Manufacturing wages and Inequality

Perhaps the increase in inequality is partly due to the decline in manufacturing.  If manufacturing pays better and it hires fewer people, then that alone will increase inequality.  Plus, the opportunity cost of service-sector work declines as the local manufacturing jobs dry up.  The opportunity cost of being a barber in a small town in Texas was manufacturing before they closed down the factory and now the barbers get lower wages both because their opportunity cost has declined and because their customers have lower wages too. 
Moneybox:

Susan Helper, Timothy Krueger, and Howard Wial forcefully make the case for manufacturing in a Brookings paper (PDF) where one subject of interest is the seeming existence of a wage premium in the manufacturing sector. At different skill levels, manufacturerers pay more:

What I wonder when people point this out is what they think follows from this. Here's one though. In India, a very large segment of the workforce is doing extremely low wage work in the agricultural sector. And agricultural productivity is limited by the availability of land. So insofar as you're able to subsidize the creation of manufacturing work, not only do the people who get the manufacturing jobs earn higher wages—the residual agricultural population earns higher wages too. This off the farm aspect to industrialization has historically been a huge driver of prosperity and I think it's crucially important for political leaders in developing countries to think about it.

Unit Labor Costs

Unit labor costs are basically wages minus productivity. It's the price of labor's output rather than the price of labor.  This is a good measure of inflation and it tracks the CPI fairly well even though it is a very different statistic. 
The Economist: 

the OECD released their quarterly “Unit Labour Costs and Related Indicators”. ...Costs were generally rising in the second quarter, but were up sharply in Norway and Australia. Why does this matter?

Unit labour costs are the best estimate of staffing costs faced by firms. They represent the amount of money needed to pay your staff to make one unit of output, one widget. This is a function of two elements, the cost of the staff—their hourly wages—and the speed at which they make widgets, their productivity. Expressed in growth rates unit labour costs are roughly equal to growth in wages minus the growth in labour productivity, per widget. In America, in the second quarter, unit labour costs increased by 0.8%, this consisted of a 1.0% increase in wages and a 0.2% increase in labour productivity.

The rise in unit labor costs indicates the level of  inflation in America. 

Normally, and especially now, this is not a concern; a little bit of inflation is better than a little bit of deflation. [Most countries] display similar trends.
Contrast that with the situation in Norway and Australia, where rising wages and falling labour productivity are generating unit labour cost increases above 5%. This is indicative of a tight labour market; firms are forced to increase wages to hold onto workers and must occasionally employ lower skilled workers than they'd prefer, leading to decreases in average labour productivity.
So what's up with Norway and Australia? Both economies are heavily dependent on natural resources. Unlike manufacturing jobs, natural resource industries aren't susceptible to offshoring when labour costs soar. You have to mine coal where the coal is.

Menzie Chinn:

The interesting trend since 2001 has been the rise in [price markup over unit labor cost.]

Source: Economic Report of the President, 2012.From this graph, one would be hard pressed to find American business in terrible shape. Productivity has increased, labor compensation growth has been modest, so that it’s obvious where profits have come from. This also means (to me) that there is substantial space for rising wages to be absorbed without a commensurate wage-price spiral.
As I noted in this recent post, rapid productivity growth combined with slow compensation growth has improved American competitiveness. Nominal dollar depreciation over that period emphasized that improvement.

Raising Wages With Charity

The NYT discusses "Foxconn, with 1.2 million Chinese employees, [which] is one of China’s largest employers. It assembles an estimated 40 percent of the smartphones, computers and other electronic gadgets sold around the world."  Foxconn announced that, "it would raise salaries as much as 25 percent, to about $400 a month, ...after an outcry over working conditions at its factories."  The article suggests that this will only work if consumers have sufficient charity.

Plants depend on workers’ being at assembly lines six or seven days a week, often for as long as 14 hours a day. ...For that system to genuinely change, Foxconn, its competitors and their clients — which include Apple, Hewlett-Packard, Dell and the world’s other large electronics firms — must convince consumers in America and elsewhere that improving factories to benefit workers is worth the higher prices of goods.

“This is the way capitalism is supposed to work,” said David Autor, an economist at the Massachusetts Institute of Technology. “As nations develop, wages rise and life theoretically gets better for everyone.  But in China, for that change to be permanent, consumers have to be willing to bear the consequences. When people read about bad Chinese factories in the paper, they might have a moment of outrage. But then they go to Amazon and are as ruthless as ever about paying the lowest prices.”

If consumers' sentiments in favor of Chinese workers does not last, will improvements in Chinese working conditions be temporary too?
Did America develop higher wages than China because our consumers have been "willing to bear the consequences" and decided it is worth paying higher prices for US goods?