Virtually no Minnesota manufacturers are expected to downsize — and 30 percent of them plan to grow — but companies continue to struggle with finding enough qualified applicants, according to The State of Minnesota Manufacturing report released Thursday by Enterprise Minnesota.
Sixty-seven percent of manufacturers reported having a hard time attracting qualified candidates, the highest mark in the survey’s six-year history and 7 percentage points higher than the year before.
The problem is worst in Greater Minnesota, where 75 percent of respondents reported hiring difficulties. That’s up from 42 percent four years ago and above the 61 percent seen in the Twin Cities metro in 2014. The problem is also pronounced among larger companies, with 82 percent of companies with revenue higher than $5 million reporting trouble finding qualified applicants.
“Optimism is tempered by concern about finding enough workers,” Enterprise Minnesota President and CEO Bob Kill told Finance and Commerce.
Alexandria, Va.-based Public Opinion Strategies compiled the manufacturing survey through phone interviews between Feb. 28 and March 13 with 400 manufacturing executives from a geographically proportional cross-section of Minnesota. The poll, which has a margin of error of plus or minus 4.9 percent, was complemented by 14 focus groups of manufacturing executives from around the state.
The challenge of hiring manufacturing employees is not a new one. A Minnesota Department of Employment and Economic Development survey of 59 establishments in spring 2013 found that 66 percent of respondents thought manufacturing jobs were hard to fill.
Jaime Nolan, executive director of the Minnesota Precision Manufacturing Association, said fewer students are being exposed to skilled trades because middle schools and high schools have had to close expensive technical programs.
Meanwhile, technical college classes are filled to capacity and their costs prevent the programs from expanding. The manufacturing industry also has an ongoing image problem in which parents view the jobs as dangerous and dirty despite a different reality.
Competition for workers is driving wage growth, Kill said. In the Enterprise Minnesota survey, 62 percent of manufacturers expected wages to increase in 2014, the first time since the recession that a majority expected wage growth. About 25 percent of manufacturers predicted that they’ll “invest more in employee development as a percent of payroll” in 2014, up from 18 percent last year.
Kirby Sneen, vice president of the Manufacturers Alliance, said companies are offering pay incentives for less desirable positions. Extra pay can attract applicants to work the second or third shift or make a longer commute to an outstate manufacturer.
Despite the hiring difficulties, 84 percent of executives said they are confident in the future of their companies, which is the most optimistic they’ve been in the survey’s history.
Kill attributed some of the optimism to so-called “re-shoring” that has brought companies back to the United States. Businesses no longer want to order large quantities because holding onto inventory has proven costly. Keeping manufacturing close to home allows them to have strong regional supply networks. Many also find it easier to solve problems and make adjustments when the manufacturer is in the same time zone.
“Manufacturing is very appreciated again,” Kill said. “Made in America is worth something.”
The optimism also has roots in improved consumer confidence and spending, Sneen said. As retailers are doing better, manufacturers that serve those retailers are also doing better.
But as the report puts it: “Executives are confident about their firms, not about Minnesota.”
The number of executives who say the state’s business climate is on the wrong track ticked up two points to 51 percent, the first time since 2010 that it has been above 50 percent. An “unfavorable business climate” ranked as the biggest obstacle to growth, beating rising health care and insurance costs 48 percent to 31 percent.
The survey was conducted just before the March 21 repeal of three business-to-business taxes that drew widespread criticism for hurting companies in the state.
Yet Kill said he doesn’t think manufacturers would have had a more favorable opinion of the state’s business climate if they’d been surveyed after the repeal. They are still dealing with health care insurance challenges, which many see as being driven by the government. Regulations also remain uncertain from state to state. And then there are the hiring difficulties.
He noted that the number of companies expecting revenue increases grew four points from 2013 to 2014 and those expecting profitability increases inched up three points during the same period. But the percentage expecting capital expenditures to grow dipped by a point. That tells Kill that manufacturers are still taking a conservative approach.
“The things that they have control over, they feel confident about,” he said. “But at the same time, the question is about the things they can’t control.”