Since the Great Recession, manufacturing employment and output have been growing, and much like their peers in other industries, manufacturers have new vacancies. Manufacturing unemployment has come down from 13 percent in January 2010 to 3 percent in June 2019, and job openings are today outpacing hiring in several industries, including manufacturing, health care, IT services, professional and business services, finance and insurance, and government. A key driver of the need to hire is the considerable churn in labor markets: voluntary separations have soared, suggesting that workers are actively going for new opportunities, leaving their former employers with vacancies. Baby boomer retirements contribute to manufacturers’ hiring needs. In addition, manufacturers are looking for new workers with the technical skills required for modern twenty-first century advanced manufacturing.
The exploration of the drivers of labor market frictions is not new—there is ample academic literature, especially on structural and cyclical factors that can cause labor market mismatches, for example, how stringent rental agreements can prevent workers from moving or how recessions can make employers more selective and demanding. But the focus here on recruitment dynamics and frictions—like informational asymmetries and behavioral dynamics between workers and employers that keep talent from being quickly and optimally sorted into jobs—is more novel and less explored by economists, likely because of data challenges. Yet talk to any job seeker or HR department and you will quickly discover multiple frictions and gaps in the hiring process that appear to lead to suboptimal outcomes. Indeed, several analysts who do not find the skills shortage story in U.S. manufacturing compelling have called for studies that would explore precisely the kinds of frictions this report examines to account for the hiring challenges reported by manufacturers. This report is intended to respond to those calls.
This report is not the first to identify the puzzle that manufacturers bemoan severe skills shortages when empirical studies do not find them. Nor is this report the first to point out that there are remarkable empirical gaps in our understanding why, as Wharton’s Peter Cappelli put it, “good people cannot get jobs.” This report takes both sides seriously—(1) manufacturers who struggle to find workers with appropriate skills and (2) academics who see few skills shortages but do uncover frictions that keep demand and supply in labor markets from meeting optimally—and shows how these seemingly contradictory views can be reconciled. Importantly, this report does not claim that frictions caused by informational gaps are necessarily the leading cause of manufacturers’ reported hiring challenges, but it does believe they are a contributor, just like skills shortages and mismatches caused by structural problems. More importantly, they are critically overlooked in policy discussions on how to help employers access the right talent.