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Concerns Rise Over Voluntary Turnover and Wage Escalation in the Manufacturing Industry

by Josh Bays, on Jul 25, 2017 1:44:28 PM

Through many interviews with manufacturing companies over the last few years, several workforce themes have emerged, but one concern expressed to Site Selection Group with increasing regularity is that voluntary turnover among production jobs is on the rise.

Site Selection Group, a full-service location advisory, economic incentives and real estate services firm that conducts labor assessments on behalf of our manufacturing clients as they seek to expand, consolidate or relocate their production footprints, took a look at this rising concern.

When evaluating a candidate market, manufacturers should gather primary research from local sources, especially existing employers that have experience hiring and retaining a similar workforce in that market as this is crucial information to have.

Workers are not afraid to see if more opportunity exists elsewhere
When macro hiring activity is stagnant or declining – favoring an employer’s ability to retain their workforce – workers can be more apprehensive to voluntarily leave their job in favor or trying another opportunity. Conversely, when workers feel there is an abundance of employment opportunities, the risk of leaving an established position to try something new significantly diminishes. If the new employment opportunity does not work out, the chances of that worker finding another opportunity are high.

To validate this trend on a macro level, Site Selection Group analyzed the relationship of four national manufacturing industry employment variables since 2007 (pre-recession): job openings, hires, quits (voluntary), and lay-offs (involuntary). The following chart shows the annual change of these four variables.

 
Source: JOLTS (Bureau of Labor Statistics)

This national manufacturing industry data support employers’ anecdotes. Just before 2012, the growth of job openings outpaced the growth in hires — favoring the worker. Around that same time, the rate of voluntary separations outpaced the rate of involuntary separations.

Perhaps the most interesting trend supporting the notion that workers are testing the employment market for better opportunities is the sharp rise in voluntary separations (quits) in the past 18 months. Additionally, it appears the growth in voluntary separations could be suppressing involuntary layoffs.

Manufacturers express concern over wage escalation
The reasons workers voluntarily leave a job in pursuit of another can include some combination of improved working environment, shorter commute, better career advancement or different management style. However, employers consistently testify that an increase in pay is enough to lure an established worker to consider another company, and it appears the pay differential has decreased over the last 18 months.

Manufacturers in many domestic communities report finding themselves in a bidding war that is escalating local wages. The most recent data available for the production sector suggests that wages increased nationally by an average of 2.5% from 2015 to 2016.

National Year-Over-Year Production Occupations Wage Increase

Number-of-Projects-by-Industry-Function-1.jpgSSG-EMSI_Occupational Employment.jpg

Production wage escalation does not discriminate by region
The following interactive dashboard shows mean production wages by state, as well as the latest annual wage escalation rates.

 

SSG-EMSI_Occupational Employment-1.jpg

Mitigating the risk of voluntary turnover and wage escalation
Based on our experience locating manufacturing investment throughout the United States, Site Selection Group counsels companies to thoroughly understand a candidate market’s competitive landscape as it relates to hiring activity, baseline wages, and changes in wage escalation. Anecdotally, Site Selection Group often sees this risk as more prevalent in markets that are dominated by a single industry such as automotive, aerospace, oil and gas, etc. No community is completely insulated from this trend, but sound location due diligence can certainly mitigate it.

 

Topics:Manufacturing

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