Cut wages to market rate to create jobs

 

"Point of View" submitted by Steve Harry

October 3, 2010 - Lansing State Journal

 

The UAW knows how to create jobs: Make wage concessions.

 

Last June, in his final speech to the UAW after eight years as president, Ron Gettelfinger said that due to the union's sacrifices, General Motors would be the first automaker to assemble a subcompact car in the United States. He was apparently referring to the next generation Chevy Aveo, which will be made at GM's Lake Orion, Mich., plant.

 

Building the Aveo in the U.S., rather than South Korea, means thousands of new jobs for American workers.

 

Among the UAW's concessions in the 2007 contract was allowing new hires to be paid $14 an hour, instead of the usual $28. Fourteen dollars per hour is a little closer to the market wage for an assembly worker, but still high.

 

The market wage is the least amount the employer must pay to attract and keep a full work force. One of the $14 per hour new hires at GM's Lordstown, Ohio, plant - where the new Chevy Cruze is being made - was quoted as saying "This is like the best job around the area. And it's very hard to get in, so I'm very fortunate and lucky to get in here."

 

If all employees were paid the market wage, there would be no unemployment.

 

Lower wages not only allow U.S. carmakers to manufacture subcompacts at a profit, but allow other employers to reduce the price of their products and increase sales. To keep up with demand, they have to hire more workers. This is how the market wage reduces unemployment.

 

I know it is counter-intuitive, but lowering wages to the market rate increases the average real wage. That is partly because the calculation of the average includes fewer unemployed workers - workers whose wages are zero - and partly because prices are lower. More people working means total production is higher, and since income is the flip side of production, total income is higher.

 

But wait, there's more. Putting the unemployed back to work not only eliminates their downward pull on the average wage, but also reduces the social costs that go with unemployment: unemployment checks, welfare, crime, incarceration, broken families. So at the same time the average (real) wage goes up, taxes can go down.

 

For some workers, the cut in wages is not entirely offset by the increased buying power of their money (due to lower prices) and the decrease in taxes. This is because they were being paid a lot more than the market rate. There were lots of qualified people who were willing to do their jobs for less. Their pain is what we would call "justice."

 


The 2012 Sonic LTZ hatchback (image stolen from mlive.com)

 

Email exchange:

From: Steve Harry [mailto:steve_harry@yahoo.com]
Sent: Monday, October 04, 2010 3:27 PM
To: Thompson, Chrissie
Cc: Bell, Dawson
Subject: New jobs at Lake Orion plant

Chrissie,

I just read your September 23 article "Tiny Aveo a Big UAW Challenge" and I have some questions you might be able to answer.

Seems to me that building the Aveo in Michigan rather than Korea is a big deal. It means that a lot of new jobs will be created. If the Aveo was being manufactured elsewhere in the U.S. , or if it was replacing another model manufactured here, or even competing with another model manufactured here, the jobs created might have been offset by job losses elsewhere, but that is not the case. These really are new jobs, and to manufacture a whole new car, isn't it going to require, like, thousands of new jobs? So my first question is, How many jobs will be created? Has anybody offered an estimate?

My second question assumes that a lot of jobs will indeed be created: Why isn't Governor Granholm making a big thing of it? New jobs - especially when we are talking maybe thousands of new jobs - should be big news here in Michigan, right? Your article says Bob King has some doubts as to whether the Aveo can be produced at a profit. If it can only be produced at a profit by the UAW's $14 per hour "third tier" workers, I can see why King isn't too excited about it.

I had a letter in the Lansing State Journal's Sunday edition on this subject. You can see it at [link no longer works].

Steve Harry
517-323-3897


From: Chrissie Thompson
Sent: Monday, October 05, 2010 1:59 PM
To: Steve Harry
Cc: Bell, Dawson
Subject: Re: New jobs at Lake Orion plant

Hey, Steve. Did you see my story yesterday? [link no longer works] This speaks to your last point about why people may not be making a big deal about the Orion jobs…

GM still hasn’t said how many workers they’ll put in the Orion plant. About 1,500 workers are on layoff there now.

