Washington, DC, September 27, 2006--Structural costs for domestic manufacturers have increased from 22.4 percent to 31.7 percent since 2003 compared to nine major trading partners, according to a study released today by the National Association of Manufacturers, The Manufacturing Institute and the Manufacturers Alliance/MAPI.
“The sharp rise in these non-wage costs represents a significant and long-term problem for our nation’s manufacturers and America’s economy,” said John Engler, the NAM’s president.
The increase in costs is the major finding of The Escalating Cost Crisis, a new study by economist Jeremy Leonard of MAPI that updates the 2003 study, How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness. Using the same methodology as three years ago the study analyzed five structural, non-production costs: corporate tax rates, employee benefits, legal costs, natural gas prices, and pollution abatement.
“This is an astonishing increase from just three years ago,” Leonard said. “Because of these escalating costs, fewer new manufacturing jobs have been created and less is available to invest in research and development and worker training.”
The corporate tax rate was both the highest burden in absolute terms and the largest contributor to the increase in structural costs, responsible for more than one third of the increase in the cost burden. While the corporate tax rate has remained the same since then, some trading partners have lowered their statutory tax rates, thus widening the gap and undercutting U.S. manufacturers.
“By standing still, the United States is falling behind,” Engler said.
“When we issued the original cost study in 2003, manufacturing was just starting to climb out of a severe three-year recession,” said Jerry Jasinowski, president of The Manufacturing Institute, the research and education arm of the NAM. “While business is stronger today because overseas markets for U.S. products are growing again and business investment at home has rebounded, the underlying pressures that make it difficult to manufacture in the United States have not abated.”
“To turn this tide, the NAM and its members are pursuing an aggressive agenda to enhance their ability to compete in the global marketplace,” Engler said. “The stakes are enormous and every legislator should be concerned with this study. Manufacturers account for nearly three quarters of this nation’s industrial research and development (R&D) and consume over one quarter of the country’s natural gas.
“The Senate’s inaction on these issues, due to a small number of obstructionists, has hampered manufacturers’ tremendous economic contributions and played a large role in creating this cost disadvantage,” he said.
Historically, natural gas prices have been a competitive advantage for U.S. manufacturers, costing on average 30 percent less than the nine major trading partners in the mid-1990s. This advantage has turned into a competitive disadvantage, as the average cost of natural gas for those nine major trading partners was 0.7 percent below the price paid by U.S. manufacturers in 2005.
Engler said the report should give powerful impetus to policymakers to open new sources of natural gas. The NAM supports a comprehensive national energy policy that expands use of domestic sources, leading to lower energy costs. New domestic sources will improve competitiveness by cutting the 31.7 percent cost disadvantage.
Likewise, pollution abatement costs have increased by 11.5 percent since 2000, to an estimated $77 billion in 2004, according to the study, increasing the U.S. excess cost burden by 1.7 percentage points relative to its major trading partners. “Much of this burden is not recognized by the Environmental Protection Agency (EPA) when preparing its estimates of the benefits and costs of its r
