TRAFFORD, Pennsylvania (Reuters) - Only half the machines are running at precision parts maker Hamill Manufacturing, nestled in the Allegheny Mountains just east of Pittsburgh, once the booming center of the U.S. steel industry.
But the factory's overcapacity is the result not of a shortage of business -- it has more orders than it can fill, despite a slowing U.S. economy -- but because of a shortage of skilled workers.
"I'd hire 10 machinists right now if I could," said John Dalrymple, president of the company, which makes high-end parts for military helicopters and nuclear submarines. "That's eight to 10 percent of our workforce."
While millions of jobs making everything from textiles to steel have moved to new powerhouses like China in recent years, precision manufacturing remains a crucial niche in the United States, one that is overworked and chronically understaffed.
And, in a bad sign for the United States and its declining economic might, that shortage of skilled workers is likely to get worse as Baby Boomers retire -- with no younger generation of manufacturing workers to take the baton.
"Our workforce is an aging workforce," said Chief Executive Jeff Kelly, whose father founded Hamill nearly 60 years ago. "There isn't a queue of people lining up to come into the industry."
Some 20 percent of small to medium-sized manufacturers -- those with up to 2,000 workers -- cited retaining or training employees as their No. 1 concern, according to a survey by the National Association of Manufacturers. The survey was carried out in 2007 but has not been published yet.
A separate study in 2005, the latest available, said 90 percent of manufacturers are suffering a moderate to severe shortage of qualified workers.
"The irony is we pay very well, we have good benefits, we have job security and most of the companies that have survived the manufacturing recession at the early part of this decade can't find enough skilled workers," Kelly said.
A typical manufacturing job pays about $60,000 a year, according to manufacturing industry figures, a premium of about 25 percent to the service industries.
At Hamill, a general machinist will start at $9 an hour, rising to $14.50 an hour after training, and going up to the mid to high twenties for senior machinists, who can earn nearly $70,000 a year.
But that is not enough to attract younger workers into manufacturing, a sector that has suffered a bad rap over the years with layoffs in well-known companies such as the big three U.S. automakers.
"Too few young people consider manufacturing careers and often are unaware of the skills needed in an advanced environment," the U.S. Labor department wrote in a study on the issue.
Edward Lazear, the chairman of President George W. Bush's Council of Economic Advisors, warns that as more and more baby boomers retire the skills shortage will eventually cut into the country's economic growth.
"You will start to see some decline in our growth rates as a result of these demographic factors," Lazear told Reuters in an interview. "As people start to retire, the labor market is going to not grow at the same rate that it did in the past and it's going to affect our growth," Lazear said.
This is clearly the problem in Pennsylvania, which has been suffering from the decline and collapse of its steel giants, like Bethlehem Steel, since the 1980s, but which has openings for skilled workers.
"I can tell you on my desk right now I have over 300 very high-quality job openings that I cannot fill," said Michael Smeltzer, executive director of the Manufactures Association of South-Central Pennsylvania, who coordinates job openings for that part of the state.
State officials concede that the less-skilled work will continue to move overseas where the pay is lower. The state has pledged $17 million to develop a skilled workforce and keep the high-precision sector here
"We're not going to compete on the price of our labor, we're going to compete on the skill of our labor, said Sandi Vito, deputy secretary for workforce development in Pennsylvania.
But for Smeltzer, that investment may not generate enough skilled workers to cover what he called a crisis of retirements. "Why do I think it's a crisis today?" he said. "In 2010, which is right around the corner, we have this avalanche of skilled labor needs."
Smaller businesses -- those with 200 employees or fewer -- make up the bulk of the U.S. manufacturing sector, and for them the skills shortage is a crucial issue.
Nationally, one in four businesses say they have a vacancy they cannot fill, according to a survey by the National Federation of Independent Business, which groups both manufacturing and non-manufacturing businesses.
"We could make more GDP if we could find some hands to do it," said Bill Dunkelberg, the group's chief economist.
At Hamill, demand for high-end, U.S.-made military parts is up, as war in Iraq continues and the value of the dollar has decreased, making these goods less expensive for overseas buyers. But Hamill has not been able to take full advantage of the weaker dollar, and orders have been lost.
The company has a staff of 110, up from 85 two years ago, but potential growth has been stifled by the inability to bring new people in, Kelly said.
Glenn Skena, who runs Hamill's apprenticeship programs, said it takes years to train workers. On average, the company will invest about $120,000 per apprentice, and often will send workers to college for training to use the computers that design the parts and direct the machines.
"We have a hard time hiring programmers from the outside so we have to train them from within," said Skena.
Because these highly trained workers are such a commodity, wages are high. "We're quickly ratcheting up our wage scale," said Kelly.
But still there are not enough workers.
"We have spindles sitting idle because we don't have machinists to run them," said Dalrymple. A "Help Wanted" sign has been a fixture outside the factory for months.
Reporting by Joanne Morrison; Editing by Eddie Evans