The big picture

I’m wondering about the broader implications of the latest round of buyouts at Ford Motor. For those of you who haven’t heard, Ford offered its 54000 hourly workers generous buyouts. The buyouts were agreed to by the UAW. Ford will replace the people who leave with new workers at about half the cost of the current ones. And it’s my understanding that GM and Chrysler are doing the same thing. Chrysler is even asking the UAW to extend the buyouts to a larger part of their workforce.

If the people who take the buyout are replaced by other workers at a substantially lower cost what is that going to mean over the next 20 years? Sure it will lower the costs of making an automobile, but will that translate into less expensive vehicles? I doubt that. It’s good for the stockholders in the short term. In the mid-term I guess I can see less rapid price increases but the manufacturers aren’t going to let their margins shrink too much.

Will other industries follow? If they do, what effect will this have on the middle class? I am a firm believer that the unions born in the early part of the last century are directly responsible for the American dream that my parents lived, even though they weren’t union workers. America is what it is largely due to the unions. They moved skilled and more significantly, unskilled labor into the middle class and reduced the gap between rich and poor.

If other industries follow I think that it could lead to significant wage gap between what is now the middle class and the upper middle class. It will mean a serious shift of the tax burden and possibly even some deflation. Pushed far enough it could even shrink the middle class. That, in my opinion, would be disastrous. America is what it is precisely because we have a large and prosperous middle class. Without it, our economy slows considerable and the standard of living has the potential to decline, which, it turn I fear, would lead to an even larger government trying even less successfully to redistribute wealth.

Will it strengthen the unions in the long run since they will now have things to bargain for again or will or will they continue to weaken? If the unions play their cards right they can use this to their advantage. In the last 20 years or more they haven’t had a lot to ask for. Wages were high, jobs were protected, and they had to ask for extra days off to vote or go hunting just so they could go to the bargaining table with something. After all, what do you get for the person who has everything?

In my opinion it made them appear greedy and grasping. In fact I resented the unions because they seemed out of control. They were no longer protecting workers, they were wagging the dog. And the dog went along with it.

Now they’re back to representing the underdogs. They’re back to doing what they were created to do. If they can push wages back up in the coming years we might see a return to the strong unions of the 1950’s.

If they roll over too much the could be made irrelevant by non-union shops offering higher wages and better benefits than what union workers are given. Smart employers with some foresight and an interest in managing people who are both happy and productive are the biggest threat to a union. Of course if all employers did that we wouldn’t have unions in the first place.

If wages do fall across the board will that make US products more competitive globally? To a certain extent it should. But I doubt that wages will fall enough for the US to compete for manufacturing plants with developing nations or even some of the yet to be exploited 3rd world nations who would love to have a factory or two where their people could work. It could help the trade deficit though if foreign goods become less affordable and U.S. goods and services become cheap enough to be attractive in overseas markets.

Will it lead to a return of some of those jobs that have been off-shored? In some cases it might. I think white color fields like engineering and customer service type work might show back up. I doubt that many manufacturing jobs would return. Those wages are entirely too disparate, even if costs in the US are cut in half. The only thing I can see making a real difference (barring unionization of the entire third world) is a huge increase in the cost of fuel. It would have to be a large enough increase to make ocean freight costs unreasonable, and if it gets to that point I think we’ll have bigger problems than not being able to import foreign goods.

Oh, I know we’ll muddle through, but politics aside, I really am curious about what this country is going to look like in the next 20 to 50 years.