May 18, 2022 posted in Location Consulting
There is no question that we are experiencing a historically tight labor market, and it is easy to point the finger at the pandemic that started in March 2020 for today’s hiring challenges. Unemployment skyrocketed, labor force participation plummeted, and the ensuing disruptions to working environments and global supply chains left a permanent imprint on us all. However, I contend there were already longer-term trends at play completely unrelated to the pandemic.
To put it simply, more people are retiring or aging out of the working-age population (ages 16 to 64) than there are young people aging into the workforce. The eventual return of immigration to former levels will surely help, but this alone is unlikely to bridge the gap between labor supply and demand.
Navigating longer-term labor shortages requires making strategic location decisions at every turn. Whether it’s locating a new plant or right-sizing an existing operation, numerous factors can differ from one geographic area to the next. Thoroughly researching and weighing the impact of these differences is critical to securing the desired operating outcomes. The main objective from an HR perspective is to maximize labor attraction while minimizing turnover among the highest quality employees. The site selection process supports this objective by characterizing shifting demographics, quantifying the size of targeted labor pools, identifying which competing operations will be labor takers and which will be labor feeders, evaluating local technical school resources, and comparing labor cost trends, among other factors.
After meeting with nearly 100 manufacturing companies, industrial staffing agencies, and workforce development organizations over the last year, their feedback can be boiled down to this: The companies having the most success with labor attraction and retention are investing time and capital to solve for these four considerations: compensation, workplace culture, community partnerships, and background requirements.
According to the Bureau of Labor Statistics, average hourly manufacturing wages increased by 6% over the last 12 months – the highest annual increase since 1982. Austin Consulting’s research indicates entry-level manufacturing wages in most larger markets have increased by 25% to 45% since the pandemic began.
Constant monitoring of local market wage patterns is essential to keeping up with competitors. Local HR leaders need the flexibility to adjust wage offerings in real-time. Do not wait until after turnover becomes unmanageable before making the required compensation adjustments. Be careful not to start blindly increasing wages, though. Too much wage escalation beyond market patterns can cause a ripple effect leading to unnecessary wage wars that negatively impact all players involved. To avoid this risk, participate in local wage surveys and HR networking groups to stay current with activity in your area.
A close second after compensation is culture. If there’s one workforce trend coming out of the last few years that’s expected to stick around; it’s the increased leverage gained by employees. It is clear the next generation of manufacturing workers is demanding more than their predecessors. Manufacturing can be a rigid process, but companies that seek input from their workforce and find creative ways to address employees’ needs are leading the charge into the future.
It’s no secret that PTO and flexible schedules allowing for better work-life balance are a top priority. Aligning shift schedules with local school times can make all the difference for workers with families. So can company-sponsored childcare and healthcare services either on-site or nearby. Employee appreciation events, food trucks on Fridays, and allowing headphones while working certain positions are examples of small practices that can add up to big advantages. I recently met with a company that has a golf simulator at their mid-sized assembly plant. The equipment cost about $10,000 to install and has reportedly paid for itself ten times over with the gains in labor attraction and retention. It’s the #1 thing applicants ask about during their first interview!
Companies that are not connected to the community are often disconnected from their workforce. Not only is sponsoring local charities and events the right thing to do, being active in the community increases visibility and fosters a family atmosphere leading to a heightened sense of loyalty from employees.
Reaching out to non-profits and church groups can be a great way to tap into refugee and foreign-born labor pools. These organizations provide resettlement housing, legal and documentation services, and help with bridging the language barrier. This type of assistance connects workers eager to enter the labor market. If you’re not sure why this potential labor resource is important, just know this, 1 in 5 U.S. manufacturing workers was born outside the country.
Partnering with local training providers is essential for new and expanding operations and can help companies looking to upskill their existing workforce. Most technical schools can provide customized training for everything from soft skills to advanced robotics. In many cases, these programs are free to the company or are heavily incentivized. Training partnerships don’t just apply to technical programs either. More and more manufacturing companies incentivize their employees to get their GED or pursue higher education through free tuition programs. Establishing a clear path of life-long learning for your workforce is a master key to higher retention while at the same time developing a pipeline for those highly sought-after skilled employees.
In the recent past, most manufacturers have required a high school diploma or GED for entry-level jobs. Basic math skills, reading comprehension, and safety have been the rationale most often cited. But I’ve noticed a major shift in recent years as companies have looked for ways to expand their applicant pools. In some areas, eliminating the HS/GED requirement can increase applicant response by up to 20%. Replacing minimum education requirements with pre-employment assessments for interest, aptitude, and skills provides employers a more effective approach for screening applicants and placing them in the best positions for mutual success.
Relaxing hiring policies around criminal background checks is a common response to tight labor market conditions. Companies that evaluate each applicant’s criminal history on a case-by-case basis find high-quality employees that would have otherwise been overlooked. Misdemeanors and minor convictions are typically forgiven if applicants can show a recent pattern of clean behavior and a strong work ethic.
In both examples above, the general feedback regarding labor quality has been positive. In most cases, providing job opportunities for this underserved portion of the workforce has led to higher attendance and retention rates as a sign of appreciation for giving them a chance when others wouldn’t.
Mastering the labor market is a never-ending task with no one size fits all solution. Community involvement, listening to your employees, and being flexible and agile in your response will greatly increase your odds of success.