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Thursday, August 6, 2015 - 14:47

US Commerce Dept: Higher Pay Boosts Productivity in Mfg Sector

By Timothy Weatherhead

WASHINGTON (MNI) - Manufacturing firms with higher payroll per employee figures possess workers with more skills who work harder, resulting in heightened productivity, according to a report published by the Department of Commerce and the Economics and Statistics Administration on Wednesday.

In statistical terms, payroll and value-added share a strong correlation coefficient of 0.7, meaning as one increases, so does the other.

The report, authored by department economists Susan Helper and Ryan Noonan, provided three explanations for the positive relationship between wages and productivity.

"First, paying higher wages allows firms to attract workers with more and better skills," the authors stated. "Second, firms that pay their employees more are effectively able to 'buy' increased morale, lower turnover, and higher productivity from employees who are committed to keeping a good job.

"Third, high-(paying) firms adopt other practices that increase the return to having skilled and motivated workers," the report stated.

The co-authors cited greater capital intensity for high-wage firms as an example of practices implemented to take advantage of skilled laborers.

Chad Mouray, chief economist at the National Association of Manufacturers, said he agreed with the report's assessment of the wage/productivity relationship.

"I certainly buy in that companies that pay more do so to attract a higher quality of worker and I believe that does play into the morale issue mentioned in the piece," Mouray said. "technological innovation has made manufacturing extremely productive and that comes up in the numbers, but that also means that (employers) are hiring a different kind of worker that can use the higher level of technology.

"That kind of worker drives up the wages you pay and that lends itself to the notion that higher productivity is associated with higher compensation," Mouray said.

The report also found that a positive correlation exists between a firm's capital expenditure and per employee payroll, with a coefficient of 0.6.

"Much of the capital expenditure is in new technology, put in place to eek out additional output and that would tend to require a different kind of worker who would need a skill set that demands a higher wage," Mouray said.

--MNI Washington Bureau; +1-202-371-2121; email:


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