Introduction
In today’s labor market landscape, industrial and service corporations face unprecedented workforce challenges. This article addresses the dimensions of the challenge, explores potential solutions that require stakeholder alignment, and highlights ideas for navigating the labor market conundrum for both facility expansion and establishing “greenfield” operations.
The Workforce Challenge
The warning signs for a national labor shortage began emerging nearly 10 years ago. After COVID-19, the challenge of recruiting and retaining employees reached red alarm status for most employers. Although the challenge is national in scope, there are geographic variations. Why has labor scarcity emerged as a dynamic inhibiting both micro and macro-economic growth? Multiple factors have converged to create this labor market dilemma, including:
• Aging population: The proportion of the population 65 years of age approximates 17.9% vs. 12.4% in 2000
- The baby boomers (born between 1946 and 1964) have been retiring and all will be at least 65 years old by 2030
- The birth rate has been steadily declining (now only half of the 1960 rate)
- The prime working-age bracket (ages 21-34) is projected to decline 3.1% over the next 5 years
• Restrictive immigration policies further exacerbate changing demographics
- Net international migration is at the lowest level in decades
- Legal migration will therefore be insufficient to fill the worker void caused by the demographic trends
• Low labor force participation rate
- The current rate is 63.3%, down from 67.3% in 2000
- The rate is projected to drop to 60.4% in 2032
• Low Productivity
- Despite the automation hype, productivity in the U.S. has been hovering around 1.4% per annum
- Historically, the average was around 2%
• Unemployment rates are near all-time lows 33.7% in May 2024; rates for a sampling of previous years are:
- 2010: 9.7%
- 2013: 7.4%
- 2015: 5.3%
- 2019: 3.7%
- 2020: 8.1%
In addition to the above-noted counterweights to labor supply, another influential trend has been strong demand for workers across most sectors of the economy. There are currently 9.5 million job openings and the unemployed and new graduates (high school/college) entering the workforce will not be sufficient to fill these open positions. To illustrate, consider the manufacturing sector; a study by the Manufacturing Institute and Deloitte, projects that there will be 2.1 million unfilled jobs by 2030.
Another parameter of the worker shortage is reflected in employer surveys. According to RSM, 58 percent of companies found hiring very or extremely challenging. The ratio is even more pronounced (68 percent) for small to medium companies.
Additional factors contributing to the labor market shortage include soft skills deficiencies, underrepresentation of women and minorities in STEM fields, childcare, cumbersome onboarding, inadequate training, poorly defined career pathways, and insufficient work hours’ flexibility to help employees achieve a desired work/life balance.
Among the sectors hardest hit by the labor crunch are manufacturing, construction, transportation, warehousing, leisure, entertainment, and health care. And there is a wide range of occupations wherein demand exceeds supply including qualified entry-level labor possessing requisite foundational skills, technicians/skilled production workers (e.g., mechanics, welders, CNC machine operators/programmers), financial and information technology professionals, logistics management/support, and healthcare positions such as registered nurses.
Solutions to the Labor Shortage
Overview
Dealing with the protracted labor shortage necessitates a multi-faceted effort from all pertinent stakeholders including employers, education/training, nonprofits, workforce development, and economic development. Let us start by exploring proactive strategies that employers can implement to boost recruitment and retention.
Employer Initiatives
To improve success in staffing for both new hires and replacements due to turnover, various tactics can be utilized. It is important to start with a holistic perspective on what it takes to hire and retain a high-quality workforce. Then, compare your company’s competitiveness vis-à-vis similar employers, either on a national or local level depending on your physical presence. The main goal is to determine how to achieve, or improve, employer-of-choice status.
Before gauging a workplace’s attractiveness, it is important to assess the demand for current skills, upskilling needs, and future/new skills. This assessment should cover corporate-wide requirements and specific operations within the global or national footprint. Next, skills must be grouped into job families (e.g., semi-skilled production) or related jobs requiring similar technical and soft skills. Within each facility, pinpoint specific positions that are the most critical and prepare a matrix summarizing current/future headcount and degree of difficulty in staffing.
To ascertain competitiveness from an HR standpoint, there are several sources to utilize. These sources include dialogue with similar employers or entities that serve employers (e.g., staffing agencies, the workforce development board, local/regional economic development organizations, the local chapter of SHRM (Society of Human Resource Management), and education/training institutes). It is advisable to conduct secondary research and contact industry associations that have a workforce focus among their services such as the Manufacturing Institute (workforce development/education affiliate of the National Association of Manufacturers) or the Association for Talent Development.
