Keep the faith -
Can the United Auto Workers Survive?
Richard Posner
One of the reasons for the insolvency of the Detroit automakers (General
Motors, Chrysler--and Ford, which appears to be insolvent too, despite
its denials) is that their workers are paid higher wages, and receive
much more generous benefits paid for by their employer, than the workers
employed at the automobile plants, mainly in the South, owned by Toyota,
Honda, and other foreign manufacturers. The total wage and benefit bill
for the Detroit automakers is about $55 per hour, compared to $45 for
workers in the foreign-owned plants, and the difference is plausibly
ascribed to the fact that the Detroit automakers are unionized and the
"foreign transplants" not. (The comparison excludes retiree benefits, a
very large cost of the Detroit companies, but not an hourly labor cost.)
This difference may seem small, considering that labor is only about 10
percent of the cost of making a car, but many of the workers at the
companies that supply parts to the automakers (and the parts represent
about 60 percent of the total cost of manufacturing the vehicle) are
also represented by the United Auto Workers. Anyway, since the foreign
transplants have other competitive advantages over the Detroit
automakers, the latter can hardly afford to have even slightly higher
labor costs.
When the auto bailout bill was being debated in Congress in November
(ultimately it was voted down), Senator Corker said that he would
support the bill if it conditioned the bailout on the Detroit
automakers' reducing their workers' wages and benefits (to which the
union would have to agree) to the level at the foreign-owned plants, as
well as conform work rules to the work rules in those plants. The
significance of the work rules must not be underestimated.
As is common
in unionized firms, the United Auto Workers has successfully negotiated
not only for wages and benefits for the workers they represent but also
for rules governing what tasks the workers can and cannot perform, how
many workers must be assigned to a particular task, the order in which
workers are to be laid off (usually it is in reverse order of seniority,
because older workers tend to be stronger supporters of unionization
than younger ones because the latter have better alternative employment
prospects and so don't worry as much about job security) in the event of
a reduction in demand for the firm's products, methods of discipline,
and so forth.
These work rules, collectively "featherbedding," make it
difficult for a firm to optimize its use of labor, and, like the higher
wages and benefits that unions obtain, add to the firm's labor costs
relative to those of its nonunion competitors. A December 16 blog by
Rand Simberg,
http://pajamasmedia.com/blog/detroits-downturn-its-the-productivity-stupid/,
presents a shocking picture of how work rules impair productivity at
automobile plants at which the workers are represented by the United
Auto Workers.
The goal of unions is to redistribute wealth from the owners and
managers of firms, and from workers willing to work for very low wages,
to the unionized workers and the union's officers. Unions do this by
organizing (or threatening) strikes that impose costs on employers. For
employers are rationally willing to avoid those costs at a cost
(provided it is smaller) of higher wages and benefits and restrictive
work rules.
Because the added cost to the employer of a unionized work
force is a marginal cost (a cost that varies with the output of the
firm), unionization results in reduced output by the unionized firm and,
in consequence, benefits nonunionized competitors. Unless those
competitors are too few or too small to be able to expand output at a
cost no higher than the cost to the unionized firms, unionization will
gradually drive the unionized firms out of business.
Unions, in other words, are worker cartels. Workers threaten to withhold
their labor unless paid more than a competitive wage (including benefits
and work rules), but unless their union is able to organize all the
major competitors in a market, the cartel will be eroded by the entry of
nonunionized firms, which by virtue of not being unionized will have
lower labor costs. The parallel to producer cartels is exact--workers
/are /producers.
We are seeing this process of erosion of labor monopolies at work in the
automobile industry. The market share of the Detroit automakers has
shrunk steadily relative to that of the foreign "transplants" and with
it the number of unionized auto workers--they are fewer by a third or
more than they were in 1970. If the Detroit automakers will be forced to
liquidate unless they can bring their labor costs down to the level of
the foreign transplants, the UAW will be out of business either because
the Detroit automakers liquidate or because, as a result of union
concessions, the workers will no longer be getting anything in exchange
for the dues they pay the union.
