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Monday, 20 February 2012 11:00

Production wage spread narrows in Michigan

Written by  Rod Kackley
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MFG WagesWEST MICHIGAN — One of the selling points for companies in West Michigan for decades has been that labor is cheaper here than on the east side of the state.

But it seems local manufacturers are slowly losing that price advantage. Employee wages in the region are still lower than what is being paid by manufacturers in the Detroit area, but local wages are climbing much closer to what is being paid on the east side.

Grand Rapids production workers are making $17 an hour for durable goods and $18 an hour for non-durable goods manufacturing, according to the latest survey from The Employers' Association (TEA) in Grand Rapids. That’s about 8 percent less than their counterparts in the Detroit area, according to TEA.

Dave SmithTEA President and CEO David Smith told MiBiz Detroit factory owners were paying as much as 15 percent more than Grand Rapids employers a couple of decades ago.

“We always heard from our employers that West Michigan was a great place to live so we are going to pay you less,” he said. “But they have always been a little more generous with benefits because we do have paternalistic employers (in West Michigan).”

The idea that lifestyle can counter wages is what led Traverse City area employers to tell their people that “part of their pay was their view of the bay.” Smith said that is one reason that Traverse City factory workers make five percent less than they could in Grand Rapids.

It used to be that the philosophy worked. Detroit, Chicago, the east and west coasts really didn’t offer much competition for the West Michigan labor market. The region’s factory workers were “geographically loyal” to West Michigan, Smith said, so employers could sell the benefits of living here and the culture of their organizations to counter the lower wages.

That is not as true as it once was because the younger generation is much more mobile and very willing to move outside the region, even outside Michigan, to areas where wages are higher and the quality of life is perceived as being better.

They can make a lot more money in the factories in Chicago, where wages are 10-percent to 12-percent higher than wages in West Michigan. The east and west coasts of the U.S. are even more attractive, with manufacturers paying as much as 18 percent more than their counterparts in West Michigan.

The competition for talent in West Michigan is getting intense.

“The talent pool has expanded,” said Smith. “Manufacturers outside the region are pulling people away from us, and some companies moving into West Michigan are bringing their own people with them.”

He said the region’s manufacturing community is in a state of transition with a more competitive employment marketplace and a much more diverse workforce.

“I hear and see a lot of gnashing of teeth from employers trying to find talent,” said Smith. “Some companies that are paying whatever it takes to get people are pulling talent away from smaller companies, and that is creating a void at that level.”

He hopes West Michigan manufacturers will start training their own employees to resolve the talent issue, but there is a real “catch 22” scenario inherent in that because as soon as smaller companies train their people, the bigger, more cash-rich companies steal them away.

“So the smaller companies are really going to have to recognize that they have to promote their cultures,” Smith said.

According to U.S. Bureau of Labor Statistics (BLS) data, domestic manufacturing wages and benefits have fallen so much that hourly compensation costs in the U.S. were lower in 2010 than in several northern and western European countries, but higher than wages in the United Kingdom and 19 countries in southern and eastern Europe, Asia and South America.

From 1997 to 2010, U.S. cost competitiveness in compensation for manufacturing workers improved relative to all but five countries: Brazil, Germany, Japan, the Philippines and Taiwan. The Obama administration is using that as evidence in making the case for in-sourcing, a move to encourage U.S. manufacturers to bring overseas work back home.

Vice President Joe Biden toured American Seating Co. on Feb. 1 to talk about how the administration might encourage more companies to produce domestically rather than outsource.

“There needs to be access to decent paying jobs – that’s why we need manufacturing to return to America,” Biden said.

The BLS also reported in December 2011 that U.S. hourly compensation costs in 2010 rose about 2 percent from the previous year to $34.74. Norway’s hourly compensation costs in manufacturing were the highest in the world: $57.53 in U.S. dollars.

It is hard to say exactly what factory workers in China and India are getting paid. BLS statisticians warn that they have to fill in data gaps for both countries, but their best estimate is that workers in India were making $1.17 an hour in wages and benefits in U.S. dollars in 2007, the latest year for which data, such as it is, was available.

China’s hourly compensation costs were about $1.36 an hour in 2008, in U.S. dollars.

Michigan manufacturers are paying more for workers than the U.S. average, according to the state Department of Technology, Management & Budget’s labor market information.

It shows the average annual wage in 2010 for Michigan manufacturing or production workers was $37,110 as compared to the national average of $33,770.

However, that only tells part of the story. Health care costs are staggering for a lot of Michigan manufacturers. BLS data shows that in 2011, employer-sponsored health care added another 9.7 percent to the price of compensation. Ninety-one percent of manufacturing employers provide health care coverage to their employees.

Delaney NewberryMichigan Manufacturers Association spokeswoman Delaney Newberry told MiBiz that all has to be factored into the equation for her group’s members, along with the price of complying with government rules and regulations.

She said the situation is improving thanks to Gov. Rick Snyder and the Republican-led Michigan Legislature.

“The cost of government is dropping, barriers to job growth are being removed, business taxes are more in line with the rest of the nation and the results are beginning to show,” she said. “Michigan is now ahead of the national average in the percentage change on total job growth and manufacturing is leading the recovery.”

Read 2713 times Last modified on Sunday, 12 August 2012 17:57

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