Labor shortage in manufacturing: causes, risks, and solutions

In early 2022, the manufacturing industry continues to suffer from an acute labor shortage. By October 2021, employment across the industry was down by nearly 400,000 personnel from prepandemic levels. Beyond causing stress, the lack of skilled workers has heightened workplace injury, product liability, and property damage risk for these businesses. In this article, we’ll explore the causes of the shortage, the risks, and, most importantly, what you can do about it as a risk manager in the industry.

Many manufacturing jobs take place indoors, in close quarters. When COVID-19 arrived in the U.S., the sector was among the most deeply affected, accounting for a significant share of workplace COVID-19 contagion among the states tracking such data, driving some of the employee turnover manufacturers experienced.

And with a variety of major pandemic disruptions still at play, manufacturers are dealing with multiple staffing challenges with unclear solutions. While some manufacturing firms report vaccination requirements are driving higher turnover, others are seeing minimal impact from those mandates. Many parents have had to leave work because of child care interruptions. Other employees may have left during the pandemic out of fear for their safety, burnout, or even the illness itself.

And COVID-19 isn’t the only cause of the manufacturing labor shortage, despite dominating the headlines. The labor shortage in manufacturing predates the pandemic by a decade, with the “great retirement” of baby boomers driving an exodus of workers from the industry. For years, manufacturers have faced particular challenges filling manager-level roles. Meanwhile, many younger workers have declined to enter the sector, wooed away by other industries, such as technology and healthcare.

All the while, manufacturing has evolved to harness more state-of-the-art technology, such as co-bots that work alongside human workers, increasing productivity and safety. This transformation has helped the industry, but manufacturing workers on factory floors and offices alike now need higher levels of education and new skills, raising barriers to entry for those without this training or preparation.

Exacerbating the problem, the labor shortage is not restricted to the manufacturing sector alone, but also affects the supply chain that links materials, manufacturers, and markets — particularly companies that operate their own fleets. While trucking jobs have increased 30 percent from prepandemic levels, there remains a shortage of some 80,000 drivers nationwide. In a bid to confront the problem, several states have proposed lowering the minimum age for truckers from 21 to 18. While this would increase the pool of available workers, the influx of younger and less experienced drivers may also increase safety risks.

Beyond the inability to keep up with marketplace demand and grow your business, a lack of skilled labor brings along less obvious risks. Here are three to consider:

Over time, a labor shortage can increase the likelihood of worker injury, leading to absences, sick days, and workers compensation claims, for two reasons:

One intervention risk managers in manufacturing can take is to evaluate and correct their workforce’s ergonomics to reduce the risk of overexertion injuries. Training and risk control discipline are also critical. Especially for new and deconditioned employees, adjusting how employees handle equipment and materials before overexertion becomes injury can reduce absences, pain, and medical costs.

In the same vein, both untrained and overworked employees are prone to making more mistakes. This opens up the possibility of quality issues for products, as well as more serious problems such as product recalls and lawsuits.

Creating or updating a crisis response plan where you define your team, practices, and coverages can help you make sure that if a recall is necessary, your company is ready.

If plants run overtime or add shifts, equipment wear-and-tear costs go up, as does the risk of equipment and machinery breakdowns. Combine this with a greater likelihood of employee error and the potential for equipment breakdown can increase substantially.

Prepare in advance for the possibility your equipment may need to be restarted, especially highly specialized manufacturing equipment that may involve calling in vendors and technicians. Your vendor may also be experiencing a labor shortage, causing the cost to repair damaged equipment to increase significantly and extend the timeline to obtain new equipment, causing longer downtimes.

Fortunately, manufacturers are not helpless in the face of these risks. While hundreds of thousands of new manufacturing workers cannot be found overnight, much can be done to mitigate labor shortages by minimizing worker turnover and retaining current staff.

Actions to consider include:

For all new workers, it is important to take a renewed look at onboarding practices and safety training, ensuring that employees have the support they need to work safely and to feel confident (and happy) in their new roles.

While the manufacturing labor shortage continues to send shockwaves across the sector, it can also be a differentiator for companies that choose to lean in. Consider partnering with your insurance provider to identify your greatest areas of risk and develop a comprehensive plan to address them. Doing things like improving working conditions and relationships with management, increasing hiring diversity, and offering employees more opportunities for advancement can have a ripple effect across your entire business, leading to increased satisfaction and safety — and boosted productivity.

Liberty Mutual creates protective partnerships with manufacturing businesses, providing solutions for complex risks and expertise that delivers. Learn more about how we support the manufacturing industry in risk mitigation and forecasting.