I don't think there's much to be said on behalf of unions, at least
under current economic conditions. The redistribution of wealth that
they bring about is not only fragile, for the reason just suggested, but
also capricious, as it is an accident whether conditions in a particular
industry are favorable or unfavorable to unionization.
By driving up
employers' costs, unions cause prices to increase, which harms
consumers, who are not on average any better off than unionized workers
are. Unions push hard for minimum wage laws and for tariffs, both being
devices for reducing competition from workers, here or abroad, willing
to work for lower wages. Current union hostility to immigrant workers is
of a piece with the unions' former hostility to blacks and women--which
is to say, to workers willing to work for a wage below the union wage.
And by raising labor costs, unions accelerate the substitution of
capital for labor, further depressing the demand for labor and hence
average wages. Union workers, in effect, exploit nonunion workers, as
well as reducing the overall efficiency of the economy. The United Auto
Workers has done its part to place the Detroit auto industry on the road
to ruin.
There is also a long history of union corruption (though not in the
UAW). And some union activity (though again not that of the UAW) is
extortionate: the union and the employer tacitly agree that as long as
the employer gives the workers a wage increase slightly above the union
dues, the union will leave the employer alone.
There may be, I grant, cases in which unionization reduces an employer's
labor costs. If there is deep mutual antipathy between workers and
employers, perhaps breaking out in violence--with strikebreakers beating
up strikers and strikers beating up scabs and sit-down strikers
destroying company property--there may be benefits from interposing an
organization independent of the employer between employer and workers,
and from creating (as the National Labor Relations Act has done) a
civilized mode of resolving labor disputes.
But in cases in which union
organization is mutually beneficial, the employer will /invite /the
union to organize its workers. I am sure the Detroit automakers would
very much like to disinvite the United Auto Workers.
Unions do provide some services that are valuable to employers, such as
grievance procedures that check arbitrary actions by supervisory
employees; and union-negotiated protection of senior workers can benefit
their employer by encouraging them to share their know-how with new
workers, without having to fear that by doing so they will be sharing
themselves out of a job. But these are measures that an employer who
thinks they will reduce his labor costs can take without the presence of
a union.
Micky Kaus, another blogger who is an expert on the automobile industry,
attributes much of the problem with the UAW to the procedures that
govern labor relations in unionized plants. "The problem...is the
American adversarial labor-management negotiating system, in which
reasonable people doing what the system tells them they should do wind
up producing undesirable results.
Just as negotiating over work
assignments means factories adjust too slowly to generate continuous
efficiency improvements (which often involve constantly changing work
assignments) negotiating ponderous 3 year contracts (in which
Gettelfinger [the UAW's president] must extract every possible
concession to please the members who elected him) means contracts adjust
too slowly to save the companies from failure if market conditions
change...[T[he $14 wage scale for new hires [to which the UAW agreed
several years ago] hasn't had an impact because nobody new is being
hired by the UAW's employers, who are shrinking, not growing. The
obvious alternative to cutting the pay of nonexistent future workers
would be to cut the pay of existing current workers--but they are the
people the system tells Gettelfinger he needs to please."
www.slate.com/blogs/blogs/kausfiles/ (Dec. 26, 2008).
The unions strongly supported the Democrats in the last election and are
looking for payback. I do think that there are good economic reasons for
keeping the Detroit automakers out of bankruptcy until the current
depression hits bottom and a recovery begins--until then the shock to
the economy would be too great (see my post of November 16)--and that
will keep the UAW alive for a while. But if it resists making
substantial concessions to the automakers, hoping that the President and
Congress will force the automakers' bondholders to make the necessary
concessions or that the taxpayer will be forced to subsidize the
automakers indefinitely, the union will be playing a game of chicken
that may end in its destruction rather than merely in its continued
shrinkage as the industry shrinks.
The auto bailout is deeply unpopular
with the public and the UAW's stubbornness may reinforce the impression
that unions are dinosaurs slouching toward extinction.
Posted by Richard Posner at 4:26 PM
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