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Depressed Wages & Working Conditions

It’s bad enough that those jobs are lost, but those low foreign wages also are depressing wages and working conditions at home.

Most of the replacement jobs are the wrong kind

As we have seen, many of the manufacturing jobs lost to offshoring have not been replaced.  But what of those jobs that have been created?  Unfortunately, the jobs that have been created during the recovery from the Great Recession have tended to be in lower-paying sectors of the economy.  The National Employment Law Project (N.E.L.P.) reported this trend early in the recovery, but with the caveat that it may be temporary.[i]  In a new report issued in April 2014,[ii] the N.E.L.P. concluded that “low-wage job creation was not simply a characteristic of the early recovery, but rather a pattern that has persisted for more than four years now.” [iii] 

The report found that during the recession, employment losses were concentrated in mid-wage and high-wage industries; however, during the recovery, employment gains were concentrated in lower wage industries.  By the spring of 2014, the economy had re-generated a number of jobs exceeding the number that had been lost during the Great Recession.  However, there were: 

  • 976,000 fewer jobs in higher-wage industries,
  • 958,000 fewer jobs in mid-wage industries, and
  • 1,850,000 more jobs in lower wage industries

than at the start of the recession.[iv]

As the New York Times reported:  “With joblessness high and job gains concentrated in low-wage industries, hundreds of thousands of Americans have accepted positions that pay less than they used to make, in some cases, sliding out of the middle class and into the ranks of the working poor.”[v]

These findings are consistent with an overall decline in real household income, which the Census Bureau reported as falling by 8.3 percent, from $55,627 to $51,017, between 2007 and 2012, five years into the recovery.[vi]

Just as troubling, the N.E.L.P. found a tendency toward an “hourglass” employment situation:  “Service-providing industries such as food services and drinking places, administrative and support services, and retail trade have led private sector job growth during the recovery. These industries, which pay relatively low wages, accounted for 39 percent of the private sector employment increase over the past four years.” [vii] 

On the other hand, the N.E.L.P. reported strong growth in some high-paying industries such as professional, scientific and technical services.  As the Times reported:  “Economists worry that even a stronger recovery might not bring back jobs in traditionally middle-class occupations eroded by mechanization and offshoring. The American work force might become yet more “polarized,” with positions easier to find at the high and low ends than in the middle.” [viii]

Key Finding:

During the Great Recession, employment losses were concentrated in mid-wage and high-wage industries; however, during the recovery, employment gains were concentrated in lower wage industries:  In July of 2014, five years into the recovery, the number of jobs was back to pre-recession levels; however there were approximately 1.9 million fewer jobs in mid-wage and higher-wage industries, and 1.9 million more jobs in lower-wage industries. 

 

[i] “A Year of Unbalanced Growth: Industries, Wages and the First 12 Months of Job Growth after the Great Recession.”  National Employment Law Project Data Brief.  February 2011. 

http://nelp.3cdn.net/35f827759654da7a74_0am6bt3s5.pdf

 

[ii] “The Low Wage Recovery: Industry Employment and Wages Four Years into the Recovery.:  National Employment Law Project Data Brief.  April 2011.  http://www.nelp.org/page/-/Reports/Low-Wage-Recovery-Industry-Employment-Wages-2014-Report.pdf?nocdn=1

 

[iii] Tracking the Low-Wage Recovery: Industry Employment & Wages.  National Employment Law Project. 

http://www.nelp.org/page/content/lowwagerecovery2014/

 

[iv] The N.E.L.P.’s report also documents severe job losses in manufacturing of durable and non-durable goods consistent with those we have reported.  See Table 1 at p. 9 and following. 

 

[v] Annie Lowrey,Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones.” New York Times, April 27, 2014. 

http://www.nytimes.com/2014/04/28/business/economy/recovery-has-created-far-more-low-wage-jobs-than-better-paid-ones.html

 

[vi] “Income, Poverty, and Health Insurance Coverage in the United States: 2012”, U.S. Census Bureau, 5.

http://www.census.gov/prod/2013pubs/p60-245.pdf

 

[vii] Id.  One of the big reasons for the movement towards lower-paying replacement jobs is that many of the new jobs are low-pay jobs in the warehouses and distribution centers that receive the foreign goods and distribute them to U.S. retailers and online buyers.  See discussion below.  

 

[viii] Annie Lowrey, “Recovery Has Created Far More Low-Wage Jobs.”

 

Fewer jobs leads to depressed wages and working conditions

Second, as we have seen in our discussion of the “jobs gap” and the slack labor market, there are more American workers chasing fewer jobs.

Although one hears occasional talk of an “inherent” value of the work performed in a certain job, wages are set largely by supply and demand: when there is an excess of supply of workers hunting for work, employers can bid down the hourly pay and working conditions offered.  In April 2014, the New York Times reported:

With 10.5 million Americans still looking for work – the unemployment rate is 6.7 percent – employers feel no pressure to raise wages for those who are working.  As a result, the average household’s take-home pay has declined through the recession and the recovery to $51,017 in 2012 from $55,627 in 2007, after adjusting for inflation.[i] 

In particular, offshoring low-skill-intensive tasks reduces the home-country demand for low-skill workers; the excess of supply over demand drives their wages down.  The result is “sweated labor” in the United States, as well as abroad.  A prime example of this effect is the warehousing, or “goods movement” industry, in which Amazon and Wal-Mart are principal players.

