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OM in the News: Flat US Wages and the Manufacturing Rebound

June 4, 2012

After a 35% decline in the number of U.S. manufacturing jobs between 1998 and  2010, the total since has risen by 4.3% to 11.9 million. But The Wall Street Journal (May 29,2012) writes that “wages for many manufacturing workers aren’t keeping up with inflation. The absence of wage growth may make manufacturers more likely to hire. For workers, though, it means less income, and thus less to spend.”

This wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. The  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. The U.S. has held manufacturing wages in check while there has been strong wage growth in China and moderate wage growth in Mexico.

At American Axle & Manufacturing Holdings Inc.’s plant in Three Rivers, Mich., new hires for assembly start at $10 an hour. Those hired before 2008 get a “legacy” rate of about $18 an hour. Similarly, at the Big Three U.S. auto makers, veteran workers make  $29 to $33 an hour in base pay; recent hires earn $16 to $19. Some unions are agreeing to the use of lower-paid temporary workers. The temporary, or “casual,” assembly workers at the Harley Davidson motorcycle plant in Kansas City get about $14 an hour while union members get $22 an hour. GE announced plans to move production of electric water heaters to Louisville, Ky., from Mexico after U.S. unions agreed to a $13-an-hour starting wage for new hires, $8 to $10 or more an hour below the previous contract.

The sluggish wage growth coincides with an impressive burst of rising factory productivity. Output per hour in American manufacturing has increased by 13% in the past five years and 21% in the five years before that.

Discussion questions:

1.What are the negatives of slow wage growth in the manufacturing sector?

2. How have lower wages helped US manufacturing?

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