High wages are not behind the decline in U.S. manufacturing competitiveness, according to Exchange rate policies, not high wages, are why U.S. lags China and Germany in export performance, a new EPI report released today. Instead, currency manipulation and unfair trade practices are to blame for the loss of 5.4 million U.S. manufacturing jobs between 1997 and 2013.
In the report, EPI Director of Trade and Manufacturing Research Robert E. Scott argues that because high wages are not to blame for manufacturing job loss in the United States, the U.S. can rebuild manufacturing without cutting manufacturing wages. Scott looks to countries like Germany—which has among the highest manufacturing wages in the world while maintaining a stable share of world exports and suffering only minimal manufacturing job losses—for strategies to rebuild manufacturing in the United States.
“The idea that high wages in the manufacturing industry are causing job losses is common, but incorrect,” said Scott. “Pushing manufacturing jobs into the low-wage, nonunion south is a race-to-the-bottom strategy that should be rejected. Instead, we need to fight currency manipulation by countries like China and take a page from Germany and Europe to rebuild American manufacturing.”
Thanks to policies that benefit and support the manufacturing sector, Germany has sustained high wages and a stable share of world exports of manufactured goods despite Chinese currency manipulation and growth. In 2013, hourly compensation in Germany was $48.98, more than one-third higher than in the United States ($36.34). Compensation has also grown faster in Germany than the United States—between 1997 and 2013, compensation grew 3.3 percent a year in Germany, versus 2.9 percent a year in the United States.
If high wages alone were sending production to China, then German exports would have declined, instead of holding steady between 1997 and 2013. During this time period, China quadrupled its share of world exports of manufactured goods from 3.9 percent to 17.6 percent through policies such as intentional currency manipulation and the illegal subsidization and sharing of cyber espionage findings with Chinese companies. Germany’s share declined only slightly from 11.0 percent to 10.4 percent, while the U.S. share fell by nearly one-third, from 13.7 to 9.5 percent.
This is the proof that high wages should not be the target of policies aimed at rebuilding U.S. manufacturing. The United States should fight currency manipulation and unfair trade practices, as well as take a page from countries like Germany by adopting policies that support manufacturing. These policies include increasing spending on research and development, supporting “stakeholder capitalism” in which boards of directors include an equal number of representatives of workers and managers, and heavy investment in training and job creation.