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Manufacturers around the world, but especially in the US, are facing severe labor shortages. While the US has implemented aggressive economic recovery programs, the shortage continues to grow.
Now, data suggests this trend may worsen, leading to an even sharper disparity between supply and demand. This, in turn, leaves unprepared manufacturers critically vulnerable to the challenges of the years ahead.
With enhanced government unemployment benefits still in place in many parts of the country, a lack of critical training programs, and rising consumer demand, producers must take steps to ensure they can remain competitive.
Both specialized roles and higher paying entry level positions are going unfilled. There is a critical gap in job openings and new hires. This is true in manufacturing and across other industries, as well. Deloitte recently released a study with rather disturbing numbers.
During 2020, the manufacturing industry netted a loss of well over half a million jobs. Yet, counter-intuitively, the industry currently maintains approximately half a million unfilled job openings. They report that in this period of historically high unemployment, we are simultaneously facing an unprecedented level of open positions. And this isn’t just a short-term problem.
By 2030, the US is expected to have 2.3 million unfilled manufacturing jobs. This labor shortage is predicted to cost the United States approximately $1 trillion, making a significant impact on GDP and productivity.
According to a recent survey of US manufacturing executives, finding qualified labor today is 36% more difficult than in 2018. It remains one of the top problems facing the US manufacturing industry. These executives are now wondering if they will be able to keep pace with rising demand for their products, or if a lack of skilled laborers will cripple their ability to produce.
Where are these skilled workers? How can we have such high unemployment numbers, yet face such a critical shortage in workers? What is driving this disparity?
First, it must be noted that this is not a new problem. In 2018, Deloitte was writing about the same problem. Manufacturers were facing shortages of skilled workers even then. And they pointed to the problem of education – or lack thereof.
Filling positions for CNC machinists, welders, maintenance technicians, and other skilled roles, requires training. Yet, these moderately skilled positions don’t typically pay enough to afford these laborers to relocate. So, it falls upon the manufacturer to train the local workforce.
But this presents another challenge: training potential workers for months on end with no pay. Small to medium companies simply cannot afford this long-term investment. And many large manufacturers in the US don’t consider it worthwhile, due to the lengthy process of certification, licensing, hands-on training, etc.
There is a misconception associated with this approach that the US has the workforce merely waiting to be trained. But this isn’t necessarily the case. In fact, part of the problem may be attributed to the retiring of the Boomer generation. While this generation was accustomed to shift work, producing things to find fulfillment, newer generations are keener on work-life balance and less tangible sources of fulfillment.
And newer generations just aren’t as numerous. The working age US populace is no longer growing. In fact, recently, this demographic has begun to shrink. We’re not making enough humans to replace the retiring workers – even if we could train them.
This trend was further exacerbated by pandemic politics, paying nearly on par with market wages for US workers to stay home. This has been called an historic blunder, and some fear it has permanently altered the American work ethic, leading to a shifting identity. Many working age adults in the US no longer identify with their work, but instead identify more with their values or social causes. And this problem may be permanent.
As unpleasant as the prospect may be of ever-increasing demand and an ever-dwindling supply of labor, there are alternatives. US manufactures are facing the labor shortage with resilience and innovation to rise to the challenge. Many of them are looking to nearshoring options to meet their demand for manufacturing labor.
Because Mexico follows the German model of training workers to order through academia-industry partnerships, the Mexican labor pool is highly skilled, even for machine intelligence and more technical manufacturing. The country graduates thousands of specialized engineers every year.
In addition to low-cost, skilled manufacturing labor, Mexico affords US manufacturers a unique advantage. The country’s economy is built on manufacturing. US producers who partner with maquilas south of the border leverage state-of-the-art facilities and infrastructure for a fraction of the cost to manufacture for export duty free to the US.
As fewer and fewer Americans seek out manufacturing jobs, as training workers for the highly specialized roles modern manufacturing demands becomes more costly and impractical, and as governmental policies subsidize unemployment, the labor shortage will worsen for manufacturers. We see this as a strong trend over the next decade. But leveraging the strong, technical workforce in Mexico is proving to be a strong alternative.