Manufacturing in the US: now or never?

The US economy is ‘hot’. Fueled by the Covid-19 recovery with a forecasted economic growth of more than 5 percent this year and the substantial investment packages of President Biden domestic and foreign companies are investing in new manufacturing plants. But labor market challenges are around the corner.

For companies considering setting up a new production plant in the US labor market challenges cause headaches. Various dimensions play an important role: availability; skills set; costs; labor market regulations.

Availability

Recent studies forecasts shortages of manufacturing workers even up to 2 million in the next years. “But availability varies per State and even per county or metro. So, in our practice we carry out every day detailed labor market studies, with forecasts on availability of the specific skills the company needs”, says Jim Renzas, Senior Director North America. An ‘old’ pre-pandemic map of labor market tightness is reality again in many States.

Labor market tightness by US State

For people without a bachelor’s degree, the difference between the average of the last 12 months and the average of non-recession years in the period 1994-2007.

Red means tighter and blue means a looser labor market:

Source: The Conference Board, 2020

Labor costs

Labor costs always play an important role as well. And here also the differences vary considerably per State. As the visual below shows labor costs for a skilled worker are in California nearly 20,000 USD/year higher than in the Mid-West (e.g. Indiana, Kentucky) and South East (for example Tennessee or Georgia); for an engineer the difference between California and Wisconsin is even 40 per cent.

Labor costs vary considerably per State

Source: BCI Global, 2021

Conclusions

The availability of the right workforce against reasonable costs is for many companies location factor number 1 in finding the right location for a new production plant in North America. Detailed labor market analytics and forecasts at a metro/county level are necessary to make a future proof decision.

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