Skilled Worker Shortage: It's Time To Fix The Kitchen Sink

Oct. 11, 2005
Census data show that manufacturers that don't invest in employees will have higher turnover rates -- at a time when skilled employees are becoming scarcer.

U.S. manufacturers seem to be treating the skilled labor shortage like a leaking kitchen sink. They are ignoring it because the kitchen can still function, but eventually, that hidden pipe will rot the floor, and the sink will crash into the basement. Good-bye fresh water to drink. Good-bye cooking and cleaning. In short, good-bye kitchen.

Research from the 2005 IW/MPI Census of Manufacturers and input and commentary from other groups affiliated with manufacturing show that many manufacturers would rather blame others for the lack of skilled workers than bite the bullet and fix the sink, which in this case means bringing plants up to world-class standards, investing in training and paying employees more.

The predictions for how big this crisis will become are likely familiar but worth repeating: The U.S. Bureau of Labor Statistics says that by 2010, the number of unfilled skilled worker posts will reach 5.3 million, increasing to 14 million by 2015. According to a survey of 94 senior manufacturing executives conducted by AC Neilson for Advanced Technology Services Inc. (ATS) in 2005, two-thirds of responding discrete manufacturers expect the labor shortage to cost them $50 million over the next five years. Manufactuers in the automotive, electrical equipment, ball and roller bearing, metal valve and engine, and transmission sectors will suffer most, according to ATS.

Ways To Go

More than 70% of the IW/MPI survey respondents indicated their plants have made no progress toward world-class status or have made only some progress.

Many of the executives ATS interviewed said they have skilled jobs going unfullfilled now, and indeed during IndustryWeek visits to manufacturers across the country, it is not uncommon for plant managers to bemoan the lack of skilled workers in their areas -- and these are gernally plants operating close to world-class status. One Ohio-based transportation equipment manufaturer told IW it had moved some jobs to China not because the labor was cheaper but because it couldn't find qualified employees in the U.S.

While it's popular to blame the U.S. education system for the lack of skilled workers and to look at elementary and secondary schools as the place to solve the crisis, manufacturers can't refute that lower turnover is one of most potent salves to this problem, and the ingredients to this salve are better working conditions, higher pay and more training. And, these challenges are more easily addressed than an overhaul of the U.S. education system.

What is meant by world-class status? World-class manufacturers tend to have empowered workforces that own the production process in terms of making decisions and achieving milestones. This is done through a variety of process improvement and control practices, these days most popularly under the "lean" and "Six Sigma" monikers. These manufacturers tend to practice open-book management and have clearly defined top-level objectives that are matched and/or supported by objectives at all levels of the organization, including operations. Production employees are not confused and unfocused. They're thinking and processes are streamlined, and they are motivated by rewards-for-performance. While profitabilty, of course, is the ultimate goal, world-class manufacturers understand that there are several roads to profitability, ones that nourish the organization, and ones that deplete the organization. World-class manufacturers travel to profitability while investing along the way. A substantial part of that investment is in employees, and world-class manufacturers will best weather the skilled worker crisis because of this.

Return On Investment

The closer a plant is to fully achieved world-class status, the more it pays its production workers, the more it spends on training its production workers, and -- the big pay-off -- the less turnover it has by a factor of five percentage points when compared with plants that have made no progress or only some progress toward world-class status.

  No Progress Some Progress Significant /Fully Achieved
Average Hourly Wage1 12.88 13.95 14.21
% Budget Spent On Training2 2.32 3.07 3.14
Average Turnover Rate3 13.04 12.81 7.54

1For production workers, without overtime
2Labor budget
3Annual, in past year

Power To The People

One way to improve working conditions, as well as increase productivity and streamline processes, is the implementation of empowered work teams. The closer a plant is to world-class status, the more likely it will apply this.

% of Empowered Employees No Progress Some Progress Significant /Fully Achieved
0% 47.3 25.1 11.2
1%-25% 28.0 41.9 39.9
26%-50% 7.3 13.8 9.1
51%-75% 6.0 8.9 12.6
76%-99% 3.3 5.8 14.7
100% 8.0 4.6 12.6

Expected Employment Change 2006 Vs. 2005

The closer a plant is to world-class status, the larger the percentage of job growth it will have. While a majority of responding plants plan no change or 1% to 10% growth in employment in 2006 compared with 2005, those closer to fully achieved world-class status will be doing the most hiring.

  No Progress Some Progress Significant /Fully Achieved
Decrease 21% or more 0.7 1.0 0.7
Decrease 11%-20% 0.7 1.6 1.4
Decrease 1%-10% 5.9 8.1 14.0
No Change 33.8 28.7 21.0
Increase 1%-10% 47.1 49.7 52.4
Increase 11%-20% 8.8 10.0 7.7
Increase 21% or more 2.9 1.0 2.8

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