The Warehousing Industry

One of the big reasons for the movement towards lower-paying replacement jobs is that many of the new jobs are low-pay jobs in the warehouses and distribution centers that receive the foreign goods and distribute them to U.S. retailers and online buyers. 

Distribution centers often are operated by contracted logistics or warehouse management companies, who in turn outsource and subcontract their work, frequently including temporary worker agencies.  The bid to move goods as quickly and cheaply as possible has led to a “time and profit 'squeeze'” along the supply chain, with ill consequences for the wages and working conditions of logistics workers.

For example, an Allentown, PA newspaper reported in September 2011 on working conditions in the Amazon fulfillment warehouse located there.  In words strikingly paralleling the reports of conditions in the sweatshop factories in China, the newspaper reported:

  • Workers endured temperatures soaring to 100 degrees, with Amazon responding not by lowering temperatures but by parking paramedics in ambulances outside;
  • Workers were pushed to meet unsustainable work flows and were frequently reprimanded regarding their productivity and threatened with termination, with employees falling short being fired and publicly escorted from the facility
  • Workers were hired by a temporary help agency paying $11 to $12 per hour, with few moving to permanent employment by Amazon; instead, employees reported that they were pushed harder and harder to work faster and faster until they were terminated, they quit or they got injured.”[ii]

As one worker told the newspaper, "They can do that because there aren't any jobs in the area."  The Morning Call reported:

In a better economy, not as many people would line up for jobs that pay $11 or $12 an hour moving inventory through a hot warehouse. But with job openings scarce, Amazon and Integrity Staffing Solutions, the temporary employment firm that is hiring workers for Amazon, have found eager applicants in the swollen ranks of the unemployed.[iii]

Walmart follows similar practices at its warehouses in the United States.  For example, Workers at Wal-Mart’s “Inland Empire” warehouse in Mira Loma, California have filed a federal lawsuit complaining that Wal-Mart is pressuring the contractor and subcontractors who operate the warehouse to work more quickly and is complicit in working conditions that include lack of air conditioning in an area that routinely sees triple-digit heat, lack of safe drinking water and breaks. The case is particularly notable because this is the “Inland Empire” warehouse that receives containers from the ports of Los Angeles and Long Beach that have traveled from China, and reships them to Wal-Mart distribution centers and stores across the U.S. Marc Lifsher, “Warehouse workers say Wal-Mart responsible for poor conditions,” Los Angeles Times, November 30, 2012.

http://articles.latimes.com/2012/nov/30/business/la-fi-mo-warehouse-workers-say-walmart-responsible-for-poor-working-conditions-20121130

Amazon and Wal-Mart may be the largest actors in the “goods moving” industry, but they are not outliers. Unfortunately, they are representative of general conditions in the industry, which may be extrapolated from a 2010 study of the warehousing industry that has sprung up in Wills County outside Chicago, one of the nation’s largest goods-moving hubs, and reported the following findings:

  • 63% of workers in warehouses were temps
  • The majority of warehouse workers made poverty-level wages, and temps had it worse than direct hires. The median hourly wage for a temp was $9.00 an hour–$3.48 an hour less than direct hires
  • 1 in 4 warehouse workers had to rely on government assistance to make ends meet for their families
  • 37% of current warehouse workers had to work a second job to provide for their families
  • Temps were far less likely to have basic benefits. For example, only 5% of temps had sick days and 4% had health insurance
  • 20% warehouse workers had been hurt on the job. Of those, 1 in 3 were disciplined or fired when they reported their injury.[iv]

Key Finding:

So, we have moved our manufacturing to sweatshops offshore, and have created new, domestic sweatshops for receiving and distributing the products made in the offshore sweatshops – a “gulag archipelago” of sweatshops scattered around the world and around the United States.

Other low-wage industries have been feeling similar effects.[v]


[i] Annie Lowery, “The recovery has created far more low wage jobs than better paid ones,” New York Times, April 28, 2014. http://www.nytimes.com/2014/04/28/business/economy/recovery-has-created-far-more-low-wage-jobs-than-better-paid-ones.html

[ii] “Inside Amazon’s Warehouse,” The Morning Call, Allentown, Pennsylvania, www.mcall.com, September 18, 2011.  http://www.mcall.com/news/local/amazon/mc-allentown-amazon-complaints-20110917-story.html#page=1

[iii] Id.

[iv] “Bad Jobs in Goods Movement: Warehouse Work in Will County, IL.” Warehouse Workers for Justice, with technical assistance from Center for Urban Economic Development at the University of Illinois at Chicago. 2010. http://www.warehouseworker.org/badjobs/   . In the “first large-scale study of workers in warehousing in the country” the worker advocacy organization Warehouse Workers for Justice, with technical assistance from the University of Illinois at Chicago, interviewed 319 workers from 156 warehouses, including both temp workers and direct hires.   

