The UAW's Unreasonable Demands Will Hurt Labor, and the Economy
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After decades of waning influence, the labor movement in the United States appears to be having a resurgence. In July, UPS averted a strike by its largest union, the Teamsters, by agreeing to a contract that gave sizable raises to all of its 340,000 workers, with experienced drivers now earning at least $100,000 a year. 

The number of strikes and the number of workers who have gone on strike has increased for the third consecutive year, with the Hollywood actors as well as the screenwriters having been on picket lines for months. Starbucks and Amazon have seen unions gain traction in their efforts to organize their facilities too. More than 320,000 workers have participated in 230 strikes so far this year. 

However, the incipient walkout of UAW workers at the Big Three auto companies would dwarf the impact of any other labor action this year--or any other year in the last decade. The size and strategic importance of the auto industry in America means that a strike by the autoworkers would have a deleterious effect on the entire U.S. economy as well as the long-term solvency of the domestic auto industry. 

But while the consequences of a strike may be severe for everyone involved, it appears that the UAW president made the decision to strike when he began campaigning for the job. As someone whose own community was fissured by a UAW strike a generation ago that ultimately did nothing for the workers, it appears to me that the UAW may be embarking on a similar path, where a long and bitter strike produces few tangible benefits for its workers. 

In the early 1990s Caterpillar was the largest employer in the Greater Peoria Area by almost an order of magnitude, and working in its factories was the best job around for someone who had not gone to college. It even beat many jobs in the area for college-educated workers: The teachers at my school - which was literally in the shadows of a Caterpillar factory - liked to point out that most of them made less than the typical factory worker. 

The problem--from both the workers’ and company’s perspective--was that these high wages made it more difficult for the firm to remain competitive globally. In the negotiations for a new contract in 1991, the company asked for the right to start new employees on a lower pay scale--which would gradually ratchet up to the wage rate of experienced workers--as well as an end to a contract provision that provisionally guaranteed that a worker would receive more or less his salary for the entire length of the contract, even if he were laid off. These Supplemental Unemployment Benefits helped deter layoffs, since there were few savings to be had from doing so (my dissertation looked at their impact on the labor market). But it also resulted in firms hastening their attempts to mechanize jobs or move jobs overseas. 

The union refused to consider either one of these company proposals and called a strike, which went on for months. In anticipation of such an event the company’s white collar workers trained to do a job on the assembly line, and the company managed to meet most of its orders. The workers then returned to their posts, only to “work to rules” which was a way to greatly slow down production. After a few months of this the company locked them out and introduced replacement workers to man the plants. 

These workers were paid the amount they proposed to pay new workers, and they had no problem filling these jobs--because even at that wage they were still earning above the average wage for blue collar workers in the area. 

Ultimately, the union returned to work and gave up their Supplemental Unemployment Benefits and allowed two-tiered wages. In future negotiations they moved to a defined-contribution plan as well as a health insurance plan that required no co-pays or monthly contributions, which helped keep costs down, in return for wage increases. 

The autoworkers refused to make similar concessions, and as a result pension and healthcare costs ultimately overwhelmed the companies when a downturn came via the financial market collapse of 2008: The economist Uwe Reinhardt famously referred to the Big Three at the time as social insurance schemes that sell automobiles. The Big Three’s pension obligations and health care costs that ultimately forced GM and Chrysler--which is now a part of Stellantis--into bankruptcy and the dire financial straits of the automobile industry resulted in the unions being forced to acquiesce on the pension and health benefits--and wages--to help the automakers remain in business. 

However, the UAW apparently wants to undo these hard-earned lessons, and UAW President Shawn Fain has essentially demanded the return of supplemental unemployment benefits, whereby workers not needed at the plant would instead be assigned to work in a local community-service position at full pay. 

The union also wants a 46 percent wage hike--and then indexed to inflation--and a move from a 40 hour workweek to a 32 hour workweek, more profit sharing, the end of two-tiered wages, and an increase in pension benefits for current retirees. It is also demanding a new defined benefit pension plan. 

Imposing steeply higher and more inflexible costs on the major auto producers would put them in the same position they were in before they went bankrupt--unable to gain many benefits from productivity gains and becoming increasingly uncompetitive in a cutthroat global market. 

It would make such a union victory a pyrrhic one: The domestic auto industry--at least the part that’s unionized--would hemorrhage jobs to foreign or non-union rivals as the cost of new cars goes up even further to pay for the additional labor costs. Right now, the average new car retails for nearly $50,000. And as a result, Americans are keeping their cars longer than ever. The average age of a car on the road is currently 12.5 years.

The UAW needs to think about the future of its members as well as the health of the U.S. economy. A prolonged strike would cost it a lot of goodwill and slow down economic growth. Instead of making unreasonable demands that would hurt their own long-term prospects and their companies, it should cease its militant negotiation tactics and find a common ground that allows the automakers to remain competitive. 

Such a strategy would buy them goodwill both from lawmakers and the public, and ultimately help to create jobs for their members.


Ike Brannon is a senior fellow at the Jack Kemp Foundation. 

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