Wages Are A Big Hurdle To Restoring U.S. Manufacturing. But It’s Not What You Think

One of President Donald Trump’s major goals for imposing tariffs on U.S. trading partners is to encourage countries to build factories and create jobs here. But labor costs pose a double-barreled threat to that vision.

If restoring manufacturing means bringing employment to its 1979 peak, numerous obstacles stand in the way, economists at Wells Fargo Securities found in an analysis published Wednesday.

Relatively few people are ready to take a spot on the assembly line. With a fairly low unemployment rate of 4.2%, there were 7.2 million unemployed workers as of April, according to the Bureau of Labor Statistics. Restoring industry to 1970s levels, where 22% of jobs were in manufacturing, would require 22 million additional manufacturing workers, assuming people didn’t leave other sectors of the economy.

One of the biggest obstacles to finding those 22 million workers is labor costs, which paradoxically are both too high and too low.

Why U.S .Wages Are Too High

Wages in the U.S are higher than elsewhere in the world, especially in developing countries where manufacturing was offshored.

American workers are paid 16 times as much as their Vietnamese counterparts on average, 11 times as much as their Mexican counterparts, and 7 times as much as those in China, Wells Fargo economists found. That means manufacturers setting up shop in the U.S. must invest more heavily in automation (think robots, machinery, etc.) to compete, meaning fewer jobs per factory and greater expense for companies.

Restoring the 6.7 million manufacturing jobs lost since 1979 would require an investment of around $3 trillion, Wells Fargo estimated.

That means the U.S. is a better place for making more sophisticated products rather than simpler ones like toys and furniture, Farouk Contractor, a professor of economics at Rutgers, told Investopedia in April.

“High-value stuff can come back to the U.S., partially because the value is not in labor, but in thought,” Contractor said. “So if you have a highly automated, highly sophisticated item like computer chips, it doesn’t matter if labor cost jump from $6 to $36 an hour, because the labor content is low, and the main value and the price of the item is in thought, rather than in manual labor.”

American-Made Is Often More Expensive

High wages are one reason that not everything can be made as efficiently in the United States as it can abroad.

Entrepreneur Ramon Van Meer, CEO of showerhead company Afina, recently ran an experiment highlighting the difference and tested whether customers would pay a premium for the Made-In-The-USA label.

Earlier this year, Afina offered its customers two different versions of its showerhead. One was made by its current supplier, who manufactures in China and Vietnam, and sells for $129. Then, they listed another model made in America at the cheapest price they could sell it, which turned out to be $239. Out of 584 sales, not a single person bought the American version.

Why Wages Are Too Low

At the same time, manufacturing wages are too low relative to other U.S. jobs to attract recruits.

Workers in the manufacturing sector earn less than 90 cents on the dollar compared to all other private employers, Wells Fargo said, citing data from the Bureau of Labor Statistics. That means manufacturers struggle to attract employees, according to several surveys of industry leaders, as well as jobs data from the BLS.

Manufacturers face a persistent labor shortage, as many workers prefer to work in other industries if they can, according to a 2024 report by consultant Deloitte and the Manufacturing Institute trade group. For example, manufacturers compete with construction firms for welders, electricians, and other trades.

The 70s Are Never Coming Back

Any manufacturing jobs that do return to the U.S. will likely be very different from the ones that were lost during the offshoring trend in the 80s and 90s, requiring more high-tech skills.

Workers who have skills based in computer science, information technology, leadership, and interpersonal skills will be more in demand over the next decade than those who have more traditional manufacturing skills such as fine motor skills and mechanical knowledge, Wells Fargo said, citing Bureau of Labor Statistics survey data.