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FEDS Notes

September 26, 2013

Looking for Shortages of Skilled Labor in the Manufacturing Sector


Jessica Stahl and Norman Morin

Anecdotal reports have suggested that some firms have struggled to find sufficient numbers of skilled workers. For instance, the Federal Reserve's January 2013 Beige Book (PDF) mentioned that "contacts in several [Federal Reserve] Districts reported difficulties finding qualified workers in some specialized fields, such as skilled manufacturing, energy, and IT" (page ix). Here we focus on the manufacturing sector. Although manufacturing currently accounts for only 10½ percent of private employment, the reports of labor shortages are often specific to this sector.1   Indeed, earlier this year, inquiries conducted by the Philadelphia Leaving the Board and New York Leaving the Board Federal Reserve Banks suggested that skilled labor shortages were a significant factor restraining hiring in the manufacturing sector--though slow expected growth of sales was by far the most important reason cited.2 

Further information about the extent of skilled labor shortages in manufacturing--and, importantly, how they have changed over time--can be seen in data from the Census Bureau's Quarterly Survey of Plant Capacity Utilization (QPC) and its annual predecessor, the Survey of Plant Capacity (SPC). The QPC, which is jointly funded by the Federal Reserve Board and the Department of Defense, provides the data used to benchmark the Federal Reserve Board's measures of manufacturing capacity. The survey asks roughly 7,500 plant managers about their plants' actual production and total sustainable productive capacities and, when applicable, the reasons that plants are operating below capacity levels of output. 

The QPC and SPC have indicated fairly widespread labor shortages before. As shown in figures 1 and 2, "Insufficient supply of local labor force/skills" was cited as a factor restraining production by more than 20 percent of survey respondents in the late 1990s and by nearly 15 percent during the expansionary period leading up to the most recent recession.3 

Figure 1
Figure 1: Selected Reasons for Operating at Less than Capacity. Series: Insufficient orders and insufficient supply of local labor force/skills. Data are plotted as two curves. Units are percent of respondents. Insufficient orders starts in 1997 at around 75 percent of respondents, edges up in 1998, and moves lower in 1999 to just above 70 percent. Insufficient orders moves up in 2000 and 2001 to about 80 percent and eases a bit thereafter, averaging about 75 percent through the middle of 2008. Insufficient orders shoots up in late 2008 and reaches nearly 90 percent in the middle of 2009. Thereafter, insufficient orders generally trends down but still remains above 80 percent at the end of 2012. Insufficient supply of local labor force/skills moves sideways from 1997 to 1999 at around 20 percent of respondents; it falls from 2000 to 2002, to below 10 percent, and moves back up from 2004 to 2006, reaching nearly 15 percent. Insufficient supply of local labor force/skills plunges during the recession to 1.5 percent in 2009. It trends up thereafter, reaching 7 percent in early 2012 before edging down at the end of the year to around 5.5 percent. Note: Grey areas indicate recessions as defined by the National Bureau of Economic Research. The data are fourth-quarter values from 1997 to 2006 and quarterly from the first quarter of 2008. Source: Census Bureau.

Figure 2
Insufficient supply of local labor force/skills as a reason for operating at less than capacity: Selected years
Year Percent of Respondents
1999 20.4
2002 7.6
2006 14.5
2009 1.5
2012 5.4


Note: The data are fourth-quarter values.
Source: Census Bureau

The share of plant managers choosing this reason plummeted to less than 2 percent during the recession. The share reporting that skills shortages were a restraint on production has moved up somewhat since then: As of the fourth quarter of last year, the proportion was about 5-1/2 percent (with a standard error of 0.7 percentage point), somewhat below the 7-3/4 percent share it reached in the second quarter of last year. The share citing skill shortages remains below its historical average, and the share is not higher than one would expect given the state of the wider labor market and the amount of slack in the manufacturing sector. In particular, the share is broadly consistent with a regression-based prediction using the unemployment rate and manufacturing capacity utilization. Indeed, both historically and currently, the dominant reason cited by plant managers for operating at less than capacity has been "Insufficient orders" (the red line in the figure); this reason was chosen by nearly 84 percent of respondents at the end of last year (with a standard error of 1.1 percentage points) and remains above its long-run average.4 

Even when the QPC and SPC data are examined for major industry categories within the broader manufacturing sector, they suggest that skilled labor shortages were not a major factor restraining production in the fourth quarter of 2012 (the latest available data). Figure 3 presents results for two industries that are frequently mentioned in press reports as facing labor shortages: machinery and fabricated metals. Plant managers in these industries historically have been significantly more likely than other managers to report that skilled labor shortages are restraining production: For example, they were mentioned in the late 1990s by one-third of respondents in the machinery industry. However, even for these two industries, the share of survey respondents in recent quarters who cited skilled labor shortages as a reason for operating below capacity has remained well below the share before the recession. 

