Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
A good summary piece in the WSJ on a topic we’ve been covering for many years; that is global wage arbitrage, especially at the blue collar level but (increasingly) at the white collar level. The story deals with the manufacturing base and it points to a figure of a permanent working poor that will be relying on government benefits to subsist in a high cost of living country. It also leads to the question of where increased consumption will come from in the future as many of these former blue collar made solid middle class wages 10-20 years ago. Now many make $18-$26Kish… as inflation continues year after year. Tough questions/issues, but no one outside of the media (or blog writers) are discussing them.
On the flip side, as investors – when demand truly comes back in these sectors (in automotive for example) profits are going to be explosive as the cost basis for labor has been reduced so much…and will continue to be as older union workers retire and give away to the low tier paid, or temporary workers.
- The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren’t keeping up with inflation. The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. A recent 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. But sluggish wages also are squeezing workers’ incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery.
- Scores of U.S. companies have negotiated two-tier contracts with unions that allow them to pay new hires less than existing workers or otherwise restrain wage and benefit costs.
- 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. General Electric Co.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.
- After a 35% decline in the number of U.S. manufacturing jobs between 1998 and the trough in 2010, the total since has risen by 4.3% to 11.9 million in April. (middling growth all things considered, and why we are in another “jobless recovery” as many jobs are permanently overseas, or automated away)
- The Employment Cost Index, a government measure that includes benefits and is adjusted for the changing mix of occupations and industries, shows that, adjusted for inflation, manufacturers’ labor costs were 2.7% lower in the first quarter of 2012 than in 2005, when the economy was stronger and unemployment lower.
- In 2010 and 2011, new hires by manufacturers of durable goods, those meant to last three years or more, were paid an average of 0.3% less than workers who were newly hired in 2007 and 2008, adjusted for inflation, according to an analysis of government data by Jesse Rothstein of the University of California, Berkeley. New hires in nondurable manufacturing were paid 1.7% less.
[Apr 18, 2012: U.S. Has Highest Share of Low Wage Income Workers in High Wage Countries][Feb 3, 2011: Jobs Coming Back but the Pay Stinks!] [Sep 2, 2010: NYT- New Jobs Mean Lower Wages for Many] [Sep 4, 2009: Job Seekers Across America Willing to Take Substantial Pay Cuts]
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