IT'S TIME FOR U.S. auto workers to stop moaning about our economic plight and do something about it. Like take a sizable pay cut. Perhaps then many of their fellow United Auto Workers members would not be suffering from the pains of unemployment.
Auto workers, of course, don't like pay cuts any more than the rest of us do. They just deserve them more. They have, in fact, long enjoyed higher compensation than other comparable American workers, and this gap, remarkably, has widened as the American auto industry's troubles have worsened.
In the late 1940s and the 1950s, for example, auto workers earned over 20 percent more than U.S. manufacturing employes as a whole. This was the result of what is known as a "shared monopoly." The U.S. auto industry and its Canadian subsidiaries in the early 1950s produced 75 percent of the world's motor vehicles. Its return on equity in those days typically was more than 30 percent higher than that of all U.S. manufacturing, and auto workers shared in the monopoly benefits.
But the auto industry has been experiencing the discomfort of declining monopoly power for longer than is generally recognized -- while the auto workers' pay advantage over other manufacturing employes has increased.
The North American share of world auto output fell below 50 percent in the 1960s, and imports rose to more than 10 percent of domestic sales by the end of the decade. This trend accelerated in the 1970s, with the North American share of world output declining to about one-third by the end of the decade. Imports are now almost 30 percent of U.S. domestic sales.
As a consequence, the margin between U.S. auto industry rates of return and those prevailing in all U.S. manufacturing fell sharply during the 1960s, and was only 1 percent in the early 1970s, and became negative for the second half of the decade. The domestic auto industry earned 34 percent less than all manufacturing firms in 1979, and it will sustain a large loss in 1980.
The other side of the shared monopoly, however, managed to maintain its returns. The margin between UAW hourly wages and those for all manufacturing was about 25 percent through the late 1960s and increased in the late 1970s. Total hourly compensation (including fringe benefits) was 52 percent higher for all UAW members than for all manufacturing workers in 1978, and the new auto industry contract pushed Ford's 1979 hourly compensation costs to $15.94.
The companies bargained away money they did not have, and the UAW has priced itself and its employers out of the market.
Douglas Fraser of the UAW and auto company executives have predictably demanded that the government restore their market power by sharply curtailing imports of Japanese cars. This, however, means higher prices for car buyers. A study prepared within the Carter administration concludes that U.S. car prices would increase by about $350 if Japanese imports were reduced by 250,000 a year. Reducing imports by a half million would cost American car buyers an extra $700.
The UAW, in other words, is suggesting that Americans pay a few hundred dollars more for cars in order to subsidize its members who earn 50 percent more than the average for U.S. manufacturing. This is from a union which claims to support measures to shift income from the rich to the poor.
The auto industry, meanwhile, would like us all to pay more for cars to restore a past situation in which it earned profit rates which were considerably higher than those elsewhere in the economy.
It clearly would be more reasonable for the UAW and the auto companies to adjust to the fact that the era of monopoly returns is over, and consequently that industry wage rates cannot significantly exceed those prevailing elsewhere in the economy if the domestic industry is to survive. A sharp cut in UAW wages would improve the competitive position of the U.S. car companies and increase employment in the industry. It would also mean that Americans would pay less for new cars.
The only other possibilities are for U.S. industry to continue to decline, or for the government to restore the previous shared monopoly power of the industry and its union by restricting imports, which would cost American car buyers an awful lot of money.