Are we prepared for a knowledge-based economy? "The sectors where expansion will be the greatest—those that will continue to move the economy away from manufacturing—are the areas where the skills deficit will be most noticeable."

LIKE OTHER STATES that have long relied on manufacturing, the Michigan economy has had a rough last few years, a fact that is driven home by the ongoing struggles of automobile manufacturers. This is yet another sign that Michigan, much like Illinois, Indiana, Ohio. and other Rust Belt states, is transitioning from a manufacturing-based economy to one built on information and technology. The transition, however, has not been smooth and the road probably will remain bumpy for a while longer.

In recent years, Michigan-based employers have announced more than 500,000 job cuts. Although unemployment has fallen, it still remains above the national average. More people are moving out of the state than moving in, which is going to make it increasingly difficult for employers to fill job vacancies with the most talented workers.

While Michigan will pull out of its slump, the road to renewed prosperity is filled with obstacles. One of the biggest is that there may be a significant dearth of available workers with the skills and experience needed to fuel an expansion. Three issues are particularly worrisome in respect to a potential skilled worker shortage: the aging workforce, the outbound migration of available workers, and a nationwide scarcity of people with the math, science, and communication skills that are necessary to move the state from one based on manufacturing toward one based on knowledge and information.

While it may be difficult for many people to imagine a labor shortage in a locale where employers have been shedding workers by the thousands, that is the reality. For those left jobless by struggling automakers and manufacturers going out of business or shifting production overseas, the idea of a labor shortage would even be laughable if the sting of unemployment did not hurt so much. However, the skills and experience gained in machine shops and on the assembly line do not necessarily transfer to the areas where the heaviest job growth is expected. Some of the biggest job gains will be in service sectors, including information technology, finance and insurance, and professional, business, education, and health services.

Some of the job categories expected to show major gains include sales and related occupations, projected to add more than 49,000 jobs by 2012. The number of health care practitioners should increase by 39,000. Business and financial-related occupations will see 32,000 jobs added: management, 25,000 positions; and computer occupations, nearly 22,000 slots. Moreover, there already may be Michigan employers in banking, insurance, technology services, health care, and education that are having a difficult time finding people with the right skills to fill job openings.

Keep in mind, though, that this trend is nationwide. The labor shortage only will get worse in the years to come as the country's workforce continues to age. By 2015, the number of people 65 and older in the U.S. is expected to increase 26%. Meanwhile, the population of 40- to 54-year-olds will shrink by five percent, and them is not much relief behind them, as the number of Americans 25 to 39 will grow by only six percent between 2005 and 2015. Furthermore, a study by the Aspen Institute shows that the native-born workforce, aged 25 to 54, which businesses have come to rely upon to fuel their expansions, surged 44% from 1980 to 2000. Over the next 20 years, the growth rate is expected to be zero.

In addition, a trend that will accelerate the labor shortage and make it increasingly difficult for business schools and recruiters is the steady decline in the number of people earning bachelor's degrees. Between 1980 and 2000, the share of workers with a post-high school education increased 19%. Between now and 2020, the share of these workers will grow a mere four percent. Contributing to this is a telling graduation rate. In 2002, 51% of college students graduated from institutions within five years of initial enrollment. That figure is down from 55% in 1988. Graduation rotes among public universities have dropped from 48% in 1998 to less than 41% today. Within 10 years, a 33% shortfall in graduates with four-year or higher degrees is expected.

What does this mean for employers? As the number of college graduates declines, companies will have far fewer candidates for available positions--positions that will require higher and higher skill levels. The skills gap will be evident in all aspects of business as students continue to lack proficiency in written and verbal communications as well as organizational skills and problem solving. The sectors where expansion will be the greatest--those that will continue to move the economy away from manufacturing--are the areas where the skills deficit will be most noticeable. The National Academy of Sciences reports that American universities graduated 70,000 engineers in 2004, compared to 500,000 in China and 200,000 in India.

The lack of skilled workers in technology, as well as the many other sectors that lace labor shortages, could have devastating effects on companies' ability to compete in the ever-expanding global marketplace. More and more businesses will have to find alternatives, which may mean outsourcing work to other countries where individuals with the right skills are more readily available.