The downside of the low unemployment rate

Steve Hill works with parts on the buffing wheel at Zimmer Biomet. Photo for The Washington Post by AJ Mast

An employee works last month at Zimmer Biomet in Warsaw, Ind. Photo for The Washington Post by AJ Mast

Zimmer Biomet is struggling to find enough workers in Warsaw, Ind., despite offering some of the region's best pay and benefits. Forty positions sit open. Photo for The Washington Post by AJ Mast

WARSAW, Ind. -- Each day at Zimmer Biomet headquarters, machinists on one robot-assisted factory floor churn out about 3,000 metallic knee parts. They are facing pressure to crank up the pace as the population ages and demand soars.

But the artificial-bone giant is grappling with a steep downside of the nation's low unemployment rate: It is struggling to find enough workers, despite offering some of the region's best pay and benefits. Forty positions sit open.

Other manufacturers in Kosciusko County, home to roughly a third of global orthopedic device production, are running into the same problem.

The lack of laborers not only threatens to stunt the growth of these companies, experts warn -- it could force them to decamp their hometown in search of workers.

With the U.S. unemployment rate at a 16-year-low of 4.3 percent, employers across the country are dealing with a dearth of potential hires. Economists say that talent shortages are growing constraints on the country's economic expansion, especially as millions of baby boomers enter retirement.

But the shortage is particularly problematic in places such as Kosciusko, where the unemployment rate rests at just 2 percent. Of the county's 41,136 adults who can work, 40,311 are employed, according to government statistics.

This region -- a land of clear lakes, duck farms and medical device makers -- escaped the industrial decline that rocked other communities throughout the Rust Belt.

It prospered, thanks to a local industry that proved largely immune to competition from China and Mexico.

But without more people to grow Warsaw's business, the chances of companies relocating is "extraordinarily high," said Michael Hicks, a labor economist at Indiana's Ball State University.

"That would devastate the area," he said. "We need to figure out how to bridge this rural place to the future."

Kosciusko is only one of 73 counties in the United States with unemployment rates of 2 percent or less, according to the most recent data from the Bureau of Labor Statistics. Many are in energy-rich counties in the Midwest and Colorado, where the fracking and natural gas booms have vacuumed up the workforce.

They also include communities that defy the heartland stereotype of industrial decay -- like Warsaw, in northern Indiana, and Columbus, about three hours south.

Cummins, a global engine builder based in Columbus, recently opted to open its new distribution center an hour north in Indianapolis, where the labor market is much larger. (Columbus is the seat of Bartholomew County, which also has a 2 percent unemployment rate.)

Companies in Warsaw probably would not move manufacturing jobs abroad, said Hicks, who follows the region. Firms would more likely transition to Indianapolis or Chicago, he said, since quality control is crucial for medical implants, and businesses want to safeguard their designs from foreign competitors.

Warsaw's orthopedic device industry, a $17 billion cluster, started here in 1895, sprouting from a fiber splint company. Zimmer followed in 1927, bringing aluminum splints to the market (and merging with Biomet, another skeletal-part manufacturer, in 2015). Other firms flourished, peddling hip implants, artificial femurs and bone plates for children.

Over the past 18 months, Zimmer Biomet has updated its plant technology to further boost efficiency. The neatly manicured campus has one-legged robots that swoop up and down like yellow flamingos, an employee gym, a cadaver lab and a coffee bar serving Starbucks.

The orthopedic sales market is expected to grow about 4 percent each year through 2020, analysts predict, and Zimmer Biomet also strives to hit that target. That's thanks to the aging population, plus the fact that older people today live longer and are more active. Keeping up with consumer need, however, is already difficult.

"There's great demand for our product," said Matthew Linville, Zimmer Biomet's director of human resources, "but there is a limited amount of skilled labor in the area."

The company has asked machinists to log more overtime hours, he said. It has brought in 30 workers from Puerto Rico and a few more from New Jersey, paying for their apartments and cars. It has donated $50,000 to the local school system's STEM programs and $2 million for a nearby college's science center. It has underwritten another $2 million for the city's YMCA.

"Homegrown is great, but we know we're growing fast," said Monica Kendrick, head of communications at the company, "so bringing people into the community is important."

