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Uncertainty still plagues job market on upswing

On the surface, things are looking up for the Buffalo Niagara job market.

Unemployment has been hovering around 5 percent, not far from what it was before the last recession. Job growth has picked up a little.

But not all jobs are created equal, and the skills that employers are looking for today aren’t necessarily the same that they were seeking a decade ago. That’s causing an undercurrent of uncertainty in today’s job market.

About one of every six workers in the Buffalo Niagara region holds a job that they don’t feel fully taps into their skills. Underemployment across the region is about four times greater than the unemployment rate, according to a new report on the local labor market, commissioned by Invest Buffalo Niagara and compiled by researchers at the University at Buffalo Regional Institute. More than half of those workers have skills in customer service, office work or warehousing.

“How, on the one hand, can we have so many job openings, and yet have 132,000 people who feel they are underemployed?” said Thomas A. Kucharski, Invest Buffalo Niagara’s president.

The $230,000 labor market study can be a starting point in examining the state of the region’s workforce and how it matches up with the skills and hiring needs of local employers. And it could be a roadmap to help create training programs that turn out workers who have the skills needed for the nearly 138,000 jobs that will open up over the next 10 years from retirements alone, said Sharon Entress, associate research director at the UB institute.

Here’s a closer look at some of the report’s findings.

Pay lags in most sectors

If you’re looking for a job that pays better than the national average for that industry, the Buffalo Niagara region is not the place to be.

Our overall wages are 6 percent less than the national average. If you look at earnings in individual industries, the gap between what workers earn here and their counterparts across the country gets bigger as the average pay gets higher.

So managers earn about 9 percent less here. Lawyers are paid about 23 percent less and the wages for healthcare practitioners are 7 percent below the national average.

On the plus side, protective services workers, such as police officers, make about 7 percent more than the national average, and construction wages are about 6 percent higher – both reflecting the higher unionization rates in those industries.

Below-average wages help companies lower their costs. They can help attract new business from higher-cost areas, something Buffalo Niagara has done with back office financial services work. But lower wages also make it harder to convince workers to move here, even though the region’s lower cost of living offsets much of that gap.

132,000 workers are underemployed

Nearly one of every six local workers have skills they’re not using and want a better-paying, higher-skilled job.

Those workers are the underemployed, and they outnumber the unemployed by a nearly 4-to-1 margin.

Contrary to popular belief, the underemployed aren’t mostly recent college graduates forced to settle for jobs beneath their skill level. They’re mainly middle-age workers – six of every 10 underemployed workers are between the ages of 35 and 54. They earn mid-level pay at a little less than $22 an hour. But they have the experience and training to take on more demanding jobs – if they could find one.

They’re also fairly well educated. More than half of the underemployed have at least a two-year degree.

But they may not have the right skills for today’s job openings. Nearly 70 percent of the job openings in the region’s target industries, such as advanced manufacturing, clean technology and life sciences, are entry-level. And that’s where the skills gap is greatest.

Underemployed untapped skills

There’s no shortage of qualified warehouse workers in the Buffalo Niagara region. The same goes for experienced factory workers.

Nearly 60 percent of the region’s underemployed workers say they have warehousing skills. But just 30 percent say they are using those skills in their current job.

It’s the same for manufacturing, where 19 percent of the underemployed workers with factory skills say they aren’t using them.

That’s a pool of skilled labor that could be a valuable source of workers for companies in those industries. But those skills are valuable only if they’re up to date.

After all, there’s no shortage of college graduates in the Buffalo Niagara region. Local colleges produce nearly 19,000 graduates each year. But that’s about four times more than the number of jobs being created in the region that require a degree. That surplus puts downward pressure on wages and contributes to underemployment.

Wave of retirements

Over the next decade, nearly 138,000 local workers could head into retirement.

That’s about a fifth of all workers in the Buffalo Niagara region, and no industry is facing a bigger hit than manufacturing, where older workers outnumber the youngest ones by a nearly 2-to-1 margin. As those older workers retire, it will be a challenge for manufacturers to find replacements, while maintaining their operations and productivity.

That’s why local economic development officials have been putting so much effort into worker training for manufacturing, while also trying to convince the region’s students that factory work can lead to a viable career.

