Competition from China and other low-wage rivals, coupled with fallout from the 2007-’09 financial crisis, has put American wages under such unprecedented strain that they have shifted into reverse — not merely stagnating, but falling.

And workers in Wisconsin are among the hardest hit in this bare-knuckled global phenomenon.

“Water finds its equilibrium, its own level,” says Jeff Joerres, chief executive of Milwaukee-based global staffing giant ManpowerGroup Inc., who refers to this accelerating leveling of wages as “global labor arbitrage.”

“It’s happening so fast on a global scale that it’s scary,” Joerres said.

In the U.S., the phenomenon is not limited to isolated and vulnerable sectors, such as commodity manufacturing. Rather, wages have fallen across the entire national economy — down 1.1% in the 12-month period from September 2011 to September 2012, the most recent comparisons available.

“Average weekly wages declined in every industry except for information,” the U.S. Bureau of Labor Statistics reported in its latest economic census.

That quarterly report has shown year-over-year declines only six times since the data collection began in 1978 — and four of those have occurred since 2009.

Nor is the United States the only advanced economy in the world affected. The average of wages in western Europe, Japan and the U.S. fell in a “double dip,” declining in both 2008 and 2011, according to the Swiss-based International Labor Organization.

In China, meanwhile, wages have roughly tripled over the last decade, leading a trend of rising wages among developing economies such as Brazil, Peru and eastern Europe, the ILO said.

“This is not a rosy path, folks,” Joerres said. “We don’t get to choose our borders in which we create our own rules.” China and the mature western economies “are as connected as Wisconsin to Illinois,” he added.

The viselike pay squeeze promises to become more common as global economies become more connected — “the new normal,” according to Joerres.

Wisconsin wages fall 2.2%

Wage competition was a familiar if slower-moving dynamic of the pre-global age, but it took place almost exclusively within national confines, as when a new auto works in the 1980s bypassed unionized Detroit in favor of nonunion states in the American South, which in turn kept Detroit wages under pressure.

More recently, Mexico has added to the downward pull on U.S. earnings when, for instance, a company like Brown Deer-based Badger Meter Inc. opened production facilities in the border city of Nogales.

Among the states most affected is Wisconsin.

According to the Bureau of Labor Statistics, private-sector wages in Wisconsin fell 2.2% in the 12 months ended September 2012, ranking the state 44th out of 50.The rate was double the drop in the national average.

Wages in the state’s government sector, pressured more by government austerity policies than global competition, registered 49th in the nation during the same period.

With the state also lagging much of the nation in job creation — ranking 44th in the most recent 12-month period — it is apparent that Wisconsin is struggling more than many other states in the transition to 21st-century growth industries from its legacy as a bastion of old-line manufacturing.

Yet attributing the state’s rankings to its economic inheritance of the last century, such as northern Wisconsin’s reliance on paper-related industries, doesn’t tell the whole story, said Ryan Murray, an economic adviser to Gov. Scott Walker.

Wisconsin appears to have little in common with other states that also showed notable wage losses, including affluent states like Connecticut (46th), which has professional service industries; relatively less affluent states like Alabama (47th); gaming states like Nevada (48th); and mining states like West Virginia (49th).

“There’s no obvious pattern,” said Murray, the chief operating officer at the Madison-based Wisconsin Economic Development Corp., an arm of state government.

“If it were all rust belt states,” it would make sense to argue that aging industry is the main reason for Wisconsin’s weak national standings, Murray said.

There are two ways to see Wisconsin’s plight, depending on one’s point of view: Falling wages are useful in the long term if you subscribe to the notion that Wisconsin is adjusting to global conditions faster than other states, but worrisome if one thinks the state’s industries are less competitive than other states’ against low-wage rivals.

Multiple factors at play

To be sure, pressure on U.S. wages these days comes from multiple economic forces, not just from cheaper foreign labor.

“We have gone through the worst recession that we have seen since the 1930s,” said William Strauss, a senior economist who studies the Midwest at the Chicago branch of the Federal Reserve Bank.

Unemployment has remained high throughout the achingly slow recovery. The U.S. recession ended, at least statistically, only to find Europe mired in a renewed slowdown, keeping pressure on wages on both sides of the Atlantic. On both continents, putting people back to work means falling wages are preferable to the alternative, which all too often is no paycheck at all.

“This is the normal adjustment process that takes place when you have such extreme unemployment rates,” Strauss said.

No one disputes, however, that wages are in upheaval around the globe and that leveling pressure from low-wage rivals only accelerates the trend.

“There is a movement toward convergence,” said Patrick Belser, a senior economist in Geneva at the International Labor Organization.

In its latest Global Wage Report, the ILO warned that wage competition between nations could trigger a “race to the bottom,” with nations desperate to undercut each other with cheap labor only to end up shrinking their own economies.

