system is known as vocational education and training or VET.
So what are VET’s advantages? Meet August Milz, a product of Germany’s VET system. As a youngster, Mr. Milz spent two years at a clock school in Germany, and then served as an apprentice at a clock manufacturing company. He went on to run a number of successful clock repair shops, and is currently the owner of A M Clock Repair SVC, Inc
Following is a recent interview with Mr. Milz. It describes how he ultimately found his calling through VET.
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How did Germany develop such a strong vocational education and training (VET) system?
Unlike the US, Germany doesn’t have natural resources that are the basis of the economy. In Germany, the economy is based on production—not on the stuff that comes out of the ground. The government supports—and the system supports—learning a trade, doing something, building, working. The whole system goes back to the Middle Ages. Working in a trade was highly valued as only honorable people were eligible to participate. During this time, Germany wasn’t even a national entity; it was a political entity. In contrast, in the US, the only entity that supports education for tradesmen are the unions. For example, carpenters and electricians have to be licensed, which requires that they are able to demonstrate that they have been properly trained and educated in their specific trades.
What made you decide to go into the clock field?
Two things. One was that my schooling for higher education was interrupted because of World War II. When things normalized again, I was told that I was too old to pick up where I left off. My father had a small clock factory before the war that was closed during the war. My grandfather was a clockmaker as well..so it was a family tradition. I grew up in manufacturing.
What type of vocational education and training (VET) was available for someone wishing to learn about the clock trade?
I grew up in Schwenningen. a city located near the Black Forest where all of the major clock companies were located. There was a clock school in town. The institution had a three-year educational program involving a parallel apprenticeship. Students went to school and worked at the same time.
After going to school and apprenticing, a student got their diploma. But the diploma didn’t entitle them to own their own shop, or teach. The students had to work another 6 years under a Master, learning how to design their own mechanisms. Then they had to take an exam, which—if they passed—enabled them to become a Master. Only then could they own their own shop, or teach. That’s how the system worked.
What was your personal experience with the program?
While attending school, I worked in a factory that had a large machine shop where they made the clock’s internal mechanisms. I learned about the workings of the machinery, and how to set them up. Eventually, I was put in charge of production. As a result of this experience, I completed the entire program—schooling plus apprenticeship—within 2 years.
Does Germany still have clock schools?
Yes, it does. A couple of months ago I got a call from my nephew. His son is starting clock school, beginning as an apprentice at Junghans, where he works at the company three days a week, and then goes to school for 2 days a week. He will continue with this schedule until he finishes his apprenticeship.
In terms of the clock industry, how should VET be applied here?
There are two aspects to consider. One is designing new mechanisms; the other is repairing existing clocks. The education for each category is different. We don’t need Masters in the US, because —although the US used to be a great manufacturing center—today clocks are made in other countries, and then imported to the States. A Master learns how to design the mechanism, calculate the number of gears, and all that. There is no need or market for that. The need is for repair.
What should be done in terms of US vocational education?
For over 100 years clocks have been imported here. There are countless millions of clocks, but there is nobody to take care of them. That’s why I decided to come here to open up repair shops. There is definitely a need for a clock repair and maintenance school in the US; however, any new program must also include working as an apprentice.
August, Thank you!
[My comment: There are similarities between the plight of Doug Oberhelman, CEO of Caterpillar, whose company is unable to find qualified factory workers, and August Milz, owner of A M Clock Repair SVC, who can’t find properly-trained, clock repair people. Both individuals run businesses that are constrained by a lack of qualified workers. This is ironical, in light of our high unemployment rate.
Only by reforming our educational systems, can we hope to solve this problem. We must develop more meaningful partnerships between business, academia, and government. Ultimately, the goal should be to integrate school and work experience in a specific career area, ending the distinction between academic and vocational preparation.]
OK, wrap your head around this one. There are 600,000 unfilled jobs in the U.S. manufacturing sector, because employers are unable to find qualified applicants.
Furthermore, the Organization for Economic Cooperation and Development issued a report indicating that more than half of American companies are having trouble finding enough skilled workers. Given our unacceptably high unemployment rate, how can this be?
At a forum about Jobs, Education and the Economy, Doug Oberhelman, CEO of Caterpillar (CAT), revealed that his firm has recently been interviewing 1,000’s of people for shop floor jobs that require “basic skills, nothing fancy.” He was “appalled” to learn that the hiring managers at CAT rejected 60% of the applicants, because they “can’t read, they have no math skills, and they fail the drug test.”
