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Manufacture This

The blog of the Alliance for American Manufacturing

In a post at IN THESE TIMES, Mike Elk provides an excellent analysis of why Wal-Mart could afford to pay its workers more, but doesn't.

There's a longstanding view that Wal-Mart "could not raise wages without raising prices, which would hurt poor and low income communities."  In fact, says Elk, a new study shows this not to be the case:

However a study released on Monday by University of California, Berkeley’s Center for Labor Research and Education found that increasing wages to $12 per hour would cost Wal-Mart $3.2 billion if applied to all workers across the United States. That amounts to about 1 percent of the company’s annual sales of $305 billion. Even if Wal-Mart were to pass on the total cost of the wage increase to consumers, researchers estimate that shoppers would pay about $12.50 more per year – or 46 cents per shopping trip – to cover the cost of the pay raise for Wal-Mart workers.

UC Berkeley researcher Ken Jacobs doubts that all the costs of a wage increase would be passed on to consumers in the form of increased prices, because increasing prices would lower the amount of goods Wal-Mart would sell.

Elk reports that this misperception about wages extends to manufacturing jobs as well.  The prevailing view is that China gains an advantage due to its low-wage workforce.  Elk quotes AAM Executive Director Scott Paul, who explains that, in actuality, labor represents only "a very small percentage in all but some of the most rudimentary manufacturing, like textiles":

For things like steel high tech or most manufacturing that is heavily capital intensive the labor impact is minimal.  Labor costs in China amount to less than 10% of overall cost, labor cost differential washed away by productivity in the United States.

Elk also quotes Paul on wage comparisons between the U.S. and other industrialized nations:

Average factory compensation for a worker in the United is $32 dollars an hour. In Germany, the average factory worker makes $48 dollars an hour. Despite this, the United State has a $275 billion trade deficit, while Germany has balanced trade with China. How is it that when our labor costs are $16 an hour cheaper than Germany?  It has everything to do with our trade policies, infrastructure policies, tax policies and investment in skills, and very little if anything to do with the cost of labor.

What the U.S. really needs is a concerted national manufacturing strategy to drive job creation and a thriving industrial sector.

Read Mike Elk's full report on Wal-Mart wages.