Oregon Office of Economic Analysis

The labor market is tighter than you think, not just for bars and restaurants as they try to staff back up but pretty much across the board in terms of industries and occupations. An interesting piece of the discussion continues to be the trades, where surging wages in leisure and hospitality now put upward pressure on lower-wage jobs throughout the entire economy in order for firms to attract and retain workers. These lower-wage jobs include many manufacturing positions.

Our office has written quite a bit over the years when it comes to manufacturing wages, the shifting nature of work within manufacturing, young adults entering into the trades HERE and HERE and the like. But today I wanted to share something I’ve been using more lately when talking with manufacturers and workforce development folks. We don’t have perfect data here but I hope the point is clear, or at least clear enough.

Starting wages for production jobs — the manufacturing jobs that actually do the manufacturing — really aren’t that much higher than in restaurants. Pre-COVID here in Oregon the hourly wages were about $1 (12%) higher. That’s not nothing, but at the same time is not a huge wage premium. The bigger boost to income is really seen among experienced workers. The median production worker in Oregon brought home $15-20,000 more than the median food preparation worker did, once you account for hourly wage, hours worked per week, and weeks worked per year, all of which are higher in manufacturing than in food service. Take home pay was nearly double at $38,400 versus $19,600 (+$18,800 or +96%). And in practical terms that pay difference is massive. It is equivalent to being able to spend an additional $470 per month on rent (using the imperfect 30% of income metric), with more available for food, vacations, and the like.

Now, in a tight labor market attracting and retaining workers is a huge challenge, so what I’ve told folks in the trades is to highlight the career path and earnings in the years ahead. That said, with the quickly rising wages in leisure and hospitality, entry level wages in manufacturing need to rise as well. Even mid-career wages will need to increase to be competitive. Pre-COVID median hourly wages in production jobs were $18-20 depending on the subsector, and even as low as $15 in food manufacturing. With starting wages in fast food approaching those levels, there is increased competition for workers.

Our office has heard from a few local firms saying this is starting to be an issue and when competing in more of a global or national market, it could make them less cost competitive. That is a worry and a challenge given the global manufacturing dynamics of recent decades. However given the strong sales environment today, now is a better time to pass along those cost increases to customers as they can better afford them without sapping demand at the same time. Looking at the wages, and the production and supply chain costs, these increases are happening. Crucially productivity has risen during the pandemic, meaning firms are producing more with relatively fewer workers, which also better allows them to pay those higher wages needed to attract and retain talent.

Two final notes:

The chart above only shows hourly wages, but we know the total compensation package is better in manufacturing as well. According to the 2019 Employer-Provided Benefits survey from the Oregon Employment Department, manufacturers offer medical, dental, and vision insurance at twice the rate as the leisure and hospitality industry.

While the hours worked piece is huge in financial terms, it can cut both ways. We know manufacturing employees essentially work 40 hour weeks (on average) while leisure and hospitality is more like 25 hours. However some people do prefer the greater flexibility of part-time work, and/or non-standard hours. The more ridged nature of full-time work does not fit the needs of some workers.

Bottom Line: Finding and keeping workers is a huge challenge for businesses today. While I am a labor supply optimist, it’s not like labor is going to suddenly become widely available this fall. I just don’t think it will remain depressed indefinitely. As a result, firms are adjusting the levers they can both in terms of financial (wages, benefits, hours) and non-pecuniary (flexible schedules, work from home etc).