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Skilled worker shortage hurts U.S.

Employers would be hiring more if they could just find the skilled workers they need.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The biggest problem with job growth right now isn't too few new jobs. It's too few skilled workers.

The Labor Department's December employment report Friday showed stronger than expected job and wage growth, with a net gain of 167,000 jobs in the month, and average hourly wages up 4.2 percent from a year ago. But even in this report, the pace of job gains was showing signs of slowing down.

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The fourth quarter gain was below the third quarter and 2006 saw 143,000 fewer jobs added to payrolls than in 2005, or almost a month's worth of hiring. And that's a comparison to a year in which hurricanes Katrina and Rita took a bite out of jobs.

In addition, one survey earlier in the week from employment service ADP released Wednesday showed U.S. private sector employment shrank in December, the first decline in 3-1/2 years.

But many economists and labor market experts say that job growth and the economy overall would be significantly stronger if employers could find the skilled workers they really need.

"I'm hearing across the board, across industries, companies indicating they can't exploit market opportunity because they can't find people with the right skills," said Jeff Summer, an executive at Deloitte Consulting who leads the firm's management practice. He said that there's virtually no long-term unemployment for skilled workers.

"It's down to the nub already," he said. "Supply and demand is completely out of whack."

Some experts say part of the blame for the slowdown in the economy in last year's second half can be laid on labor constraints - companies couldn't expand as fast as they wanted due to a lack of workers with the right skills.

Anthony Chan, chief economist for JPMorgan Private Client Services, said employers are constantly citing the inability to find the workers they need as one of their top problems, if not their biggest worry.

Businesses "feel there's real [unmet] demand out there," he said, adding that "economic growth would be faster" if there wasn't this tight supply of workers.

The unemployment rate in December stayed at 4.5 percent. But the rate for college-educated workers was just 1.9 percent in December, near the rate for that group in 1998 and 1999, when the economy was white-hot. The lowest rate for college grads on record was 1.5 percent in three months during 2000.

Mark Vitner, chief economist for Wachovia, said another sign of the tight labor market is the growing number of job openings being reported by the Labor Department in a separate report, even as hiring posts modest gains.

The most recent report shows 4.2 million job openings in October, up 8.8 percent from a year earlier, while hirings rose just 1.5 percent. Meanwhile, the number of workers quitting, retiring, getting fired or laid-off grew only 0.6 percent.

"With this level of unemployment, the only way they can find the workers they need is to hire them away from someone else, hire them from someplace else, or hire someone without the necessary skills," said Vitner. "All these things cut into productivity growth."

The latest tally of announced job cuts by outplacement firm Challenger, Gray & Christmas showed a 22 percent drop from 2005 to the lowest in six years, even as the auto industry slashed thousands of hourly workers, mostly due to the problems at General Motors (Charts) and Ford Motor (Charts).

Outside the auto industry, most employers are reluctant to cut staff due to the tight supply of workers, said John Challenger, the firm's CEO. "Companies are holding onto their people. They're focusing on retention programs. Even if they're in a little slower period, they worry about being able to find the people they need if they see the business pickup."

Still, even with the employment numbers showing a tight supply, some of those college-educated job seekers say they're not seeing the supply-demand equation tip in their favor yet.

Steven Koch said he spent 25 years at IBM (Charts), the last five as a procurement engineer, in charge of buying parts to go into computers. But after Chinese computer company Lenovo bought the IBM personal computer division, his job was relocated to North Carolina from New York and he decided not to follow. He's been without a job since May, despite his masters in computer science.

"I've applied to about 150 companies within 70 miles of where we live. The opportunities are not there," said Koch. "There were about six of us from Lenovo who decided not to go to North Carolina. Not one of us has found a job in the field with a comparable salary. One decided to sell cars."

Challenger said despite the tight market, his figures show job search times are about the same as they were a couple of years ago, when the number of unemployed college-educated job seekers was almost 50 percent higher than it is today.

Part of that may be because of increased competition from job applicants who already have a job. A recent survey by the Society for Human Resource Management found three-quarters of those with jobs said they were looking for a job. But Challenger said employers are being very cautious about adding staff in the current tight market, much more cautious than in the late 1990s.

"Companies are more measured. They're looking closely at who they hire," he said.

Koch said that was his experience as well. He said several times he's gone on job interviews and been told he was a strong candidate, only to later be told the company decided not to fill the position.

"One company said, 'Even though you're the top candidate, you're not exactly what they were looking for'," he said. He suspects that what many companies are looking for is younger skilled workers with lower salary demands.

But Challenger said the inability to hire, either due to reluctance or a tight labor market, is one factor constraining economic growth.

"When the economy hits some natural barriers, it slows it down, and one of those barriers is when the pool of workers begins to dry up," he said. "The lifeblood of the economy today is skilled workers."

And most experts agreed the shortage of skilled workers is likely to persist longer than it did in the late 1990s. That earlier tightness was fed by dot.com companies burning through investors' cash to hire people. The latest round of hiring is being driven by stronger corporate balance sheets, and as more retiring Baby Boomers start leaving the work force.

Deloitte's Summer said that the current tightness will be a problem for business at least into the next decade, when demographic trends should start to help.

"We start to see some relief in 2012, but we'll probably be dealing with this through 2015, even 2020," he said. "Companies that are looking at this are saying, 'We have to re-invent what we're doing here.' Just paying people more won't be the answer. They really need to be treating the talent market as a customer market more than they ever have before."

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