American Manufacturing Workers Still Enjoy a Compensation Premium Over Other Similar Workers

By Economic Policy Institute

In a new paper, EPI Distinguished Fellow Lawrence Mishel finds that, although the increased shift in manufacturing work to temporary staffing agencies has eroded manufacturing pay and job quality, manufacturing workers still earn 13.0 percent more in hourly compensation than comparable private-sector workers. This manufacturing premium, however, has declined by about one fourth (3.9 percentage points) since the 1980s, when it was 16.9 percent.

The manufacturing premium has eroded as manufacturing firms respond to competition by squeezing workers and suppliers—paying lower hourly wages and increasingly using lower-paid staffing agency workers. The wage advantage of workers directly employed in manufacturing has fallen from 14.7 percent in the 1980s to 10.4 percent in the 2010s, which represents a significant decline (of 4.3 percentage points or about 30 percent), but which still constitutes a substantial manufacturing wage premium. Meanwhile, staffing and temporary help services provided 11.3 percent of all manufacturing employment in 2015, up from just 2.3 percent in 1989. The increased use of workers through staff intermediaries lowered the manufacturing compensation premium by 4.0 percent in the 2000s.

“We should not give up on U.S. manufacturing, which is still a source of better-paying jobs,” said Mishel. “But because there is less of a pay advantage in manufacturing than there used to be, policies to expand manufacturing employment should be coupled with policies that make those jobs good jobs.”

The notion that manufacturing is a source of good jobs has been challenged most prominently by a 2017 Congressional Research Service (CRS) report, which claims that the manufacturing compensation premium has disappeared. Mishel estimates the manufacturing premium by comparing the wages manufacturing workers earned to other comparable workers in the private sector, and then adjusting for the benefits earned and the impact of increased use of staffing firms (which is not completely captured in the underlying data). The resulting manufacturing compensation premium identified by this analysis, 13.0 percent in the 2010s, definitively refutes the CRS claim that the manufacturing compensation premium had disappeared.

The erosion of the manufacturing wage premium has been partially offset by improved benefits. Manufacturing workers have an advantage in benefits, primarily in insurance and retirement benefits, and this advantage grew between 1986 and 2017.

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