The Manufacturing Wage Premium

Susan Helper, Timothy Krueger, and Howard Wial forcefully make the case for manufacturing in a Brookings paper (PDF) where one subject of interest is the seeming existence of a wage premium in the manufacturing sector. At different skill levels, manufacturerers pay more:

What I wonder when people point this out is what they think follows from this. Here’s one though. In India, a very large segment of the workforce is doing extremely low wage work in the agricultural sector. And agricultural productivity is limited by the availability of land. So insofar as you’re able to subsidize the creation of manufacturing work, not only do the people who get the manufacturing jobs earn higher wages—the residual agricultural population earns higher wages too. This off the farm aspect to industrialization has historically been a huge driver of prosperity and I think it’s crucially important for political leaders in developing countries to think about it.

But now to the United States. Manufacturing jobs pay a wage premium. But of course precisely for this reason firms try to avoid hiring lots of expensive U.S. manufacturing workers. One way to bring back manufacturing jobs would be to declare war on the wage premium to bring costs down. But what proponents of manufacturing-oriented industrial policy seem to have in mind is that because we love the premium wages we ought to subsidize manufacturing firms in order to dissuade them from shedding jobs. But this is not like the Indian case. Here if we tax agricultural and service labor in order to subsidize manufacturing, we’re just transferring resources from nures and cashiers to factory workers. There’s no win-win bounceback. Why not forget about the wage premium and instead tax wealthy people and use the funds to subsidize wages across the board or offer more generous public services? My way we’re subsidizing the incomes of people in need across the board. The manufacturing-focused way we’re subsidizing the incomes of manufacturing workers in a way that includes manufacturing CEOs, in-house attorneys, and lots of other non-needy people while doing nothing for the cashiers and waitresses of American.