Labor Arbitrage And The United Auto Worker Strike Against GM

Here’s what you need to know about the United Auto Workers (UAW) strike against General Motors. The strike is about two things: labor arbitrage and health care.

In 1990, GM’s workforce was over 350,000 strong. Today it is 73,000. Much production has been off-shored or spun off. (Delphi, for example, was spun off to supply car parts.) The spun-off workers have taken it on the chin in terms of wages, with Delphi workers going from $27 an hour to a maximum of $18.50.”

Meanwhile, the union says the strike is primarily about labor arbitrage, to whit:

The UAW wants assurance of future production at U.S. manufacturing plants.

But the Detroit Three ”” GM, Ford and Chrysler ”” have threatened to close plants and cut jobs to try to stay afloat….

…The union is holding out for job guarantees for the GM’s 73,000-strong workforce ”” which is now just a fifth as large at it was as recently as 1990.

In other words, GM workers don’t want what jobs are left in the US to be outsourced, off-shored, or spun off.

GM has a number of fundamental problems. The most important one is that their engineering culture is sick — they do not make cars as good as most of their foreign competitors’. This arises from the fact that GM thought they were in the finance business, not the auto business — a very dangerous mistake their greatest rival, Toyota, has never succumbed to. (But which is typical of US MBA-style management.)

However GM also has some simple bottom line issues. Unionized American workers are more expensive. Health care costs are out of control. (GM may have 73,000 workers, but it has 270,000 retirees!) The dependency ratio (the number of people each worker has to support) is therefor crippling. And with health care costs rising faster than inflation for, well, nearly forever, those costs are likely to continue as a monkey on GM’s back — unless it can shed them. So, setting up a trust fund, to be managed by the union, and offloading the liability is in GM’s interest and will, after the lump payment, get the monkey off its back.

More After The Jump

However, agreement on a framework for dealing with the health care issue has apparently been reached, so while it’s important to GM, it’s not the main cause of the strike. The main cause is keeping jobs in the US.

And it’s really just this simple: there’s no reason for GM to do so other than that it has sunk costs and expertise in the US. As each plant obsolesces, the temptation is to build a new plant overseas, or to farm out that production to an overseas firm, who instead of paying $27+/hour is paying dollars a day.

And that, ladies and gentlemen, is practically the definition of labor arbitrage — transfering jobs that cost (the employer) a lot to do in America, to someplace cheap where they can be done for less. The difference is pure profit (or, in the case of GM, reduced loss).

The ultimate logic of free trade as it is currently being practiced (i.e., not as free trade, but as trade managed by central banks) leads to an unending flow of labor arbitrage.

Or so the theory goes. In fact the heyday of labor arbitrage is coming to an end. But it isn’t quite ended yet, and that’s why the UAW is trying to save their jobs. And make no mistake, they are absolutely right to strike for job guarantees. Without them, in another ten years they’ll be lucky to have 35,000 GM workers in the US.

As for health care costs, well, that’s what you get for having employees in the US. Either they do without, or you pay through the nose to insure them. In most other first world countries the government bares most of the cost, which is why GM, Ford and Chrysler sent the Canadian government a letter saying that Canada should, under no circumstances, scrap Canadian medicare. Because, boys and girls, one reason Canada ate America’s lunch in the 2000′s was because of off-shoring — to Canada — where the natives speak English, and are better educated. (Toyota decided to put a plant in Southern Ontario rather than the Southern States in part because they didn’t want to have to train workers using picture books.) And that’s because Canada has some of those nasty socialist policies that are supposed to reduce competitiveness — but instead, in the right doses, increase it.

And so, the strike is on, with the Teamsters declaring that they will honor picket lines and deliver no GM vehicles for the duration of the strike. The UAW is absolutely right to strike, and I urge people to support them.

But in the end, the problems that the UAW and GM are facing are deeper than one industry or one strike, and have to do with how the US and world economies are structured. Until those problems, which include the American management style, are fixed, expect the long decline of American manufacturing, and the American middle class, to continue, interspersed by fierce little rear guard actions like this strike.

7 comments to Labor Arbitrage And The United Auto Worker Strike Against GM

  • lpetrazickis

    One wonders how this strike will be perceived in hindsight, as it has started around the same time that Americans have run out of money for buying cars.

  • BC Nurse Prof

    Excelent analysis, Ian. There’s a push in Canada on both sides of this issue from the U.S. Corporations want Canada to keep Medicare so they can locate manufacturing here. U.S. Health Care corporations have been drooling for years over the Canadian market for private health care clinics, hospitals, etc. for their own potential profit. This explains why Canadian provincial and federal leaders are insisting on some kind of hybrid system that satisfies both sides.

  • Ian Welsh

    system is almost certainly stupid, with all due respect. It will drain money from the public sector. US health care corporations are inefficient and incompetent at actually supplying health care. Anyone who lets them into Canada is a fool, or bought off.

  • adrena

    CMA Loses the Public Trust as it Betrays Canadian Values: Nurses Call on Doctors to Defend Medicare
    August 22

    RNAO says another troubling recommendation spelled out by Dr. Day and the CMA
    is the introduction of private insurance. “The minute you introduce private insurance into our system, you create two lines of patients. And the results are obvious. Those in the first line pay for their care using their Visa card while the majority who can not afford it wait in the second line. This is two-tier pure and simple,” says RNAO executive director Doris Grinspun.

    Ferguson-Paré says Dr. Day’s suggestion that the Canada Health Act needs be “modernized” and “revised” is smoke and mirrors because his approach would likely violate a sacred principle of Tommy Douglas’ Medicare system: that health care is a human right for every Canadian.

    “Dr. Day, who owns a private hospital, likes to insist that he believes in universal health care, but he has no credibility given his insistence on two-tier solutions,” adds Ferguson-Paré.

    “We call on individual doctors across the country to make it clear that Dr. Day does not represent them. Further, we call on the federal and provincial governments to reject, once again, Dr. Day and the CMA’s ideas,” says Grinspun. “We all know what havoc the private insurance system has wreaked on the health-care system in the United States. Clearly, voters in Canada do not want to go down this road. All along, we have said that the CMA is taking the wrong path and is seriously compromising the public’s trust of doctors by betraying their values,” adds Grinspun.

    The Registered Nurses’ Association of Ontario (RNAO) is the professional association representing registered nurses wherever they practise in Ontario. Since 1925, RNAO has lobbied for healthy public policy, promoted excellence in nursing practice, increased nurses’ contribution to shaping the health-care system, and influenced decisions that affect nurses and the public they serve.

    “Our lives begin to end the day we become silent about things that matter” – Martin Luther King Jr.

  • darwin

    Every democracy either ends up as socially democratic, or it becomes fascist and dies.

    Time to grow up and make the right choice, America.

    “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

    Charles Darwin

  • BC Nurse Prof

    Yes, Adrena, the BCNU (British Columbia Nurses Union) supports the RNAO in this position. We’ve already seen it here. A physician opens a new private health care clinic and offers nurses in the public system (where they are incredibly overworked, underpaid and otherwise abused) a high salary and better working conditions. They have 200 applicants for every position and they pick the best. They’re skimming the cream of nurses right out of the public system. What does that do to public health care? You know. People die.

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