-Chrissie Thompson
Reporter
Detroit Free Press
cthompson@freepress.com

 

Related news stories:

September 23, 2010 - Tiny Aveo a big UAW challenge (Detroit Free Press)

October 5, 2010 - 40% in GM plant get half pay (Detroit Free Press)

October 8, 2010 - TUG-OF-WAR WITHIN UAW (Detroit Free Press)

October 9, 2010 - Ford, UAW reach deal on Focus plant (Detroit Free Press)

October 17, 2010 - UAW workers protest leaders (Detroit Free Press)

October 19, 2010 - UAW workers facing tough decision (Detroit News)

October 27, 2010 - Laid-off GM worker files complaint against UAW (Detroit Free Press)

October 28, 2010 - Complaint on Orion taken to feds (Detroit Free Press)

December 9, 2010 - GM's Orion plant to build Chevy Sonic (Detroit Free Press)

January 9, 2011 - 2012 Chevy Sonic to be only subcompact built in U.S. (Detroit Free Press)

January 9, 2011 - From development to the plant, she oversaw Sonic (Detroit Free Press)

January 10, 2011 - Buick unveils Verano compact  (Detroit Free Press)

March 30, 2011 - Union open to lower wages if GM plants reopen (Detroit Free Press)

March 30, 2011 - UAW: Jobs the goal, even at 2nd-tier wages (Detroit News)

May 31, 2011 - Revived Big 3 prep for new hiring blitz (Detroit News)

June 18. 2011 - General Motors pricing Sonic at just under $15,000

July 5, 2011 - Jobs vs. labor costs to drive auto talks (Detroit Free Press)

July 7, 2011 - Hiring spree: Auto industry's new life means more jobs (The Associated Press)

July 12, 2011 - With Chevrolet Sonic, G.M. and U.A.W. Stand Automaking on Its Head (The New York Times)

July 16, 2011 - GM has big hopes for the small Chevy Sonic (Detroit Free Press)

August 14, 2011 - UAW workers seek end to two-tier wage structure (The Detroit News)

October 28, 2011 - Marchionne wants end to 2-tier wages (The Detroit News)

March 26, 2012 - GM makes big splash in small-car market (The Detroit News)

October 18, 2012 - Autoworkers Earning Less in U.S. Happy to Compete Again (Bloomberg)

Responses to my letter:

$14 an hour isn't high
October 12, 2010

 

I write in response to Steve Harry's astonishing Oct. 3 commentary, claiming that the answer to creating jobs is to cut wages to some mythical "market" level. He thinks that the UAW agreeing under pressure to cut wages for new autoworkers from $28 to $14 an hour was great, but adds that $14 is "still high." How can he be serious? Fourteen dollars an hour is only $29,000 a year. That's barely above the federal poverty level for a worker with a family! Meanwhile, the average CEO compensation for the S&P 500 corporations - who've been outsourcing our jobs by the millions - is $9.2 million per year. That's more than $4,400 per hour.

 

In the 1960s, the average CEO earned 30 times the amount of the average worker. Today, it is 300 times as much. Thirty years of Reagan Republican "trickle-down" economics are destroying the middle class.

 

Marty Kushler
Williamston

 

Wage claims ridiculous
October 19, 2010

 

Steve Harry (Forum, Oct. 3) is obviously a " trained economist" who has the answers to all the problems we face. Or is he only mimicking ravings of the far right? To blame auto workers and unions for these problems, without even mentioning the gaffs of management and the greed of corporations, is a good indication of his allegiances. Admittedly, I am not an expert on economics, but it would be very easy to find someone who could refute all of Harry's ideas. As a retired auto worker, I am not ashamed of the wages I earned. It allowed me to pay more than $260,000 in taxes, give to charity and buy goods and services, etc. - all things that kept the economy going strong. That is until the author of "trickle down and voodoo economics," Ronald Reagan, came along and the age of corporate greed began!

 

Steve Stavros
DeWitt

 

Cut from the top
November 3, 2010

 

First, it was the guy who penned a column in the LSJ to say that if the union workers would take a 50 percent pay cut, it would solve unemployment and fix the recession. (Except they didn't cause it.) Then, Rick Snyder says he will cut state employees' wages and benefits. Great idea - if he starts at the top with his pay and the rest of the overpaid, part-time Legislature, its staff, the judges and everybody else who is paid with tax dollars.

 

The union workers and state employees didn't cause this mess. The greedy, overpaid suits did.

 

I am sure most of the union workers would take a pay cut if it would bring back their coworkers. But, only if it started at the top. The divide between workers' pay and the CEOs and board members' pay has grown exponentially. There is no reason for a CEO to make 450 times more than the average worker. They certainly don't work 450 times harder.

 

Start cutting at the top and see how things improve.

 

Hugh Dunlap
Dimondale