In the manufacturing sector, wages have been under pressure for years, government data show. In some years, factory pay has not even kept pace with inflation. More recently, however, there’s evidence that wage weakness has spilled over into management ranks as well.

The Hay Group, a global management consultancy, recently studied pay increases for senior management jobs and department heads in multiple nations. Looking at the full decade from 2001-’11, it found heady gains in emerging market economies such as Brazil (181% in the period); Turkey (190%); South Africa (241%); and China (247%).

But in the U.S., the equivalent increase over the decade was 38%, a figure that would be much lower if adjusted for inflation, said Tom McMullen, a Hay analyst based in Chicago.

“The U.S. employee has been running in place” compared to counterparts in other parts of the world, McMullen said. “The easiest place to make a buck is in the developing markets.”

Still wide gaps in pay

The global trend, with wages in developing nations making impressive percentage gains while those in developed nations are under pressure, has by no means led to level pay across the globe. In fact, there is far more room for convergence: In China, an average worker makes the equivalent of $8,700 a year, compared with $47,000 for a U.S. counterpart.

But the move toward a more level playing field is clear — and statistics are only now beginning to catch up with the phenomenon, Joerres noted.

It is not known if wages have fallen simultaneously in advanced nations previously, because the systematic study of wage dynamics among nations is a new discipline. The ILO’s data only goes back to 2000.

And like all statistics, wage data can be sliced and diced in multiple ways: adjusted for inflation or not; adjusted for seasonal factors or not; hourly or weekly; one-month increments or 12-month increments.

In the U.S., the most complete and accurate wage data come from the U.S. Quarterly Census on Employment and Wages, which canvasses 96% of the nation’s employers in both the public and private sectors. It reflects the entire economy, managers and chief executives to janitors. It includes bonuses but excludes benefits, meaning that any changes in health insurance or pensions are not reflected.

The Quarterly Census dates back to 1978, which predates the emergence of the Internet and the borderless global economy. And it shows that before the latest recession and its aftermath, average weekly wages in the U.S. had only one previous period of declines, in the wake of the recession of the early 1990s.

As U.S. pay has slipped, President Barack Obama earlier this year began to press for an increase in the federal minimum wage from $7.25 an hour to $9 by 2015.

Whether Obama succeeds or not, Joerres said he expects the pace of global wage-flattening to accelerate. “If you are sitting in Asia, right now you’d be having a very heated discussion about labor arbitrage: Who’s got it? Who doesn’t?”

Already, China’s wages are looking pricey to some, compelling global conglomerates to bypass it and look elsewhere. Even Vietnam is becoming passe, Joerres said. Central African nations are fast becoming the new frontier.

China Motor Corp. recently invested $1 billion to establish a manufacturing plant in South Africa. Canada’s Bombardier Aerospace invested $200 million in a production facility in Morocco. Nestlé SA opened a new plant in Nigeria.

Joerres foresees a time when international wage rates will be tracked in real time like stock quotes. Wages are shifting too quickly for some managers to lock in long-term strategies with any confidence. Typical investments in new equipment or plants operated on horizons of at least five to seven years, he said. “Who can predict what will happen in the next five years?” he said. “This is a tension-filled time because of the global pressures. You have to reinvent yourself in flight. You don’t get to land and go into a hangar.

“This isn’t about companies trying to be bastards on wages. They are trying to compete.”

Master Lock ‘re-shores’

In the industrial heart of Milwaukee, union machinist Mike Bink applauds the growth of a Chinese middle class.

“I’m very happy their wages are moving up,” said Bink, who heads the shop floor union at Master Lock Co.

Like countless other American manufacturers, Master Lock outsourced much of its production to Mexico and China starting in 2000. But as labor unrest began to ripple across China, pushing Chinese wages higher,Master Lock reversed course two years ago and began to bring a share of production back from China.

Obama visited the factory a year ago to hold it up as a hopeful national symbol of American competitiveness. As much as any other U.S. company, Master Lock came to stand for “re-shoring” or “in-sourcing,” the notion that production can return to the U.S. profitably.

To help achieve that competitiveness, the union workforce has absorbed numerous pay and benefit concessions, including the creation of a two-tier system providing lower pay and benefits for new workers. Master Lock has added several dozen jobs at the Milwaukee facility and plans to add more as it invests in new, highly automated equipment. Still, its 400 employees are well below the peak of 1,300 in the late 1990s.

Bink’s union just reached a tentative five-year agreement that he said includes a nominal pay increase but backsliding on other benefits.

Higher wages in China “make us look better” by comparison, Bink said.

“It brings their labor costs closer to ours,” he said. “And when you add in delivery times, it makes us look like an attractive place to make locks.”

by John Schmid, May 26, 2013