The last four years have seen a comeback in manufacturing. As that relates to the auto rescue, the Obama Administration never tires of telling the story. But one part of that story is often left out of the telling. Because it turns out that the expansion in manufacturing has accompanied flat wages (WSJ subscription required) for the sector, as worker salaries haven’t kept up with the rate of inflation.
The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. A recent uptick in factory employment and the return of some production to U.S. shores from abroad both added jobs that probably otherwise wouldn’t exist. But sluggish wages also are squeezing workers’ incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery.
“The U.S. has held manufacturing wages in check while there has been strong wage growth in China and moderate wage growth in Mexico,” says economist Gordon Hanson of the University of California, San Diego, referring to two of the U.S.’s biggest lower-wage competitors.
With unemployment still high and global competition intense, employers have the upper hand in asking unions to relax work rules and restrain, or reduce, wages and benefits. Scores of U.S. companies have negotiated two-tier contracts with unions that allow them to pay new hires less than existing workers or otherwise restrain wage and benefit costs.
Entry-level workers at some plants are getting as little as $9 an hour to start.
You could say that the wage stagnation was the price paid for getting some of these jobs back in America. You could say that, except for the fact that productivity gains by US workers have far outstripped their wage growth. In other words, as workers make more for their companies, they are simply not sharing in the profits. As is typically the case in a tough labor market, unions get forced into concessions in return for jobs, where there are unions to bargain at all (only 11% of US manufacturing employees are union members, a simply stunning statistic). Labor loses leverage, and management keeps a greater and greater share of profits. The labor-productivity gap has been consistent since 1979. This report is littered with spokesmen for the companies parroting the line that their “wages and benefits are competitive within the industry,” but of course that’s much of the problem. Management sets the market, and labor takes whatever scraps they can get.
Skilled manufacturing is doing slightly better. But nobody has been willing to call out a situation where manufacturing output per hour rises 13% and wages stay flat. Someone makes a lot of money off that disparity.