How Companies Address Skilled Labor Shortages

A construction worker cuts a piece of steel with a power tool as bright sparks jet across a workbench.

By Robert Hallberg, Senior Vice President, Market Executive
630-203-1055 | Robert.Hallberg@53.com

Industries and sectors across the U.S. economy are feeling the effects of a skilled labor shortage. In a 2018 survey by the staffing firm ManpowerGroup, about 45 percent of companies reported struggling to find skilled workers, with skilled trades such as machinists, mechanics and electricians constituting the tightest part of the labor market. In manufacturing and construction—two industries that employ significant numbers of skilled tradespeople—the skilled labor shortage is negatively impacting the ability of companies to grow and take on new business. As a result, businesses are starting to get creative in their recruitment and retention practices, pursuing everything from relaxed employment requirements to innovative training programs.

A Perfect Storm of Contributing Factors

Along with an unemployment rate of 4 percent, several other factors have combined to drive the skilled labor shortage in manufacturing and construction. The residual effects of the Great Recession are still being felt, particularly in construction, where the downturn resulted in a loss of 1.5 million jobs that never returned once the economy rebounded.

Additionally, younger workers are not entering the skilled trades at the pace necessary to replace retiring workers. One reason: many young people forego entering skilled trades, opting instead to pursue college degrees. Joel Galassini, regional president for CEMEX USA, a construction industry supplier, recently told Forbes.com, “If you think about it, most of the [skilled trade] jobs are blue collar… and not a lot of people are going into that market… These are good-paying jobs, but we don't have a lot of people interested in working with their hands.”

Part of the issue is an outdated perception of the skilled trades. Many young people don’t view industries like manufacturing and construction as innovative or as places to build careers. But in reality, manufacturing is a rapidly modernizing and digitized industry. Technological advancements like automation, artificial intelligence and machine learning have altered manufacturing operations, enhancing productivity and enabling businesses to more easily meet customer demands. The construction industry—long known for lagging behind on modernization—is beginning to catch up, using digital collaboration and advanced analytics to improve operations. Such advances increase the need in these industries for workers with more high-tech and soft skills than in previous decades.

The evolving skill requirements for the manufacturing and construction industries highlight another aspect of the labor shortage: a persistent skills gap. As automation and digitalization have spread across the skilled trades, many workers have not acquired the skills to keep pace with technological innovation. The 2018 Manufacturing Skills Gap Study, conducted jointly by Deloitte and the Manufacturing Institute, revealed that the skills gap in manufacturing may result in up to 2.4 million unfilled positions over the next decade. Indeed, 73.2 percent of manufacturers already cite inability to find sufficiently trained talent as one of their major business challenges.

Labor Shortage Negatively Impacts Businesses

In the construction industry, companies and building contractors are also feeling the squeeze of the tightened labor market. In Illinois, 68 percent of 60 companies surveyed by the Associated General Contractors of America (AGC) reported difficulty finding skilled trades workers, particularly pipefitters/welders, painters and bricklayers. The continuing shortage leaves some companies less able to meet the demands of their project workloads.

In the manufacturing sector, 28.4 percent of manufacturers said they had declined new projects due to a shortage of workers, according to the National Association of Manufacturers’ 2018 Outlook Survey.

How Companies can Navigate the Skilled Labor Shortage

Companies can consider taking the following steps to help mitigate the effects of the skilled labor shortage:

  • Get flexible when recruiting. Consider loosening experience and education requirements. Becky Frankiewicz, president of ManpowerGroup, noted in a 2018 CNBC interview that many employers—particularly in manufacturing—are relaxing education requirements, choosing to focus on the ability of candidates to learn on the job. Additionally, while certainly adding an additional level of risk, some companies are adjusting pre-employment requirements, or limiting background checks, to help them have access to a wider pool of job candidates. Manufacturing and construction businesses can also look to previously underutilized candidate pools—women, minorities, and veterans—to meet their staffing needs.
  • Improve compensation and benefits. Companies can also attract skilled tradespeople by offering better compensation and benefits, a tactic some Midwestern businesses are already implementing. In a recent PBS NewsHour segment, Erik Anderson, CEO of Jefferson, Wisconsin-based manufacturer Basin Precision Machining, stated that he has regularly increased hourly wages for his employees, going from $9 an hour in 2015 to $15 an hour in 2018, with plans for more increases over the next several years. Baltimore-based construction staffing firm Green JobWorks offers benefits like healthcare, paid time off and annual raises to compete with the many options available to job seekers in the skilled trades.
  • Increase investment in training programs. Providing training to existing employees is a great way for companies to get the skills they need, while also fostering loyalty with employees. ManpowerGroup reported in 2018 that 55 percent of employers surveyed said they are investing in learning and development initiatives to re-skill and up-skill their employees. Additionally, some companies are looking to innovative training programs to bridge staffing gaps. A program in Wisconsin offers training to people in prison—via local technical colleges—in much-needed factory skills like computer numerical control (CNC). Local employers can partner with the program to hire people while they are still incarcerated, providing companies with urgently needed workers. Other businesses are investing more time and resources to sponsor a range of recruiting-focused initiatives in high schools—funding scholarship programs, providing embedded work-related curricula and offering paid internships—to attract young people to the skilled trades. The goal of such programs is to motivate those electing to enter the workforce with part-time employment throughout high school, including added training, that will allow them to earn a living wage once they leave high school. And for those students electing to pursue a college degree, some companies are offering scholarships that include employment pre- and post-graduation.
  • Change perceptions of the skilled trades. The manufacturing and construction industries can also do their part to reposition the skilled trades. That means convincing teachers, parents and school counselors to view skilled labor as a viable career path—one that can be pursued largely without the burden of student loan debt that often accompanies a four-year degree. According to the National Association of Manufacturers as cited in the Daily Herald, the average U.S. manufacturer worker earned more than $81,000 annually in 2015. That salary is higher than salaries of many positions that require four-year college degrees. In that same piece, Mark Klein, co-president of Lincolnshire, Illinois-based Klein Tools, wrote, “It’s critical for key influencers to teach the advantages of skilled trades…job flexibility, potentially high wages and the opportunity for creativity and pride of ownership.” Altering the narrative around skilled trades will be key to addressing the labor shortage.

The ongoing shortage in skilled labor shows few signs of slowing down over the next decade, but companies can navigate the effects of the shortage by considering a more flexible approach to recruiting, offering improved compensation and benefits, investing in training and development programs and working to change perceptions of the skilled trades. Taking these steps may put businesses in the best position for long-term growth.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.