Low-Wage Jobs Dominate: Silver Lining for Manufacturers?

The U.S. job market sketches a sunny picture with an average of approximately 209,000 jobs created over the last six months – the best clip of gains since the end of the 1990s. Meanwhile, the national unemployment rate in July, standing at 6.2%, marks the eighth consecutive month of a jobless rate below 7%. With the recent uptake in the jobs created in professional and business services, manufacturing, retail trade and construction, the economy envisages brighter days ahead.

However, a detailed scrutiny of the fresh job additions reveals a disturbing brew of statistics. While the U.S. economy has recouped all jobs lost during the recession, what it hasn’t been able to regain is the lost income.

The Income Backdrop Looks Cloudy

According to a report by IHS Global Insight, an economic consulting company, the average annual income of jobs lost between 2008 and 2009 was $61,637, while the average for those gained through the second quarter of 2014 was $47,171. The jobs recovered since the end of the recessionary period have thus, as a whole, been less rewarding than the ones lost.

Furthermore, the top 20% of the highest earning households saw their incomes rise a handsome 51% in 2012 compared with 43.6 % in 1975. Meanwhile, growth was even greater for the top 5% of the wealthiest Americans. So while the rich were busy getting richer, the poor were forced to pinch pennies.

The two sectors that lost the maximum number of jobs during the recession are manufacturing, with average pay of about $63,000, and construction, at about $58,000. Employment in these two fields still stands at about 3 million workers short of where it was at the start of 2008.

Looking further into the labor market, the picture only gets gloomier. The labor force participation rate, which is the percentage of the available workforce that's employed or actively looking for work, has been on a downtrend. The current rate of 62.9% compares unfavorably with 66.1% before the recession. This is because many workers who lose decent-paying jobs basically wait for those jobs to return, drawing unemployment insurance as long as possible and then stepping out of the labor force. Moreover, the long-term unemployed (those out of work over 27 weeks) share is at 32.9%, versus 19.1% before the recession.

Manufacturing Recovery on Track

While low-wage manufacturing jobs have added to the ordeal of workers, it has been a blessing for manufacturers. With a low labor-cost component, U.S. manufacturers are becoming increasingly competitive. A labor cost advantage could actually end up drawing more companies to the U.S. and help create millions of job opportunities.

Boston Consulting Group predicts that the growing U.S. Cost Advantage could help the country capture between 700,000 and 1.3 million new manufacturing jobs by 2020, plus as many as 3.5 million additional jobs through increased economic activity and exports. Interestingly, a growing number of American companies are now reversing the off-shoring trend and drawing manufacturing back to the States.

The list of manufacturers that came back home over the past few years includes biggies like General Electric Co. (GE), Apple Inc. (AAPL), Nike, Inc. (NKE), Google Inc. (GOOGL), Ford Motor Co. (F), Caterpillar Inc. (CAT) and Wal-Mart Stores Inc. (WMT). While most of these manufacturers have migrated some of their products and/or operations to the U.S., Walmart has notably pledged to support the revival of domestic manufacturing by expending $50 billion through 2023 on U.S.-made goods.

Bottom Line

The U.S. manufacturing sector is witnessing a structural shift toward becoming a technology-driven industry that pays decent wages to skilled workers. With an increasing number of U.S. factories opening up and the pool of available skilled labor shrinking, manufacturing wages are ought to rise.

However, even as the U.S. manufacturing is making something of a comeback, the benefits are yet to trickle down to the breadwinners. And we are all earnestly waiting for that. After all, a revival rejoiced by millions is more celebratory than the one confined to just a few firms.