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Working Papers | February 1, 2021

A Firm-level Study of Workforce Challenges at U.S. Manufacturers

Ben Armstrong

WP12-2021

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This paper evaluates the three hypotheses about manufacturing workforce challenges (“skills gap,” “skill shortage,” “wage gap”) with firm-level data from interviews with leaders of more than 25 U.S. manufacturing firms. It does not find any evidence of a “skills gap” in which workers cannot keep up with the “advanced manufacturing” capabilities of hiring firms. The majority of the firms interviewed have not adopted such advanced technological capabilities. Among the firms that have invested in advanced production technologies, incumbent workers have trained themselves—or received training from a third party—to learn how to operate the new technologies. In contrast to the “skills gap” hypothesis, SMEs with more technological capabilities were less likely to report workforce challenges and more likely to discuss innovative HRM strategies.

SME manufacturers reported in interviews that they are frequently unable to find workers with traditional manufacturing skills and experience (e.g. welding, machining, and tool and die making), consistent with the “skill shortage” hypothesis. As a response to this problem, many of the manufacturing firms in the sample have hired entry-level workers without experience (consistent with findings from “wage gap” research), providing them with years of on-the-job training to develop the skills that they have been unable to recruit.

Interviews with SMEs reveal heterogeneity in how firms have addressed workforce challenges. Whereas the majority of firms interviewed report persistent difficulty recruiting and retaining workers, a subset of SME manufacturers has adopted innovative HRM practices—such as formalized on-the-job skill training and worker involvement in technology acquisition—that actively address their workforce challenges. In contrast to widespread frustration with the level of skilled manufacturing talent available, some SME manufacturers in the subset report high levels of satisfaction with their workforce and their capabilities. It is not surprising that some SME manufacturers have invested more actively in workforce training than others. Given the small number of firms avoiding workforce challenges in the sample, this paper is better suited to generate hypotheses about innovative HRM practices than test them.

It proposes based on the sample of SMEs interviewed that young “startup firms” are more equipped to adopt innovative HRM practices and address workforce challenges than older firms that have survived the decades-long decline of U.S. manufacturing. Interview research has identified several cases of “survivor firms” adopting innovative HRM practices. In these instances, survivor firms rely on a network of connections with peer firms and educational institutions to defray their risk of investing in training and workforce development. In all cases of SMEs adopting innovative HRM practices, the firms appear to have more technological capabilities than their peers. It appears that those technological capabilities preceded investments in innovative HRM practices. The mechanism by which technology adoption might contribute to different HRM practices is not immediately clear. Additional research can evaluate how a firm’s new technological capabilities could change managers’ expectations of its workers, as well as examine how the presence of new technologies and a more automated work environment could serve as a recruitment tool for a more creative and motivated workforce, for which innovative HRM practices are easier to introduce.

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