fedgazette

Workforce quality top consideration for Minnesota companies

A major issue in location decisions

Naomi Cytron
Toby Madden - Regional Economist

Published September 1, 2003  |  September 2003 issue

Productivity is a key component of economic development, and labor productivity, in particular, is closely tied to the quality of the labor force and educational institutions. Research says so, and Minnesota firms agree, according to a workforce survey by the Federal Reserve Bank of Minneapolis.

Most Minnesota business establishments concur that labor quality is a top consideration in deciding where to locate and expand, based on the results of the survey of 4,397 firms, which was conducted in June and July and garnered more than 600 responses. In addition, respondents indicated that Minnesota workers perform better than workers in other locations. "Overall, Minnesota workers are better than from other states," commented the owner of a small automobile repair shop. Businesses also indicated that while the quality of high-skilled workers was good to excellent (as measured against their expectations for such workers), the quality of low-skilled workers was poor to fair.

Most respondents reported good to excellent availability of Minnesota workers and indicated that Minnesota educational institutions are effective in providing companies with qualified workers. Furthermore, immigrants who speak English are an important contributor to the workforce, respondents said. Turning to long-run workforce issues, when asked about the importance of early childhood education, many respondents thought government should ensure that children are ready to learn by the time that they reach kindergarten.

Businesses also expect slight increases in employment and wages over the next six months.

Labor availability and quality

Of responding establishments, 69 percent indicated good to excellent availability of low-skilled workers in Minnesota, and 65 percent reported good to excellent availability of high-skilled workers. Issues relating to worker availability did not reveal significant concerns among the business community; however, questions of worker quality brought mixed responses. While 86 percent of respondents indicated good to excellent quality of high-skilled workers, only 45 percent of respondents similarly rated the abilities of low-skilled workers with no more than a high school diploma.

Workforce chartsThis is significant, given that 74 percent of responding establishments agreed that labor quality is a top consideration in making location and expansion decisions, and the fact that low-skilled workers—generally defined as those with a high school diploma or less education—still constitute close to half the workforce.

A number of respondents commented that low-skilled workers are poorly equipped with basic education, workplace ethics and etiquette skills. "We get [an] adequate number of applicants for factory labor positions," noted one large construction company, "but many fail the drug use and basic skills tests that we require them to pass before offering employment."

Another respondent in the service sector remarked that "workers with [only] a high school education lack math and communication skills needed in business." However, the same respondent noted, "Overall, Minnesota-educated workers are better than from other states," echoing several others who returned surveys with positive comments regarding the Minnesota workforce compared to those elsewhere. Among responding establishments, 63 percent indicated that the quality of Minnesota workers was better or much better than workers in other locations.

Education resources

Respondents revealed an overall confidence in the effectiveness of Minnesota educational institutions in providing their companies with qualified workers. With regard to private four-year colleges and universities, 71 percent of respondents rated these institutions good to excellent compared to a 76 percent rating for public four-year colleges and universities. Trade schools and community and technical colleges also received fairly comparable ratings, with 73 percent and 78 percent receiving good to excellent ratings, respectively.

Overall confidence in the effectiveness of both private and public K-12 schools was slightly lower than that of higher education and specialized institutions, with an average 66 percent good to excellent effectiveness rating. Private K-12 school ratings were slightly higher than ratings for public K-12 schools, with fewer respondents pointing to very good or excellent effectiveness of public schools in providing qualified workers for their businesses.

Respondents voiced concerns regarding the workforce's literacy level and basic knowledge of math and history, and indicated a shortfall in skilled trades and technical education. "Education should be a top priority for the state and region," noted a realtor, mirroring several other respondents who indicated that the educational system is in need of improvement.

Businesses were also asked whether government should be involved—and to what degree—with ensuring that children are "ready to learn" by the time they reach kindergarten, commonly referred to as early childhood development (ECD). Over half the businesses agreed that early childhood development should be a government priority, while about a quarter disagreed and the rest were neutral. Those in disagreement (and who commented) felt that such matters were parental responsibilities; others were doubtful that increased government intervention would correct any perceived problem.

Asked about funding for ECD programs that specifically target at-risk children, 43 percent of businesses supported higher spending (though current spending levels were not provided in the survey); 38 percent thought current funding was adequate, 10 percent wanted less and 5 percent wanted no government money going to these programs.

Among those commenting, many were skeptical of the efficacy of such programs. "More money does not necessarily translate into improved educational outlook for at-risk youngsters. To the extent more money will drive improved performance for at-risk kids, I'd be supportive," commented a construction respondent. In contrast, a trade industry respondent stated that government spending should be "[w]hatever is the correct amount to get the job done correctly."

Immigration

Immigrants add to the employment mix: 54 percent of respondents reported foreigners as part of their local workforce. However, this represents a small share of the workforce, as 35 percent of respondents reported that immigrants make up only 1 percent to 5 percent of their employees. And only 3 percent reported that immigrants represent over a quarter of their workers. "We would very much like to tap into immigrant groups more extensively. We have a strong need for bilingual employees," wrote a finance business respondent.

However, 76 percent of respondent business establishments do not employ workers who don't speak English, and of the companies that do hire non-English speakers, only 26 percent offer English as a second language training. "Everyone who works or lives in this country should learn how to speak English," exclaimed a service sector respondent.

Outlook

Business establishments anticipate modest growth in employment, wages and salaries over the next six months.

Within their own companies or organizations, 84 percent of respondents expect steadiness or increases in employment. Additionally, 53 percent of respondents anticipate a 2 percent to 5 percent overall increase in wages and salaries during the next six months.

However, there is some sentiment that, as one respondent in the wholesale trade sector noted, "[the] economy has not hit bottom yet in all sectors of business." Respondents expressed concern regarding the implications of global competition for future business structure, hiring practices and sales, with one construction company respondent noting, "We see profound changes in manufacturing with offshore competition as a very ugly fact of life that we must learn to contend with."

Another respondent, also in the construction industry, summed up several other responses: "[The] economy is still soft. We are under pressure to cut costs and have reduced our employee count. We expect this trend to continue for some time."

Minnesota Workforce Survey Methodology —
Summer 2003

Of the approximately 25,000 Minnesota business establishments with over 19 employees, a stratified random sample of 4,397 businesses was drawn from the population. The population was stratified based on employment size; the sample includes 100 percent of establishments with over 500 employees, 50 percent with 100 to 500 employees, and 20 percent with between 19 and 100 employees.

An initial mailing was sent to the selected business establishments on June 2, 2003. A second mailing was sent on June 23, 2003, to the selected businesses that did not respond to the first mailing. The cutoff for survey responses was July 6. A total of 651 usable surveys were received, for a response rate of 15 percent.

Survey results were tabulated for all establishments. The confidence interval for sampling error was calculated. The 95 percent confidence interval for the table of results for all establishments is plus or minus 3.6 percentage points. Results are also subject to errors introduced by other factors, such as the wording of questions and differences between survey respondents and nonrespondents.


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