Though U.S. manufacturers are not facing the endemic challenges with recruiting labor that they suffered in 2021 and 2022, issues regarding labor shortages are ongoing. In this article, I draw on data from various U.S. government agencies, especially the Census Bureau’s Quarterly Survey of Plant Capacity Utilization (QSPC), to examine trends in the extent manufacturers are reporting labor shortages. I further utilize disaggregated data at the 3-digit North American Industrial Classification System (NAICS) level to examine which sectors report greater labor challenges today than before the COVID-19 pandemic versus those where labor shortages are less prevalent. I conclude by discussing how proposed government policies, especially plans regarding mass deportations, could affect labor availability in 2025.
Manufacturing-wide labor shortage trends
QSPC data through Q3 2024 shows that approximately 20.6% of manufacturing plants in the U.S. that failed to produce at their full capacity cited insufficient supply of labor or labor skills as a key constraint in their production. This number is less than half of the peak reading of 46.3% recorded in Q3 2021 and is comparable to levels observed from Q2 2018 through Q3 2019. However, this number is double the 10.7% average observed from Q1 2014 through Q4 2016. From a longer-term historical perspective, Stahl & Morin (2013) report that in the late 1990s, roughly 20% of plants cited insufficient supply of labor or labor skills as a constraint on capacity utilization; this number plunged to below 5% with the Global Financial Crisis of 2008-2009 and remained below 10% through the end of 2012. Thus, despite an approximately 10 quarter manufacturing recession, labor challenges remain at levels more consistent with what we observed during strong periods of manufacturing growth like those in the late 1990s or in 2018.

Differences across sectors
To understand how labor shortage issues differ across sectors, in the table below I report the proportion of plants citing labor issues for Q3 2018 (the peak in the 2014-2019 period), Q3 2021 (the peak during the 2021-2022 period), and Q3 2024 (the most recent data). I’ve further calculated how Q3 2024 compares to Q3 2018 and Q3 2021. Not surprisingly, almost all sectors report fewer labor challenges today than in Q3 2021—the lone holdout is petroleum & coal products (NAICS 324), one of the few sectors where manufacturing output is higher than in 2021. Relative to Q3 2018, the picture is less clear. Some sectors such as transportation equipment are citing labor shortages far less frequently today than in 2018, whereas other sectors like chemicals are citing labor shortages far more frequently (charts for these industries are presented below). One potential explanation is that sectors such as chemical production are operating at a higher rate of capacity utilization than in 2018, whereas the opposite is true for transportation equipment, which increases the likelihood that supply side constraints are binding.



Mass deportations & labor shortages
Food manufacturing, which is the largest sector of U.S. manufacturing by employment (at over 1.7 million individuals) as well as contribution to for-hire trucking demand—generating roughly 14.5% of all ton-miles of freight hauled by for-hire carriers based on the Commodity Flow Survey—is widely regarded as the sector of manufacturing whose labor is most vulnerable to potential mass deportations. Examining labor shortage issues, levels currently resemble what was observed in 2017 and 2018 but are elevated from 2019. Food manufacturing plants are currently reporting capacity utilization rates well-above pre-COVID levels, which suggests that any shock to labor availability will increase the proportion of plants whose output becomes constrained by supply side constraints such as labor shortages. As agricultural production, especially harvesting of fruits and vegetables, in the United States also has substantial labor supply exposure to mass deportations, food manufacturing facilities availability of raw materials may be affected by mass deportations.

What to watch for in 2025
One indicator to watch closely as we progress through 2025 is the seasonally adjusted quit rate reported by manufacturing firms as part of the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS). These data, released through November, show quit rates stabilizing at levels observed in 2017-2019, and down substantially from the peaks observed in 2021 and early 2022. As these data (aggregated quarterly) correlate r = 0.93 with the QSPC data on labor shortages across all manufacturing, they suggest that we are unlikely to see further progress in overcoming labor shortages in 2025. Consequently, supply chain managers should recognize there is more upside risk for labor shortages worsening in 2025 than downside risk of labor shortages further ameliorating.

About the author
Jason Miller is the interim chairperson and Eli Broad Professor of Supply Chain Management in the Department of Supply Chain Management of the Eli Broad College of Business at Michigan State University.
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MR


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