Following Up: Settling the Debate over Manufacturing Pay

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benefits, Following Up, manufacturing, National Association of Manufacturers, National Employment Law Project, wages

Remember Monday’s post on a debate over pay in the manufacturing sector? One of the frustrations I expressed was that U.S. government data on manufacturing compensation that includes non-wage benefits and that’s adjusted for inflation didn’t seem to be available. Therefore, it was difficult to judge whether benefits were (at least) making up for the decline in real wages suffered by manufacturing workers (as insisted by the National Association of Manufacturers), or whether this drop-off in hourly pay genuinely is cause for worry (as insisted by the National Employment Law Project).

Yet thanks to yesterday morning’s release of new labor productivity figures by the Labor Department, I saw that this missing data isn’t missing after all. As part of its efforts to track productivity, Labor compiles figures on real hourly compensation for major sectors of the economy, and manufacturing is one of them. And the statistics seem to prove beyond reasonable doubt both that there’s a major problem with manufacturing pay, and that most of the latest labor productivity gains achieved by the sector have resulted from skimping on compensation, not by some combination of more advanced technology and smarter management.

As shown in the Bureau of Labor Statistics’ interactive database, during the current recovery, which has seen labor productivity rise by 15.29 percent in manufacturing, real hourly compensation in the sector has fallen by three percent.

That’s a striking contrast with the previous economic expansion, which lasted from the final quarter of 2001 to the final quarter of 2007. Then, hourly compensation in manufacturing actually increased – by 6.44 percent in real terms. But labor productivity grew much faster than in the current recovery – by 26.32 percent.

Similar results emerge after adjusting for the different lengths of the two expansions. Over the first five years of the current recovery, inflation-adjusted hourly compensation in manufacturing fell by 3.11 percent, and productivity improved by 14.47 percent. Over the first five years of the previous recovery (which lasted a total of six years), inflation-adjusted hourly compensation in manufacturing increased by 5.28 percent, and manufacturing productivity rose by 21.85 percent.

The composition of productivity gains is best gleaned from Labor Department data on multi-factor productivity, which includes all inputs into all sectors of the economy, not just labor. For manufacturing, the latest of these statistics only goes up to 2012, which limits the conclusions that can validly be drawn about the current recovery. But the declining contribution made by capital-intensivity since 2007 (shown in Table B) certainly reinforces the idea that spending on new machinery and equipment – including on “information processing equipment” and “intellectual property products” – has been anything but central to manufacturing’s efficiency lately.

As I keep noting, few have ever called American domestic manufacturing during the previous bubble decade a sector on the upswing. And yet it managed a feat apparently beyond the ken of this decade’s supposedly renaissance-ing industry – increasing productivity and pay at the same time. Hmmm.

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(What’s Left of) Our Economy: What’s the Real Story with Manufacturing Pay?

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benefits, Bureau of Labor Statistics, competitiveness, data, Employment Cost Index, manufacturing, manufacturing renaissance, National Association of Manufacturers, National Employment Law Project, wages, {What's Left of) Our Economy

Thanks to the Pittsburgh Post-Gazette’s Len Boselovic, I got dragged (willingly, to be sure) into a dust-up about manufacturing wages that recently broke out between the National Employment Law Project (NELP) and the National Association of Manufacturers.

Len did an excellent job of explaining how the former organization could come out with a report lamenting wage decline in manufacturing and the sector’s steady transformation into a low-wage employer, while the latter could respond by insisting that American industry “continues to be a pathway to the middle class.” As is often the case, it depends largely on which data you look at.

But it’s still worth elaborating on some points that Len was only able to touch on, especially since all data aren’t created equal. In the first place, the NELP report really should have looked at benefits as well as wages. They’ve been integral parts of compensation packages for workers throughout the economy for decades, and powerfully effect families’ living standards and financial health. I’m also still scratching my head as to why the NELP omitted white-collar manufacturing workers from its survey. They represent nearly half of all U.S. manufacturing employment.

But there’s also less to the NAM’s retort than meets the eye. As Len pointed out, the total compensation figures cited by its chief economist, Chad Moutray, aren’t adjusted for inflation. That’s a main reason I focus in my own analyses of manufacturing pay on wages – for which inflation-adjusted data is kept by the Bureau of Labor Statistics.

It’s also true that total compensation (as measured by the BLS’ Employment Cost Index), is up more during the current recovery for all manufacturing workers (by 11.91 percent) than for all private sector workers (by 11.14 percent). But in addition to being unadjusted for inflation, these ECI figures are only available going back to 2001. Therefore, they don’t permit any examinations or comparisons of longer-term trends – which for real wages, show multi-decade stagnation.

In addition, given how free many companies have felt to cut pensions in particular, it’s fair to ask how much longer manufacturing’s benefits package will remain so impressive. And finally, the NELP deserves credit for spotlighting the growing use by domestic manufacturers of temporary workers – whose wages are typically less than those of full-timers, who rarely receive any non-wage benefits at all, and who aren’t included in the manufacturing wage or total compensation data. (They’re considered instead as employees of job placement or temp firms). Obviously, if these workers were reclassified, manufacturing pay would be lower whatever measurement is used.

Bottom line? It’s still valid to claim that manufacturing’s rebound from an horrific recession has taken place largely on workers’ backs. Until domestic industry starts boosting production while raising, not cutting, real wages and overall compensation, talk of a manufacturing renaissance, or any regained competitiveness, will remain a grim joke.