The United Auto Workers have begun to strike all three of the major domestic automobile producers. They are seeking a 40% wage increase and other increases in benefits as well as a 32-hour work week. This is not only ridiculous, but it will severely hurt consumers and much of the rest of the economy.
If granted, the labor cost would increase by 60% by the fourth year. This would considerably drive up the price of cars. It will also hurt the workers since the high labor cost would encourage manufacturers to switch production to a more capital-intensive process by further automating.
The United Auto Workers (UAW) argues that inflation is up significantly. Although the inflation rate has fallen, last year it peaked at 9.1% Union members say inflation could increase in the future, so a cost-of-living increase is needed.
The auto manufacturers have been very profitable. The latest available industry figures show car makers earned $32 billion in the first nine months of last year. Although there were struggles mostly due to supply chain issues, consumer demand was so high that, at one point, cars were selling for thousands above manufacturer's suggested retail price (MSRP).
Shawn Fain, president of the UAW said, “Record profits mean record contracts.” According to the UAW web page here are members' demands:
ELIMINATE TIERS – It’s wrong to make any worker second class. Teamsters ended tiers at UPS.
SUBSTANTIAL WAGE INCREASES – 40 percent over the next four years.
RESTORE COLA – Cost of Living Adjustments (COLA)
DEFINED BENEFIT PENSION FOR ALL WORKERS – All workers deserve the retirement security.
RE-ESTABLISH RETIREE MEDICAL BENEFITS – That’s just as essential as a solid pension.
RIGHT TO STRIKE OVER PLANT CLOSURES – Big Three closed 65 plants over the last 20 years.
WORKING FAMILY PROTECTION PROGRAM – keeps UAW members on the job.
END ABUSE OF TEMP WORKERS – We are going to end the abuse of temps.
MORE PAID TIME OFF TO BE WITH FAMILIES – Our members are working 60, 70, even 80 hours a week and it needs to stop.
SIGNIFICANTLY INCREASE RETIREE PAY – We owe our retirees everything. They built these companies, and they built our union. We will not forget them in these negotiations.
This list is ridiculous.
The UAW’s logic is like the logic used by the UPS workers and the Screen Actors Guild. Those workers believe that they are entitled to some of the company profits, especially when those profits are large.
In a free-market economy, though, they are not entitled to any profit. Nor, of course, are they expected to give some of their salary back if the company should have losses.
And that explains the difference in profit distribution between stockholders and workers. The difference is based on risk.
As long as the company is manufacturing cars, the workers are contractually guaranteed their wages. If the demand for cars is low, then the company must drop the price to sell the cars. They could incur losses.
Although the wage is guaranteed to the worker, the profit is not guaranteed to the stockholder who has invested capital in the corporation. The stockholder only gets a return when there are profits.
If there is no profit, there is no return. If the company has large losses, then it is possible they file bankruptcy (General Motors in 2009). In that case, the stockholder not only doesn’t get any return, but the value of the stock becomes zero, so they lost their entire investment.
The stockholders take all the risk. Some years profits are high, other years not, yet the workers continue to receive their contracted wage. The workers take very little, if any, risk.
Successful corporations know that for any business to achieve long-term success, having a strong mutually beneficial relationship with their employees is critical. Successful corporations also know that they must be profitable, or they will not be able to attract new capital for expansion.
Somewhere between that, the UAW and the car companies will find a compromise position, where labor is paid a wage that reflects their value to the production process and allows a fair long-term profit for stockholders.
The UAW’s current demands read like a three-year old’s Christmas list to Santa. “I want everything. Everything that’s in your big, big bag.”
Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.
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