By Chris Engle, Ernst & Young LLP, Associate National Director, Economic Development Advisory Services; Paul Naumoff, Ernst & Young LLP, Principal, Global/Americas Leader, Location Investment, Credits and Incentives Services
Last year at this time, we marveled at a milestone in our economy: the U.S. unemployment rate was at its lowest level in 50 years, causing significant labor shortages across most industries. Now, we lament that unemployment recently peaked at its highest in 80 years, and we now hope that our economy will rebound quickly, the COVID-19 pandemic will recede worldwide and societal impacts can be addressed.
Today’s turbulent economy requires a top-to-bottom evaluation of talent strategies—for companies of all sizes and types and for the institutions that educate and train our workforce. In this article, we will discuss:
Current condition of the labor force
- Federal policy responses to aid companies
- Recovery scenarios and their impact on labor/skills demand and availability
- Ways for companies to capture workforce training dollars to upskill their workforce
- Strategies for public-private partnerships to address long-term labor needs
Today’s Labor Environment
At the time of this writing in early June, tens of millions of workers have lost their jobs due to the pandemic, with impacts felt mostly in low-wage industries. Workers with a high school diploma or less education are two to three times more likely to be unemployed than those with a bachelor’s degree. Minority populations are disproportionately affected by job losses (Bureau of Labor Statistics). The inequities of impacts from this recession will be a critical issue for policymakers as we navigate the economic recovery.
What does the future hold for job recovery? Hotels, restaurants and bars have suffered the worst job losses, and their ability to bounce back to pre-COVID-19 activity remains uncertain. Retailers, particularly small businesses, will struggle to navigate to a shift to online sales, while consumer spending slows. Transportation industries likely face continued cutbacks as the demand for air and ocean travel slowly rebounds from a near shutdown. State and local government finances may force layoffs as tax revenues decline.
Much is known about these impacts of the COVID-19 recession, but an unclear future requires multifaceted scenario planning by companies, governments and communities.
Federal & State Responses
Thus far, the federal government’s response has been significant and wide-reaching. One program, the Employee Retention Tax Credit, distributes billions of dollars of tax savings to employers to help them retain and pay their workforce. Small Business Administration forgivable loans are aimed at helping small businesses retain workers while facing a decline in sales. Dozens of other federal agencies have sent payments and grants to help communities customize their response and start to address their recovery strategy.
Navigating, accessing and complying with federal workforce incentive programs has proven difficult for companies. The Ernst & Young LLP (EY) stimulus policy tracker was developed to quickly identify the federal, state and local programs that can help companies whose workforce is distributed across multiple jurisdictions. Additionally, EY employee survey tools help assess the impacts of local shutdown orders on workers and the availability of employee retention incentives. Compliance systems confirm that proper documentation is maintained, the proper incentives are pursued and clawback risks are reduced. Meanwhile, the speed at which the incentives are evaluated and accessed requires significant buildup of team capabilities and a co-sourcing approach whereby EY and corporate teams optimize responsibilities.
Similarly, a number of states have put into place payroll tax and income tax deferrals, unemployment insurance discounts, rent deferrals, wage subsidies, and other types of programs and opportunities to support local businesses. While these programs share a common goal, supporting local businesses and workers, the eligibility criteria, requirements and potential value vary greatly on a program-by-program basis.
For example, Arizona recently launched the Rapid Employment Job Training Grant Program, which reimburses employers for costs associated with hiring and training new employees in the coming months. The program is capped at $5,000 per employee up to $1.3 million per entity. Illinois has established the Hospitality Emergency Grant Program with $14 million in funding to support costs related to payroll and rent, as well as job training, retraining and technology to support shifts in operations, such as increased pickup and delivery. In addition to these two states, Indiana, Illinois, Ohio, California, Maryland, Washington and other states have launched grant programs to support small businesses.
