Why Skilled Labor is the No. 1 Location Driver for Manufacturers Today
The state of U.S. manufacturing is a hot topic in national economic and political conversations today. Issues like tax reform, trade partnerships and regulations are fueling a national debate over how to create and retain U.S. manufacturing investment and jobs. Though a favorable business and tax climate is important to manufacturers, the most critical factor leading to location decisions for new investment and jobs is actually the labor market.
Thanks to technology advancements, manufacturing operations are much more automated today than they were decades ago. As a result, high-tech production processes that rely less on manual labor have made it possible to consider new investment in the U.S. over low-cost labor markets in countries like China. Automated production does not equate to zero jobs; instead it means that operations need more skilled labor in order to operate, maintain and retool technologically advanced equipment.
Location selection factors that can be quantified by market include labor costs (hourly, weekly and/or annual wages), total labor force (between ages 19 and 65), unemployment rates, and number of people employed by various industry sectors and job types. That said, the types of skills available in each labor market are even more important than costs and sheer numbers of workers. Therefore, skilled labor can be harder to identify and more challenging to quantify.
Manufacturers are struggling to find qualified workers for a variety of reasons. The term “skills gap” is a common phrase heard throughout the business community. It refers to the fact that the types of skill requirements that companies need and the candidates seeking work do not match.
A recent study by NAM’s Manufacturing Institute and Deloitte found that manufacturers will need to fill 3.5 million production jobs over the next decade. Two million of those jobs will likely go unfilled based on the changing needs for skills, retiring baby boomers, and a shortage of young workers entering the field.
There are two categories of skills currently in demand:
• Skilled trades – welder, machinist, mechanic, electrician, maintenance technician and other job types that generally require documentation in the form of a certification, two-year degree and/or apprenticeship.
• Basic work skills – including foundational knowledge in subjects like math and reading, appropriate attitude (including being on time), and an ability (and willingness) to learn on the job.
Skilled trades are in high demand with the rise of automated equipment. Companies like Zimmer Biomet in Warsaw, IN, which needs machinists to produce its orthopedic devices, are struggling to meet increased production demand. Retiring baby boomers possess the skills required, but there are fewer young people entering manufacturing jobs. According to a recent Washington Post report, 40 positions remain open at Zimmer Biomet, despite high pay and solid benefits.
The challenge for recruiting millennials into the industry is the perception that manufacturing plants are dark and gritty places to work—a far cry from what most manufacturing plants actually look like today with clean floors, robots and computer-operated equipment. The Warsaw, IN, community is working to implement more programs in the local elementary and secondary schools to help shift that perception and get kids interested in manufacturing careers early.
In some cases, the bigger issue is finding a pool of workers that possess basic work skills.
Chandler Systems Inc., a 35-person manufacturer of innovative water treatment products in Ashland, OH, is testament to this.
“We would love to bring more jobs back to the U.S., but are concerned about the availability of individuals willing and able to perform the work we need,” said Bill Chandler III, marketing director, who also handles some of the company’s hiring. Chandler Systems typically pays its entry level workers $12-14 per hour, well above the state minimum wage of $8.10 per hour. “One of the toughest skills to find are workers willing to learn and comprehend new things."
States are beginning to address these labor skill challenges through initiatives led by state and regional economic development organizations.
Missouri is one of the first U.S. states to implement a program called “Certified Work Ready Communities” designed to help build a labor market that possess a foundation of basic work-ready skills, with some formal documentation to prove it. Guided by key community leaders, the initiative hopes to secure the financial success of the state in the future.
Across the country, community colleges and technical schools are addressing new labor requirements with training programs tailored for specific skill sets. For example, in Greenville, SC, home to BMW Manufacturing Co. and many suppliers, the Greenville Technical College offers programs in mechatronics and automotive engineering to serve the specific needs of the region’s automotive manufacturing industry. These types of customized training programs can be a key consideration for manufacturers seeking to ensure a steady flow of skilled labor.
In Edgerton, KS, the Kansas City Community College is partnering with Amazon to train 1,500 logistics workers for its new 822,000-square-foot distribution center. The program seeks to identify individuals across the Kansas City region working multiple minimum wage jobs and train them for these higher paying, higher skilled positions. Similar to manufacturing plants, many of the open positions, including forklift operators and UCP code readers, require various levels of knowledge in science, technology, engineering and math.
Companies are also seeking regions with an existing concentration of skilled workers in complementary industry sectors and production processes. For example, Polaris recently selected Huntsville, AL, for a new state-of-the-art production facility for its all-terrain vehicles (ATVs). One of the reasons cited for the location selection was the region’s skilled workforce and history of technology and innovation—both which can be attributed to the history and concentration of the area’s engineering and aerospace industry.
When it comes to location selection, manufacturing operations have many considerations—access to suppliers and customers, utility costs and services, tax and regulatory environment, available real estate, state and local incentives, and other factors—but the most critical factor for manufacturers today is the availability of skilled labor. The key to growing U.S. manufacturing and the national economy most certainly lies in the ability of the country, states, and local communities to partner with companies to train the workforce for the labor skills needed for today and the future.