The irony in these numbers is that the U.S. annually spends $650 billion dollars on public education, more than any other country in the world. However, Oberhelman points out that—based on his recent hiring experiences—we are throwing over $300 billion out the door. Not only is the aggregate level of spending on education high, but the amount we spend has increased dramatically and consistently. The Cato Institute reports a “25 percent increase in K-12 per-pupil expenditures, in constant dollars, between 1995 and 2005.”
These facts suggest that putting more resources into our education system will not solve the problem. Many countries—South Korea, Finland, Canada, Netherlands, to name a few—are achieving better results using fewer resources. Rather, we must radically reform our existing institutions, so that our schools produce an educated workforce, one that is capable of performing 21st century jobs.
Inaction is not an option. We are competing against China, a country that values education. And they want our jobs! Although they don’t spend much money on it, they are starting to leverage the benefits of having produced an educated workforce. CAT makes a 20-ton, hydraulic excavator system in a dozen places throughout the world, including a facility in Victoria, Texas. CAT’s CEO indicated that the number one plant in terms of “quality, safety of employees, and almost every metric is in China.”
In conclusion, there is still somewhat of a party atmosphere in the U.S.: the economy appears to be on the mend, employers are hiring workers, and the housing sector seems to be lifting us up. But if we do not fundamentally restructure our educational system, Oberhelman suggests that the party will be over for the next generation.
In subsequent posts, I will describe some specific reforms that need to be made.
The supply chain in China, including thousands of mainland factories, is reeling from a 13.6% increase in the minimum wage, as reported yesterday by CNBC. As a result, the lowest salary is being pushed up to 1,500 yuan or $240 per month. The increase was caused by a series of strikes that occurred around the Pearl River Delta, a major Chinese industrial center.
Chinese export manufacturers in the Hong Kong area expect that the increase will result in the downsizing—or complete closing—of 1/3 of Hong Kong’s 50,000 factories in China. These suppliers are critical links in the supply chain that stretches all the way from China to Europe and the U.S. In addition to the wage increase, another reason for the anticipated decline in Chinese production relates to the general downturn in global economic activity.
The gap between U.S. labor costs and Chinese labor costs is narrowing. In fact, a recent article in the New York Times described how GE is bringing back jobs to the U.S. at GE’s Appliance Park in Louisville, KY. In return, the union agreed to a two-tier labor structure, where the U.S. employees who are hired will be paid $10 to $15 per hour less than what the current union workers are making.
Let’s do the math. The offshore jobs that are being backsourced to GE’s Appliance Park will result in U.S. workers making between $20,000 to $38,000 per year. The workers in China, who will receive the 13.6% increase in their minimum wages, will be making $2,880 per year. Thus, G.E.’s workers will be paid approximately 700 to 1,300 per cent more than their Chinese counterparts. Jeffrey Immelt, GE’s CEO, is spearheading the U.S. government’s campaign to bring jobs back to the U.S. Are these new, Appliance Park jobs being brought back because of lower labor costs? Or, are political factors affecting the decision?
As discussed in an interview with a U.S. manufacturing executive who lived in China for 13 years, global manufacturers who are looking to minimize their labor costs are locating factories in Viet Nam, not China. This strategy—chasing every cent of labor savings—requires rejiggering the supply chain every few years. Vietnam’s minimum wage is only US$85 per month (or $1,020 per year). Thus, Chinese workers are paid 282% more than Vietnamese workers.
Although the labor differential gap between the U.S. and Asian countries is narrowing, it is still significant. Offshoring will continue to be attractive to firms with products that have
- High labor content
- Large Production volumes
- Low variety
- Low transportation costs
Products that meet these criteria—such as electronics assembly—will most likely never return to the U.S. Furthermore, in certain industries—for example, in computer and cell phone production—most of the companies that comprise the supply chain are situated in Asia. Given this reality, moving production to the U.S. would be uneconomical. In these industries, hoping for backsourcing to happen is like waiting for an airplane to touch down that is simply not going to land [on U.S. shores].
In conclusion, the key determinant in terms of where to produce is based on total cost, not just labor cost. One must begin by looking at the manufacturing process to determine where the most economical location is. Although China’s increase in its minimum wage is significant, it is just one of many factors to consider.
What do you think? Is there a future for manufacturing in the U.S.? Given the labor differential between China and the U.S., do you think that we can still compete?