[v] See, e.g., Atossa Araxia Abrahamian, “U.S. fast-food workers protest, demand a 'living wage',” Reuters, August 29, 2013.  http://www.reuters.com/article/2013/08/29/us-usa-restaurants-strike-idUSBRE97S05320130829

The Depressing Effect of the Threat of Offshoring

This mismatch of supply and demand would be bad enough – however, it is worsened by the competition from abroad:  domestic employers claim that they “must compete” with foreign wage scales, by paying lower wages in the U.S., under threat of sending the jobs overseas.  And this is true not only for the low-paying jobs, but also for historically high-paying jobs, such as manufacturing. 

The Bureau of Labor Statistics has provided the following comparison of manufacturing wages among countries:

Here are the accompanying data with respect to China:

BLS stopped gathering these statistics in 2009, and China’s average manufacturing wages have continued to rise, to the point where they are said to becoming comparable to Mexico’s.[i] 

Even with that, what is striking about this chart is the stark contrast between the wages being paid in the United States and the other developed industrialized nations, on the one hand, and the rest of the world on the other. 

As we have seen, many manufacturing jobs have been sent overseas, especially to China, in pursuit of these low wages.  However, U.S. employers have used these foreign wages in negotiating wage rates for domestic jobs as well.  The effects also can be seen in the “two tier” wage scales being imposed in industries such as aerospace and automobile manufacturing. 

For example, the 2011 contract approved by the United Auto Workers provides for a two-tier wages system under which the , the big three U.S. auto makers can hire new workers at $15.78 per hour (rising to $19.28 by 2015), compared the existing factory workers’ rate of about $28 per hour. [ii]  Automobile assembly formerly embodied the job that would support a family.  As we will see, $19.28 won’t support a family, even if two parents are holding down two full-time jobs earning that rate.  With the downward pressure flowing from the threat of offshoring to low-wage sites, U.S. workers in what formerly were our flagship jobs are being offered wages and benefits that bear no relationship to the true cost of living of an American family today. 

 

[i] “Supply Chain News: Rise in China Wages Now Means Labor Costs about 20% Lower in Mexico, New Study Finds,” Supply Chain Digest, Editorial Staff, April 8, 2013.

http://www.scdigest.com/ontarget/13-04-08-1.php?cid=6913

[ii] Joann Muller, “UAW's Loss And What It Means For Your Paycheck,” Forbes.com, February 15, 2014.

http://www.forbes.com/sites/joannmuller/2014/02/15/uaws-loss-and-what-it-means-for-your-paycheck/

 

The Big Squeeze

We are living in the Big Squeeze: Up and down the American economy we have imposed pressure on each other, to do more, with less, at a lower price. At the high end, a banker at a leading American bank recently returned from a ten-day training. Asked her how it went, she replied, it was terrible – she is a “top producer,” and she is facing constant pressure to produce more. She is expected to spend her evenings handling company emails, but during that time, her priority is her children.

 

In the middle of the spectrum, the Boeing case shows how the threat of offshoring plays into the larger trend of extracting more for less: Boeing threatened to move the 777 production to lower-wage locations in the U.S., and, ultimately, abroad, until the Seattle workers agreed to significant wage and benefit concessions.

 

At the low end of the spectrum, we have seen how low-wage workers in distribution centers are constantly pressured to meet increasing quotas until they eventually are let go. But the pressure is ubiquitous: a young woman working at an ice cream parlor is taught how to up-sell when dealing with customers; the store uses a computer program to track the employees’ up-selling, and only the successful up-sellers (she bragged that she is one) will “get their hours” in the schedule. Even minimum wage workers are feeling the Big Squeeze.

 

The Big Squeeze extends to governments: state and local governments and their economic development agencies are reduced to trying to outbid each other in tax holidays, tax credits, and cash grants to lure manufacturing businesses into their economies. The tax base for building and maintaining schools, roads, and other infrastructure is undermined, and another community is often the loser as an existing facility relocates away. It is a negative sum game for the national economy, and often one that everyone loses as the company decides to locate offshore after all.

 

For workers, the Big Squeeze too often means being offered a wage that bears no relation to their families' cost of living.  (See "When Life Doesn't Add Up," below.) 

 

GO TO Underemployment & Jobs/Skills Mismatch.

News and Events

May 15, 2014, Ontario, CA - MIAA's founder, Jim Stuber, delivered the keynote address at the 20th annual World Trade Conference sponsored by the U.S. Department of Commerce and the California Inland Empire District Export Council in Ontario, California.  To view the conference agenda, click here:

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May 7, 2015, Radnor, PA.  MIAA's founder, Jim Stuber, appeared as the guest of host Richard J. Anthony, Sr. on The Entrepreneur's Network TV at Radnor Studio 21.  The program featured a discussion of the problems caused by offshoring manufacturing and white collar jobs and how consmers can solve the problem with their spending decisions. 

Studio 21 has made the program available for viewing here:

https://youtu.be/UIOwBD6-1pk

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