ChainMail | The Latest Supply Chain Glitch?

Worker shortage gums up factories.

ChainMail | The Latest Supply Chain Glitch?

In 2022 the COVID economy delivered inflation, high energy prices, recession fears, continued shipping delays, shifting consumer habits, and tight warehousing space. There was no room on my pandemic bingo card for “red-hot labor market,” but here we are: The country is woefully short of workers.

CEOs and supply chain managers can devise workarounds for most COVID snags. They can supplement air-freight deliveries for delayed cargo ships or diversify manufacturing. But if they can’t hire enough employees they can’t get their work done. There are nearly 11 million job openings in the U.S. 

“The only thing that’s going to solve labor availability — I hate to say this — is a slowdown in the economy, because right now there just simply aren’t enough people in the workforce for all of our suppliers,” Greg Hayes, CEO of Raytheon, said on a recent earnings call.

Hayes said that after COVID hit, the Raytheon supply chain initiated layoffs, anticipating 75% to 80% of workers would return when called back to work. Only 25% did so. “They have found other jobs, similar jobs,” he said. “Because the labor market is so tight in this country, we just don’t have a large pool of resources.”

The candy industry is also feeling heat. Atkinson Candy, maker of Slo Poke and Mary Janes, has lost factory workers to other industries, including oil and gas companies that typically pay more. Short of employees, company President Eric Atkinson told that orders to retailers and wholesalers take months instead of weeks, costing the company millions in revenue. 

Workers “can go anywhere they want,” said Andrew Schuman, owner of Hammond’s Candies in Colorado. To find enough candy packagers and marshmallow chefs, Atkinson hired a full-time recruiter and added incentives such as bonuses, flexible schedules, and surprise lunches.

The July jobs report showed unexpectedly robust hiring and an unemployment rate of 3.5%. The labor participation rate has dropped from 63.4% in February 2020 to 62.1%. Harvard Professor Jason Furman tweeted that he is “baffled” that more people aren’t working, despite “tons of job openings, lots of jobs added, dwindling cash balances, mostly improving COVID, recession talk scaring people into accepting jobs, etc.” 

According to some analyses, the labor pool is at least 3 million to 5 million workers short — these are people who might have been in the workforce if the pandemic hadn’t hit. Where’d they go? 

An unlikely reason for the disappearance is generous government unemployment benefits. As economics Professor Josh Robinson points out in his entertaining “Beers with an Economist” YouTube video, it’s hard to make that math work. More likely the shortage is due to some combination of an aging workforce plus numerous COVID-related factors: early retirements, an immigration slowdown, child-care shortages, illness, COVID deaths among working-age people, and fear of continued infection. 

The job shortage may well work itself out, given the Federal Reserve’s focus on slowing growth to tame inflation. Recessions don’t usually start with a hiring binge. But given the many ways the pandemic has disrupted the economy, why should we expect anything to be normal?

Read the complete Issue 17 of ChainMail here.

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