Manufacturers balance economic, workforce needs
Much has been made of the manufacturing rebound across Pennsylvania and the U.S., but it might be time to do more than talk if manufacturing is going to continue its upswing.
Training and wages are important factors in whether companies find and keep the right people for the jobs they need done, executives and economists said.
Some companies have said they need to fill positions and continue the growth they’ve seen over the past couple of years but can’t find people with the right skills. But some executives say they’re cautious about hiring because of how the post-recession economy wobbles.
“Business hasn’t tapered off, but it’s been sort of a plateau here in the summer,” said Glen Eyster, president of Etube & Wire, a York County company that makes wire products such as baskets for food service or industrial screens. The company also is known as Eyster’s Machine Shop Inc. and Eyster’s Machine & Wire Products.
The summer manufacturing slowdown has been seen elsewhere around the country. Business slowed enough in June that it registered as negative activity on the manufacturing index from Arizona-based Institute for Supply Management.
During the past year, Etube & Wire rebounded big, with sales expected to surpass 2008 levels by the end of the year, Eyster said in March. It’s working through a modest order backlog and making concerted efforts to keep long-term customers and find new ones.
With better sales, the company needed to hire several people to help it meet orders, he said. But a skills mismatch with many of those applying for the jobs at the Shrewsbury-based company has made that difficult despite high unemployment rates.
In the last four months, Eyster said, he’s hired two people and is looking for a third.
The skills gap is improving, he said, and the company has committed to on-the-job training for those that need it. However, Etube & Wire is still cautious about who it hires and isn’t at a point where it is going to pay someone massive increases.
“The thing I don’t want to do is hire someone that has to travel a long way, because if they’re spending all their money on travel, that’s bad for morale,” Eyster said.
Other companies continue to search for skilled positions, too, said Michael Smeltzer, executive director of the York-based Manufacturers’ Association of South Central Pennsylvania. He said executives want welders, CNC machine operators and industrial maintenance personnel.
However, in the search for the best person for the job, companies decide to increase wages only if they’re losing more revenue by not filling those jobs, he said.
“The moment you feel you can’t service your customers” is the metric for when a company increases wage offerings, Smeltzer said.
That could mean its employees are working so much overtime that it’s cutting into profit or it’s passing up orders because there’s no way to fill them on time for the client, he said.
National statistics bear out the picture of a manufacturing sector that has proceeded cautiously on hiring and wages during the last several years.
National manufacturing unemployment rates went from 5.1 percent in January 2008 to 10.9 percent a year later as the shockwaves of the recession caused by subprime mortgages reverberated through the economy, according to the U.S. Bureau of Labor Statistics.
By January 2010, the unemployment rate hit its high mark of 13 percent before making the slow trek down to its June rate of 6.9 percent, according to BLS. That’s noticeably lower than the national and Pennsylvania unemployment rates for June of 8.2 percent and 7.5 percent, respectively, according to the state Department of Labor and Industry.
In Pennsylvania, manufacturing has added about 12,000 jobs since early 2010, according to the department. However, June’s employment of 569,300 was just 0.7 percent more than a year ago. By comparison, the state’s hospitality industry added nearly 18,000 jobs just in the past year, a 3.5 percent increase. Mining and logging employment grew more than 21 percent, or 6,900 jobs over the past year, driven by natural-gas exploration.
“The fact that unemployment is so high is evidence that demand for the products and services isn’t as good as it once used to be,” said Mark Price, a labor economist with the Harrisburg-based think-tank Keystone Research Center.
Similar trends have happened during the past three recession recoveries, he said. Companies begin to see improved business and add people as their orders dictate they need more help in production. Otherwise, they hold back on hiring and on wage increases, waiting to see what the larger economy does, Price said.
Companies mostly are able to get by with the staff they have, he said. And when they do need to hire people, they’ll be picky, because there’s a large pool of people to choose from.
Companies can train workers, but that’s expensive, and if you train workers, there’s no guarantee they won’t leave for another company with higher wages, Price said.
“That’s the argument we make for government to keep these (training) programs going when there’s tough times,” Smeltzer said.
Government and businesses partnering on training programs defrays the cost while bolstering the skills of the state’s industrial workforce, he said.
Manufacturing wages also have been slow to rebound from the recession, with the most-telling statistic being percent increases, which have been declining since 2002, according to BLS numbers.
In the first quarter of 2002, manufacturing wages grew 3.3 percent nationally from the previous 12 months. That dropped to 2.5 percent in the same quarter of 2008 and to just 1.1 percent in the third quarter of 2009. Wages improved just 1.9 percent from a year ago in the first quarter of this year.
“We’re seeing very sluggish growth in wages,” Price said. “When there are new openings in the manufacturing sector, the employees are being moved up and new workers are brought in at dramatically lower wages.”
The ideal worker for companies is someone who has high skills and accepts a lower wage, he said. But when companies keep wage growth low, that downward pressure makes it difficult for companies to recruit new people.
That shows the lack of confidence manufacturers have in the overall economy, even if they’re seeing better business, Smeltzer said. Companies don’t necessarily want to be the highest paying in a region.
“Because when tough times hit, you don’t want to be worrying about hitting your bottom line,” he said.
In a sluggish economy, workers are reluctant to ask for higher wages, and owners aren’t paying them, Price said. It could be a while before that outlook shifts.
“That won’t begin to happen until we see lower unemployment and better economic growth,” he said.
A look at the manufacturing data
Manufacturing has rebounded better than some industries in the U.S. and Pennsylvania, but it’s still facing challenges, including workforce skill gaps and slow growth. Although paying workers more might help manufacturers recruit new employees, that might not happen until the economy improves, analysts said.
Here’s a look at manufacturing workforce and wage numbers for the past five years: