New Study Suggests that Low Wages Imperil Future of U.S. Manufacturing and Innovation

Debates about manufacturing wages and jobs require the ability to walk and chew gum at the same time. Let's see if we can do that.

For a half century or more the mantra has been that manufacturing jobs pay better and support a family. But a new report by the National Employment Law Project (NELP), profiled in today's New York Times, shows that  manufacturing wages for production workers have dropped below wages for all private sector workers. NELP also finds that “more than 600,000 manufacturing workers make just $9.60 per hour or less. More than 1.5 million manufacturing workers – one out of every four – make $11.91 or less.”

To be sure, there's a little bit of apples and oranges in some of the NELP comparisons. You see, private sector workers as a whole have higher levels of education than manufacturing workers. If you control for education and other individual and job characteristics that impact wages, it's likely still true that manufacturing workers earn more than non-manufacturing. When KRC's Mark Price last ran such controlled comparisons (for a Brookings Institution report), using data through 2010, he found that manufacturing workers averaged $605 per week, 8.4 percent higher than the non-manufacturing average of $558. The manufacturing wage advantage was bigger for less-educated and lower-wage workers. Interestingly, Hispanic workers in these controlled comparisons earned 10% less in manufacturing than comparable Hispanic workers in non-manufacturing.

In sum, for comparable workers, it's likely still true that manufacturing jobs typically pay a bit better than non-manufacturing, especially at the low end (but with the important exception of Hispanics).

It is also true that manufacturing is important as a source of innovation and productivity growth. So manufacturing still matters: but we need to bring manufacturing worker pay to the center of public policy debate, not simply take for granted that manufacturing pays well. So good for NELP for driving home this point.

When you peel the layers of the new NELP report, and abandon the misconception that manufacturing jobs monolithically pay well, you find wide variation in wage levels in manufacturing.

As already cited, $1.5 million manufacturing production jobs pay less than $12 per hour. There are also some manufacturing production jobs that pay pretty well: reading from a graph on p. 8 of the NELP report about 600,000 pay above $21 per hour, with perhaps a third of those over $25 per hour.

There are two likely explanations for the top end of the production worker pay scale: even now, some of these jobs are "legacy" unionized jobs in big manufacturing companies that haven't quite managed to offshore, outsource, or downgrade (two-tier) the pay levels of every last one of their long-tenure production workers; the second explanation is that some manufacturers are "high road" companies that recognize the critical importance of shop-floor skills and pay decently to attract and retain employees with those skills.

Unfortunately, the wage numbers tell a pretty clear story that there aren't that many high-road employers. Relatively low, and declining, wages help explain the purported "skill shortage" in manufacturing. (A recent Economic Policy Institute study also finds that claims of skill shortage are overblown, with many companies content with workers that have modest skills.)

In Pennsylvania, a 2010 Department of Labor and Industry study authored by KRC in collaboration with agency staff found that even in two occupational families (precision machining and industrial maintenance) in which Pennsylvania employers reported the greatest skill shortages, wages had been flat for a decade. Moreover, there were workers in these occupations available (albeit hard to find) in 2007-09 despite employer claims of shortages -- unemployment rates in the recession and early part of the recovery were in the 11% to 13% range. Maybe if employers looking for workers in these occupations paid better, those workers with experience would be a little less hard to find.

The NELP study also highlights the growing importance of temporary employment in manufacturing. This likely reflects use of temporary agencies  to lower wages and benefits further and greater volatility of manufacturing employment in today's global economy.

NELP makes clear that manufacturing workforce policy going forward MUST do two things at once -- as in walk and chew gum at the same time or, in this case, pay attention to wages and benefits as well as to skills.

The general strategy for the state must be to partner with high-road employers -- new startups as well as mature employers -- to elevate the status, skills, credentials, and multi-firm employment security of manufacturing production workers. Apprenticeships are one way to move in this direction. Supporting high-road temporary agencies is a second. Adapting the building trades model of unionism to manufacturing is a third -- as we suggested in a blog a few months ago.

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