Tony Freeman, President, A.S. Freeman Advisors LLC10.01.21
A common theme in the networking discussions at the MPO Summit last month was the scarcity and rising cost of labor in the U.S. medical device supply chain. Closer discussions revealed that a new facet of the manufacturing labor shortage is a lack of semi-skilled and unskilled staff.
Two Labor Shortages
While spoken of as a single shortage, the labor shortage in medical manufacturing is currently two shortages. The first is the decades-old dearth of skilled technicians: master machinists, floor leads, programmers, and manufacturing engineers. There is nothing new about this situation. A second shortage has occurred with the COVID-19 pandemic. Device manufacturers find themselves unable to hire semi-skilled and unskilled staff for positions on the production floor. When these workers can be found, they often require wages $3 to $4 an hour more than was paid before the pandemic.
The Imagined Culprit: Supplemental Unemployment Payments
Until early September, the unemployed received an extra $300 per week in unemployment insurance (UI) benefits. Funded by the U.S. government, these payments were on top of the traditional state-sponsored UI benefits. Additionally, unemployment coverage expanded beyond traditional W2 employees to include independent contractors and gig workers. Thus, many device manufacturing executives saw these benefits as a disincentive to seeking a job. They blamed the U.S. government for crippling the growth of supply chain companies with bulging order books and jobs aplenty. This analysis is both inaccurate and likely to cripple the companies whose managers continue to believe it.
Labor Shortage Not Caused by Enhanced UI
Did higher UI keep the unemployed at home? Apparently not. Forbes magazine reported that even with enhanced UI of $300/week, the average unemployment check fell short of the average wage in 47 of 50 states when computed on an hourly basis.1 Three states bucking the trend—Montana, North Dakota, and Wyoming—are not centers of medical manufacturing.
A more nuanced position by Peter Ganong of the University of Chicago suggests that only 42 percent of the unemployed are economically better off on UI.2 The remaining 58 percent (currently around 6 million workers) make less on unemployment benefits than they would at work.
These statistics present the “UI is killing hiring” faction with two inconvenient conclusions. The first is that many of the unemployed are terrible at math. They don’t realize the UI check does not cover requirements as well as their pre-pandemic paycheck. That is hard to believe. The second conclusion is the unemployed are lazy and would rather collect less but have the freedom to spend time as they wish. There are many arguments and mountains of evidence against this naïve logic but the first and best argument is, why should any company complain? Who would hire people with such a glaring character defect?
Real Reasons for the Shortage
Economists point to numerous issues to explain the labor shortage:
COVID-19 disruption of child care/elder care. Uncertain schedules and lack of daycare associated with the pandemic makes it impossible for previously employed workers to return to their jobs. This situation is likely to resolve more slowly than might be expected due to the delta variant surge and a hesitancy to return to the workplace until home life settles down on a long-term basis.
A double demographic challenge specific to blue-collar manufacturing jobs. Though the demand for blue-collar positions has been rising, the pool of applicants is declining, according to Conference Board data. Some of the decline is due to stagnant population growth but a large part is attributable to the shortage of men aged 16 to 24 entering manufacturing. These individuals haven’t disappeared; rather, they’re attending college in pursuit of white-collar careers. To some degree the shortage of men seeking entry-level positions has been offset by rising numbers of women in blue-collar jobs. But closed schools and child care has wreaked havoc on the lives of many female manufacturing workers.
Better information regarding wages. With a surging economy, workers can survey the market for the best-paying, most convenient job. Given stagnant real wages for decades at the lower end of the U.S. wage scale, it is reasonable that a motivated worker would search for the best hourly rate and working conditions, even if it is only marginally superior.
People moving. The societal disruption caused by COVID-19 led many younger, more mobile people to move from the markets where they previously worked to areas with few medical manufacturing plants. Since this demographic was the source of many of the semi-skilled/skilled positions medical manufacturers need to fill, there is now a disconnect. Stated simply, people moved but the jobs didn’t.
Traditional hiring sources for semi-skilled/unskilled jobs—the poor and working poor—lack the basic skills for many entry-level manufacturing positions. The lack of education, particularly in computer literacy, has left many applicants ill-suited for even basic jobs. What was once a simple job is now not so simple.
Realistically, it is a mix of these factors that have driven the U.S. labor shortage.
