US manufacturing gains jobs as wages retreat

Manufacturers are hiring again in the US, softening a long slide in factory employment.

But for a new generation of blue-collar workers, even those protected by unions, the price of employment is likely to be lower wages stretching to retirement.

That is particularly true of global manufacturers like General Electric.

With labour costs moving down at its appliance factories here, the company is bringing home the production of water heaters as well as some refrigerators, and expanding its work force to do so.



Auto industry
The wages for the new hires, however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff – with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts are also showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment, according to Gordon Pavy, president of the Labor and Employment Relations Association and, until recently, the AFL-CIO’s director of collective bargaining.

“Some companies want to keep work here, or bring it back from Asia,” Pavy said, “but in order to do that they have to be competitive in the final prices of their products, and one way to be competitive is to lower the compensation of their American workers.”

The shrunken pay scale for newcomers – $12 to $19 an hour versus $21 to $32 an hour for longtime workers – threatens to undo the middle-class status of even the best-paid blue-collar jobs still left in manufacturing. A similar contract limits the wages of new hires at a nearby Ford Motor Co. stamping plant, but neither GE’s 2,000 hourly workers nor Ford’s 2,900, nor their unions nor the mayor, Greg Fischer, have objected.

Job creation
Quite the contrary, all argue that job creation must take precedence over holding the line on wages, given that the unemployment rate in this Ohio River city is above 9 percent and several thousand people apply for every unfilled, $13-an-hour factory job.

“The trade-off is absolutely worth it,” Fischer said, arguing that while the city is actively subsidizing GE’s expansion here, mainly through tax rebates, that is not enough. “You must have a globally competitive wage to create jobs,” the mayor insisted.

The generational setback implicit in a “globally competitive wage” is evident at GE’s Appliance Park, the complex of factories where GE makes refrigerators, washing machines, dishwashers and other household appliances. Six years into the adoption of lower wages for new hires, half of the hourly workers are paid at the reduced scale.

Source of friction
In an earlier era, that would have been a source of friction, perhaps protest. Now it isn’t, and in an interview William Masden, 62, earning $31.78 an hour after 42 years at Appliance Park, attempted an explanation. The younger workers still get annual raises, he noted, and by the time they top out, he and his peers – the oldest baby boomers – “won’t be here any longer to remind them of what they are missing.”

Linda Thomas, 37, one of the first to be hired in 2005 under the new arrangement, amends that explanation. Her hourly wage, $18.19, has almost topped out, although it is nearly $14 an hour less than Masden’s. But she keeps silent. Too many unemployed people, she explained, would clamor for her job and her wage if she were to protest.

“You don’t want to rock the boat,” Thomas said. “You take a chance on losing everything you have if you do.”

Masden’s final years at GE, doing safety checks, and Thomas’ willingness, however reluctant, to do equivalent work as a forklift driver at a much lower wage illustrate a big reason that General Electric decided to expand production here.

A new hybrid electric water heater will be manufactured in Louisville in a factory now being renovated, rather than in China, where GE makes its current model. And some production of refrigerators is being repatriated, mainly from Mexico.

“We have gotten to a point where making things in America is as viable as making things anyplace in the world,” said James P. Campbell, president and chief executive of GE’s appliances and lighting division, citing the drop in labor costs as a crucial reason. “They are significantly less with the competitive wage,” he said, “and that is a big help.”

The revival is in an early stage. By 2005, GE’s employment in Louisville had fallen to 2,300 hourly workers from a high of 17,000 in the 1970s. At that point, with the company insisting on concessions, Local 761 of the IUE-CWA union, representing the hourly factory workers, agreed to the lower wage scale for new hires. The union has ratified it in subsequent contracts.

Employment, in turn, has finally stopped falling and is beginning inch up from a low of 2,000 early this year as new hires start to come aboard faster than older workers leave. But the new people are always at the lower wage scale, except for some specialists – like machinists, who earn up to $26 an hour.

“We are getting from the company an $800 million investment in Appliance Park over the next two years, and what we had to do for that investment was accept the ‘competitive wage,”’ said Jerry Carney, president of Local 761.

Partly as a result, GE’s employment remains slightly greater in the U.S. than abroad. Nearly 80 percent of those in the U.S. are in manufacturing, reflecting GE’s origins and still its greatest strength. It has 219 factories in this country and 16 more are being built or renovated, including two in Louisville. An additional 230 GE plants are overseas, which helps to explain why 60 percent of the company’s $147 billion in annual revenue – from all sources – is generated abroad, up from 35 percent a decade ago.

Carney’s competitive wage – a euphemism that GE officials also use – is really, as both sides acknowledge, the price of halting or at least slowing this migration. It is the lower tier of a two-tier system first introduced in the 1980s. That system limited those consigned to the lower tier to 20 percent of a company’s work force.

In addition, new hires eventually advanced to the higher tier. Bonuses and profit sharing eased the pain, and they still do, but for a new generation of workers, graduation to the upper tier is disappearing, and the lower tier is becoming a new hire’s lifetime wage scale.

Economy strengthens
“My hope is that we will rebuild wages to their old levels over time as the economy strengthens and the demand for workers rises,” said Thomas A. Kochan, a management expert at the Massachusetts Institute of Technology. “But that is by no means a certainty.”

Neither the nation’s unions nor the government has tracked the number of jobs downgraded to the equivalent of a lower-tier wage scale, or the number of people who, like Thomas, have gone through the experience of a downgrade: in her case, from $19 an hour at the Ford auto body stamping plant – until she was laid off in 2005 – to a starting wage at GE a few months later of $12 an hour. “At the time I was very angry about the comedown,” she said, “but then I asked a couple of others who had gone through the same experience how they felt and they said, ‘We’re thankful to have a job.”

The decline in unit labor costs is striking. In manufacturing, the wages and benefits invested in each unit of production have fallen in eight of the past 10 years, a net decline of 13.6 percentage points, the Bureau of Labor Statistics reports. Productivity played a role – modern factories require fewer workers. Still, the decline is the greatest in such a short time since the statistic was first tracked in 1951.

In China, in sharp contrast, unit labor costs in manufacturing have risen in recent years, which means the gap between the U.S. and China, while still great, is nevertheless narrowing slightly – one reason that GE is making its new water heater here instead of there.

“We are at an inflection point in manufacturing in terms of relative cost structures,” said Mark M. Zandi, chief economist for Moody’s Analytics. “Ten years ago, it was a no-brainer to locate in China, and now it isn’t so clear whether China is the low-cost place to produce.”

Domestic production
The downshift in wages, however, is not GE’s only explanation for the rise in domestic production. In interviews, GE executives put almost as much emphasis on “lean manufacturing.” Production workers on a lean factory floor are encouraged to point out inefficiencies in assembly line routines and to participate in altering the routines. Given the productivity gains implicit in lean practices, GE envisions a growing hourly workforce at Appliance Park, but one that is nowhere near its size in the 1970s.

“The trade-off is absolutely worth it; the alternatives are $15 an hour or zero dollars an hour,” Fischer said.

Masden, divorced with two grown daughters, and Thomas, single and childless, reluctantly accept this view. Masden wonders if the next generation will ever make it into the middle class, as he did. “I never had to think about pay,” he said. “I just kept putting money in my pocket.”

Thomas doubts that her pay will rise above the $19 an hour she had earned at the Ford plant before her layoff. Her two older sisters still employed there are similarly worried.

“They were making $22 an hour and they are now making $15 an hour,” Thomas said, referring to a concessionary United Automobile Workers agreement. “They were totally upset. But the alternative offered by the company was cut the wage scale or close the plant.”