When benchmarking for best practices to achieve/maintain employer-of-choice status, explore how your company stacks up on considerations such as:
1. Compensation
• Base Salary: Entry level; Progression
• Pay for performance: Type of plan: Average % increase over base pay
2. Fringe Benefits, e.g.,
• The standards (e.g., health insurance)
• Tuition reimbursement including for certifications
• Student loan forgiveness
• Childcare (including as part of a flexible spending account)
• Wellness programs
• Fitness reimbursement
• Stock purchase
• Paid parental leave
3. Flexibility (has moved near the top of important benefits)
• Work hours (e.g., start/quit times)
• For office workers a hybrid workplace model, (e.g., 1, 3, or 4 days in office and 1-2 days work at home)
4. Flexible Personal Time Off Policy
5. Well-defined career pathways
6. Automated/simpler onboarding process while maintaining the human touch
7. Significant investment in employee training
8. Attractive internal work environment
9. Commitment to green/sustainability policies
10. Commitment to workforce diversity
11. Active involvement in civic affairs/corporate giving (promote the brand)
12. Multi-faceted recruiting including social media
13. If shift work is involved, steady as opposed to rotational shifts if possible
14. Open communications
15. Amenities on site or within walking distance
After review, it may be necessary to fine-tune HR practices. To overcome the labor shortage, employers should strive to become a preferred employer. Additional steps include making a concerted effort to hire more women, minorities, and individuals from underrepresented groups such as those with disabilities or on the autism spectrum, and second-chance candidates. Employers can also promote the value of careers in their industry to students (elementary through high school), offer pre-apprenticeship, apprenticeship, and internships, establish close ties with education/training institutions, consider relaxing stringent job qualifications, develop a supervisory farm and training systems that emphasize both soft and technical skills, automate and simplify the recruiting/onboarding process (consider using automation systems powered by AI), develop a storyline that attracts Gen Z-ers (an overlooked pool for manufacturing), tap into the immigrant/new American population, participate in H1B and H2B Visa programs, and offer employer referral bonuses in selected instances. and signing bonuses if needed.
The importance of flexibility in recruiting and retaining talent cannot be overstated. While it is easier to implement in an office environment, flexibility will become ever more important for successfully staffing industrial operations. Among tactics to consider:
- Introduce new shift permutations
- Open shift times
- Create more flexible factory lines
- Create co-ops (e.g., 2 or 3 people combine to create one full-time role)
- Leverage Gig Talent Pipelines (this is in its infancy, but the “uberization” of manufacturing talent is a possibility at least for a portion of the workforce requirement)
One example of flexibility in manufacturing is Land O’ Lakes, which successfully implemented flexible scheduling at its Melrose, MN plant and later expanded the concept to other plants as well. As a corollary, The Manufacturing Institute has published a White Paper on hours flexibility in the manufacturing workplace.
Finally, many companies are now using automation and advanced technology to improve efficiency and productivity while reducing manual labor and headcount. In manufacturing, the gold standard is Factory 4.0. One important technology is cobots, which are robots that can work alongside humans. Additive manufacturing, digital twins, and AI are all important technologies to consider for factory automation. Note that while there will be fewer positions for less skilled workers, there will be a need to provide additional training to upskill the existing workforce.
Distribution centers are increasingly becoming automated, leading to a reduction in manual labor. Technological advancements such as pick-to-light, voice picking, wearables, automated guided vehicles, and mobile robots are being implemented. In financial and business services, AI is being utilized to automate specific manual tasks. This involves setting up a series of tasks (or workflows) and using technology to trigger pre-defined steps. Automated tasks range from data and account management to sorting/counting money. Customer service centers have been at the forefront of automation, utilizing chatbots, artificial intelligence, and self-service tools. Live agents oversee more intricate inquiries, leading to a reduced need for customer service representatives in call centers.
External Stakeholders
In most areas, there are a variety of organizations involved with workforce development which might include:
- Workforce Development Board
- Social Welfare Agency
- Nonprofits (e.g., Goodwill, United Way, Catholic Charities, manufacturers or employer associations, and foundations)
- High Schools
- Technical Schools
- Community Colleges
- Four-Year College/Universities
- Economic Development Organizations
It is paramount that all workforce-related groups coordinate, and this responsibility is increasingly being taken on by economic development organizations. Many state, regional, and even some county-level economic development groups have incorporated workforce development into their portfolios. This approach is highly valuable to employers because they can access a single source for assistance with their workforce challenges. Collectively, services offered to employers should include:
- Quantification of employment demand, primarily via employer survey and augmented by published data sources
- Sectoral focus on workforce/training
- Outreach to business to discuss their labor market experiences and needs
- Matching employer training needs with appropriate education institutions including degrees, certifications and continuing education
- Creating new training programs to reflect upskilling and new skills
- Assistance in recruiting (e.g., job fares, advertising, social media posts, reaching into marginalized pools)
- Establish career awareness pathways by industry sector at the middle and high school levels
- Helping companies arrange pre-apprenticeship, apprenticeships, and internships
- Holding HR best practice workshops/webinars
- Participating in ACT WorkKeys program for counties to be certified. Participants earn a National Workforce Ready Certificate for foundational skills
- Participating in the US Chamber Foundation’s Talent Attraction Pipeline model (a blueprint for stakeholder collaboration)
- When requested helping companies to adopt advanced technologies
- Re-emphasize Career & Technical Education (CTE) in high schools
- Hold industry appreciation days
- Sponsor innovation contests for High School students
- Implement on all-encompassing talent attraction strategy
- Participate in national association conferences involving workforce
- Hold annual meetings with local employers to present last year’s accomplishments and next year’s plans
Integrating Labor Market Factors into Site Expansion/Selection
At no time in recent history has labor supply, cost, or quality been more important in deciding where to deploy new capacity. To achieve a successful outcome, a well-thought-out, structured process should be followed.
