Manufacturers puzzle over labor shortage amid high unemployment

The unemployment rate in Michigan's Calhoun County stood at 10.9 percent in July — the 72nd worst rate out of the state's 83 counties.

But Team 1 Plastics Inc. in Albion has been unable to fill four open positions at its transparent plastic auto components plant.

"We've had people do all the training, and then on the very first day, they ghost us," said Gary Grigowski, vice president and co-owner of the 64-employee company. "A few times new hires just didn't show up after a few days, and we've had people who work for a few hours, then don't come back after lunch."

The Tier 2 auto supplier is joined by many others in the industry in facing a labor force riddle. Most automotive suppliers are hiring as automakers look to refill dealer lots depleted of vehicles during the more than six-week shutdown in the early days of the COVID-19 pandemic. Yet nearly 400,000 in the state remain unemployed and hiring is as difficult or more difficult than before the pandemic during an unprecedented economic growth cycle where unemployment stood at 2.8 percent.

Executives blame changing attitudes toward work following generous state and federal unemployment payments as well as an oddly competitive jobs market.

Livonia, Mich.-based metal stamper and engineering firm Alpha USA has three out of 10 positions left to fill, said David Lawrence, chief administrative officer, and is experiencing the same challenges as Team 1.

"It hasn't paralyzed us, but it's been challenging for sure," Lawrence said. "We're seeing few interested parties and when we do find someone, we're experiencing no-shows. People aren't answering the phone or they are not showing up for the interview as well."

Alpha, which employs 130, is working directly with Michigan Works and other workforce training groups in the area to find workers, but so far hasn't seen the desired results.

Lawrence believes rising wages in the sector and copious signing bonuses in other industries are crimping the entry-level pipeline for smaller suppliers.

"It's hard to explain, but one of the things I've noticed is that everyone is hiring," Lawrence said. "I know part of the reason we're not able to hire is those potential employees are being attracted by other employers who have more resources. Plus, other industries have been stepping up hiring with big bonuses."

For instance, the Wendy's fast food chain is offering $450 signing bonuses at several locations around metro Detroit. Amazon is offering a $1,000 signing bonus for warehouse work in Wixom, Mich.

Lawrence said the hard work of manufacturing may be losing out to jobs perceived as easier, especially if the wages are comparable.

"We compete in a different industry than a lot of these companies, and we just don't have that flexibility [with bonuses]," Lawrence said. "We've adjusted our starting wages and other benefits, but it's not having an effect yet."

He declined to reveal the company's entry-level hourly rate.

Team 1's entry level positions pay $11-$12 per hour, a figure that's competitive for Calhoun County, Grigowski said.

"We're not paying as much as a Denso would and we've heard some of our [customers] have raised wages $2-$3 an hour to keep the people they have. Everyone seems to be struggling to find the right candidates."

Michael Robinet, executive director of automotive advisory services for Southfield-based IHS Markit, said all suppliers are feeling the labor pinch, but suppliers further down the chain are hit harder.

"There is going to be some pressure in the higher reaches of the supply base, but more acute as you work your way down," Robinet said. "To be honest, it's more of the same from before the pandemic where labor was hard to find. It's just more apparent now as manufacturers work to get back lost production."

When automakers and suppliers ramped up production in late May, many executives blamed the federal government's Pandemic Unemployment Assistance program, which paid the unemployed an additional $600 per week on top of state benefits, as the reason many refused to return to work. Among U.S. workers eligible for unemployment insurance, 68 percent collected more than their typical earnings before the pandemic, according to a study published in May from the University of Chicago's Becker Friedman Institute for Research in Economics. Roughly one in five unemployed workers received benefits at least twice as large as their previous earnings.

But funding for that program ended at the end of July. A new $300 weekly payment is expected to reach states in the coming weeks, but so far remains on the sidelines in Michigan.

"It is perplexing," Lawrence said. "We've seen the studies that show people aren't staying home because of the extra money. We're all just trying to figure that out. But if another round of stimulus is going to come out, we do fear that is going to tilt us even further."

Perceptions of plant safety could be another factor, though Lawrence and Grigowski are skeptical. Both Alpha and Team 1 were able to rehire all of the workers who were laid off or not working during the six- to eight-week shutdown in March and April.

"I think, at first, there were unemployed people generally concerned about going back in the workforce from a safety standpoint," Lawrence said. "But manufacturing, we figured out ways to set up our workplaces safely. We tend to have more space and resources to put in safety precautions. And we don't interface with the general public."

Julie Fream, CEO of the Troy, Mich.-based industry organization Original Equipment Suppliers Association, said the ongoing child care crisis may still be stopping some workers from returning to work because students largely remain at home for learning and caring for at-risk or elderly family members continues to prevent others.

"Not all employees returned to their former production facility when called back," Fream told Crain's in an email. "Some have moved on to different work, others are have pre-existing health conditions and are avoiding potential coronavirus exposure. And some have child- or family-care issues that prevent them from working."

Grigowski said the obvious factors don't align with what his human resources department is learning from the no-shows and the walk-offs.

"We've been analyzing the issue internally, and if it's because they get a job closer to home or pays more, we don't begrudge anyone for that," he said. "The impression we have is that most of the people who have left were not going to another job. They just were not coming to work because they don't want to work."

IHS projects U.S. car sales at 12.9 million units, a stark decline from last year's 17 million vehicles. But Robinet said with the shutdowns in March, April and into May, the industry is still playing catch-up.

"We were building at a probably low 16 million unit type of pace in March when everything stopped," Robinet said. "Yes, the forecast is much smaller now but with lean inventory and the additional challenges like lack of travel between location, etc., the production market is much stronger than it seems. We have to be careful to think of this labor pool as some sort of lake that you can just pull more and more labor from without draining it. We've largely done that and the skilled labor shortage is still here, and now we've got one with general labor. There's just a lot of overtime going on right now."