Episode #70: There’s No Labor Shortage in Manufacturing. There’s a Shortage of Incentives
In this episode of U.S. Manufacturing Today (powered by Veryable), host Matt Horine challenges the common claim that America has a labor shortage, arguing instead that the real problem is a shortage of incentives, reward, and ownership in tackling productivity. He says true labor scarcity would force wages up, yet manufacturing wages have barely risen in real terms for decades, while only genuinely scarce skilled trades show meaningful wage acceleration. Horine also questions the credibility of jobs data, citing large downward revisions to non-farm payrolls, and argues many “unfilled roles” are actually utilization and demand-forecasting issues on the shop floor. He proposes measuring labor by output rather than headcount, using more flexible labor models and output-based pay, and contends that relying on imported labor or visa programs suppresses wage signals. He points to new SNAP work requirements reducing benefit rolls by 5.3 million as evidence that participation responds to incentives.
Links
- Matt Horine on LinkedIn
- Veryable Is Revitalizing U.S. Manufacturing
- Sign Up on the Veryable Platform
Timestamps
- 00:00 Podcast Intro
- 00:41 Labor Shortage Myth
- 02:52 Meritocracy Reframed
- 04:11 Jobs Data Reality Check
- 05:06 Wages and Skill Signals
- 06:14 Headcount vs Output
- 07:31 Flex Labor Playbook
- 08:18 Cheap Labor Hypocrisy
- 09:54 SNAP Experiment Evidence
- 11:13 Real Fix and Wrap-Up
- 13:25 Outro and Resources
Episode Transcript
Matt Horine: [00:00:00] Welcome back to U.S. Manufacturing Today, the podcast powered by Veryable, where we talk with the leaders, innovators, and change makers shaping the future of American industry, along with providing regular updates on the state of manufacturing, the changing policy landscape, and more. Today's episode is a solo one. No guest.
We have some great ones coming up, by the way, but just a straight look at one of the most repeated claims in manufacturing right now and why I think it is wrong. You're hearing it all over the place, and it is really coming to a head. It centers on the idea of scarcity, and ultimately, that is a very pessimistic view for the [00:01:00] manufacturing outlook.
It's been put out there by organizations, nonprofits, business leadership, and ultimately takes the form of an excuse that there are not enough workers. But it never addresses the underlying problem and looks for cheap shortcuts along the way Every economist, every headline, every trade group in this country wants you to believe the same thing.
America has a labor shortage. Manufacturers can't find workers. There's a structural skills gap. We need more immigration, including more specialty visas like H-1B and H-2B, just to keep the lights on in our own factories. That's the story. That's what funded research is tripling down on across decades of globalization that have had disparate impact, particularly on manufacturing.
It gets nodded along within boardrooms, congressional testimony, and every state of manufacturing panel you've ever sat through. But I don't buy it, and by the time this episode is done today, I hope you won't either, because here's the real headline. There is no labor shortage in America. There is a shortage of incentives.
There's a shortage of reward. There's [00:02:00] a shortage of ownership on developing an organization's plans to tackle productivity head-on and build their organization in the meantime. Ultimately, it is holding back real growth, not just Excel sheet growth and a tenth of a percent of the GDP, but real growth that leads to economic prosperity for the American worker that weaves its way into communities, c- into communities across the country.
It's a big fable told to never address some of the underlying issues that we have caused this issue ourselves. Today, we're going to talk about where that story falls apart, starting with a consistent argument about meritocracy that gets the whole thing backwards, the jobs and wage data behind the shortage narrative, and what this actually means for you if you're running a manufacturing floor right now, and why the fix isn't more imported labor pointing to labor shortage.
It's rethinking how we measure and reward work in the first place. So we'll start with an argument you've probably seen fly by on your timelines or on the news, something to the effect of you can be [00:03:00] pro-meritocracy or anti-immigration, but you can't be both. The implication being if you push back on unlimited labor supply, you're against merit, you're against competition, you just don't like a challenge.
That framework is a rhetorical trap. Infinity labor arbitrage dressed up as a philosophy lecture. If you don't like it, it just means that you're weak. But here's the problem with that framing. It gets meritocracy backwards. A meritocracy isn't the labor supply is infinite, so the price of labor never has to move.