For other industries facing a wave of retirements, such as health services, the challenge isn’t so daunting, since the health care sector has plenty of young people coming into that sector, including the more than 3,900 local students who graduate with health-related degrees each year.

Can the labor force grow?

First the good news: The region’s overall supply of labor is growing. The 1.3 million residents age 16 and older is 2 percent more than the region had in 2009.

But now the bad news: Fewer than three of every five of those potential workers actually have a job or are actively looking for one – and the percentage of engaged workers has dropped by 7 percent since 2009, mirroring national and statewide trends.

Nearly 525,000 Western New Yorkers of working age currently are on the sidelines of the job market. Much of the decline is due to older workers retiring, but the number of young adults, between the ages of 25 and 34, who are opting out of the labor force has been rising slightly, while the overall population in the prime working ages of 35-54 also has been shrinking.

The danger is that a shrinking work force could leave employers unable to fill job openings, which ultimately could slow the region’s economic growth.

More workers are dropping out

When it comes to working, more Western New Yorkers are dropping out.

That’s nothing unusual – the same thing has been happening for more than three decades across the country, partly because more workers are retiring and dropping out of the labor pool.

But the decline in labor participation has been more pronounced locally.

Sharon Entress, associate research director at the UB institute, thinks the decline in the region’s labor participation rate – from 63 percent in 2009 to 58 percent in 2014 – is mostly due to aging workers heading into retirement. But that doesn’t explain why more than half of the local residents who have dropped out of the labor pool are younger than 65.

The challenge for the region will be to find ways to bring more disengaged workers back into the labor force as the wave of retirements continues.

Education impacts labor participation

The less educated you are, the higher the likelihood that you’ve dropped out of the Buffalo Niagara workforce.

While nearly 90 percent of all working age adults with a bachelor’s degree or higher are either working or actively seeking work, it’s an entirely different story for residents without a high school diploma. Less than half of those residents are active members of the labor force – and their participation rate has plunged by 10 percentage points since 2009 – as the greater skills employers are seeking become a higher hurdle for people who didn’t finish high school.

There’s a racial divide, too. More than three-quarters of white residents are active participants in the labor force, but the participation rate drops to around 60 percent for African Americans, Asian and Hispanic residents. Bringing non-white participation rates up to the same level as white workers would add 35,000 people to the local labor force.

Where the jobs will be

Health services are hot. So are professional and business services. Leisure and hospitality hiring is expected to be robust, too.

But don’t set your heart on a government job. Factories won’t be adding new jobs, either.

That’s how the state Labor Department sees the next five years playing out in the Buffalo Niagara region.

Technical skills are expected to be high demand, as are computer and software abilities. Engineering skills also are expected to be at a premium. Those three job skills, along with strong demand for management skills, are expected to account for nearly 45 percent of all highly skilled jobs within the region over the next five years. Another 15 percent will come from talent shortages in health and professional services.

Where worker turnover is low

Hiring and training new workers is a costly process for businesses.

It takes a while before newly hired employees are fully up to speed, reducing their productivity. Sometimes, the new hires don’t work out, sending employers back to square one to start again.

So the best scenario for businesses is to hire good workers and keep them. That’s why low turnover rates, which measure how many employees leave or are hired in a job during a given year, are so coveted by businesses.

It’s also no surprise that the industries with the lowest turnover rates – especially manufacturing, finance and the trade and utility sector – also are the ones with the highest productivity.

Likewise, high turnover can threaten a company’s production and profits. The leisure and hospitality sector – popular among young workers just starting out – is particularly susceptible to high turnover. That one industry accounts for more than a fifth of all labor turnover in the Buffalo Niagara region.

Low turnover boosts productivity

It’s one thing to have a job. It’s something entirely different to be a productive employee.

It’s an important distinction for employers, since productivity is a way to measure just how efficient workers are.

If you measure productivity by the value of the goods and services produced per employee, workers in the Buffalo Niagara region are right on par with the statewide average. Local workers produce an average of about $170,000 in goods and services each year.

But productivity varies widely, depending on the industry. Productivity among local manufacturers is more than double the local average, in large part because of the increased value of the products made by industry. Productivity also is high in the information and finance sectors. On the flip side, productivity is low in the leisure and hospitality field, where comparatively low wages lead to higher employee turnover rates.

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