US Manufacturing Competitiveness in Global Trade

December 27th, 2011 at 3:13 pm

Those of us ensconced in debates in support US manufacturing often hear opponents claiming that the over-regulated US labor market and unionized heavy industry render us uncompetitive in global markets.

That may sound convincing given competition from emerging markets, but there are lots of advanced economies with long records of positive net exports, while we continue to run large deficits in manufactured goods, year after year.

If you’re thinking the difference must be prices, you’re thinking like an economist…and you’re pretty much wrong.

This new BLS report (including a link to their rockin’ new dashboard—go BLS!!) provides the data in the form of manufacturing compensation costs across countries, with conversions to dollars using market exchange rates.

First, as shown in the first figure, in the most recent year for which they have complete data, we’re toward the low end of the advanced economies in terms of compensation costs.  Second, in dollar terms, manufacturing compensation costs have increased much faster elsewhere over the past decade (figure two; these summary measures use trade-weighted currencies, based on each countries relative share of US trade; you can use the dashboard link above (open the Excel file) to view individual countries).

* OECD, Eastern Europe, East Asia

Source: BLS, see link above

Now, compensation costs aren’t the whole story, especially with manufacturing becoming more capital intensive, but at least by these measures, which of course account for exchange rate movements (essential when we’re discussing price competitiveness), there’s not much support at all for an argument that overpaid manufacturing workers are the source of our competitive disadvantage.

I’d argue it has a lot more to do with the lack of a coherent manufacturing policy, wherein public and private representatives strategize on the best ways to boost the sector and gain global market share.  Of course, this means retiring the canard that “we don’t pick winners.”  Our competitors are well ahead of us in these endeavors and this is not the time for ideological sloganeering.


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11 comments in reply to "US Manufacturing Competitiveness in Global Trade"

  1. Jean says:

    In your opinion, how much of the

    “the lack of a coherent manufacturing policy, wherein public and private representatives strategize on the best ways to boost the sector and gain global market share”

    has to do with the taxation policies in re off shore profit, and a reluctance on the part of industry [both offending and non-offending] to come to the table until that is dealt with in an open and fair manner?

  2. PeonInChief says:

    Our government picks winners all the time–Halliburton, General Dynamics and Boeing, for instance.

  3. Nhon Tran says:

    Thank you.
    Interesting charts. When manufacturing labour productivity is taken into account (that is, manufacturing unit labour cost), the US ranking is probably lower still because manufacturing labour productivity is probably higher in the US than in most of other advance economies.
    In my view, the formulation of a coherent manufacturing policy must have regard to its effect on the economy as a whole, not just the effect on the manufacturing sector. Any assistance to manufacturing must be paid for by the rest of the economy.

  4. Ben Leet says:

    China’s manufacturing expense is $1.36 an hour according to Monthly Labor Review, March 2011. Your figure of US cost, $34/hour matches the BLS stat from the March report. And in Mexico 60% of workers earn less than 3 times the minimum wage which is $4.50 a day. I think wage decisions are critical, as are also currency conversion decisions — investing in China is much cheaper when the Chinese depress the value of their currency, because US investment dollars buy more. We lost about 1/3rd of manufacturing jobs in past decade. In the US — $70,000 per employee, in China less than $3,000 per employee. India and Ukraine, and elsewhere Indonesia, still very low. The second graph, the increase in cost graph, is misleading, Jared. Increase $1.36 by 50% and it’s only $2.10 an hour. Are there not about 4 times the population just in China who want US manufacturing work? Imagine you have a $billion, where are you placing that billion? Probably not in the US. Definitely you are looking for cheap expenses and a growing consumer demand — where would that be?

    • Jared Bernstein says:

      So called emerging economies, like China, are not in the 2nd chart. Only the ones from the first chart are in the 2nd. My point is that many countries with higher levels and faster growth in their manufacturing comp relative to US (eg, Germany) have consistent trade surpluses compared to our persistent deficits.

  5. Fred Donaldson says:

    Many of these developed countries, especially Germany, also boast strong labor movements and involvement of workers in corporate manufacturing decisions, even serving as directors.

    Few of us today recognize that an original value of unions was apprenticeship and journeyman training to bring new workers up to high standards, and then battle to get them wages based on that experience and ability. It also was often the responsibility of the union to provide qualified workers, not as we do today by using some moron HR person who studied psychology at Princeton or Harvard, but couldn’t hold hit a nail with a hammer and five tries.

    Too many people look down their noses at trades they couldn’t perform – not because they don’t want to, but because they lack the mental and/or physical capacity. College doesn’t teach you how to decide the multiple angles on roof construction or how to operate a lathe. It takes training and encouragement, and some respect from society of the work accomplished.

    An educational system that graduates people who don’t recognize a phillips screwdriver, let alone its 57 degree point, will never produce highly skilled workers to compete with any truly developed country.

    Not everyone can be an economic genius like Mr. Bernstein, and graduating too many financial gurus is probably as bad for society as too many lawyers.

    But we can never have too many top notch machinists and carpenters.

  6. Lewis Carroll says:

    Hi Jared,

    Just curious – do these figure include ALL employee-related cost inputs? E.g. the cost of employer-paid healthcare contributions in the US.


    • Jared Bernstein says:

      Yes–“all in” compensation. The BLS article breaks down the different components, I think.

  7. Bruce Ross says:

    It tend to think of Taiwan as a wealthy country — maybe because it has a universal health care plan — but it’s not, at least not U.S/Western Europe wealthy.

    Interesting, though, how much higher Brazil’s typical wages are, compared with its GDP per capita, vis-a-vis Taiwan. Taiwan’s workers seem underpaid.