Figure 3
Figure 3: Insufficient Supply of Local Labor Force/Skills: Selected Industry Detail Series: Total manufacturing, machinery, and fabricated metals Data are plotted as three curves. Units are percent of respondents. The machinery curve crosses the fabricated metals and total manufacturing curves at various points between 1999 and 2012. Insufficient supply of local labor force/skills for total manufacturing moves sideways from 1997 to 1999 at around 20 percent; it falls from 2000 to 2002, to below 10 percent, and moves back up from 2004 to 2006, reaching nearly 15 percent. Insufficient supply of local labor force/skills to total manufacturing plunges during the recession to 1.5 percent in 2009. It trends up after that, reaching 7 percent in early 2012 before edging down at the end of the year to around 5.5 percent. The shapes of the curves for machinery and fabricated metals are broadly similar to that of total manufacturing but are at a higher level over the span of the chart. The series for machinery starts in 1997 at nearly 35 percent, falls to about 10 percent by 2002, and then moves back up to more than 15 percent in 2006. The series for machinery then plunges to around 1 percent in 2009 but jumps up to above 10 percent in mid-2010; the series then ranges from 5 percent to 15 percent in a fairly volatile fashion through 2012. Fabricated metals ranges between 25 percent and 30 percent from 1997 to 2000, plunges to just below 10 percent by 2003, but then moves back up to more than 25 percent by 2006. The series for fabricated metals plunges again in 2008, falling to below 5 percent in 2009. It then moves upward, ranging between roughly 10 percent and 15 percent through 2012. Note: Grey areas indicate recessions as defined by the National Bureau of Economic Research. The data are fourth-quarter values from 1997 to 2006 and quarterly from the first quarter of 2008. Source: Census Bureau.

All told, while some skilled labor shortages are being reported in the manufacturing sector, the extent to which these shortages are restraining production appear about in line with the current sluggishness in the labor market and the degree of slack in the manufacturing sector. Furthermore, the finding that skilled labor shortages are not a significant and widespread restraint on production is consistent with other data continuing to show subdued increases in the wages and salaries of manufacturing workers.

1. For instance, the 2011 skills gap report, Boiling Point? The Skills Gap in U.S. Manufacturing Leaving the Board, sponsored by The Manufacturing Institute (an affiliate of the National Association of Manufacturers) and Deloitte, stated that skilled labor shortages were a pressing problem within manufacturing, but noted that "[t]his problem is not new" (p. 1). Return to text

2. "Cannot find workers with required skills" was the fourth most frequently named factor in the case of New York (where 33 percent of respondents named it among the three most important restraints on hiring) and fifth in the case of Philadelphia (around 25 percent). These figures are lower than in similar inquiries conducted in mid-2012; unfortunately, comparisons are not available for periods before the most recent recession, when the labor market was tighter. Return to text

3. The responses are weighted by plant-level receipts; unweighted results are similar. Return to text

4. In addition to "Insufficient orders" and "Insufficient supply of local labor force/skills," the other choices are: "Not most profitable to operate at capacity," "Sufficient inventory of finished goods on hand," "Insufficient supply of materials," "Equipment limitations," "Seasonal operations," "Lack of sufficient fuel or electrical energy," "Storage limitations," "Logistics/transportation constraints," "Strike or work stoppage," and "Environmental restrictions." Respondents may choose as many factors as they deem applicable. Return to text

Please cite as:

Stahl, Jessica C., and Norman Morin (2013). "Looking for Shortages of Skilled Labor in the Manufacturing Sector," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, September 26, 2013. https://doi.org/10.17016/2380-7172.0001

Disclaimer: FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers.

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Last update: September 26, 2013