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Manufacturing Matters

Mon, Mar 2, 2015

Manufacturing Matters: The Unmaking of U.S. Manufacturing Workers’ High Wages
By Victor G. Devinatz

From the end of World War II through the late 1970s, manufacturing employment provided many U.S. workers, who possessed only a high-school education, the opportunity to earn middle-class wages. According to the U.S. Bureau of Economic Analysis, manufacturing made up 28 percent of the nation’s gross domestic product (GDP) in 1953 but fell to 20 percent of GDP by 1980. Statistics from the U.S. Bureau of Labor Statistics (BLS) indicate that in 1953, 16 million people (33 percent of total nonfarm employees) worked in manufacturing while 19 million persons (20 percent of total nonfarm employees) labored in manufacturing in 1980. After the loss of 5.7 million manufacturing jobs in the 2000s, manufacturing employment plummeted to 12 million people (10 percent of total nonfarm employees) and 12 percent of GDP in 2012. One should note, however, that manufacturing is still a major sector of the U.S. economy, providing more than 18 percent of the globe’s manufactured goods in 2009.
While manufacturing has done exceedingly well in the past few years, as evidenced by a 2.6 percent increase in industrial employment from December 2009 through September 2011, a rise in durable goods orders and higher profit levels, the industry’s workers have not benefitted from manufacturing’s good fortunes. The National Employment Law Project’s November 2014 report, entitled, “Manufacturing Low Pay: Declining Wages in Jobs That Built America’s Middle Class,” by Catherine Ruckelshaus and Sarah Leberstein, indicates the extent of the problem.
Ruckelshaus and Leberstein claim that manufacturing wages currently fall in the lower half of all U.S. jobs. Although manufacturing workers used to earn well above average U.S. wages, by 2013, mean factory wages were 7.7 percent lower than the median wage for all occupations. Moreover, 1.5 million manufacturing workers earn less than $11.91 per hour while 600,000 workers make $9.60 per hour at most. Finally, real wages (those adjusted for inflation) in manufacturing fell by 4.4 percent from 2003-2013, a rate three times faster than that for all workers.
Things are even worse in one of the industry’s healthiest sectors – automobile manufacturing – where pay has plunged more rapidly. Auto parts workers, who comprise 75 percent of the automotive industry, experienced real wage declines of 14 percent from 2003-2013, a rate nine times faster than the decrease for all employees. Furthermore, in five (Michigan, Indiana, Ohio, South Carolina and Tennessee) of the 10 states where automobile manufacturing is concentrated, new workers hired at auto parts plants earn about 25 percent less than the other auto parts workers employed in the same state.
Finally, the auto parts industry’s dependence on temporary workers masks the true nature of the decline in manufacturing wages. Temporary staffing agencies employ approximately 14 percent of auto parts workers while paying these employees, on average, 29 percent less than parts workers who are directly hired. Additionally, these temporary workers’ wages are excluded from the auto industry wage calculations. Since new employees in auto start at less than $10 per hour, this wage, adjusted for inflation, is lower than the $5 per day Henry Ford paid his workers when implemented in 1914.
So should we care about manufacturing and manufacturing employees’ wages? Manufacturing appears to be a microcosm of the U.S. economy writ large with the decline in real wages and the increasing use of temporary employees that negatively impacts virtually all U.S. workers. While service-sector jobs will undoubtedly continue to grow more rapidly than manufacturing jobs, the latter benefit the U.S. economy in ways that the former do not. Although the service-sector contains high-skilled (e.g. software developers, accountants, teachers) as well as low-skilled (e.g. cashiers, janitors, retail sales) positions, the largest growth in service jobs is occurring at the wage scale’s lower-end where workers earn less than $13.83 per hour.
Moreover, manufacturing jobs contribute to job growth in the economy as a whole. An article, authored by Keith D. Nosbuschand and John A. Bernaden, acknowledges that the “manufacturing multiplier” is 1.58, which means that each 100 manufacturing jobs supports 158 jobs (100 directly and 58 indirectly). This multiplier, however, is probably significantly higher for more “advanced” manufacturers. For example, in electronic computer manufacturing, the multiplier might be as high as 16, meaning that each manufacturing position indirectly supports 15 additional jobs.
So with the recently added service-sector jobs paying low wages, we must care about the decline of the once-high U.S. manufacturing wage. Germany, which has a strong and vibrant manufacturing sector, has 19 percent of its workforce employed in the industry and hourly compensation in manufacturing exceeding the U.S. rate by nearly $13, according to a March 2011 BLS news release. Thus, high wages in U.S. manufacturing should not prevent the industry’s future success. What is required, however, as others have advocated, is a federal government policy that coordinates investment and policy within the industry. This would allow manufacturing employees to retain middle-class incomes while benefitting the U.S. economy as a whole.
Dr. Victor G. Devinatz is Distinguished Professor of Management, specializing in labor relations, and the Hobart and Marian Gardner Hinderliter Endowed Professor (2014-2015) at Illinois State University. He can be contacted at vgdevin@ilstu.edu.

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