U.S. competitiveness: institute report offers new viewpoint on what's ailing manufacturers.

Position:News & analysis

The main culprit for manufacturing's troubles over the past decade is an overvalued U.S. dollar--not the hemorrhaging of jobs caused by unions, according to a report issued by the Economic Policy Institute, Washington, D.C.

While blue-collar workers actually earn lower wages than many of the most important U.S. trading partners as they simultaneously post higher productivity levels, this competitive edge is being squandered, economist Josh Bivens said.

Key issues

Bivens lists these key factors:

  1. The U.S. dollar is "grossly" overvalued, which artificially drives up the price of U.S. goods abroad and drives down the cost of foreign-produced goods here. This imbalance over the past 10 years has created a 10-16 percent cost disadvantage for U.S. goods, compared to the previous decade.

  2. U.S. health care has a high cost, which, if reduced, could create a 4.6 percent cost advantage.

  3. U.S. managers are overpaid. If white-collar wages could be brought in line with those in comparable countries U.S. manufacturers could see a 6.4 percent cost advantage.

"Unfortunately, exchange rate movements over the previous decade have hamstrung the competitiveness of U.S. manufacturing," he explained. "The effects that relatively low compensation and high productivity should have had on the competitive position of manufacturing were eroded by the high value of the dollar.

Another result of the dollar over-valuation is that investors around the world have stayed away from U.S. manufacturing, leading to atrophy in the sector's capital stock, Bivens said in his briefing paper entitled, "Squandering the Blue-Collar Advantage."

Bivens also debunked the recent debate regarding an automaker rescue package over the "Myth of the $73-per-hour Autoworker."

He said pension and health "legacy costs" have nothing to do with the cost of current workers.

"Incumbent workers will not see a dime of these benefits, so expressing them as a function of the hours worked by current employees makes no sense," Bivens explained.

The actual hourly costs of union U.S. autoworkers--including all non-wage benefits--was roughly $55 per hour worked in 2006, he said, adding that this is not take-home pay, since it includes both pension and health benefits (about $12) and the implied monetary value of vacation, sick pay, and holidays.

He gave the example of a worker with five weeks of vacation, holiday, and sick leave combined. This worker would receive take-home wages of roughly...

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