It is not necessary to be an economist or demographic statistician to spot other factors amplifying the labor shortage in manufacturing’s entry ranks. Introductory manufacturing wages are different from other industries. A $12 hourly wage paid a novice inspector, warehouse assistant, or secondaries operator is about the same earned by a restaurant employee or a mall sales clerk. To the average worker, nothing distinguishes a manufacturing job from the now-plentiful alternatives. Why work in a factory? Manufacturing hiring follows a late 19th century model. Most HR departments attract staff the same way their great-grandparents did at the mill’s hiring office—they hang out a sign with a brief description of the job and its requirements. The sign is now on the internet rather than on a chalk board but the message is the same. Low-level employees are hired, not recruited. For 125 years this model of building a workforce may have worked, but now it is in question.
Addressing the Hiring Problem
To succeed in a tight labor market, manufacturers must differentiate themselves from other industries. Modern manufacturing differs from the era when people were hired because they had a pulse and a strong back. Employers prefer long-term hires who can move up in a highly-skilled industry. Also, manufacturing stands out for the opportunity to move from the factory floor to a white-collar position.
Success in hiring and retention requires companies show the benefits of a manufacturing job in a manner that resonates with its intended audience. In hiring entry-level workers, most manufacturers fail to explain that manufacturing can be a career, not just an hourly job. Even when manufacturers discuss the chances for lifelong advancement with generous pay, they often do so in a manner incomprehensible to younger workers. Further, the hiring process often ensures high turnover. Most entry-level workers have hazy, often inaccurate concepts of factory work and colleagues. They have no concept of career paths, chances for additional training, or education. Few receive a tour of the facility or meet with anyone other than an HR manager before their first day on the job. They almost never meet co-workers or floor supervisors who can give them a sense of the work.
Additionally, the hiring language and benefits description is not fully grasped by teenagers. Of course, benefits should be explained but it is also essential to stress such aspects of the job as responsibilities, importance of the work, training and advancement opportunities, and tuition reimbursement, among others.
Finally, it is critical to make the workplace socially enjoyable. Despite its presentation, an entry-level job is a relatively low wage hourly position. People only stay with these jobs when they have a sense of community with their co-workers. Be it stand-up meetings, softball and bowling leagues, quarterly barbecues, or other activities, work is socially important as well as financially necessary to those without access to high pay and broad opportunities.
The shortage of semi-skilled and unskilled staff is likely here for some time to come. Adjusting hiring practices will be necessary to keep facilities staffed.
References
Tony Freeman is president of A.S. Freeman Advisors LLC. The New York City-based company provides M&A advisory services and strategic consulting to companies in the specialty materials and precision manufacturing industries.
Two Labor Shortages
While spoken of as a single shortage, the labor shortage in medical manufacturing is currently two shortages. The first is the decades-old dearth of skilled technicians: master machinists, floor leads, programmers, and manufacturing engineers. There is nothing new about this situation. A second shortage has occurred with the COVID-19 pandemic. Device manufacturers find themselves unable to hire semi-skilled and unskilled staff for positions on the production floor. When these workers can be found, they often require wages $3 to $4 an hour more than was paid before the pandemic.
The Imagined Culprit: Supplemental Unemployment Payments
Until early September, the unemployed received an extra $300 per week in unemployment insurance (UI) benefits. Funded by the U.S. government, these payments were on top of the traditional state-sponsored UI benefits. Additionally, unemployment coverage expanded beyond traditional W2 employees to include independent contractors and gig workers. Thus, many device manufacturing executives saw these benefits as a disincentive to seeking a job. They blamed the U.S. government for crippling the growth of supply chain companies with bulging order books and jobs aplenty. This analysis is both inaccurate and likely to cripple the companies whose managers continue to believe it.
Labor Shortage Not Caused by Enhanced UI
Did higher UI keep the unemployed at home? Apparently not. Forbes magazine reported that even with enhanced UI of $300/week, the average unemployment check fell short of the average wage in 47 of 50 states when computed on an hourly basis.1 Three states bucking the trend—Montana, North Dakota, and Wyoming—are not centers of medical manufacturing.
A more nuanced position by Peter Ganong of the University of Chicago suggests that only 42 percent of the unemployed are economically better off on UI.2 The remaining 58 percent (currently around 6 million workers) make less on unemployment benefits than they would at work.
These statistics present the “UI is killing hiring” faction with two inconvenient conclusions. The first is that many of the unemployed are terrible at math. They don’t realize the UI check does not cover requirements as well as their pre-pandemic paycheck. That is hard to believe. The second conclusion is the unemployed are lazy and would rather collect less but have the freedom to spend time as they wish. There are many arguments and mountains of evidence against this naïve logic but the first and best argument is, why should any company complain? Who would hire people with such a glaring character defect?