There are not enough jobs for college graduates whose degrees are in non-STEM areas. STEM stands for skills in science, technology, engineering and mathematics. I know, because as a university professor and parent, I have learned about the predicaments of many young graduates. The plight of Tom K. is a case in point. He graduated from Dartmouth with a degree in history, but the only decent-paying job that he could find was one in construction. Last year’s valedictorian from one of the top 25 law schools is still looking for work, according to a lawyer friend.
These anecdotal stories are buttressed by a report from Georgetown University, Center on Education and the Workforce. The authors project that by 2018, only 23% of jobs will require a bachelor’s degree, and 10% will require a graduate degree. Put differently, 67% of jobs in 2018 will not require a college or graduate degree.
Vocational and Technical School IT Training Class
In short, we are producing far too many college graduates who are finding that the job market has little use for them. To add insult to injury, the typical college graduate is saddled with an average of $25,250 in student loans, a yoke that is heavy to bear. The combination of debt and dim job prospects have together provided the kindling that has ignited the “Occupy Wall Street Movement.”
Our current predicament is addressed in the report “Blueprint for Jobs in the 21st Century,” which was compiled by the Human Resource (HR) policy Association. The HR executives indicated that many good paying jobs are going unfilled, because our educational institutions and government training programs are producing workers who lacked the necessary, technical skills. In addition, the authors of the report indicate that we are gutting our high school vocational training programs, thereby exacerbating the problem.
For example, the New York Times reported that President Obama is prioritizing increasing academic standards and college graduation rates while reducing federal expenditures for vocational training in public high schools and community colleges. The objective to produce a higher percentage of college graduates is reminiscent of our previous public policy to increase the percentage of Americans who own homes. Is the administration unknowingly creating another bubble? Call it the bachelor degree bubble (too many B.A.s and not enough jobs) as opposed to the housing bubble (too many houses, and not enough viable buyers)?
Recommended Course of Action
What opportunities are there for the 67% who need training for work?
First, we must realize that having a bachelor’s degree is not a guarantee to a job, as it once was. We must create a strong vocational option for high school students, so that they can go on to develop the skills that are needed by future employers.
According to HR professionals, certain jobs are going “begging.” During a December 12, 2011 speech before the Economic Club of Chicago, Rahm Emanuel, Chicago’s mayor, indicated that while the city struggles with a 10 percent unemployment rate, more than 100,000 jobs are available.
Skilled trades are always in constant demand. For example, AMR, an aircraft leasing company, indicated that it has 500 openings for aviation mechanics. Experienced mechanics can earn as much as $56,000 a year. Also, rewarding careers are available in occupations such as health care, information technology, etc.
But to develop the requisite skills in these fields, workers need education for jobs and/or apprenticeships. Earlier this week it was announced that the City Colleges of Chicago plans to provide vocational training to meet the needs of business in industries such as health care, and supply chain management.
Government, educational institutions and industry must work together to restructure the educational system. Only by doing so can young people acquire the requisite skills and training that employers seek. Developing these skills will enable youth to be able to earn a living wage, and achieve a productive career.
What is your view? Should we put resources into increasing the graduation rates for undergraduate degrees? Or should we put our resources into developing vocational and technical schools and/or career paths?
Business school education is alive and well. On April 29, 2010, I attended The University of Chicago’s 58th Annual Management Conference at Navy Pier. A beautiful setting overlooking Lake Michigan, this seminar showcased leading academic and industry practitioners who discussed a variety of current business issues ranging from the effects of fiscal imbalances—our annual deficit for the next couple of years is projected to exceed $1 trillion!–to the regulation of financial markets.
The speakers at these conferences are typically thought-leaders who provide insights that have aided me in my thinking about current business topics. For example, Raghuram G Rajan, Professor of Finance, Chicago Booth, stated that economists have ignored the role of financial institutions in developing their macroeconomic theories. This worked for a while in terms of developing useful theories about how the economy functions; however, it has been a mistake. Case in point: the demise of firms such as Lehman Brothers has had a major impact on macroeconomic activity. Macroeconomics must change, recognizing that if you ignore the “plumbing” too much, it backs up, and you can “smell it.” Rajan believes that there will be substantial future research about the role of financial institutions in our economy, largely as a result of the most recent financial crisis.
So, next year, if you happen to be in the Chicago area during the end of April, be sure to attend this useful seminar. At a cost of $175, it is a bargain. Plus, there are ample opportunities for networking.
