There are currently about 12.5 million manufacturing jobs in the US, comprising over 8 percent of the US workforce. Given the improved state of manufacturing in the US, you would expect these numbers to increase.
Unfortunately, there is a labor shortage in the manufacturing industry. While older skilled workers are retiring, manufacturers are having difficulty attracting new, younger workers. On top of that, many younger workers lack the appropriate skills for all these new jobs. With low unemployment and a tight labor market in the US, a lot of these workers can and often do go elsewhere.
Study after study shows that the shortage is expected to continue beyond this year, resulting in potentially large revenue losses and making this a full-blown crisis for manufacturers.
The Making of a Workforce Crisis
What’s behind this labor shortage?
- Retiring workers – It’s estimated that baby boomers will be retiring from all sectors at a rate of 10,000 a day in the United States over the next 19 years. When they leave, they take their years of experience and technical skills with them.
- Not enough young workers – The manufacturing industry isn’t attracting enough millennial workers. These workers have a negative perception of manufacturing jobs and seek jobs in other industries.
- Manufacturing skills gap – Young Americans lack the proper science, technology, engineering and math (STEM) education for skilled jobs in manufacturing. Those who do have a STEM education have been ignoring the manufacturing industry, often in favor of the tech industry. With advanced technologies taking over the manufacturing industry, it is more critical than ever to find workers with the right skills.
Inevitably, there will be an economic ripple effect from the manufacturing workforce crisis. A recent study by Deloitte and The Manufacturing Institute predicts that $454 billion in manufacturing GDP could be at risk in 2028, and more than $2.5 trillion could be at risk over the next decade. Local economies will suffer as well. When companies can no longer fill positions from the available labor pool, they will move away from those areas to greener pastures, leaving cities and counties with empty factories and lower tax revenues.
Manufacturers in the US are not alone. The workforce crisis is affecting manufacturing around the world. According to a quarterly economic survey by the National Association of Manufacturers (NAM), the global manufacturing industry expects a shortfall of more than two million workers by 2020. By 2030, the shortage could almost be 8 million workers, leading to potential revenue losses as high as $600 billion.
A recent Korn Ferry study found that by 2030, Japan will fail to generate $194.61 billion of revenue because of labor shortages. This is equal to 3% of the country’s economy. Germany, already a manufacturing leader, could face revenue shortfalls of $77.93 billion by 2030. In the study, manufacturing in Hong Kong and Singapore may suffer the most from the labor shortage.
As noted above, recent studies have found that the labor shortage in manufacturing is real. Let’s take a closer look at some of those studies.
Leading Edge Alliance Survey
A survey of more than 350 manufacturers by Leading Edge Alliance, an association of accounting and consulting firms, found that while most manufacturers are optimistic about sales, they are more pessimistic about finding skilled labor.
Survey responses support this conclusion:
- 52 percent of survey respondents said that finding skilled labor is their biggest obstacle to growth.
- 43% said that tackling the labor shortage is their top priority for 2019.
- 62% expect to increase hiring at their company in 2019.
You can find the complete report of the Leading Edge Alliance Survey here:
Korn Ferry Report
According to a recent report from global consulting firm Korn Ferry, the shortage of skilled manufacturing workers is expected to increase over the next decade. They expect the shortage to increase to 383,000 by 2030, which is equal to more than 10% of all highly skilled workers.
The Korn Ferry report looked at manufacturers across the globe and found that while China and Russia are enjoying labor surpluses right now, by 2030 all countries except India will face shortages of highly skilled manufacturing workers. In Hong Kong, already feeling the pinch of this labor shortage, the shortage of these workers will be equal to 80% of its industry’s workforce. So, the workforce crisis is not only facing the United States, it’s facing manufacturers all over.
Read the Korn Ferry Report here:
Manufacturers’ Outlook Survey from the National Association of Manufacturers
In the National Association of Manufacturers (NAM) quarterly survey of 718 NAM members to find out more about the labor shortage.
Here are some key findings from their report:
- 4% of survey respondents said that the inability to attract and retain workers was the biggest threat to their business.
- 4% respondents said that they turned down new business because of the labor shortage and 33.2% said they delayed expanding because of the shortage.
- More than 58% expected to increase hiring over the next year, including 23.1% percent who said that they expected 5% or more employment growth.
Read the report of the survey here:
Deloitte and The Manufacturing Institute Skills Gap Study
A recent skills gap study by Deloitte and The Manufacturing Institute found that there is a growing gap between jobs that need to be filled and qualified workers who are able to fill them.
The study found that five out of 10 open positions for skilled workers in US manufacturing remain unfilled because of the skills gap. These types of jobs require specific training or skill sets and can take months to fill. Skilled manufacturing jobs require workers with specialized knowledge of production, supply chain, digital technology, engineering, science and research, software or operations.
The results from the skills gap study speak for themselves:
- 4 million positions will likely be unfilled between 2018 and 2028 due to the skills gap, resulting in a potential economic impact of 2.5 trillion. Jobs like operational managers and jobs requiring digital skills may be three times as difficult to fill over the next three years.
- The skills gap in manufacturing is expected to increase from 488,000 open jobs today to over two million jobs by 2028. This would result in the loss of over $2.5 trillion in potential manufacturing GDP in the next decade.
- Respondents cited the main reasons for not filling these skilled positions as the negative perception of the manufacturing industry (45%), a shift in desired skills required by advanced technologies (36%) and baby boomers retiring (36%).
The workforce crisis is a real threat to the manufacturing industry. As baby boomers retire, there is a serious shortfall of skilled younger workers willing to take the increasing number of available manufacturing jobs. So where does this leave manufacturers, many of whom are being forced to turn down new business and scale back expansion? They are adapting several strategies for addressing the workforce crisis:
- Introduce learning and development programs to increase skills.
- Increase flexibility in the hiring process, especially in areas like years of experience and willingness to train promising workers with little or no experience.
- Knowledge transfer from retiring baby boomers.
- Implement more automation such as Cloud ERP to attract new talent.
- Increase wages and offering signing bonuses.
We’ll be addressing some of these strategies in a future blog on this topic.