Red tape, employee shortages could hamper NJ manufacturing

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Manufacturers are hungry for employees. Nationally, they added 22,000 jobs in August alone as year-to-date ranks swelled by some 297,000, according to the latest numbers from the federal Bureau of Labor Statistics. New Jersey’s manufacturing numbers have bounced around a bit on a monthly basis, according to a BLS report, although the industry has posted overall job gains of around 2.6% during the past 12 months. The Garden State has a lot going for it — including a prime location, access to ports, and a talented workforce. But will headwinds like high labor costs and an aging population derail the manufacturing boom here?

“Our New Jersey clients tell us that their biggest concern is staffing,” reported Alan Markowitz, a Marcum LLP partner. “That can stymie their growth. But the state’s location – close to major centers like New York City and Philadelphia, and ports – as well as a solid base of advanced manufacturers, count in our favor.”

Markowitz said he and his Marcum colleagues are assisting clients by suggesting staffing alternatives, “like taking on part-timers, and outsourcing some functions to contract manufacturers. We are also helping them to review their logistical and other procedures, like strategic purchasing, and improving controls across different activities. We’re also helping them to see if they qualify for research and development tax credits; and we’re conducting cost-segregation studies [which typically involve reviewing, identifying and reclassifying personal property assets that may qualify for faster depreciation] to yield greater tax efficiency.”

There are some roadblocks, but the state is using its heft in a bid to help the industry, noted Travis Epp, EisnerAmper’s partner-in-charge of manufacturing and distribution. “New Jersey has some challenges,” he said. “Labor costs here are very significant, and with national inflation continuing to grow at an average of 8% annually, there are headwinds to growing manufacturing in New Jersey. But the state also has a lot going for it: we’ve got a great talent pool, there’s terrific demand for products, and we have access to ports, which is a big benefit. Also, the state government is trying to stimulate clean energy, solar and infrastructure, which could spur demand for certain kinds of products that manufacturers produce. And the federal government’s infrastructure act should have a trickle-down effect here and elsewhere, although that may take a few years to make a real difference.”

However, Epp also pointed out some additional sticking points. “Our workforce is talented, but in the manufacturing segment, employees are also aging out and you have to wonder if enough young people are moving in to take up the slack. Manufacturing clients tell me that they’re having trouble filling positions, and often have to pay top dollar to get qualified candidates. Also, even though we’ve got a top-quality educational system, many younger people are leaving the state and not returning, which creates a talent drain.”

New Jersey’s tough permitting requirements and high labor costs may turn away some expansion or new-building opportunities, he added. “A few years ago, a client in New Jersey was importing components from China and assembling them in the U.S. — at a southern U.S. location. More recently, another client told me that New Jersey is not on the list of their initial preferred locations.”

Another accounting insider offered his thoughts on the challenges and opportunities for the state’s manufacturers. “New Jersey has the potential to capture a slice of the manufacturing resurgence based on the infrastructure that is currently in place,” said Beau Schwegman, a partner in the audit and assurance group at Crowe LLP. “But there are key areas around technology and workforce that will need to continue to progress for this to happen. The [trouble finding] qualified labor force has continued to be a headwind that manufacturers are continuing to face — this has resulted in manufacturing inefficiencies causing high costs and longer lead times to fulfill orders.”

New Jersey’s aging workforce is another possible flashpoint, he noted, and “has the potential to be an additional complexity that will need to be addressed with training and employee retention by manufacturers. New Jersey manufacturers will need to continue to find innovative ways to attract and retain skilled labor employees. In addition, manufacturers will need to continue to invest in technology, to augment labor to compete with companies that have access to lower-cost labor. Bringing new manufacturers to New Jersey will continue to be an obstacle due to the business climate in New Jersey.”

On a positive note, however, “I anticipate chemical, life science and technology manufacturing will continue to show substantial growth in New Jersey,” according to Schwegman. “Given the number of chemical and life science manufacturers currently in New Jersey, there is already a skilled labor pool that will continue to grow with the right investments by businesses and the state. These investments will include automation and training at all levels. The current labor force will need to expand through innovative ways to attract and train workers to keep up with the expected growth in these industries.”

