Missouri Sheltered Workshops FY 2007

Missouri workshops gained a little ground last year as sales increased slightly from 2006.  The following chart indicates this past year’s revenue sources.

"For every dollar in state aid paid the workshops earned $4.39 or a 4.39:1 ratio of return."

In FY 2007 we saw an increase in the gross sales generated by the Workshops.  For every dollar in state aid paid the workshops earned $4.39 or a 4.39:1 ratio of return.

Although we saw an increase over the previous year, sales continue to be a challenge for workshops, with continuing automation and lower overseas labor costs driving prices down and making bidding more competitive as well as decreasing contract and work opportunities.  Maintaining enough work in the shops at a price that will cover all costs (labor, material, and overhead) continues to be the biggest challenge facing workshop management.  As the ability and productivity of the workforce in workshops declines, price competition, quality, and turnaround time present significant challenges to staff.  As indicated in the

chart below, workshops have, so far, been able to meet the challenge and increase sales while other funding sources remain fairly level.  Workshops have had to become more efficient, as have all manufacturing facilities, to remain competitive.  Automatic shrink wrap, blister packaging, and stretch wrapping machines observed in many shops today are a few examples of methods of increasing efficiency in workshop operations.  In general, workshops continue to struggle to find hand packaging and assembly work due to the competition from automation and inexpensive foreign labor.  Workshops have, out of necessity, become more creative and seek alternative contract opportunities out of the traditional realm of facility-based contract work.  Many have turned to alternative businesses such as grounds maintenance, janitorial work, recycling, and thrift stores in both the private and public sector.  In order to address the challenge, the Department, along with the state’s Workshop Managers’ Association, took an active role in exploring the expansion of both service and product contracts with the federal government through the existing National Industry for the Severely Handicapped (NISH) organization.

Fortunately as sales have increased, the Workshops have been able to control expenses, especially in the area of materials, and miscellaneous (overhead) costs—see charts, below.  

It appears that Missouri’s Workshops have absorbed increases in both the Missouri and US minimum wages during the second half of the 07 fiscal year.  The full impact of the increase in the federal minimum wage has not been felt until industry has had enough time to react to the mandated increase in cost by continuing to export their labor intensive work to foreign countries where there are no minimum wage laws and where labor costs are extremely low compared to US standards.  The full impact will not be able to be determined for the next several years.  The changing structure of the nation’s economy will continue to present many difficult challenges to our current system that will necessitate changes in current operating strategies.  Workshop corporations have begun this process by researching and anticipating market needs, technical capabilities, operational structures and employee training that will be required by the supporting industries that provides the essential contract income.  

Employment has remained fairly constant primarily due to the modest increase in sales opportunities and growth.  Please keep in mind the number shown is a set number of employees at a set time.  This does not take into consideration all of the people affected by various workshop activities during the year considering attrition, retirement, relocation, etc.  This number is hard to determine but is most likely just below 8,000.

The average hourly wage continues to increase as local prevailing wage rates increase.  Due, in part, by the increase in mandatory minimum wage rates as well as increased productivity, the Workshop average hourly wage has taken an 8.6% increase to $2.52 per hour.

Workshops do not pay sub-minimum wages but, rather, commensurate wages based on the employee’s ability to produce in relation to a non-disabled standard.  Workshops are required to determine prevailing wage rates for like type work done by experienced workers in the surrounding community.  FY 2007 prevailing wages in the majority of shops were in the $7.50 to $9.00 per hour range which is reflective in the increase in the federal minimum wage rates.  Employees are evaluated in relation to a non-disabled standard on the job they are assigned at least every six months.  For example, if an employee is producing 50 units per hour and the industrial standard is 100 units, then the rate of pay is 50% of the prevailing wage rate for that job.  If the prevailing wage rate is $8.00, the employee will receive $4.00 per hour.  The workshop still pays $8.00 in labor for producing 100 units, the same amount a non-disabled worker would make.  

Commensurate wages do not mean less labor cost.  The direct labor costs for workshops in fact are comparable to other similar business operations.  Generally overhead costs for workshops, including supervision, insurance, utilities, etc., are higher than similar businesses.  Workshop employees, on average, historically produce at one third of a non-disabled worker.  If a normal business needs 10 employees to produce 10,000 units a month, a workshop would need 30 employees to do the same.  This increase in the number of workers required tends to drive up normal overhead costs, i.e. supervision, space, insurance, utilities, etc.  State and county financial aid have been the primary source for offsetting these additional costs. 

Workshops continue to be the primary employment option for many people with disabilities, and workshops continue to be a cost effective means of providing employment.  For every dollar in state aid provided to shops last year, $4.39 was generated by workshop in sales to make the program successful.  Combined with the fact that other day programs are more than double the cost per participant, this makes workshops a win-win situation for not only individuals with disabilities but also the state and local taxpayers.

Prepared by: Fulvio Franzi, Director, Sheltered Workshop Section
Missouri Department of Elementary and Secondary Education