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Pay in new era of factory jobs falls short

Published: Wednesday, Oct. 3, 2012 9:41 a.m. CDT

(MCT) — 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 the Canton, Ill., resident is on the morning shift at the company's East Peoria 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' pay jumped by $5, to $15.57 per hour, but he has no medical benefits for himself or his 3-year-old daughter, whom he shares custody of 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 Cat 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 exists for a growing number of people employed in manufacturing.

Factory jobs can still be good, but over the last 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, also of Canton, Ill. 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 he relied on roughly $800 in 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, real wages and benefits, which were adjusted to reflect the effect of inflation, 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 at Chicago, said earnings in 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."

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, adding 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 such jobs will be small in number.

Meanwhile, factory wages could fall 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 Carterpillar, enjoying record profits, and machinists at a plant in Joliet.

In mid-August, after machinists had been striking for 3 1/2 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 the 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 over the past two decades but have prevented workers from being able to significantly improve their hourly earnings; in many cases pay has stagnated or been reduced. Under its 2011 contract with the United Auto Workers, 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. 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 reshoring 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 low wages paid for in-sourced jobs usually result in unmotivated workers and 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, said he 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 do anything that might upset their supervisors that 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," Ellis said.

What follows is a look at how three Caterpillar workers are managing their lives and finances.

Joe Haynes, a welder, makes $19.34 per hour, roughly in the middle range of pay ($11.30 to $27.72 per hour) for the unionized workforce at Caterpillar's plant in East Peoria. It is good money, he said, more than he would make elsewhere, but not enough to live on his own. It is not like he wants to live with his parents, but day care for his son, Sebastian, an active 4-year-old, is nearly as much as the $450 monthly rent he pays his folks.

"I can't say poor me, but then again, I wish it was better," said Haynes, 35, a slender man with tired eyes.

Haynes relies on overtime for extra money to get by.

On a recent Saturday, Haynes toiled from 3 a.m. to 9 a.m. to buy Sebastian a birthday present and throw him a party. After work, Haynes kept a 3-week-old promise to take Sebastian to a farm park perched atop a small hill. With $18 in cash for the day, Haynes swiped his credit card to pay for the $5.50 admission fee and to purchase a 50-cent cone filled with animal feed.

At midday, Haynes persuaded Sebastian to leave the farm by offering a stop at a McDonald's playground and a Happy Meal. At the register, Haynes ordered the small box of French fries, apple slices and chicken nuggets. He splurged on a chocolate shake for Sebastian and large iced tea for him. Total outlay: $6.64.

As Haynes sat on a plastic chair and watched Sebastian make friends inside bright-colored tunnels, he said he doesn't want his money woes to intrude on Sebastian's childhood. At the same time, he said he feels trapped. He is at the top of his pay tier and is working a morning shift, which allows him to spend the afternoons with Sebastian. If he was to look for a job elsewhere, his pay would likely be the same or less and he would go back to an afternoon or overnight shift.

He said he is angry at himself for not having gone to college, yet he wonders whether it is fair that he and others like him struggle as company executives reap millions. Haynes said his father earned in the 1980s what he is making today, but gas prices and food prices have increased.

"That's why I'm angry (at the government) for not stepping in and saying, 'No, this is wrong,'" Haynes said.

"Bringing manufacturing back would be really great, but it is more than that. Are they going to pay people what they are worth, or are they going to make it like slave labor where we barely see our family because we are working so much?" Haynes said.

Chris Alig considers himself a middle-class family man complete with a white picket fence guarding his home. But to maintain his lifestyle he needs at least 20 hours of overtime each week. The caveat, he said, is that overtime is not guaranteed.

When orders are rolling in overtime can be abundant. But any slowdown in growing economies such as China or Brazil can trickle down to workers like Alig. About two months ago, workers learned that the company was cutting overtime and temporary layoffs would be occurring next month and in April. On Monday, workers were informed of additional temporary layoffs in January.