A meritocracy is the market actually paying up when a skill is genuinely scarce. That's the mechanism. That's the entire point of a market. And there's a test for that, a real one. If we truly had a labor shortage, you'd see entry-level welding jobs post at six figures and mid-level and senior-level welding jobs posting in the very high six figures.
In a real free market, wages rise until the shortage disappears. That's not really a hot take, it's just how markets work. So there is some suppression there of the labor market in effect. The point of meritocracy [00:04:00] must be matched to potential reward. If the reward never shows up, if the wage never actually moves, it was never really a shortage.
It was a subsidy for somebody who didn't want to pay up. So now let's get into the numbers, because this isn't just a vibes argument, this is a- actual data. First, the jobs data itself has a credibility problem, and it's not a small one. You may have seen a stat recently that should stop you cold. Non-farm payrolls have been revised lower in twenty-one of the last thirty months for a net of over a million jobs erased from the record.
That's an average of thirty-five thousand jobs a month getting quietly walked back on their f- on the, after the fact. Treat those initial prints as artificial stimulant in their own right. They goosed the robust labor market, can't find anybody's story in real time, then got corrected downward only after the narrative had already hardened into conventional wisdom, and nobody bothered to double-check.
This particularly happened in all of twenty twenty-four, maybe some of early twenty twenty-five, to the point the Bureau of Labor Statistics had to [00:05:00] revise the way they actually ran the numbers. So that's a little bit of a competency problem. Second, manufacturing wages have barely moved in real terms for over four decades.
The Economic Policy Institute's numbers show real wage growth for production workers. It's roughly eighty percent of the workforce running at just three-tenths of a percent a year since nineteen seventy-nine. You compare that to two full percentage points a year in the decades prior to that.
Manufacturing used to carry a real wage premium over other sectors, and that premium has been quietly eroding the entire time. But here's where it gets interesting. Look at where wages actually are moving. The skilled trades, machinists, welders, aircraft structure assemblers, they're seeing real wage acceleration.
Some categories are up seven or eight percent over the year, over the past year. Meanwhile, general assembly, other roles, the ones that have historically been backfilled with the lowest cost labor possible, they barely budge, and it's not really a [00:06:00] coincidence. That's the free market doing exactly what it's supposed to do.
It pays up wherever employers actually have to compete for a real scarce skill, and it stays flat elsewhere. Skill scarcity, not headcount scarcity, is what drives a real wage response. So let's talk directly for a second, because I know a lot of you listening are sitting on a floor right now convinced you've got three open reqs and you can't fill it, and there's a labor shortage staring you in the face.
Before you accept that diagnosis, ask yourself one question: Are you measuring this by headcount or by output? Because almost every labor shortage complaint I've ever run into turns out to be a utilization problem wearing a headcount costume, something like a wolf in sheep's clothing But here's the actual fear of failure mode, and it's more common than anyone wants to admit.
You're planning your labor to an average demand forecast, but demand never shows up as an average, and when it spikes, you're understaffed, you run overtime, you're turning down orders you can't fill, and when it dips, you're overstaffed, carrying idle labor cost or [00:07:00] shuffling people into busy work just to keep them on the clock That gap gets misdiagnosed all the time as we can't find workers when the real problem is we can't flex what we've already got.
So you have to ask yourself a question any good plant manager would be asking every week. How do you actually know how many units need to go out the door tomorrow? When you're overstaffed, where do these extra hours go? When demand jumps, is overtime and turning down business really the only lever you've got?
If those questions sting a little, that's your diagnosis. The fix isn't hiring your way out of it. From the shop floor level, you have to actually flex with your daily demand. Full-time crew handles the core skilled work, and where it fits, put that Veryable piece into a piecework or output-based structure instead of a flat hourly rate.
Your labor cost per unit stays predictable. This is the part that matters most. Pay actually tracks what gets produced. If you put that over the economy at scale, you'd have a different outcome entirely. That's meritocracy matched to [00:08:00] potential reward put into practice on your own floor, something you can do today.
You pay someone for what they produce in real time, and you stop needing a policy crutch, cheap labor, cheap imported labor, another specialty visa program, whatever the excuse is, to plug a gap that was never really about headcount in the first place. Because we have to be honest about what's actually been happening underneath all of this.
