Labor shortage stems from minority education gap

Lack of minority high school and college grads and wide prosperity gaps will only exacerbate the region’s growing employee shortage, business leaders fear

By KEN WYSOCKY | July 29, 2019

For years, issues such as the local and state tax climate, health care costs and transportation infrastructure have stood as prominent concerns for Milwaukee-area business leaders. But according to the Metropolitan Milwaukee Association of Commerce (MMAC), a new issue has elbowed its way to the top of the list: racial disparity.

While the issue certainly is familiar to Milwaukee business leaders, the results of a recent survey sent to the MMAC’s 1,800 members marked the first time it has emerged as a top concern, says Tim Sheehy, president of the organization. (Sheehy serves on the Badger Institute’s board of directors.)

“It was surprising,” says Sheehy of the survey results, included in a report titled “Making Milwaukee a Region of Choice for Diverse Talent.”

“It’s not that we’re ignorant about racial disparity as an important issue. It’s just that it was unexpected to see it so unanimously pushed to the top of local business concerns.

“I was shocked that the issue of health care costs wasn’t even in the top five this time around,” he adds. “But from a business standpoint, racial disparity is a strong threat to businesses’ ability to attract and develop the talent they need.

“In fact, I would call the usual business concerns irritants compared to racial disparity,” he continues. “This issue trumps the others in terms of how it affects business decisions to make investments to grow or not grow here.”

The report reflects the views of more than 500 respondents to the survey, which the MMAC periodically sends to members to identify what they believe are the region’s top assets and liabilities. In this survey, the four liabilities cited behind racial disparity were, in order of rank, low high school graduation rates, a declining workforce, lack of leadership and too few start-up businesses. The top five assets cited were quality of life, people, higher education, economy and the regional business climate.

A complex issue

Racial disparity is a Gordian knot of an issue composed of many overlapping and interwoven strands that defy easy explanation and solutions. But Sheehy says the bottom line is that Milwaukee is becoming more and more diverse as minority populations keep growing, to the point that Milwaukee already is and the surrounding region eventually will become a majority of minorities.

At the same, if there aren’t enough minority high school and college graduates to fill jobs as the economy expands, it’s difficult for businesses to grow, Sheehy explains.

“In the end, it’s a talent issue,” he says. “If we don’t increase the number of Hispanic and African American high school and two- and four-year college graduates in the pipeline, then we’re not going to reach our full potential economically or as a community.”

Austin Ramirez, president and chief operating officer of Waukesha-based Husco International Inc., concurs. Husco is a global engineering and manufacturing company that provides hydraulic and electromechanical components for automotive and off-highway applications. “The big problem is at top of the funnel,” he says. “The racial disparities in Wisconsin are among the worst in the nation. And if we’re not educating minority kids, we simply can’t have a diverse workforce.”

To underscore the problem, Sheehy cites the small percentage of minority managers at Milwaukee-area companies. “There simply aren’t enough because we’re not producing enough graduates from our two- and four-year institutions,” he says.

Ramirez says the dearth of minority managers reflects an even larger problem: the lack of a vibrant minority middle class. “All these things are interrelated, so it’s hard to pull them apart,” he notes. “But the lack of a vibrant middle class creates barriers because there aren’t many role models for diverse kids to look round and see models of success in corporate Wisconsin.

“It’s related to the educational problem, but distinct,” he continues. “We need to find better ways to cultivate a middle class.”

Too few minority graduates

University of Wisconsin System statistics for degrees conferred by race from 2007 to 2017 show little improvement for minorities over the years. The percentage of African American graduates at all degree levels (associate, bachelor’s, master’s, etc.) has remained virtually unchanged, at about 3%, Sheehy says, citing UW System statistics.

For Hispanics, the percentage increased to 5.6% in 2017, up from 2.6% in 2007 — an improvement but still low. For all non-white students, including those who identify with two or more races, the percentage improved to 16% from 10% for the same time period, he says.

(For perspective, the U.S. Census Bureau estimates that in 2018, about 7% of Wisconsin’s total population of roughly 5.8 million people are African American and another 7% are Hispanic.)

“At the college level, the low graduation rates tend to follow from the fact that the UW System sets relatively low bars for entry into most of their schools,” says Ike Brannon, who has a doctorate degree in economics and has studied the issue of remedial education in college. (Brannon is a Badger Institute visiting fellow.) “All the schools do a fair amount of remediation for students who arrive without the proficiency to succeed … but it’s tough to make up for what these kids missed over their four years of high school in just a semester or two.”

On a more local level, the six-year graduation rate for full-time African American students at UW-Milwaukee is 21%, compared with 41% nationwide, according to a report titled “UW-Milwaukee and the Achievement Gap.” But the report notes that as a so-called access school, UWM accepts more than 90% of students who apply, and the majority require math remediation.