Existing Footprint Evaluation
Historically, a company’s growth at an existing location was often limited by physical factors such as site size. However, in recent years human resource constraints have also entered the picture. Today, it is advisable to periodically gauge labor market conditions across a company’s facility portfolio. Considerations include:
- The maximum headcount that can be accommodated at each site
- If HR limitations cannot support projected growth, what are the available options, e.g.,
- Cap headcount at the current level
- Relocate some or all of the operation to either another existing site or a greenfield location
- Outsource certain functions
- Any necessary adjustments to compensation, HR policies, and related dynamics
Once this analytical input is synthesized and interpreted, the viability of the targeted site from a labor market standpoint will become clear. Subsequently, executive management can make an informed decision on right-sizing or downsizing the pertinent work site.
New Site Selection
The ultimate site for a new industrial or office operation must prove favorable and balanced over the long haul when combining competitive demand, talent pool depth and availability, cost, and quality. In other words, avoid excessive concentration and be cognizant of “too much of a good thing” which can lead to labor supply pressure, increased turnover, and cost escalation.
Initially, determine if existing sites should be benchmarked for comparison purposes and identify any additional locations that should be considered. Then, quantify the proposed facility’s HR requirements both near and long term, including scale, skills mix, budgeted wages and incentives, work hours and location (i.e., shifts, flex hours, in-office vs. work-at-home), labor relations, industry ecosystem (e.g., represents a strong support infrastructure, but also greater labor market competition), and preference for an existing building versus build-to-suit (which could affect whether a site is situated in the best sub labor market).
The next task is to engage in a screening process that eventually leads to a shortlist (typically two to four) of the most promising locations. The exercise begins by delineating the geographic search region (e.g., Western U.S.) and then employing a multi-round screening process. Statistical thresholds are applied in each round to filter out areas that do not meet the criteria. Rejected areas should be reviewed before discarding, as some may still be worth considering. This screening effort typically yields a longlist (approximately 8-10) of potentially suitable locations. At this point, because statistical data can only take us so far, a confidential Request for Information (RFI) is issued to the lead economic development organization in each area and should yield illustrative information on major employers, new/expanding employers, and pertinent education/training programs.
Statistical and RFI inputs are then combined so the project team can rank and score the longlist areas. It is helpful to develop a scorecard divided into two categories: (a) qualitative factors such as competitive demand and (b) cost factors such as market competitive salaries. Be sure to include any benchmark locations. Based on the final rankings, the project team will concur on which finalist locations (i.e., the shortlist) should proceed to the next analytical stage.
At this point, a combination of virtual and in-person field evaluation will yield the ultimate location preference. Field investigation is designed to answer HR-related concerns such as labor pool availability, turnover rate projections, talent penetration rate, maximum staffing level, market-competitive compensation package, labor supply and cost pressure, optimal sub-labor market, recruiting and onboarding strategies, unionization risk, training programs, staffing off shifts and weekends, automation impact on staffing, seasonal positions, and incentive packages. To address these considerations, the following research inputs will be necessary:
- A statistical model to estimate labor market saturation by skillset
- Commute shed analytics for sub-labor market selection
- Several employers Interview
- Other interviews with entities such as staffing agencies, the workforce development board, the local SHRM chapter, and local employer associations
- Contact with the state labor office to double-check on labor regulations
- Dialogues local/state economic development organizations.
Once the current and future labor market conditions in the areas are considered, compare the shortlisted locations to choose the preferred and backup locations. After that, conduct final due diligence (e.g., legal, technology, HR, finance, incentives, real estate) and recommend a final location choice to executive management.
In Conclusion
We are facing a systemic labor shortage across most industries and skill sets which has stark implications for both existing site expansion and locating new industrial and office operations. Because differences exist among metro areas and counties, in-depth assessment utilizing pertinent data, predictive models, and professional judgment is required to arrive at location decisions ensuring success from an HR standpoint.
Employers can adopt a series of proactive measures to combat the labor crunch. Importantly, automation (e.g., AI) will be necessary both to ensure business competitiveness and to navigate these difficult waters for successful recruitment/retention. Additionally, a holistic perspective (well beyond compensation) must be adopted to gauge what it takes to succeed in any labor market. One hallmark of success is PTO/work hours flexibility.
About the Author: Dennis J. Donovan is a founding principal of WDGC. Based in Bridgewater, NJ the firm has been advising Fortune 1000 and middle market firms on corporate location strategy and site selection for over four decades. Client engagement have included numerous manufacturing location projects across the industry spectrum.
