Slow Compensation Growth Boosts Competitiveness Of U.S. Manufacturing

December 17, 2014

Anemic growth in worker compensation since the start of the decade has substantially strengthened the cost advantages of U.S. manufacturing against other mature economies, according to data on 34 countries released today by the International Labor Comparisons (ILC) progrm of The Conference Board.  In 2013 (the last year for which data is available), hourly compensation costs for American manufacturers averaged $36.34, up just $1.59 from 2010.  This represents slower growth than even the crisis years of 2007-2010, over which hourly costs grew $2.71.

“Despite a rapidly shrinking unemployment rate, U.S. manufacturing saw exceptionally low worker costs growth in recent years, especially compared to European countries with often weaker recoveries but more rigid labor markets,” said Elizabeth Crofoot, Senior Economist with the ILC program.  “Our dollar-denominated data reveal a broad spectrum among advanced economies: At one end, countries where labor costs are relatively low and still declining – notably Japan and Greece.  At the other end, countries – led by Switzerland, Sweden, Australia, Norway, and Germany – where already high pay and benefits continue to rise at relatively rapid rates.”

“Looking ahead, the dollar’s recent return to appreciation may somewhat shrink the cost advantage built by U.S. manufacturing in 2010-2013 over other mature economies,” said Bart van Ark, Chief Economist at The Conference Board.  “And while emerging markets in Asia, Latin America and Eastern Europe will maintain large cost advantages over the U.S. for the foreseeable future, depreciation of their currencies could significantly narrow the gap and put more pressure on productivity gains to avoid further erosion of those countries’ competitiveness.”

In dollar terms, only Greece, Japan, and Ireland among countries compared saw slower manufacturing compensation growth than the U.S. between 2010 and 2013.  Hourly labor costs in Japan ($29.13) and the U.K. ($31.00) were below American levels in 2013; compensation was higher in most other large mature economies.  Taking a longer view, local costs in manufacturing as a percentage of U.S. costs rose between 1997 and 2013 in all economies compared except Japan, Brazil, and Taiwan.

Source: The Conference Board