The Turning Point

GM's recent deal with the UAW, and Delphi's looming battle may mark the turning point for unionized industrial labor in the U.S. This will be a turn towards the iceberg, not away from it.

Once upon a time, not too long ago, a high school graduate could go to a plant, and through luck or nepotism, get a union job on the assembly line. With little education, and few skills, that worker could make a nice middle class wage, with generous benefits, and excellent job security. A skilled worker, such as an electrician, could make as much money as an engineer or manager, with overtime.

The problem with this system is that it out-paced the labor market in general. In non-union factories, pay and benefits are lower than UAW plants. At automotive assembly plants, the wages are similar, but other aspects are dramatically different. For example, non-union assembly plants don't give their workers as much rest time each day. Non-union workers are paid through investment type retirement plans. Healthcare arrangements are much less generous. These differences alone amount to a huge pile of money.

But the biggest difference is flexibility for the employer. A non-union shop can shrink its workforce if it needs to at any time. A poorly performing worker can be fired, rather than just reprimanded. Strict work rules are not enforced, which require workers with certain classifications to perform only the tasks those trades have been assigned. (Just try to go into a UAW plant and re-solder a broken wire, if you are an engineer!)

Because of this flexibility, workers are highly motivated to keep their jobs, and absenteeism is low. In UAW plants, absent workers cost companies millions of dollars each year. In non-unionized plants, quality tends to be higher, or perhaps more easily attained, because of better motivation.

Like anything else in a market system, if a commodity becomes too dear, market forces rise to correct the imbalance. Except in the case of companies like GM, Ford, Delphi, and Visteon, the market forces don't operate on the UAW directly, instead they work to squash the company*.

What can the UAW do to maintain its position? Strike? If the employer goes bankrupt, the UAW has no bargaining position. Either the UAW gives concessions, or the UAW is forced to accept less. Either way, the days of milk and honey are over. The UAW will have to decide between protecting current workers, and protecting retirees. Between keeping more benefits for fewer workers, or keeping more jobs with fewer benefits.

Can the UAW rely on the U.S. Government to save them? So far, I have not heard of any likely plan that is bold enough, or any bold plan that is likely. The government won't raise tariffs, not as long as Republicans or centrist Democrats run the show. The government won't create socialized medicine, to remove the healthcare burden from the corporations. The government doesn't even appear to be willing to go to the mat with Japan and China for their currency policies.

Don't get me wrong, I do not wish any harm to the UAW workers. They are decent people who want to make a good living doing honest work. But I do think that reality has caught up to the UAW. That reality is that working class folks with a highschool education and no specialized skills are no longer valued at $23/hr, with full health coverage, 67 paid holidays, near-bulletproof job security, and a generous retirement plan. For comparison, a pest control tech (exterminator) makes about $13/hr, and this is not an unskilled profession.

As the UAW loses bargaining power, and its members lose buying power, Michigan's economy will slow down even further. Many workers will leave the Midwest for warmer economic climates. Real estate values will be hurt, local government tax revenues will be hurt, and the numerous small businesses that cater to the UAW workers will be hurt.

In this way, when the UAW loses, we all lose.

*Update: I don't mean to say that the American automakers are losing because of the UAW. If GM had maintained or increased its marketshare, the UAW benefits would not be such an issue. GM and Ford did it to themselves through poor strategy, poor quality, and timid design.

*Update: As BigFordFan points out, the 67 holidays are over 4 years; the UAW is actually getting ~17 paid holidays per year. However, this is still significantly more than the average 11 days per year that most people get.