Real Reasons for the Shortage
Economists point to numerous issues to explain the labor shortage:
COVID-19 disruption of child care/elder care. Uncertain schedules and lack of daycare associated with the pandemic makes it impossible for previously employed workers to return to their jobs. This situation is likely to resolve more slowly than might be expected due to the delta variant surge and a hesitancy to return to the workplace until home life settles down on a long-term basis.
A double demographic challenge specific to blue-collar manufacturing jobs. Though the demand for blue-collar positions has been rising, the pool of applicants is declining, according to Conference Board data. Some of the decline is due to stagnant population growth but a large part is attributable to the shortage of men aged 16 to 24 entering manufacturing. These individuals haven’t disappeared; rather, they’re attending college in pursuit of white-collar careers. To some degree the shortage of men seeking entry-level positions has been offset by rising numbers of women in blue-collar jobs. But closed schools and child care has wreaked havoc on the lives of many female manufacturing workers.
Better information regarding wages. With a surging economy, workers can survey the market for the best-paying, most convenient job. Given stagnant real wages for decades at the lower end of the U.S. wage scale, it is reasonable that a motivated worker would search for the best hourly rate and working conditions, even if it is only marginally superior.
People moving. The societal disruption caused by COVID-19 led many younger, more mobile people to move from the markets where they previously worked to areas with few medical manufacturing plants. Since this demographic was the source of many of the semi-skilled/skilled positions medical manufacturers need to fill, there is now a disconnect. Stated simply, people moved but the jobs didn’t.
Traditional hiring sources for semi-skilled/unskilled jobs—the poor and working poor—lack the basic skills for many entry-level manufacturing positions. The lack of education, particularly in computer literacy, has left many applicants ill-suited for even basic jobs. What was once a simple job is now not so simple.
Realistically, it is a mix of these factors that have driven the U.S. labor shortage.
It is not necessary to be an economist or demographic statistician to spot other factors amplifying the labor shortage in manufacturing’s entry ranks. Introductory manufacturing wages are different from other industries. A $12 hourly wage paid a novice inspector, warehouse assistant, or secondaries operator is about the same earned by a restaurant employee or a mall sales clerk. To the average worker, nothing distinguishes a manufacturing job from the now-plentiful alternatives. Why work in a factory? Manufacturing hiring follows a late 19th century model. Most HR departments attract staff the same way their great-grandparents did at the mill’s hiring office—they hang out a sign with a brief description of the job and its requirements. The sign is now on the internet rather than on a chalk board but the message is the same. Low-level employees are hired, not recruited. For 125 years this model of building a workforce may have worked, but now it is in question.
Addressing the Hiring Problem
To succeed in a tight labor market, manufacturers must differentiate themselves from other industries. Modern manufacturing differs from the era when people were hired because they had a pulse and a strong back. Employers prefer long-term hires who can move up in a highly-skilled industry. Also, manufacturing stands out for the opportunity to move from the factory floor to a white-collar position.
Success in hiring and retention requires companies show the benefits of a manufacturing job in a manner that resonates with its intended audience. In hiring entry-level workers, most manufacturers fail to explain that manufacturing can be a career, not just an hourly job. Even when manufacturers discuss the chances for lifelong advancement with generous pay, they often do so in a manner incomprehensible to younger workers. Further, the hiring process often ensures high turnover. Most entry-level workers have hazy, often inaccurate concepts of factory work and colleagues. They have no concept of career paths, chances for additional training, or education. Few receive a tour of the facility or meet with anyone other than an HR manager before their first day on the job. They almost never meet co-workers or floor supervisors who can give them a sense of the work.
Additionally, the hiring language and benefits description is not fully grasped by teenagers. Of course, benefits should be explained but it is also essential to stress such aspects of the job as responsibilities, importance of the work, training and advancement opportunities, and tuition reimbursement, among others.
Finally, it is critical to make the workplace socially enjoyable. Despite its presentation, an entry-level job is a relatively low wage hourly position. People only stay with these jobs when they have a sense of community with their co-workers. Be it stand-up meetings, softball and bowling leagues, quarterly barbecues, or other activities, work is socially important as well as financially necessary to those without access to high pay and broad opportunities.
The shortage of semi-skilled and unskilled staff is likely here for some time to come. Adjusting hiring practices will be necessary to keep facilities staffed.
References
- www.forbes.com/sites/tomspiggle/2021/07/08/what-does-a-worker-want-what-the-labor-shortage-really-tells-us/
- www.cnbc.com/2021/06/16/states-to-end-federal-unemployment-benefits-for-400000-this-weekend.html
Tony Freeman is president of A.S. Freeman Advisors LLC. The New York City-based company provides M&A advisory services and strategic consulting to companies in the specialty materials and precision manufacturing industries.