As such, a fairer standard is comparing African American graduation rates at UWM against the graduation rates for other institutions with at least a 90% acceptance rate; such institutions nationwide have a 26.5% graduation rate.

Sheehy cites an alarming figure gleaned from MMAC research: Milwaukee has 104,000 people between the working ages of 18 and 64 who don’t have a high school or equivalent degree. And 59,000 of them are under age 45, he says.

College not the only option

Todd Teske, the chief executive officer, president and chairman of Briggs & Stratton Corp., says there’s too much emphasis on obtaining college degrees and not enough on vocational education that can lead to skilled labor jobs.

“It’s not about going to college; it’s about gaining skills through technical college or apprenticeships,” he says. “We need to provide the kind of schooling these students need for continuous lifelong learning … train them for the skills required in today’s work world.

“In manufacturing, we’ve gone from assembly line with people turning wrenches to people programming robots,” he continues. “But we’re not educating students and parents about how good some of these jobs are and dispelling misconceptions about what these jobs are about.”

In that vein, Briggs & Stratton has partnered with Milwaukee Lutheran High School on a program called the Red Knight Career Academy, an arm of the Red Knight Institute, an educational leadership program. (The Red Knight is the high school’s mascot.) The Career Academy is a technical education and vocational-development program that prepares students for full-time employment in areas such as engineering, computer-aided design, robotics and carpentry.

“Industrial-arts students work here after school on an assembly line for a few hours,” Teske explains. “It exposes them to some of the things they can look to after high school — how to test a dynamometer or how to become an engine technician, for example. Or show them how they can matriculate into the workforce and then go back to school later.”

The key is showing both students and their parents that manufacturing jobs aren’t menial and dirty; instead, they’re dynamic and high-tech. In fact, students who are good at video games are well-suited for many of the computerized manufacturing jobs available at Briggs & Stratton, Teske says.

“I will assure you that to program a robot or do welding, you have to be really skilled,” he explains. “And that translates into higher-paying jobs. College isn’t for everybody. We need to educate people … that it’s OK to have trade skills.”

Wide prosperity gap

Because Milwaukee is so segregated, with a wide prosperity gap between whites and non-whites, it’s a challenge for businesses to recruit minorities and persuade them to move here, Sheehy says.

A recent MMAC study backs up that assertion. The study compared metro Milwaukee to 20 peer regions nationwide, using as a yardstick seven broad prosperity indicators for white, Hispanic and African American populations. The seven indicators were percentage of people with a bachelor’s degree or higher, percentage of single-female head of households with children, percentage of owner-occupied housing, unemployment rates, poverty rates, percentage of African Americans and Hispanics in management positions or above and percentage of African Americans and Hispanics employed in core business occupations.

The study awarded points based on a region’s rank from one to 21 in each category. The best composite score a region could compile was seven, achieved by finishing first in each category (7 x 1 = 7). The worst a region could score was 147 points, by virtue of finishing 21st in each category (7 x 21 = 147).

The results paint a dismal picture for Milwaukee. While the composite prosperity score for white Milwaukeeans was 63, good enough for sixth place out of the 21 regions, the composite scores for Hispanics and African Americans ranked dead last, with composite scores of 125 and 138, respectively. Furthermore, Milwaukee also compiled the largest prosperity gaps between whites and African Americans and whites and Hispanics, the study shows.

“So our point was that racial disparity … in Milwaukee is huge,” Sheehy explains. “This affects companies in a number of different ways. If the message is that we’re the most segregated community, and African Americans or Hispanics are thinking about moving here for a job, that’s a recruiting challenge for area businesses.”

Workplace diversity matters

Ethnic diversity is important to businesses in many ways. For instance, a lack of minority managers can discourage other minorities from accepting jobs at companies. To put this in perspective, consider these statistics compiled by the MMAC: Milwaukee-area companies with 100 or more workers at non-farm jobs employ about 367,000 people. Out of those 367,000 jobs, 44,000 — or about 12% — are management positions.

And out of those 44,000 management positions, just 2,000 — 4.5% — are held by African Americans, and only 1,500 — 3.4% — are held by Hispanics, Sheehy says.

The upshot? “Companies just aren’t viewed as being as hospitable as they could be,” Sheehy says. “You wonder about your chances of moving up the corporate ladder when you don’t see a lot of people that look like you.”

In another example, a study showed that companies with ethnically diverse senior-management teams are 33% more likely to post better-than-average profits. In addition, diversity promotes different viewpoints and perspectives — clashes of ideas that often lead to more innovative solutions to problems, experts say.

