COVID-19’s Impact On Manufacturers: Expect More Layoffs, But Also More Working From Home

In March and April, the number of US jobs in manufacturing fell off a historic cliff. May saw a modest recovery as the nation began to reopen—a pleasant surprise after months of dire numbers. But research from The Conference Board suggests the pain for manufacturers is far from over.   

Their survey of more than 150 human capital executives gauged how major companies are modifying their workforces in response to COVID-19 and the changing business environment. Overall, manufacturers outpace other industries in reporting a range of labor cost-cutting measures. But the most striking findings—and the most daunting for manufacturing workers—relate to timing.

Conducted in late April, our survey asked respondents to indicate whether cost-saving actions had already been taken, were planned within the next three months (May–July 2020), or weren’t expected to be taken within the next three months.

Chart 1 shows plans to furlough or lay off workers across three broad groups of industries. During the height of lockdowns, 30% of manufacturers had already conducted furloughs or layoffs—higher than companies composed mostly of white-collar employees (18%), but lower than employers of other blue-collar and manual service workers. But 45% of manufacturing respondents were expecting to furlough or lay off workers between May and July. That’s more than triple the percentage of either white-collar or blue-collar/manual service employers.

The implication? Manufacturers are expecting to digest a large drop in revenues that will force cutting labor costs—and can’t be easily recouped even as production comes back online.

Of course, if the economy rebounds more sharply than expected, some of those furloughs and layoffs expected in April could be obviated. Most organizations began responding to the crisis with actions that are easier to implement and are more reversible, such as deferring pay increases or bonuses, reducing hours worked, and freezing hiring.

Not surprisingly, organizations that had declining revenues pre-COVID, or those not expecting to recover from COVID-related reductions in demand within 12 months, were most likely to have already used layoffs at the time of the survey.

A remote-working revolution in manufacturing?

Across all industries, respondents expect remote-working rates to remain well above pre-pandemic levels for the foreseeable future (Chart 2). Typically, predictions that COVID-19 will drive a permanent shift to remote work have in mind white-collar industries such as IT, which naturally lend themselves to the practice and were already trending in that direction.

But the shift in manufacturing may be even more dramatic, when it comes to their white-collar workers. Before the pandemic, less than 1 in 14 manufacturers had 20% or more of their full-time US employees were working primarily from home. Respondents anticipate that share soaring to 1 in 3 a year after the pandemic.

While companies will continue to rely on labor cost-cutting measures in the short-term, the long-term rise of remote working could become the most influential legacy of COVID-19. Location will become less important in hiring, with a larger number of office workers residing far from company headquarters, perhaps in lower-cost regions of the US or outside the country altogether.

Of course, the actual process of manufacturing will still be tethered to physical plants. This may raise issues of equality within manufacturing companies, widening the divide between executives and white-collar staff able to work from home and production workers that have to show up on the factory floor every day. This may require new solutions to offer work flexibility for production employees, and will drive manufacturers to automate as much as possible to reduce the number of people in the factory environment.