Somebody put it out as plainly as I could find. If somebody proposes that we have a labor shortage or there's hundreds of thousands of jobs unfilled, if you ask that organization have they offered better wages, in most cases, they'll say no. Then you don't really have a labor shortage. You want cheaper labor, often imported.
That's it. That's the only goal. There's a deeper hypocrisy sitting underneath it. Many business owners love free market theory right up until the part where they'd actually have to raise wages to clear a shortage or let an uncompetitive operation go under. On those two points specifically, the instinct isn't compete harder, it's lobby the government for more low-wage [00:09:00] labor instead in whatever form that it comes.
You see the same mechanism one level up in organizations too. The H-1B visa is getting a lot of discussion right now about how innovation justification runs on the exact logic as a manufacturing labor shortage myth. It's cover for paying under-market wages to visa holders instead of citizens. So companies have banked years of suppressed wage growth off exactly that trade.
I wanna be clear, very clear about something here. This isn't some kind of moral panic. It's not really about any of the individual worker at all or about immigration at large. It's an incentive design problem. When the labor supply can be artificially expanded on demand, the wage signal never has to fire, and the workers who price themselves out get told there's something wrong with them instead of something wrong with the system that never had to pay them what the work was actually worth Here's the part that should settle the argument because we just ran the experiment in real time.
There's new SNAP work requirements for federal benefits when they went into effect this year. The number of [00:10:00] people on those benefits dropped nationally by five point three million people. That's not a percentage, that's five million people. If you think about what that number actually means, treat the old system, SNAP without a work requirement, the same way we treated those inflated job sprints earlier.
It was an artificial stimulant. Except instead of propping up a narrative, this one was propping up non-participation in the labor market. You pull that stimulant out, and the missing workers everybody swore didn't exist showed up almost overnight. So if wages rise, they are incentivized to participate.
That's not a coincidence stacked on top of the wage data from earlier. If you tighten the labor supply, whether it's through immigration enforcement, particularly in the trucking space, an example right now, whether it's through work requirements, whatever the mechanism, and pair it with real scarcity and specified skills, and you get the first genuine price signal the labor market has produced in years.
This is exactly what there is no shortage always predicted would happen the moment the [00:11:00] artificial stimulants got pulled out from under the story one at a time, the inflated job prints, the public benefit rolls without a work requirement, and immigration loopholes that imports labor. So it was never a headcount problem.
So what is the actual fix? It's the same one laid out on your own floor, just scaled up to the whole industry. Solving structural mismatch and removing artificial incentives, legacy hiring, and the imported labor shortcut right alongside of it both do the same thing. They fix headcount. They plan to an average.
There's no real relationship between effort and pay. You have to build capacity to find a way to win. Drive wages and participation incentive, build the pay that reflects what the work is worth right now instead of a wage that is frozen by an artificial supply cushion. That's what meritocracy matched to po-potential reward actually looks like when you build it into an operating model instead of pointing back to the big narrative of a labor shortage.
When American workers get access on their own terms [00:12:00] and they get paid for what they actually produce, employers get real flexibility without needing a policy crutch to plug a gap that shouldn't even exist in the first place, and the price of labor finally tells the truth about throughput, output, instead of getting buried under a headcount number that nobody trusted anyway.
So let's go back to where we started. There was never a shortage of workers. It's not even really a shortage of anything you could count by headcount. It was a shortage of reward and a failure to match labor to actual demand.
The tightening labor market, the benefits data, the skilled trade wage spikes we're finally starting to see, all of it is the market being allowed to answer honestly for the first time in a long time. Once businesses and the labor pool itself start getting priced and re- and rewarded by what they actually produce instead of by a spreadsheet metric or a false incentive, [00:13:00] that's where the pure market actually takes off on growth.
Meritocracy must be matched to potential reward. So if you're looking at your labor force at the shop floor level, there is a way to win. Thanks for spending the time with me today on this very important topic, and when people preach a false gospel of a labor shortage as a reason they can't take on more business, build, or grow, realize that the underlying structure is about to shift dramatically.
We have some exciting episodes coming up. Thanks for joining us today. To stay ahead of the curve and to help plan your strategy, please check out our website at www.veryableops.com and under the resources section titled Trump 2.0, where you can see the framework around upcoming policies from the administration and how they will impact you as a manufacturer.
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