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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)
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
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