Wages Stagnate as U.S. Manufacturers Reap Record Profits
Machinist Michael Pargeter reached for a reference to a TV cartoon set in the Stone Age to explain why union members were spurning a contract offer from Boeing Co. (BA)
Wages would be set “back to the Flintstones era” with a plan to slow future raises for new employees, Pargeter, 62, said outside a Seattle union hall last week while ballots were being counted, referring to an animated television show about prehistoric family life.
Boeing’s quest for concessions and employees’ opposition exposed a fault line in U.S. industry’s post-recession comeback: Even with hiring and output robust enough to be dubbed a manufacturing renaissance by President Barack Obama, workers are falling behind. Factory pay hasn’t kept pace with inflation and has fallen 3 percent on that basis since May 2009, while average pay for all wage earners slid only about 1 percent.
“We need to focus on how many jobs there are that give an adult a chance to earn a decent living,” said Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center in Eugene. “Too much of the discussion has been about the number of jobs, and that’s obviously important, but there’s also a crisis in the quality of jobs.”
Boeing said it needed labor givebacks to keep the Seattle area as the home of the 777X jet, a new model with more than $95 billion in orders since September. Union workers said Boeing needed to share more of the wealth they help create.
“This is really a symbol of what’s going on in this whole country,” said Machinist Thomas Campbell, 40. “We’re losing middle-class jobs.”
Where unions and their allies see reason for alarm, employers see a way to retain jobs against the lure of lower wages overseas. There were about 12 million U.S. factory jobs in October, buoyed by recent gains while still down 39 percent from 1979’s peak.
“We certainly have seen manufacturers become much more competitive,” said Chad Moutray, chief economist at the Washington-based National Association of Manufacturers. Falling labor costs have helped “keep U.S. manufacturers much more competitive and you’re seeing more investment in the U.S. as a result.”
The number of U.S. factory jobs is headed for its fourth annual gain. That’s the longest since a five-year streak ended in 1997 and ushered in a dozen years of declines.
Manufacturers’ after-tax profits rose to a record $289.1 billion last year, more than three times 2009’s tally, the Commerce Department reported. The Standard & Poor’s 500 Industrials Index has more than tripled since its 2009 low, and topped the broader index by 59 percentage points over that span.
The average hourly wage in U.S. manufacturing was $24.56 in October, 1.9 percent more than the $24.10 for all wage earners. In May 2009, the premium for factory jobs was 3.9 percent. Weighing on wages are two-tier compensation systems under which employees starting out earn less than their more experienced peers did, and factory-job growth in the South.
Since the U.S. recession ended in June 2009, for example, Tennessee has added more than 18,000 manufacturing jobs, while New Jersey lost 17,000. Factory workers in Tennessee earned an average of $54,758 annually in 2012, almost 10 percent less than national levels and trailing the $76,038 of their New Jersey counterparts, according to the Bureau of Labor Statistics.
“What’s being referred to as a recovery in manufacturing is to a large extent a recovery in profitability,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington-based group funded by unions and private foundations. “That’s good for the companies and good for the shareholders but it’s not necessarily good for the workers.”
Factory jobs loom large for U.S. policymakers, spurring efforts to nurture employment that aren’t lavished on industries such as retailing.
Obama announced a National Export Initiative in 2010 with goals including creation of 2 million jobs through programs such as financing for small- and medium-sized businesses to boost sales overseas. A four-point plan to revitalize manufacturing, unveiled in February in his State of the Union address, is stalled amid congressional gridlock over changes in tax policy.
Boston Consulting Group found reason for optimism in an August study that concluded the U.S. may add as many as 1.2 million factory jobs through 2020, which would restore industrial employment to levels last seen in September 2008.
The resurgence is partly a response to falling energy costs as new drilling techniques boost oil and gas production, and partly to the closing of a wage gap between the U.S. and China as workers there demand higher pay, the study found.