Recovery Scenarios and their Workforce Impact
While the future is difficult to assess, several near- and long-term themes are likely to reshape the economy and corporate workforce requirements:
Virtualization/Remote Work. As companies have shifted their workforce and customer delivery to a remote and virtual environment, some operations may be kept virtual. Technology companies have been leaders in virtualizing their workforce, which for some creates a competitive advantage. Companies can now optimize a workforce located anywhere in the world vs. concentrating in major (often expensive) cities. Large corporations have learned and benefited from these practices; small and mid-size companies may seek similar workforce virtualization for competitiveness.
E-commerce. Online sales have marched to 12 percent of the economy over the last 20 years (Census), but recessions often accelerate trends. In the case of COVID-19, the U.S. consumer will likely reappraise purchasing habits and push more purchases toward home delivery or curbside pickup. A boost in demand for warehouse and delivery workers from the recession has been complicated by safety needs, and technology’s impact on warehousing automation remains a theme in any future evaluations of workforce requirements.
Supply Chain. Much has been written about the potential impacts on U.S. corporate supply chains. National security priorities may draw personal protective equipment (PPE) manufacturing capacity back into the US, along with some critical technology manufacturing. Ongoing global trade conflicts impact the extendibility of supply chains and may force a retraction of some functions back to the U.S. or to other low-risk regions of the globe. Redundancy may be part of a new strategy, as parts of the world face uneven impacts from the recession and some countries’ ability to deliver reliable services and manufactured goods is challenged. Foreign investment agencies and U.S. states will start to examine how their tax and incentive policies can help attract new investment as supply chains reconfigure.
Companies looking to shift their supply chain must assess the potential charges and tax implications of such a shift, while also identifying potential incentives that may be available for a new or expanded location to help offset some of the identified taxes and costs. In addition to existing programs, we expect many states to launch new programs targeted at increasing local investment and incentivize local business expansion in their state.
Small Businesses/Entrepreneurship. The COVID-19 recession has laid bare that those least able to weather the storm are those most affected. Small businesses in the U.S. will struggle much more than large companies that can tap credit markets, lean on technology and retool their products more quickly. The decline in small businesses will impact labor availability in a way not seen before. Unemployed entrepreneurs could become a new available workforce that helps surviving companies better navigate change. Entrepreneurs may still choose to remain entrepreneurs, shifting to new industries or inventing never-before-seen products and services. As the pace of change quickens, the U.S. needs more innovators to find new solutions, and much of this innovation can come from small companies and startups.
Education and Training. Education is both an industry and a need, as educators are the ever-important link between industry needs and workforce formation. Permanent changes in the post-COVID-19 economy will require significant upskilling and re-skilling of the U.S. workforce. Industries will continue to adopt technology, particularly industries that have lagged. Cloud-based IT skills will be the tools to enable more technology solutions in response to change. Education itself will change, as more learning is done virtually and more credentials come in the form of stackable “badges” alongside terminal degrees. A recovering economy and potentially weak hiring environment will mean students must more closely examine the skills they choose to learn to maximize their hiring and earning potential. Career pathways must be created to allow low-wage workers to learn and earn their way into more stable, family-sustaining jobs.
Developing and Funding Your Workforce Training Programs
Much of the last decade’s workforce discussion has focused on the increasingly competitive environment for workers, from manufacturing to tourism to IT. Today and in the coming months, workforce concerns will be focused on imbalances: in skills, in geographic location, in industries.
The federal government spends an estimated $18 billion each year on job training programs (Georgetown University Center on Education and the Workforce), and funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act will distribute billions more in training grants for dislocated workers. While such funding can help companies reduce training expenses, navigating the maze of available workforce training grants can be a daunting task. An analysis by the Government Accountability Office (GAO) identified over 40 employment and training programs administered across nine agencies (GAO). In addition to these programs, many states such as Arizona, Illinois and Ohio have established COVID-19 response-related training programs that provide grants to eligible businesses hiring and training new employees. Both the Arizona and Illinois programs are discussed above.
Companies looking to take advantage of government programs should contact their local workforce development agency or enlist a tax credits and incentives consultant to help identify, apply for and remain in compliance with applicable grant programs. Additionally, local economic development officials and Small Business Development Centers can often put you in touch with individuals capable of clearing bureaucratic hurdles to access workforce training grant or subsidy programs.