"I had a misconception that if you worked at Caterpillar you got it made. That quit being the case in the '90s," Alig said.

Alig, 39, makes $17.34 per hour installing custom parts on tractors. If he works a 40-hour week, he would be short about $1,600 in meeting his monthly budget of $3,800, including a $670 mortgage payment for a quaint four-bedroom house, a $250 water bill and $93 for DirectTV.

Alig said he could cut expenses, but his goal is to maintain a quality of life that pays for some extras, such as satellite television with a 24-hour cartoon channel for his four children, ages 18, 12, 10 and 8.

On a rainy Sunday, Alig discussed first-semester expenses with his oldest son, Dylan, who is attending Western Illinois University. Satisfied with the numbers on the computer screen, Alig admonished Dylan to keep his semester's outlays within his $1,800 budget.

"Your mom and I are in a hard spot. Let's put it this way: We don't have as much as we need," Alig said.

To pay for a dorm room for Dylan, his grandfather co-signed a loan for the teenager. Alig's wife, Heather, lamented not being able to help Dylan with tuition, buy him a coffee maker or help him pay for the specialized computer he needed for his video editing class.

"Let one of the politicians work on (our) wage," Alig said. "There is extreme disconnect."

Alig said he doesn't believe that either the Republican or Democratic party is working to fix the economy. He is disheartened by a president who, he said, didn't strengthen labor law or promote good relations between unions and corporations. And while his federal income tax hasn't increased, Alig said he is paying more state and local taxes.

In addition, his cost of living has increased while his pay has lagged. Gasoline, for example, is more than $2 per gallon higher than before the recession, he said. Yet his last raise, the first since 2009, increased his pay by 34 cents per hour, he said.

Alig said his goal of climbing to the top tier at the factory, where workers make about $25 per hour, was shattered when fellow members of UAW Local 974 approved the last contract. That tier is now unreachable.

"My dream was to have a career and a lots of kids in the house and a vacation and spend time at home," Alig said. "The American dream doesn't exist for people like us anymore."

As Alig's pay hasn't improved, he and his wife decided to invest in her education. She quit her night laundry job at a nursing home making $8.25 an hour to enroll in school full time and become a nurse, which she thinks will pay between $18 and $24 an hour. To pay for her start-up costs and supplement his income, Alig took a $6,000 loan against his 401(k), which he needs to repay over four years.

"Why do people like us have to suffer when there is excess?" Alig said. "We are not asking for a free handout or entitlement. We are asking for a share of what we helped create."

Dave Hendricks works longer hours at age 58 than he did nearly four decades ago when he started at Caterpillar. He is one of the lucky ones, he said, because he makes almost $25 per hour repairing tractor parts and will retire with a pension of about $2,800 a month.

Still, he works seven days a week, 10 hours a day, to increase his savings so that he doesn't have to depend on anyone when he stops working. He will retire with health benefits, but retired friends have told him that as health copays have increased, their budgets have tightened, and that worries him.

Hendricks said when he joined Caterpillar in the '70s, the company offered the best pay and benefits, and he felt proud of working there.

His eyes welled up as he spoke about an 18-month strike in the '90s that changed his feelings about the company.

The strike, he said, destroyed families and friendships as people crossed the picket line while others struggled outside. Many workers lost their homes. Hendricks said the union was unsuccessful in its fight to give younger workers a better future. He wanted them to have more opportunities than he had, make better wages, live in better homes. Instead, he watches them struggle.

He is excited about the promise of politicians creating manufacturing jobs but warned that if the jobs don't pay good wages, the jobs won't make a difference.

"If (the politicians) bring back manufacturing jobs paying $9.50 an hour, then you might as well consider them service jobs. You can't pay bills on a $9.50- to $10-hour job. If they can't bring back jobs that pay $18 to $19 per hour, I don't see how that's going to help much," Hendricks said.

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