Inflation and Manufacturing: Who Has the Upper Hand?
The inflation rate for March 2023 sits at 5 percent, down significantly from the 8.5 percent we saw this time last year. For reference, the Federal Reserve has had a target U.S. inflation rate of 2 percent since 2012; if inflation falls outside of that range, it’s likely that changes to monetary policy will go into effect to help combat economic chaos. While the rates today seem to be steadily decreasing, we’re still sitting significantly above where we should be. For industries such as manufacturing, inflation is high, unemployment is low, but wages have not kept up with the inflation rate. This tricky situation that manufacturing employers are facing is quite unique—it’s remarkable to have unemployment at 3.5 percent and twice as many job openings as there are job seekers. This tight labor market means the pressure is on for employers to retain their best talent.
Inflation has been causing workers to flee their current roles for higher paying gigs. How do employers plan to address this? Ask CFO Dive and they’ll tell you “73% [of the executives surveyed] indicat[ed] that they would be increasing wages to attract and retain their labor force.” That’s great, but the increases likely won’t be enough to offset the damage the inflation rate is doing to real earnings. A tight labor market, high inflation, and at least the appetite for wage increases means manufacturing employees really do have the upper hand in this scenario.
Why should employees be feeling so positive? Manufacturers are struggling to combat turnover as we head into the summer months, meaning workers find themselves in the powerful position of being able to negotiate their terms of employment in a really impactful way. The 2022 IndustryWeek Salary Survey found that hiring and retaining employees is one of the biggest concerns facing the manufacturing industry today. Today’s workers want flexibility and higher wages—and they’re in a great position to eek out a deal.
So, let’s talk about leverage.
Many folks voluntarily left their manufacturing jobs during the Great Resignation. There’s also the threat of a skills gap in manufacturing, with a prediction that 2.1 million manufacturing jobs will be left vacant by 2030. And rounding out this trifecta is the aging population of the industrial workforce: as the nation’s 5th largest employer, it also claims nearly 25 percent of its workforce as being 55 or older.
There’s also the Inflation Reduction Act (IRA) put forth by the Biden administration that has key provisions to increase the amount of manufacturing in the United States. Not only is the U.S. investing in itself, foreign countries are investing in us as well (especially when it comes to clean energy). BlueGreen Alliance released an analysis that the IRA will add 9 million jobs to the environmental sector by 2032.
President Biden’s bipartisan infrastructure bill, meanwhile, is estimated to create some 500,000 manufacturing jobs by 2024 according to the Association of Equipment Manufacturers. These jobs are due to nearly $90 billion in funding toward improving public transport, $65 billion for internet access, and 500,000 electric vehicle (EV) charging stations. We need workers to build these improvements, right?
Sure, there’s plenty to be thankful for if you happen to be working in the manufacturing industry today. The industry is awash in federal funding. Older workers are aging out of the industry altogether, more diverse candidates are finally getting a foothold on manufacturing careers, and the power truly is in workers’ hands. Inflation or not, the future is bright for those entering or already immersed in manufacturing.