At a time of 9%+ unemployment, it seems kooky that so many of the real assets sectors are short staffed. As baby boomers prepare for retirement, there just aren’t that many skilled workers coming up through the ranks. All oil executives said that a lack of skilled personnel was their biggest issue, in a 2009 KPMG study of national oil companies. The pattern is replicated across other industries; over half of coal miners are over 45, for instance.
The traditional explanation for the gap is that the dwindling group of scientists and engineers are choosing to go into “green technologies” rather than older industries with poor public images. During the oil and coal industry’s lean years, few junior workers were recruited, leaving thin ranks of experienced operators now. There are also some complaints from large firms that immigration policies prevent them fully staffing projects, though it’s hard to know how much this is an attempt to widen their recruiting bases!
In addition, I speculate that the experience of corporate life has been very different for the current cohort of middle management than for their parents’ generation. Not only are they well aware that they could be laid off at the slightest hint of a downturn, but their promotion opportunities have been stymied by the later retirement of healthy Baby Boomers. In turn, their kids are unlikely to see corporate life as appealing. By way of none-too-scientific evidence, the majority of the start ups that I see are founded by engineers, who figure that they’re as well to go it alone than try to develop products inside a large company.
From an investor’s perspective, it’s interesting to look at the impact that this will have on the kinds and patterns of investment available. One potential impact is that we’ll see higher levels of mechanization in certain industries; it will be tough for the oil industry (which is already heavily mechanized) but there are ever more sophisticated technologies being developed for areas such as fruit harvesting, which has historically been a hand-picked crop.
Though I’ve seen no evidence of it to date, it would be nice to think that more companies will also be willing to take a bet on older graduates, who have retrained as engineers or scientists after a career in another industry. One hurdle to this is the increasing intransigence of hiring practices, where most resumes are “read” by a computer before ever reaching an HR director, thereby screening out those who are not a perfect fit for a job specification.
In farmland – where most folks are self employed – it’s likely to lead to an ever larger volume of the country’s farms changing hands over the next decade:
“Farmers over 55 years old own more than half of the country’s farmland,”
Phil Lempert, founder of Food Nutrition & Science
Naturally, some of this land will remain within the family – there’s been a small uptick in 25-34 year olds farming since 2005 – but much will end up either in conservation easements (as was the case for a soon-to-retire orchard owner that I spoke with recently) or in the hands of farmland investors and larger farm managers, both of whom are looking to scale up operations. It’s one of the many reasons that I don’t believe that farmland is overvalued.
That said, there’s only so far that technology and acquisitions can go in fixing the issue. It’s evident that our real assets sectors are losing the battle to recruit workers, and could use some new recruitment approaches. Many of the real assets sectors are facing a raft of upward pressure on pricing from tougher and more remote drills and exploration, to rising government and environmental regulation. Do we really need worker shortages adding to the upward pressure as well?
The skills shortage is a neglected investment theme – it’s nowhere near as much fun as geopolitics or resource wars – but I think it’s one that will become pressing over the next decade as retirees demand increasing cash flow from industries struggling to maintain margins. There are many rich seams here, but the ones that interest me most right now are mechanization and plant maintenance technologies, and domestic companies taking novel approaches to training and retraining workers.