Jim Ellis had a job with benefits but gave it up for a shot at something with a bright future, if he could just get his foot in the door.
In this part of the country, that meant he wanted to work for Caterpillar Inc., the construction equipment powerhouse. Now Ellis is on the morning shift at the company’s East Peoria, Ill., plant, installing fenders on tractors and working on hydraulic lines, a manufacturing job description that once promised an American middle-class lifestyle.
The reality for Ellis is nothing like that.
With the new job he started in January, Ellis’s pay jumped by $5 to $15.57 per hour, but he has no medical benefits for himself or his 3-year-old daughter, custody of whom he shares with his ex-girlfriend. Between rent and child support, he acknowledges falling back on his parents for support.
“If you talk to my mom and dad, they would tell you I’m an idiot because I’m barely making ends meet,” Ellis, 38, said.
Reflecting on his pay, Ellis recalled the years he worked as an assistant manager at a fast food restaurant. “It was one of the easiest jobs I’ve had,” he said. It was also the best-paying job he’s had. He earned up to $34,000 a year — a little more than $16 an hour.
His move to Caterpillar hardly evokes the kind of jobs most people think about when they hear President Barack Obama or his challenger, Mitt Romney, talk about bringing back manufacturing. The days when workers earned enough money to buy a car, a boat or a second home while supporting their families no longer exist for a growing number of people employed in manufacturing.
Factory jobs can still be good, but in the past three decades, benefits have eroded and pay has stagnated for many, or even fallen. Some entry-level manufacturing jobs pay so little that workers depend on government aid to feed their families and pay for health care.
Take Charles Montgomery. Until he was laid off in mid-September, he worked for a staffing agency that supplies labor to Caterpillar. Montgomery, 28, was paid $8.75 an hour as a forklift operator and put in as many as 70 hours a week to support his three children and fiancee and relied on government aid to buy food. Even then, he said he pinched pennies to pay for a $3.65 doctor’s visit or a $2 prescription, made affordable through a government-backed health care program for the poor.
Wages have declined across many industries, including manufacturing, as unions have lost their bargaining clout, according to the Economic Policy Institute, a pro-labor think tank based in Washington. Between 1973 and 2011, the median hourly compensation of workers, including wages and benefits, rose only 10.7 percent; most of that increase occurred in the ’90s, according to the institute.
Robert Bruno, a professor of labor and employment relations at the University of Illinois-Chicago, said earnings of newer manufacturing jobs “are not poverty wages, but they are not middle class. If the jobs don’t pay sufficiently better, sadly, it will turn the manufacturing sector into another low-wage market, and we already have many of those,” he said.
With more than 12.5 million people in the U.S. unemployed, some politicians push manufacturing as an answer to the nation’s economic woes, suggesting that bringing back factory jobs from overseas represents a return to greater prosperity. Gary Pisano, a professor of business administration at Harvard Business School and co-author of “Producing Prosperity: Why America Needs a Manufacturing Renaissance,” is skeptical of that approach.
“The idea that we will employ a large share of workers in manufacturing again is not going to happen,” Pisano said. He added that the days when manufacturing provided a good living for people with little more than a high school education are gone because the U.S. cannot compete with wages paid in developing countries.
Pisano said the country needs a policy aimed at spurring research and development that will produce better-paying, highly skilled manufacturing jobs. The drawback, he said, is that such jobs will be small in number.
Meanwhile, factory wages could fall even further, predicts Howard Wial, executive director of the Center for Urban Economic Development and a nonresident senior fellow at the Brookings Institution. Historically, Wial said, unionized workers have accepted concessions in bad economic times by counting on getting something back during good years. But that’s no longer necessarily true.
A case in point is the recent agreement between Caterpillar, which is enjoying record profits, and machinists at a plant in Joliet, Ill.
In mid-August, after machinists had been striking for 3½ months, the union approved a contract that calls for a one-time 3 percent wage increase for workers hired after May 2005 at a reduced hourly pay while freezing wages of those hired before that date who were on higher pay scales. The agreement, Wial said, may set the groundwork for companies to demand concessions from workers even while they are reaping robust profits.
David Bozeman, vice president of Integrated Manufacturing Operations Division at Caterpillar, said the company’s philosophy is to offer workers around the world market-based wages, which are based on the competitive wage market in the area it is placing work.
Tiered pay scales like those at Caterpillar have not only become commonplace in the past two decades, but they also have prevented workers from significantly improving their hourly earnings; in many cases, pay has stagnated or been reduced. Under its 2011 contract with the United Auto Workers union, Ford Motor Co. can hire entry-level workers at $15.78 an hour, roughly half of what veteran union workers are paid. Their wages could reach up to $19.28 per hour over the four-year contract but will freeze there. As a result, Ford plans to add 12,000 hourly jobs at its U.S. plants by 2015, including some that will be in-sourced from Mexico, China and Japan.
Government officials tend to tout re-shoring announcements, but Wial said there’s a downside. “Competing for low wages is not good for American workers, is not good consumers or companies either, although there is some benefit in the short term.”
Wial said the low wages paid for in-sourced jobs usually result in unmotivated workers and in turn hurt innovation.
There are other costs as well for workers. Ellis, who worked for a staffing agency that supplied labor to Cat and finally joined the company as so-called supplemental worker, says he still feels stuck financially. As part of Cat’s “supplemental” workforce, Ellis pays union dues but can be laid off at any time and doesn’t qualify for benefits for up to two years.
“I knew it could take up to two years. But they said that if you are a good worker, you would be converted as soon as possible. But once in the door, everyone forgot about me,” Ellis said. “It’s bittersweet.”
Supplemental workers, he said, tend to toe the line, fearful that if they punch in late or upset their supervisors, they’ll be fired. “The union won’t represent me because I’m a supplemental. It doesn’t make me feel good. I walk into work each day on eggshells.”