Sunday, January 29, 2012

They're not your father's manufacturing jobs

Here's an awesome anti-Yglesias screed where the author states the following:

I support high employment in manufacturing. The reason is that I believe that people are paid more if they work in manufacturing than if they work in other sectors.

And the following:

 People get something for nothing if they switch from employment in services to employment in manufacturing -- well the data show they lose big if they move the other way. 

 This guy is saying that there are, in his words, "labor market rents" in the manufacturing sector.

I think what the recent evidence shows though is that there WERE labor market rents in the manufacturing sector.

These rents came from the power of unions. But (1) they weren't a free lunch, as they were partly paid for by higher prices to consumers. (2) These rents are, to a large extent, gone. Virtually every story I've seen about new manufacturing jobs talks about the two-tiered wage schemes where the incumbent workers earn the higher wages and better benefits and the new workers get significantly lower hourly wages and weaker benefits.

 Globalization is bringing this about and it's not going to go away. "Labor market rents" to unskilled (and indeed many skilled workers) are not sustainable as more and more countries join the global system.

I see little benefit in glamorizing and subsidizing manufacturing jobs in a specific way, as they are more and more $15/hour positions with limited upsides.

Of course, I don't even agree with the general notion that the government should be actively planning where its citizens will work.

I do see a role for subsidizing basic research. I have views about subsidizing the acquiring of skills, but my position in academia probably makes them suspect so I'll just leave that alone.


Robert said...

Thanks for the link. I admit that my views are based on old studies and I don't really know that there are still labor market rents.

However, they were not just due to unions. First the pattern is there in non union firms. OK so it might be union threat so they paid high wages to keep unions out. But the same pattern was found in the USSR where unions were not a factor.

Obviously I am being silly. You have an objection which can be confronted with data. My theory is that unions are not key and the differentials are still there. Yours is the opposite. We should look at data.

FRED has failed me. It has manufacturing compensation per hour only from 1987 which might be too late. There isn't a trend. They are indices so the ratio is set to 1 in 2005 (I think). The ratio since 1987 ranges from 0.97 to 1.03. The alleged relative decline in manufacturing wages would have to have happened by 1989. I didn't hear of it.

Also and by the way, I think very highly of Matthew Yglesias.

Angus said...

Hi Robert: thanks for your comments. I'd say that I don't just think it was unions but also the fact that we had a more closed economy as well. As for the data you seek, I'd say it's marginal, not average, manufacturing wages that matter.

I admit my analysis is totally anecdotal, but there appears to be a strong trend for new manufacturing jobs to be at lower pay levels than necessary to make them somehow "special".

big al said...

Nice story on This American Life by a guy who goes to FoxConn plant in Shenzhen, where they make Apple stuff:

He describes the giant plant and claims that there are over 400,000 workers there who work 12-hour days, 6 days a week for about $100/wk.

Things are different now. And they will stay different until the Chinese worker (for example) can increase his own consumption.