Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium

This paper explores the factors behind differences in wages between manufacturing and other sectors. Using data from the Current Population Survey, we find that the manufacturing wage premium--the additional pay a manufacturing worker earns relative to a comparable nonmanufacturing worker--disappeared in recent years and that the erosion of the premium has primarily affected workers employed in production occupations, who experienced a wage decline of 2.5 percentage points since the 1990s relative to other workers in production occupations. While the demographic composition and other worker observables introduce level differences in manufacturing premia, our analysis suggests that they are not responsible for the declining trends. A decomposition of the premium by union membership status reveals that declines have been substantially larger across union members. To quantify the role of unionization membership on wage premia, we exploit the heterogeneity in membership status across industries within manufacturing. We find that the decline in union membership explains more than 70 percent of the decline in premia since the 1990s for union members, but the declines in unionization rates have not significantly affected non-union premia, which have instead responded to other factors, such as capital intensity. Our findings suggest that the erosion of "good" manufacturing jobs has contributed to the increase in overall wage inequality and could accelerate the decline of the manufacturing sector.