A recent survey of millennials, performed by a leadership-development consulting firm, found that half the respondents believe their company would benefit from greater diversity of thought. And if the largest generational cohort in today’s workplace wants more diversity, companies should sit up and take notice, especially given how difficult it is to attract and retain quality employees amidst a shrinking labor pool.

Moreover, diversity becomes more of a business imperative for companies that want to compete globally. In the same vein, experts believe that non-diverse companies are less likely to succeed if their employee demographics don’t reflect their customer demographics, because they’re less likely to understand those customers’ needs.

Companies need a diverse workforce, Teske says, to not only better serve diverse customer bases but to nurture and develop better solutions to challenges facing businesses. “I firmly believe that different points of view get to the best answers for solving business problems and also best serve our customer base,” he says.

To build a diverse employee base, companies must develop cultures that foster diversity and inclusion, he adds. At Briggs & Stratton, that includes developing a strong recruiting presence among professional groups and universities, so that people —– including minorities — understand what the company is all about and what it’s trying to achieve, Teske says.

No easy solutions

To Sheehy, all of these statistics prompt a large and perplexing question: What needs to be done, both by the community and by businesses, to improve the prosperity and employability of the region’s diverse talent and help Milwaukee become a region of choice for that diverse talent?

To develop answers, the MMAC surveyed 1,100 minority managers at 27 companies with more than 100 employees. The goal: Identify barriers to racial diversity. Of those 1,100 managers, 150 agreed to participate in a series of focus groups. Then MMAC representatives interviewed human resources leaders at those companies, as well as the chief executive officers at 16 of the firms.

“Now we’re in the process of absorbing that data and feedback and coming up with a series of strategies that we can help these companies deploy to increase the trajectory of African American and Hispanic employment and the number of minorities in management positions,” Sheehy says. “We’re aiming to roll those out in September.”

“We’re not trying to boil the ocean here,” he continues. “We’re just picking a piece that we think we can participate in … make sure employers are sensitive to creating a hospitable climate for people to work. That’s something we can control.”

At Husco, officials have formed resource groups that help minorities connect and network with others for support. “We also connect them with community organizations that provide a similar function, such as the Hispanic Professionals of Greater Milwaukee,” Ramirez says.

Efforts like that support Sheehy’s contention that while the problem of racial disparity is daunting, area companies tend to be good at identifying core issues that hurt their businesses, then finding solutions. “Employers can disagree about how to solve public-policy problems,” he concludes. “But in the end, they’re good at cutting through the clutter of issues and identifying those things that either enable their growth or that are disruptors to their businesses.”

Ken Wysocky of Whitefish Bay is a freelance journalist and editor.

Wisconsin businesses uneasy about labor shortage, health care costs and Evers’ economic agenda

While racial disparity has emerged as a top issue for metro Milwaukee companies, business leaders statewide cite the labor shortage, health care costs and high state taxes as their chief concerns, according to a recent survey taken by Wisconsin Manufacturers & Commerce (WMC), the state’s largest business alliance.

Moreover, even as the state’s economy remains strong, business leaders are less optimistic as they look ahead now than they were a year ago. Only 14% of 203 business executives polled believe the state economy will register good growth in 2019, down from 21% six months ago — a 33% drop.

This gloomier outlook likely reflects concerns about both the tariff dispute between the United States and China and uncertainty about the state’s business climate under new Gov. Tony Evers’ administration, says Kurt Bauer, president of WMC.

“When Scott Walker came into office, he put up signs (at the state’s borders) saying Wisconsin was open for business,” Bauer notes. “And one of first things Evers did was take those signs down.

“That sent reverberations through the business community,” he continues. “It sent a message that this probably is not an administration that views the business community as a primary job creator and driver of the Wisconsin economy.”

The more pessimistic outlook likely was reinforced by Evers’ proposed budget, which would raise taxes by $1.6 billion during the next two years, and other proposed anti-business measures, such as all but eliminating the production tax credit for state manufacturers, he points out. The Republican-controlled Legislature removed the worst of these tax increases, including Evers’ plan to eliminate the manufacturers tax credit. Overall spending, however, remained high, a remaining concern for job creators.

With a record low unemployment rate (2.8% in April) and growing numbers of baby boomers reaching retirement age, coupled with fewer millennials and Gen-Xers to replace them, the state’s labor shortage is hitting critical mass. “It’s a mega issue for state businesses,” Bauer says. “One reason why Wisconsin has a relatively low or slow gross domestic product growth is that we simply don’t have enough workers. And it’s only going to get worse.”

Affordable health insurance remains a key issue for state businesses, which face a vexing Catch 22. On the one hand, businesses must offer good health insurance benefits in order to attract waning numbers of quality employees. On the other hand, doing so can weaken their competitive advantages because expensive health insurance crimps their bottom lines, Bauer says.

— Ken Wysocky

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