Boeing, the largest U.S. exporter and this year’s top performer in the Dow Jones Industrial Average (INDU), offered raises in the contract offer to Machinists. In return, the Chicago-based planemaker wanted to end the current pension and impose a wage scale that would mean a 16-year wait for newly hired employees to reach the top pay tier, instead of six now.
“When times are good, it’s easy to forget that continued success is not guaranteed,” Boeing Commercial Airplanes President Ray Conner said in a Nov. 8 letter to employees. He said that Boeing would weigh “all options” for a site to build the 777X after the union’s 2-1 rejection of the contract.
The geography of the industrial rebound helps explain why wages have stagnated.
Some of the states where factory jobs are growing the fastest are among the least unionized. In 2012, 4.6 percent of South Carolina workers were represented by unions, as did 6.8 percent of Texans, according to the U.S. Bureau of Labor Statistics. New York, the most-unionized, was at 24.9 percent.
Assembly workers at Boeing’s nonunion plant in North Charleston, South Carolina, earn an average of $17 an hour, compared with $27.65 for the more-experienced Machinists-represented workforce at the company’s wide-body jet plant in Everett, Washington, said Bryan Corliss, a union spokesman.
Higher wages also no longer go hand-in-hand with union jobs, as they once did.
In Houston, Neutex Advanced Energy Group Inc. won an agreement with the International Brotherhood of Electrical Workers this year for pay of about $14 an hour to help the closely held company shift production from China. Neutex plans to create about 200 jobs over the next year making light-emitting diode fixtures.
In Michigan, which leads the U.S. with 119,200 factory jobs added since June 2009, automakers are paying lower wage rates to new hires under the United Auto Workers’ 2007 contracts. New UAW workers were originally paid as little as $14.78 when the contract was ratified in 2011, which is about half the $28 an hour for legacy workers. Wages for some of those lower-paid employees have since risen to about $19 an hour and the legacy rate hasn’t increased.
“I don’t think they view that as any sort of an impediment, but rather than an asset in many cases, because they’re able to attract and retain skilled workers,” Paul said by telephone.
While Boeing fell short in getting the new wage scale, other manufacturers are winning approval from their unions to follow the automakers’ lead.
General Electric Co. (GE) says it has added about 2,500 production jobs since 2010 at its home-appliance plant in Louisville, Kentucky. Under an accord with the union local, new hires make $14 an hour assembling refrigerators and washing machines, compared with a starting wage of about $22 for those who began before 2005. While CEO Jeffrey Immelt has said GE could have sent work on new products to China, it instead invested $1 billion in its appliance business in the U.S. after the agreement was reached.
The company is also moving work to lower-wage states. In Fort Edward, New York, GE plans to dismiss about 175 employees earning an average of $29.03 an hour and shift production of electrical capacitors to Clearwater, Florida. Workers there can earn about $12 an hour, according to the United Electrical, Radio and Machine Workers of America, which represents the New York employees.
GE announced today the plant will close as soon as September 2014 after it rejected a proposal by the union to avert a shutdown.
The shift has nothing to do with worker pay, according to Sebastien Duchamp, a GE spokesman, who said the company doesn’t comment on its wages. Closing the Fort Edward plant, which the company says has been unprofitable for years, and moving work to an existing facility run by its energy management business in Clearwater will help GE stay competitive by boosting productivity, Duchamp said.
“GE’s business units continuously review their operations and sometimes have to make tough decisions to keep up with market trends, address customer demands or reduce cost,” Duchamp said in an e-mail. “The intention of the proposed move is to address the increasing cost pressures and leverage the resources” available at the Florida site.
Bruce Ostrander, 64, who’s spent 21 years with GE, said he has little hope of finding a position matching his current pay at the Fort Edward plant. He lives in the Glens Falls part of New York state, which lost more more than 10 percent of its manufacturing jobs over the past 10 years. Factory jobs account for about 10 percent of the area’s employment, or about half of the early 1990s level.
“I’m forced into retirement,” Ostrander said in a telephone interview. “I’m not a doddering old man. I want to work.”
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