• Joe Rizzo. Director of the New England Lean

America’s Worker Shortage

There was an interesting article in the July 5th edition of the Wall Street Journal, titled, “America’s Worker Shortage. It raises the question of, “Where are companies going to get the people they need in a growing economy?” Currently, there are about 6.7 million unfilled job openings in this country (FRED, St. Louis, April 2018), with an unemployment rate of 4.0 percent in June, and the number of unemployed persons increased by 499,000 to 6.6 million (Bureau of Labor Statistics, June 2018).

Manufacturing added 36,000 jobs in June. Durable goods manufacturing accounted for nearly all of the increase, including job gains in fabricated metal products (+7,000), computer and electronic products (+5,000), and primary metals (+3,000). Motor vehicles and parts also added jobs over the month (+12,000), after declining by 8,000 in May. Over the past year, manufacturing has added 285,000 jobs. (Bureau of Labor Statistics, June 2018)

The article main point is, “absent significant increases in the size of the labor force (through a higher participation rate), owners (of small businesses) will be pirating workers from other firms” concludes NFIB’s economist. “There will also be compromises in qualifications and more resources invested in training,” he adds.

There are many reasons for the shortage of workers, all of which are out of our control. Some include:

• Governmental policies • Politics • Declining birth rates • Baby boomer retirements • Job hopping

So it goes back to the old adage of focusing on those things that we can control. Many companies are automating wherever possible and implementing new technologies as they emerge and become commercially available. This changes the landscape of the job market as a large majority of the job openings require higher skills.

Companies are partnering with local Community Colleges to train current and future workers in the higher skills. Companies are investing in more training for their people. Companies are being forced into a decision, “Is Labor a Variable Cost or a Fixed Cost?” In past economic cycles, whenever the economy turned down, companies laid off many of their people. When the economy bounced back they had to find, recruit, hire and train new employees, all of which is very costly and time consuming, not to mention the higher rate of mistakes and errors by the newer people. Labor was, and still is, considered to be a variable cost.

Today, many companies are reconsidering that philosophy. The companies that practice Lean consider labor to be a fixed cost. They keep their employees on the payroll when the economy or their business turns down. They use the slower time periods, to conduct kaizens, to train their people, to improve flow and plant layout, to create cells, to improve their Kanban system and to work with their supply chain to provide Just in Time parts and materials in a replenishment mode as opposed to supplying parts and materials to a forecast. In short, they use the slow period to prepare for the upturn in the economy, which they know is going to happen, they just don’t know when.

The net effect of all of the above Lean activities is a major improvement in productivity, which means the companies can produce more with fewer or the same number of people, greatly reducing the need to find and hire more people. One of the prime Lean metrics is “Sales per employee”. In a growth economy, this number should always be increasing. Those companies that are practicing Lean have an advantage over those companies that are not. Lean, among all its other benefits, prepares companies for the future, and provides them the ability to respond in a growing economy.

Source: World Economic Forum

Next article: “When growth is no longer an option”