NCPA - National Center for Policy Analysis

Flat U.S. Wages Help Fuel Rebound in Manufacturing

June 8, 2012

The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren't keeping up with inflation.  The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry; American workers are increasingly willing to work for less while Chinese and Mexican labor costs are on the rise, says the Wall Street Journal.

Representatives from both the industry and labor union camps have demonstrated willingness to compromise as employers increasingly feel the crunch from international competition.  This leads to far-reaching labor agreements that help keep manufacturers in the black and incentivize them to avoid outsourcing their operations.

  • After a 35 percent decline in the number of U.S. manufacturing jobs between 1998 and the trough in 2010, the total since has risen by 4.3 percent to 11.9 million in April.
  • According to the Bureau of Labor Statistics, national earnings for production and other nonsupervisory workers in manufacturing averaged $19.15 an hour in April, 3.2 percent below their recent March 2009 peak and back to where they were in 2000.
  • Manufacturers' labor costs were 2.7 percent lower in the first quarter of 2012 than in 2005, when the economy was stronger and unemployment lower.
  • This trend was true for public and private civilian employers of all sorts, where labor costs were basically flat over that period (down 0.3 percent).

These wage decreases have been accomplished in a number of ways.  Some employers have been able to negotiate across-the-board wage decreases for unions, while others have grandfathered veteran workers with newer workers accepting lower wages.

Simultaneously, workers have also helped employers remain competitive by becoming increasingly efficient and productive.

  • Output per hour in American manufacturing has increased by 13 percent in the past five years and 21 percent in the five years before that.
  • According to William Strauss, a Chicago Federal Reserve Bank economist, these productivity gains will eventually result in faster wage growth.
  • This wage cycle can be seen in Germany's manufacturing sector since its reunification: though wages were relatively flat for a decade, output gains over that time eventually resulted in a manufacturing-led export boom.

Source: David Wessel and James R. Hagerty, "Flat U.S. Wages Help Fuel Rebound in Manufacturing," Wall Street Journal, May 28, 2012.

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