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Wages aren't the real issue in bailout
Harley Shaiken
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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.
"GM CEO Rick Wagoner earned $9.3 million in salary and bonus in 2006....Ford's new CEO, Alan Mulally, got $27.8 million in salary and bonus in his first few months on the job, including an $18.5 million signing bonus.
Toyota's top 37 executives earned a combined $21.6 million in salary and bonuses [in 2006], according to filings with the Securities and Exchange Commission.
At Honda, the top 21 earned $11.1 million, combined, in salary and bonuses."
Source:
http://www.usatoday.com/money/autos/2007-10-09-auto-exec-pay_N.htm
Mr. Sinnema, if workers for US auto companies shouldn't be paid more for doing the same job than workers for foreign-owned companies, what about US executives who are doing a much poorer job than their counterparts?
Why is it that it's only the high-wage, work-rule bound "US" automakers that are seeking a bail out? Unsustainably high wages may not be the entire problem confronting the "US" automakers, but they clearly are part of the problem.
Only a union shill would argue that GM, Ford and Chrysler should pay their workers more than Toyota, etc. workers who do the same job.
The high cost of labor in this country, and the unwillingness of qualified people to do the job, have offset the cost of transferring those jobs overseas. If those positions were filled here, at reasonable cost, then it would mean that the money invested stayed here. Overseas countries flourish with the money from this county, but very little of it is spent on items or services from this country, as only the high paid here can afford them. The foreign car makers have found a way to offset their cost by building factories in areas of this country where they can afford the labor without extreme conditions attached. The unions had their uses in the past, but are now part of the problem. The ability for an employee to force an employer to meet conditions, or face closure, means the final price of the product or service is passed on. Because the union has such a strong control of the labor pool, there is no other choice. When companies do this it's called a monopoly. That is illegal, yet that is what happens. To not join the union may mean you cannot work, or you may even be attacked, physically in some cases. How is that a free market?
I wonder if Mr. Shaiken has ever worked in a union work place? I have, both as a union member and later in management. I've was told by my union steward to work slower because I was being too productive and making others look bad. I observed a machine running at half speed because the union members refused to operate it properly. I have seen highly qualified people refused positions due to seniority rules. Unions may be responsible for high wages, but rising productivity, not a chance.
Here, here!
Finally, someone is talking about what I believe is the most ignored, yet most critical part of the economic crisis - the disappearing middle-class. I'm tired of stories about how Americans don't save because they drink too many latte's. I'm a college educated professional with three children who can't save because during the past twenty plus years I've seen my real wages decline annually. My typical 3 % to 5% annual increases have been quickly eaten up by increased healthcare costs, housing costs, etc...And for the past two years my current employer has given no increases at all! But am probably lucky considering the young blue-collar couple with two small children who live next to me both have to work two jobs to make ends meet. A professor of mine once said that companies get the unions they deserve. We can only hope that Americans will rise up and demand a return to a more equitable distribution of wealth in this country.
Great commentary by Mr. Shaiken.
The centerpiece of globalization is the race among corporations to take their jobs to countries that pay the lowest wages on the planet. I've always said this action is a return to the economic philosophy that prevailed prior to Henry Ford and it states: I pay my employees the lowest wages possible in order to keep the price of my products low.
This mantra dominated in the late 19th and early 20th centuries-- the era of the Robber Barons. It also was the era of the Great Depression of 1893.
We hope Mr. Shaiken expands his analysis and submits an article as an opinion piece to the Wall Street Journal, the New York Times or USA Today. Thank you.
Mr Shaiken hit it right on the head, high wages are made possible by higher productivity and innovation. Unions, in attempting to protect union headcounts and ignoring companies long term health, have killed both with unreasonable work rules. Management is complicit by maintaining an advesarial relationship with unions and by signing bad contracts. The greatest problems, however, are direct retiree payments and health care costs that other car makers don't yet face. Government mandates that each manufacturer meet overall CAFE standards for both domestic and imported fleets also prevent manufacturers from utilizing their most efficient production processes. Simply shifting health care costs to the federal budget doesn't change the fact that union/municipal benefit levels are unsustainable and will eventually bankrupt both.
The innovation and productivity gains really are other loop of the virtuous cycle of a high-wage economy. High labor costs are an incentive to invest in R & D for better processes, and more extensive and sophisticated automation. In turn, these advances demand more high-skill, high-pay workers to develop, engineer, manufacture, market, train and maintain them. Maybe this is the trickle-up mechanism?
If what Mr. Shaiken says is true then shouldn't we make unions and high wages compulsory for all employers? 40 hour weeks, 6 weeks of vacation 70k/yr, employer paid health care and retirement for everyone! I'm certain this will result in low inflation, full employment and prosperity for all.
