Posted by: Josh Lehner | November 3, 2015

Manufacturing Wages (Graph of the Week)

Our office has spent a lot of time recently discussing manufacturing. The sector is largely flashing near term weakness today, with a strong U.S. dollar, stalling industrial production and weak global demand, however Oregon manufacturing job growth is as strong as ever over the summer and into the fall. Given the industry is highly cyclical it is important to follow such developments and discuss with our advisors to what extent these trends are temporary or could spread to the rest of the economy.

However, from a bigger perspective, manufacturing has long been considered among the good middle-wage jobs. Yet Alana Semuels in The Atlantic recently and Lydia DePillis at The Washington Post last year detail the lackluster manufacturing wage trends. In particular the two-tier wage scale seen in many places these days where recent hires earn significantly lower wages than workers under older agreements. While such two-tier scales appear to be uncommon here in Oregon at least based on the lack of public statements and reports, we have certainly noticed that relative manufacturing wages have eroded in recent decades, which brings us to the graph of the week.

At first blush, average manufacturing wages compared with the statewide average for all workers appears to be pretty steady over time — manufacturing workers earn roughly a 30% premium relative to the average worker. However this result is entirely driven by strong wage gains in computer and electronic product (2014 average wage $123,000). Looking at manufacturing wages excluding such high-tech producers, they have essentially converged to the statewide average. Now, wages have not fallen in nominal terms, but have grown less slowly over time than both inflation and wage gains in the average industry. Thus real manufacturing wages, and relative manufacturing wages have eroded.

ORMfgWages

The key premise of the articles linked above is that new manufacturing jobs today are no longer a clear path to the middle class like they were a generation or two ago. They pay OK but not great. While the Oregon numbers — on average — suggest solid pay for manufacturing workers, similar trends are clearly evident in the bigger and longer term picture. We noticed this in our job polarization work in recent years. However the first place it was really evident was in our historical look at wood products in Oregon, where the industry has seen both large levels of job losses in the past 30+ years and real wage declines for the remaining jobs.

So what is going on here? It’s a complicated issue but at least part of the answer does lie in the globalization and technological change/automation trends, and then how this impacts workers’ bargaining power (in general, not just with respect to unions) and the like. As we wrote in that wood products article:

For industry employees this is an end result of a number of factors at work within the industry. As mentioned previously, the industry underwent a restructuring in the early 1980s which resulted in less workers needed to produce the same output and productivity enhancements, along with automation and standardization also contributing. Another factor at work is increased competition from both within the U.S. (southeastern states) and Internationally (mainly, British Columbia, Canada). All these factors, coupled with lost jobs have resulted in average wages today that are on par with the statewide average.

In summary, it’s certainly good news that manufacturing jobs are growing again. However like other middle-wage jobs, the gains have been slower than either high- or low-wage job growth. Furthermore, while average manufacturing wages (excluding semiconductors) today in Oregon are near $50,000 per year, this does represent a smaller premium relative to other industries than at any point in recent history.


Responses

  1. […] growth. Hardware remains the state’s comparative advantage, pays a large number of employees very high wages, and drives much of the state’s GDP growth due to its productivity. However, relatively flat […]

  2. […] the strong dollar and slower global economy. Furthermore manufacturing wages outside of high-tech no longer pay wages substantially above the rate of other industries. However Oregon¬†remains a state that produces goods. Even as manufacturing jobs as a share of the […]

  3. […] such job opportunities, but their relative wages have eroded to the point where, say, the remaining manufacturing jobs no longer pay much of a premium compared to the economy overall. This is one reason nonparticipation rates are rising among prime […]

  4. […] early 1980s. And these trends apply to manufacturing overall, at least outside of the tech sector. Manufacturing no longer pays a premium like it used […]


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