Two years ago, manufacturers’ primary hiring challenge was an awareness gap, job seekers unaware of entry-level manufacturing jobs. The solution, though simple in theory, was difficult in execution: grab potential employees’ attention and educate them about entry-level manufacturing jobs. Once people understood the great value proposition of a manufacturing career path with quick opportunities to advance and starting wages ($12-14/hour) that were higher than other entry-level jobs ($9-$12/hour), the sell was simple.
The labor market looks starkly different now. While the same awareness issue exists, the competition to find entry-level workers has intensified. First-time job employers – think fast food, retail and hospitality – have raised their wages by up to 50 % over the past 18 months. These jobs are now paying, on average, $17-$20/hour. While some manufacturers have followed suit, even adjusting their whole direct labor pay structure, many are still only offering $15/hour.
“This is the most significant labor shortage I’ve experienced in my career,” asserted Ward Dumm, Senior Vice President of Operations at Swagelok.
Yet, despite all of this – lack of potential employees plus stiffer compensation competition – I’ve spoken directly with manufacturers looking at wages strictly from the perspective of first-level impact on margins. Essentially, the response is, “If I raise my starting wage from $14 to $18, my profit takes a 3% hit, and what if that doesn’t solve the problem.”
Isolated, that statement is absolutely true. Except, nothing in manufacturing happens in isolation. So, let’s examine two other viewpoints – those of an entry-level worker and holistically for the business – and how these may be more impactful and relevant to a manufacturer’s bottom line.
To illustrate these perspectives as realistically as possible, I will create a sample manufacturer with:
In MAGNET’s last survey of more than 700 manufacturers, over 80% of our region’s manufacturers stated that a lack of talent is constraining otherwise attainable growth. With that in mind, I will present “growth company” math in which capacity gains turn into additional revenue, overtime reduction and on-time delivery improvements, rather than headcount, and make these additional assumptions:
Jobseeker Perspective
First, consider the monthly income difference between a $14/hour and $18/hour entry-level employee. In a full-time, 40-hours-per week position plus four hours overtime each week, a $14/hour worker would pull in just under $2800 while the one at $18/hour makes just under $3600. That $800 difference could be:
Well documented and easy to visualize, the stresses of living in poverty are real. A well-established, livable-wage calculation tool from MIT states that a livable wage for a single-parent household in Northeast Ohio requires at least $29.66/hour, and $16.20/hour for a two-working adult household. Employers who can offer that wage – or more – would also offer a work environment and job that attracts long-term employees who are happy, thriving, energetic, more productive, excellent contributors and even refer other quality employees to your company.
If you’re nodding along, then let’s look at the holistic view and quantify some impacts of higher employee wages on your business, with long-term success and sustainability in mind.
Holistic Business Perspective
As you’re well aware, business owners want immediate metrics, e.g., productivity, on-time delivery, quality, overtime premiums, etc.; and some even want more obtuse numbers, e.g. associate engagement, capacity planning, and sales potential. Using the earlier example numbers established for the entry-level employee, I’ll extrapolate them into business impact (with an expectation that you will innately know which are a little high or low for your specific business). I encourage you to consider that all are relevant to your business at some scale, and they add up.
And, this doesn’t even account for other elements of success manufacturers have experienced from boosting entry-level wages, such as:
Starting wage is just one aspect of job quality – but a really important one, because you can’t capture revenue without the staff to do so. And if all your potential staff have headed over to an Amazon warehouse or nearby fast-food establishment for a wage $1- $4 higher than manufacturers will offer, this will be a lost battle.
Manufacturers must act and with regard to the seriousness of the labor shortage. Hundreds of thousands of people in Northeast Ohio who were working two years ago are not working today. While they may come back, the fact remains that 30% of skilled manufacturers are 55 and older, again intensifying the urgency to invest in, develop and train future manufacturing workers and leaders.
As a business owner or operations leader, you’re constantly weighing up potential investments of resources. If you knew that the person you were going to hire tomorrow was going to stay and emerge in your organization as a machinist, supervisor, quality technician, etc., would you invest $4,784 in a recruiting fee or sign-on bonus? Absolutely! As a matter of fact, many of us are paying that in overhead to temp agencies or placement firm fees. That happens to be the six-month difference in pay for that one worker that you pay at $18/hour instead of $14/hour.
Inspired to take action in your business? Have an alternate view of the P&L math? Please respond or reach out, we would love to have a great discussion!