Legislative leaders also have to step up. “Investments in technology and training are critical to increase the New Jersey skilled labor force, and this will be key for New Jersey to continue to be one of the leading states in manufacturing,” Schwegman said. “The New Jersey government will need to expand the opportunities for high schoolers to participate in Career and Technical Education programs during and post high school.”

Teachable moments

Fortunately, the state has already invested “in a number of manufacturing and STEM [science, technology, engineering and mathematics]-focused programs through its awarding of $257 million in Career and Technical Expansion grants to date,” observed Jackie Burke, executive director of the New Jersey Council of County Vocational-Technical Schools (NJCCVTS). “The grants are part of the 2018 voter-approved Securing Our Children’s Future Bond Act, which earmarked funding for construction projects to accommodate new career programs and space for thousands of additional high school students across New Jersey’s 21 county vocational-technical schools.”

The NJCCVTS works to connect employers in manufacturing and a range of other industries with vocational-technical schools as partners, advising on curriculum, mentoring students, and providing work-based learning experiences. “Somerset County Vocational-Technical Schools, for example, partnered with Raritan Valley Community College to start the Mechatronics, Engineering and Advanced Manufacturing program in 2016,” she said. “Another example is the manufacturing program serving students from both Morris County Vocational School District and the County College of Morris (CCM). U.S. Secretary of Transportation Pete Buttigieg even visited the college’s manufacturing center to spotlight it as a model for how partnerships can lead to much-needed workforce programs, especially ones that support the federal infrastructure initiative.”

CCM President Anthony Iacono is upbeat about the industry’s prospects in New Jersey. “Although we are a small state, I am optimistic that we will remain a national powerhouse, with more than 700 manufacturing businesses in northwest New Jersey alone, and more than 7,000 across the state,” he told NJBIZ. “We have about 75 students a year in our [U.S. Department of Labor-funded] apprenticeship program, and about 270 in our associate’s degree program. Manufacturers get a very good return on their investment because we are training students to become their next employees, and we’re vetting the students through interviews on behalf of the manufacturers.”

A helping hand

New Jersey is already home to more than 10,500 manufacturing and STEM firms, according to Mike Womack, marketing and communications manager at the New Jersey Manufacturing Extension Program (NJMEP), a private, not-for-profit organization that works to improve the profitability and competitiveness of New Jersey manufacturers. “The workforce challenge is currently being addressed through programs like Registered Apprenticeship developed by organizations like New Jersey’s Manufacturing Extension Program, which gives manufacturers the ability to hire inexperienced individuals and rapidly upskill them to gain the knowledge and expertise needed to contribute more to their manufacturing operation,” he detailed. “The state is also beginning to invest in the industry. New Jersey is a costly state to conduct business but just this year New Jersey allotted over $30 million in funds to a program called Manufacturing Initiatives, which could also provide substantial support to this critical industry.”

The state has already seen substantial growth in life sciences-pharmaceuticals; STEM; transportation, logistics and distribution; and advanced manufacturing sectors, Womack added. And an emerging sector, offshore wind, is likely to provide additional opportunities for “‘conventional manufacturing’ skills like welding and machine operating. It is expected that New Jersey will need to produce over 600 welders alone to support the offshore wind project off the coast of Atlantic City. Couple this need with the advanced automation and robotics technologies found in many manufacturing operations today, there is a massive need to encourage more individuals to explore the industry and an even bigger need to train those manufacturing professionals.

“NJMEP is helping to bridge the skills gap by having pre-apprenticeship and apprenticeship programs and hosting courses to upskill employees through our Pro-Action Education Network team,” according to Womack. “Through these programs, the workforce is more prepared to immediately contribute and have long-term career growth while addressing the skills requirements of employers. When it comes to the vocational schools, they provide an incredible curriculum, there just isn’t enough to bridge the skills gap. There is currently a massive waiting list for students interested in attending New Jersey vocational schools. If people don’t have the opportunity to attend vocational schools, they won’t be able to develop these critical skills early on in their childhood.”