Targeting Recent Graduates
Even with high unemployment, companies must continue to find critical workers at our nation’s colleges and universities. Today, over five million people receive a post-secondary credential or degree. Where can these graduates be found in the fields you need most? Fortunately, the U.S. Department of Education tracks graduates by degree and award level. EY Economic Development Advisory Services (EDAS) analyzed the data to uncover significant variation across the United States for highly sought-after IT graduates:
Public-Private Partnerships to Enhance Your Workforce
In addition to traditional workforce development programs, local economic development organizations and chambers of commerce are now highly engaged with local employers to guide education and training in their communities. These collaborations — sometimes called “sector partnerships” —bring together companies, educators, training providers and economic developers to optimize local talent pipelines.
With the economy changing and workforce skills continuously needing upgrades, chambers look to their business community for guidance on priorities. What positions are hardest to fill? What skills are lacking from local college graduates? In which programs do we need to boost local graduate production? How can lifestyle assets be improved to make attracting a workforce easier? Some communities seek to intentionally match local college programs with local demand from employers by developing a talent alignment strategy. These programs work to ensure that graduates are job-ready and connected to local companies, which helps to retain local graduates in the economy. Companies with large or unique labor needs should work with chambers to provide annual input to post-secondary institutions and K-12 educators on their needs.
Manufacturers are uniquely suited to these public-private partnerships, as their jobs aren’t top of mind for students (or their parents), and outdated perceptions can keep students and workers from considering manufacturing careers. While in past years manufacturers have struggled to compete for workers with warehousing and retail industries (that often paid comparable wages), manufacturers now have the opportunity to reframe their messaging – that jobs in manufacturing may prove more stable than retail over time and offer much better prospects for advancement and higher earnings. Chambers and educators actively work to promote manufacturing when asked by companies.
Healthcare is another industry that is well-suited to these partnerships, as an aging population means long-term demand for health services and workers. Healthcare also offers a relatively stable employment picture and an industry that encourages lifelong learning and career advancement. As an added bonus, health care employment opportunities help to close inequality gaps: according to EY EDAS, 40 percent more women than men in the U.S. receive an associate’s degree and 30 percent more receive a bachelor’s primarily due to female participation in health occupations.
Information technology/cybersecurity/data analytics sectors will continue to demand more technology skills, from college graduates to experienced workers. The spread of information technology and data analytics has imposed new urgency to find the technology workers and data skills required by companies to compete. Cybersecurity needs are expanding significantly, creating new opportunities for middle-skill training for well-paying jobs. (See previous chart for a list of top metros for IT graduates).
Our Workforce Challenges
Today’s labor challenges are significant as we navigate the economic recovery. The best near-term and long-term answers to helping reemploy people is to double down on workforce training and reeducation. We must make it easy for workers to learn which career and employment options are best for them. We must bring companies closer to educators, students and parents to clarify which skills and occupations are most needed and which ones offer job security and career advancement. We must use labor demand forecasts to guide colleges and universities to fill local job demand with intention. And we must encourage students to consider the job market as much as they consider their career passions.
Community leadership must now come together better than ever before to optimize the relationships needed to align education with industry needs, ensuring a balanced, available workforce for years to come.
The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.
About the Authors
Chris Engle is Ernst & Young LLP’s Associate National Director of Economic Development Advisory Services. The practice provides industry-leading services to economic and workforce development organizations, chambers of commerce and governments, including strategic planning, competitive assessments, benchmarking, global market insights, workforce studies, organizational plans, funding solutions and custom-designed implementation support. In his more than 20 years in the field, Chris has served more than 100 local economic and workforce agencies.
Paul Naumoff leads the EY Global and EY Americas Location Investment, Credits and Incentives Services teams within the Indirect Tax subservice line. He is a principal with Ernst & Young LLP. Paul works with global location investment, credit and incentives services and assists clients with business issues related to site selection and securing business and tax incentives available through legislative statutes or negotiation with appropriate country level, federal, state and local agencies.