Wages aren't the real issue in bailout

Harley Shaiken

TEXT OF STORY

Tess Vigeland: Today the White House confirmed that it's looking at "orderly bankruptcy" as an option for two of the Big Three automakers. Basically the government would prop up GM and Chrysler for several months while an overseer comes in with a post-bankruptcy plan. But there's still no final decision. Wages and other labor costs have been a main source of contention in talks about the auto bailout. But the debate is about much more than hourly pay. Commentator Harley Shaiken says the future of the economy is at stake.


Harley Shaiken: Last week Senate Republicans held the auto rescue hostage to slashing labor costs. Labor costs, however, didn't drive the automakers into this economic ditch and gutting them won't pull the automakers out. At issue is what happens to the middle class. Labor costs of course are important but low wages are not the secret to competitive success nor are they without risk. The danger is they lead to a downward wage spiral, depressed purchasing power, and an economy based on the working poor.

Since we're talking about Detroit, let's take a drive up Woodward Avenue. Four miles north of the Detroit River is what remains of the Highland Park plant where Henry Ford introduced the moving assembly line in 1913. A year later Ford startled the world by doubling the prevailing wage to $5 a day, prompting many to claim this reckless act would bankrupt the industry. Instead, employee turnover went down, performance improved, and profits soared.

What was the secret of this competitive success? Innovation and productivity, not low wages. The $5 day was a great start but it took the birth of the UAW and other industrial unions in the 1930s to forge a long-term link between rising productivity and high wages. This link led to autoworkers who could buy the cars they built, send their kids to college, and set a standard for workers throughout the economy.

The flip side of high wages was what Walter Reuther, the legendary UAW leader, called "high velocity purchasing power." Our greatest economic success occurred when U.S. firms paid the highest wages in the world, not the lowest. When times are tough, slashing wages is always a powerful temptation. Low wages might fatten the bottom line next quarter, but they lead to exit ramps from the middle class next year. A superior product, high productivity and high wages pave the road to a healthy economy and a decent society.

Vigeland: Harley Shaiken teaches about labor and the economy at UC Berkeley.

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