Labor shortage continues to challenge MHEDA members and their customers.
By Nick Fortuna
THE PACE OF hiring slowed this spring and summer, but so far, widespread economic uncertainty hasn’t shifted the dynamics of the labor market, with the U.S. unemployment rate hovering near historic lows at 4.2% in July. That means that for MHEDA members and their customers, the prolonged labor shortage that has driven up costs and limited growth in recent years shows no signs of abating.
Hiring and retaining workers is the top challenge facing supply chain companies, with 52% of executives rating those tasks as “challenging” or “very challenging,” according to the 2025 MHI Annual Industry Report. In the survey of more than 700 supply chain leaders, 45% said the talent shortage was a major hurdle for their companies, followed by forecasting (44%) and customer demands (43%).
For employers, costs associated with job vacancies add up quickly, underscoring the importance of a robust recruiting strategy. Each unfilled position costs companies an average of $4,129 every 42 days, Forbes reported in January, citing statistics from the Society for Human Resource Management.
For revenue-generating roles such as sales associates, the cost of each vacancy can swell to between $7,000 and $10,000 a month, according to the SHRM. Likewise, researchers at Northwestern University found that leaving key sales roles vacant can reduce a company’s revenue by 5% or more, Forbes reported.
With so much revenue at stake, it’s not surprising that employers go to great lengths to fill vacant positions. According to the Work Institute, 45 million U.S. workers quit their jobs in 2023, and employers spent almost $900 billion to replace them, including recruitment, training and lost productivity.
The cost to replace an employee varies considerably according to the industry, but as a general rule, employers should expect to spend roughly one-third of the departing worker’s salary, the Work Institute said.
MHEDA members’ core customers are among the companies most affected by the labor shortage. In June, U.S. manufacturers had 415,000 job openings, according to the Bureau of Labor Statistics, even as uncertainty surrounding trade tariffs led some companies to pause hiring. Similarly, there were 1.09 million job vacancies in trade, transportation and utilities, including 315,000 in the warehousing sector, the BLS reported.
Given the stiff competition for workers, employers have little choice but to pay up. During the 12-month period ending in July, hourly earnings for U.S. workers climbed 3.9%, according to the BLS. Workers in the manufacturing sector were making an average hourly wage of $35.30 in July, up from $34.08 during the same month last year.
Meanwhile, transportation and warehousing employees were making an average of $31.52 an hour in July, up from $30.63 in July 2024. Those workers were making slightly more than the $31.34 average hourly wage for all private-sector production and nonsupervisory employees, according to the BLS.
Affecting the Bottom Line
Data from federal agencies show that the labor shortage is limiting production and eating into corporate profits. During the first quarter this year, U.S. manufacturing plants used an estimated 72.6% of their full production capacity, up from 70.9% in the fourth quarter of 2024, according to the U.S. Census Bureau.
Among plants that failed to operate at full capacity, 20% cited an insufficient labor supply as a key constraint. For comparison, that figure averaged just 10.7% from 2014 to 2016, according to a recent article from Supply Chain Management Review.
One positive note for manufacturers is that the quit rate has stabilized, according to the BLS. In June, 1.4% of manufacturing workers quit their jobs, compared with 2% of the broader workforce. The quit rate for the manufacturing industry has dropped steadily since reaching 2.7% in March 2022, the BLS reported.
Retaining workers is especially important for manufacturers given that the industry is expected to add 3.8 million new positions by 2033, according to the National Association of Manufacturers. At the NAM’s 2025 State of Manufacturing Address in February, the association said that without bold action to increase the labor supply, almost half of those jobs could go unfilled.
Carolyn Lee, president of the Manufacturing Institute, the NAM’s workforce development and education arm, said avoiding that shortfall will require a “real workforce strategy” that includes apprenticeships, training programs and public-private partnerships.
“That’s not just a workforce issue; it’s an economic and national security issue,” Lee said. “We have to inspire more Americans to see themselves in manufacturing. That starts early, with programs that spark curiosity and excitement for careers in our industry. And when I say early, I mean as young as 9 or 10 years old, because today’s fourth graders will graduate in 2033 and may be our future team members.”
Among transportation, warehousing and utilities workers, the quit rate was 2.4% in June, down from 3.7% in August 2022, according to the BLS.
Strategies for Employers
Years into the labor shortage, it’s clear that there’s no simple solution, but improving the workplace environment is one essential component. According to iHire’s 2024 Talent Retention Report, a toxic or negative work environment was the leading reason why employees quit, cited by 32.4% of respondents who had quit a job in the past year.
Respondents were allowed to select multiple reasons for leaving their last job. The responses included poor company leadership (30.3%), a bad supervisor (27.7%), poor work/life balance (20.8%), unsatisfactory pay (20.5%), burnout/stress (19.2%) and a lack of professional development opportunities (18.3%).
In addition to boosting pay and benefits, there are several proven strategies for improving worker recruitment and retention, according to SHRM:
- Invest in training programs. Many employees quit out of frustration because they haven’t been positioned for success. A good training program teaches new hires the skills they’ll need to perform all of their job functions. Additionally, pairing new hires with experienced mentors can eliminate gaps in training and show that a company’s seasoned employees are respected by management.
- Promote a culture of respect and recognition. It takes only a few toxic employees to ruin a workplace, so foster a professional and welcoming environment that employees don’t dread coming to. Workplace perks such as snacks and the occasional free lunch signal to employees that management cares about them. Furthermore, gamifying production operations can create a spirit of friendly competition, and rewarding top performers with gift cards and other prizes increases employee engagement.
- Provide scheduling flexibility. A growing number of employees are juggling childcare and eldercare responsibilities that make it difficult to work rigid full-time schedules. By offering more part-time work with flexible hours, companies can cast a wider net for talent, attracting students, caretakers and others who don’t view work as their top priority.
- Outline a path for advancement. By promoting from within, companies show entry-level employees that hard work and loyalty are rewarded. Employees should have a clear idea of what it takes to move up the ladder and should feel empowered to get there. When employers take the time to upskill ambitious employees, they display a commitment to career development, driving retention.
- Streamline the on-boarding process. In a different labor market, employers could use lengthy job applications and multiple rounds of interviews to separate serious jobseekers from the rest. But in today’s job market, employers need to streamline the application and interview processes to avoid missing out on talented workers.
Article Takeaways
- Avoid a Steep Price Tag. Unfilled positions are costly, with vacancies draining thousands of dollars in lost productivity and revenue.
- Reshaping the Supply Chain. The labor shortage is driving up wages, straining production and intensifying competition for talent across the supply chain.
- Retention and Culture Matter as Much as Pay. Companies that invest in culture, training and clear career paths are more likely to attract and retain employees.
