- By Adrian Lloyd
- September 15, 2021
- Interact Analysis
Swathes of global industry are still suffering from a hangover from the pandemic, with a number of negative factors playing out–vaccine hesitation, semiconductor shortages and labor shortages being three major drags on sustained recovery. In this insight, we cast a light on the issue of worker shortages: Why are they happening? What are the implications?
In the September update of our Manufacturing Industry Output Tracker (MIO), we are looking at global industry as it moves into a post-COVID phase. But perhaps use of the phrase "Post-COVID" is to some extent premature, as the virus is still presenting challenges in many regions in its latest form: the Delta variant. Furthermore, swathes of global industry are still suffering from a hangover from the pandemic, with a number of negative factors playing out–vaccine hesitation, semiconductor shortages and labor shortages being three major drags on sustained recovery. In this insight, we cast a light on the issue of worker shortages: Why are they happening? What are the implications?
The struggle to recruit into manufacturing is unexpectedly hitting some big players
According to the latest available data we have at our disposal, specific regions have been hit hard by labor shortages. The USA heads the list, with the US Bureau of Labor Statistics reporting over 800,000 vacancies in manufacturing alone. Meanwhile, it has been reported in Germany that there are close to 150,000 job vacancies in the manufacturing sector, and 68,000 in the UK. France, on the other hand, reported a mere 5,995 vacancies. So what is going on? The answer is a perfect storm of factors, which vary for each country, but the common denominator is always the pandemic.
Germany: A unique mix of challenges lies ahead for this manufacturing giant
The temptation is to look at the USA first, where vacancies have sky-rocketed, but Germany is perhaps more interesting. Traditionally the manufacturing powerhouse of Europe, Germany is currently struggling to reboot its manufacturing sector following the COVID shock. A recent report describes Germany (population – 83 million) as a country with an ageing population, low birth rates, and in desperate need of skilled immigrant labor, much as it was at the time of the Gastarbeiter (guest worker) program in the 1960s, though then the reach-out was for cheap labor.
The Federal Labor Agency chairman Detlef Scheele recently said that Germany must attract 400,000 skilled immigrants annually to keep up with demand across all sectors, including industry. This is in spite of the fact that according to the OECD the country has one of the best-performing Vocational Education and Training (VET) systems in the world. Scheele said that the country would have 150,000 fewer working-age residents this year alone. And last year, the number of foreign nationals living in Germany increased by 204,000, which was the smallest increase in the past 10 years.
The pandemic had a major part to play here, slowing migration and significantly reducing the numbers of skilled immigrants entering the workforce. The coalition government has taken some measures to reform the process of recognition of foreign professional qualifications, but they have been described in some quarters as being paltry and nowhere near sufficient to satisfy demand. Meanwhile, there is political resistance to increasing the inflow of skilled foreign workers owing to the current level of anti-immigrant sentiment within the country, following the influx resulting from Chancellor Angela Merkel’s liberal immigration measures introduced in 2015, heralded by her famous (for some infamous) phrase ‘Wir schaffen das’ (‘We can manage that’). Germany has significant challenges ahead.
The US: Imminent suspension of COVID benefits will hopefully reduce vacancies
Across the pond from Europe, in the US, those 800,000+ job vacancies reported in May and June 2021 constitute double the number of vacancies for a similar period going right back to 2011. This problem has been exacerbated by the high use of unemployment insurance benefits rather than job retention schemes (see here). But pandemic unemployment benefits are scheduled to stop in Q4 of 2021, so we expect many vacancies to be filled. However, as in Germany, there has been a historical shortage of skilled manufacturing labor owing to an ageing workforce. That’s because the US has historically experienced difficulties in attracting younger people into this sector.
The UK: The COVID/Brexit double-whammy
Finally, we turn to the UK as the third major economy where job vacancies are high. The twin shocks of COVID and Brexit have taken their toll here. For either or both reasons, many EU workers have left the UK and do not intend to return, or indeed cannot return owing to new post-Brexit immigration policies. There has been a resultant serious shortage of haulage drivers–100,000 being an oft-quoted figure, including 25,000 EU drivers – and a shortage of factory workers. The result has been a disruption of supply chains, particularly in the food and beverage sector. The CBI has reported that general stock levels are at the lowest they have been for 40 years.
APAC faces different challenges
Other regions, such as APAC, have not suffered from the challenge of labor shortages in the same way as the three whose cases we have just examined, but low vaccination rates and rising COVID infections have continued to slow down production. The pandemic is casting a long shadow.
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