Quality Magazine

Study Shows Increasing Structural Costs

January 1, 2007

WASHINGTON, D.C.-Structural costs for domestic manufacturers have increased from 22.4% to 31.7% since 2003 compared to nine major trading partners, according to a study released by the National Association of Manufacturers (NAM), 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,” says John Engler, NAM president.

The increase in costs is the major finding of The Escalating Cost Crisis, a 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.

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.

“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 says. “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 and consume more than one quarter of the country’s natural gas.” 

Historically, natural gas prices have been a competitive advantage for U.S. manufacturers, costing on average
30% 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% below the price paid by U.S. manufacturers in 2005. 

The Escalating Cost Crisis is available at: www.nam.org/2006coststudy.