Manufacturing vs. Services: Who gets paid the most?

Similar to the Industrial Revolution and the effects the economic shift had on agricultural employment during the turn of the 20th century, the manufacturing sector continues to lose jobs while simultaneously maintaining its productivity:

Manufacturing Employment vs Manufacturing Output While manufacturing no longer employs a large portion of the population, the manufacturing sector remains very productive.

Manufacturing Employment vs Manufacturing Output
While manufacturing no longer employs a large portion of the population, the manufacturing sector remains very productive.

Like farming, this evolution has been good for consumers: the sectors are more efficient and products are cheaper and more plentiful, but on the flip side, these sectors no longer employ as many people. And just like agricultural changes in the late 1800’s, the pains of this employment loss tend to be felt immediately while the benefits are usually diffused and harder to perceive in the short term.

These transformations, in both the agricultural sector and the manufacturing sector, produced a major sea-change in the social, political, and familial relationships of their employees, which could wind up lasting generations. The resultant fear of these changes can cause communities to revolt, sometimes politically by passing laws or inducements, or physically, like when hand-weaver guilds destroyed textile machinery in London during the industrial revolution. Whatever these actions may be, they are an attempt to protect those often at greatest risk from change: low-skill and low-income populations.

However, these policies can also wind up slowing the rate of innovation and adoption change. By the 1970’s, the service sector (finance, professional services, health care, etc.) became a larger part of the economy than traditional goods-producing industries.* This shifting economy, combined with the deregulations of the 1970’s and 1980’s, exacerbated the social bifurcation of America’s population, as Manzi’s 2010 National Affairs article expounded:

“The shift to services tended to enhance the prospects of the cognitive elite at the expense of the traditional industrial workers … [and] the social capital transmitted by intact families has therefore become a more and more relevant source of competitive advantage.”

The better-off got more better-off.

While the decline in manufacturing employment has been felt most by low-skilled, low-income, often minority workers, the sector has been steadily upskilling and still provides niche, highly-skilled jobs. The National Association of Manufacturers (NAM) estimates that there are currently 600,000 unfilled jobs available for whoever has the right set of advanced skills.

Yet unlike most other economic sectors, the skills-gap in the manufacturing sector has not resulted in an increase in wages. Unfortunately, this is somewhat of a self-inflicted wound: as productivity increased, so too has manufacturing profits, yet real manufacturing wages have actually stagnated or declined. Manufacturing company owners and shareholders often state that this is to remain competitive in an increasingly globalized market.

So I decided to compare manufacturing to other national sectors based on their National Value of Shipments. This could provide a very very rough way to compare payrolls to revenues generated per sector, or equity payoffs. In a sense, it is an estimate of how much “juice a lemon has left” to give their employees:

Top 10 Industries by National Value of Shipments

National Value of Shipments / Number of Paid Employees

US Census Bureau, 2007 Economic Census
 
1.       Manufacturing
$5.3 trillion/13.4 million; ($396,000 generated/employee)
Payroll: $614 billion; ($45,800/employee)
Employees receive 11.6% of revenue generated
 
2.       Wholesale Trade
$4.2 trillion/5.1 million; ($824,000 generated/employee)
Payroll: $336 billion; ($65,900/employee)
Employees receive 8.0% of revenue generated
 
3.       Retail Trade
 $3.9 trillion/15.5 million; ($253,000 generated/employee)
Payroll: $363 billion; ($23,400/employee)
Employees receive 9.2% of revenue generated
 
4.       Finance & Insurance
$3.7 trillion/6.6 million; ($561,000 generated/employee)
Payroll: $502 billion; ($76,100/employee)
Employees receive 13.6% of revenues generated
 
5.       Construction
$1.7 trillion/7.3 million; ($233,000 generated/employee)
Payroll: $331 billion; ($45,300/employee)
Employees receive 19.4% of revenue generated
 
6.       Health Care & Social Assistance
$1.7 trillion/16.8 million; ($101,000 generated/employee)
Payroll: $331 billion; (19,700/employee)
Employees receive 19.5% of revenue generated
 
7.       Professional, Scientific, & Tech. Services
$1.3 trillion/7.9 million; ($165,000 generated/employee)
Payroll: $502 billion; ($63,500/employee)
Employees receive 38.5% of revenue generated
 
8.       Information
$1.1 trillion/3.5 million; ($314,000 generated/employee)
Payroll: $229 billion; ($65,400/employee)
Employees receive 20.8% of revenue generated
 
9.       Transportation & Warehousing
$640 billion/4.5 million; ($183,000 generated/employee)
Payroll: $173 billion; ($38,400/employee)
Employees receive 21.0% of revenue generated
 
10.   Accommodation & Food Services
$613 billion/11.6 million; ($53,000 generated/employee)
Payroll: $171 billion; ($14,700/employee)
Employees receive 27.7% of revenue generated

Manufacturing is our country’s top sector in regards to its Value of Shipments, or in other words, revenue generated. Manufacturing is followed by Wholesale Trade and Retail Trade. The biggest gaps, or underpaid sectors, seem to be Wholesale Trade (8%), Retail (9%), and Manufacturing (12%).

What I did not expect to see was how valuable Professional, Scientific, and Technical Service employees are to their sector: they receive almost 40% of revenues generated as compared to Finance and Insurance (14%) and Information (21%).  Not surprising, but still interesting when compared with other sectors, was that Accommodation and Food Service employees receive almost 30% of the sector’s revenues generated. We often find ourselves shouting for increased wages in the food service sector, but it seems that profit-margins are fairly tight and that there isn’t too much more “juice to squeeze” out of the restaurant industry.

Of course this is not a perfect analysis since it does not take into account operational expenses. For example, the expenses of a factory versus an office are much different, since repeated purchase of iron ingots probably cost more than software licenses. But taking that into account, it seems obvious to me that these low-equity sectors should be focusing on two big initiatives: a decrease in their operational expenses and an increase in employee wages. These sectors have the lowest redistribution of their revenues to their employees, in a sense, making them the less equitable industries in the country.

*Although it is important to note that sectors such as computer programming and software engineering walk a fine line between being a Service sector and the electronic “goods production” sector.

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