Zimmer Biomet's president of the Americas, Rob Delp, said the company has no plans to move its headquarters beyond Warsaw.

"This is where it all started," said Delp, whose grandparents worked at the company. "To uproot that ... I'm not saying it's impossible, but it would be very difficult."

A combination of factors has made Warsaw and other cities vulnerable to low unemployment.

Over the past decade, as manufacturing employment shrank across the Rust Belt, Warsaw displayed a rare resilience, steadily adding good-paying factory positions that do not require a college degree.

But many of those jobs were filled by baby boomers in the community, who are now beginning to retire in the same demographic wave that is driving more demand for orthopedic parts.

At the same time, young people are more drawn to bigger cities, keeping with a familiar pattern across the economy.

Manufacturing employment, meanwhile, has gradually dwindled nationwide, particularly in the Midwest.

By contrast, Warsaw has seen its population increase, ticking up from 12,689 in 2000 to 14,289. County data show surgical appliance manufacturing employment in the area -- which covers orthopedic device production -- has swelled from 5,003 jobs in 2005 to 6,803 in 2015.

Growth, though, has slowed over the past year.

Ryan Christner, manager at Precision Medical Technologies, a spinal implant maker in Warsaw, said his company is having trouble filling 10 vacancies. That quashes productivity, he added.

"If we don't feel like we can support our business in the local labor market, then we have to branch out," Christner said. "Maybe we have to look at a different region. Maybe a different state."

"Help wanted" banners dot pristine company lawns across town, calling applicants to the local Menards, the Elk Lodge and a factory that produces movie screens.

Paul Osterman, a professor of human resources at the Massachusetts Institute of Technology's Sloan School of Management, said large firms tend to expand where the population is denser. That way, if a talent need emerges, they can simply beef up compensation and more easily attract workers.

Manufacturing companies, however, cannot depend on attracting folks from afar. Less educated workers -- that is, those without college degrees -- are also less likely to move for a job, even for more money.

"Mobility declines with education level," Osterman said.

Manufacturing vacancies at Warsaw's orthopedic companies reached about 300 last year, not including open positions at local suppliers, said Brad Bishop, executive director at Orthoworx, a nonprofit organization that supports Warsaw businesses.

"The number of jobs is growing faster than the population rate," Bishop said.

The industry's bind is also tightened by a common misconception that factory work is dirty or inferior to career paths a four-year degree will open, he said. But machinists certified in high school or local technical programs can step into jobs that pay about $50,000 annually -- roughly the state's median wage.

They can work up from there, Bishop said, or later seek higher education, which some companies in town, including Zimmer Biomet, help cover.

Tom Till, director of Ivy Tech Community College's Orthopedic and Advanced Manufacturing Training Center, said Zimmer Biomet and other local firms offered to pay the tuition of his first group of high school manufacturing trainees, who graduated last month with a machining certification.

The problem is: Only a handful of students signed up for the program.

The partnership -- run by the local schools and Ivy Tech, and funded by state grants and local businesses -- attracted 15 students, all young men, with 11 completing the program.

None of the group's three seniors, however, intend to start work in the orthopedic industry. They are all heading to college.

"The stigma comes from history: People have grandparents who worked in dirty, dingy factories," Till said. "But that truly is not where our manufacturing is today. The first thing you notice is you can eat off the floors."

Across town, one day before summer break, Warsaw teachers hope they are training the next generation of workers.

Kids at a STEM-focused elementary school learn how to code on iPads. In the hallway sits a pipe-cleaner replica of the skier Lindsey Vonn's knee.

Middle-schoolers drive remote-controlled cars they built in a robotics course, slamming them together in a makeshift demolition pen. Juniors and seniors operate machinery the local orthopedic companies helped fund, shaping titanium rods into polished discs.

David Robertson, the chief academic officer at Warsaw schools, said the community sees the future in these kids.

"There's a real sense of urgency," he said. "If we don't provide a workforce ..."

Robertson trailed off. Sure, the orthopedic companies started here. Then international markets opened to them. They grew and grew.

"What's keeping them here in Warsaw, Indiana?"