Sunday, February 25, 2007

Stepping on the Scale Exposes Union Flab

Labor unions, like the government, can change prices — in this case, the price of labor — but without changing the underlying reality that prices convey. Neither unions nor minimum wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.

When that is more than the labor in question produces, some workers who are perfectly capable become "unemployable" only because of wages set above the level of their productivity. In the short run — which is what matters to politicians and to union leaders, who both get elected in the short run — workers who are already on the payroll may get a windfall gain before the market adjusts.

But, sooner or later, the chickens come home to roost. They have been coming home to roost big time in the automobile industry, where hundreds of thousands of jobs have been lost over the years. It is not that people don't want automobiles. Toyota is selling plenty of cars made in its American factories with non-union labor.

From economist Thomas Sowell´s recent column
Priceless Politics III.

MP: Like stepping on the bathroom scale, the ruthless forces of the market alway eventually expose economic flab and inefficiency. And although you can maybe avoid stepping on the scale in the short run, you cannot avoid the scale in the long run.

The market forces of supply and demand, along with a strong dose of globalization, finally forced the UAW to step on the scale, and guess what? Union wages and compensation are way too high, and union productivity is way too low, according to the scale. And like the bathroom scale, the market doesn´t lie, it always provides accurate and truthful information, as painful as it might be.

Bottom Line: The UAW is probably the most successful union in U.S. history, at achieving both higher-than-market wages and below-market productivity for its members, at least in the short run. But that very union success created the seeds of a powerful destruction that we are witnessing today, and in the long run that very union success is destroying thousands and thousands, and maybe millions of union jobs, and is destroying many of the very companies that employs its members (GM, Ford and Chrysler). As Sowell points out, the chickens have come home to roost, or the UAW finally had to step on the scale.


At 2/25/2007 5:56 PM, Anonymous Anonymous said...

It's interesting that when GM/UAW makes deals that incur unsustainable costs into the future (legacy costs), you see a problem. However, when the current administration does the same thing with the federal budget and increases the federal deficit it's somehow OK. I guess the best thing to do is to make sure that you can afford what you buy. That includes GM, the UAW, and the federal government, too.

As I see it GM/UAW has two major problems; 1) unprofitably, and 2) not making the vehicles that people want to buy. I don’t see these as insurmountable problems, but it will take a lot of effort on both sides working together for a solution. Business-as-usual decisions such as buying Fiat (GM) and demanding jobs banks (UAW) isn’t the way for a global business to survive.

Corporations do not exist in a vacuum, so health-care and pension costs will have to be addressed at the national level and not the bargaining table. Costs that double within five years will cause problems for any company—Toyota included. I’m not advocating socialized medicine, but something has to be done about these costs. Businesses should not be saddled with enormous costs in the US that they don’t have in other countries. Other countries support their industries: Why can’t that happen here?

If the UAW can change, and GM can accept them as full partners in the business, they can solve these problems: They will be ready to step on the scale. If not, they probably won’t be around for the next generation of workers. They might not even make it to the next census.


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