Does the labor movement favor or oppose outsourcing? It seems a silly question, given the AFL-CIO’s vociferous opposition to the free-trade agreements and tax breaks that, the labor federation argues, abet the flight of good-paying manufacturing jobs abroad.
What makes the question non-silly is this: The United Auto Workers has just negotiated and ratified collective bargaining agreements with U.S. automakers, the foreseeable and, to some extent, intended effect of which is to facilitate shifting jobs to Mexico.
It’s a case study in the difference between labor’s political rhetoric, which is all about working-class solidarity, and collective bargaining, which is all about self-interest.
Detroit has come back from the 2009 recession, big-time: with total vehicle sales hitting 16.4 million, profits in 2014 reached $6.5 billion for General Motors, $6.3 billion for Ford and $4.1 billion for Fiat Chrysler (before interest and taxes).
Many factors helped: Billions of dollars in federal aid got GM and Chrysler through bankruptcy. The Federal Reserve’s zero-interest rate policy stimulated the economy and made car loans cheaper. Low gas prices boosted demand for highly profitable SUVs and pickup trucks.
And UAW concessions, especially lower wages for entry-level workers — the “two-tier” system — helped the Big Three bring labor costs in line with the nonunion U.S. plants of Japanese, Korean and German competitors.
Workers got a taste of the Big Three’s new prosperity through profit-sharing, but as this year’s contract negotiations approached, UAW leaders were under pressure to win permanent wage-rate increases and abolish “two-tier.”
To cut a long and complicated story short, the companies essentially agreed to solve that problem for the union, in return for which the union, which has a say on investment plans, helped the carmakers solve their problem: gaining access to cheaper labor somewhere in the world.
Ford and Fiat Chrysler have the most aggressive plans to shift smaller-car production to Mexico, where labor costs less than $10 per hour; the new contracts let the companies pursue those plans. Vehicles will enter the United States tariff-free under the North American Free Trade Agreement.
The first Ford factory affected may be the Michigan plant that once underwent a $550 million retooling for small-car production, as part of a $5.9 billion Energy Department loan. Announcing the loan in 2009, then-Energy Secretary Steven Chu declared “the most fuel-efficient cars in the world must be made right here in America.” Alas, low gas prices undercut demand for such cars and Ford couldn’t make money building them, at least not at UAW wages.
U.S. carmakers can profitably make pickups and SUVs, which account for roughly 70 percent of the Big Three’s sales this year. The future of North American auto manufacturing looks like this: big cars north of the Rio Grande, small ones south of it. Even nonunion foreign carmakers are joining the trend.
Faced with the above realities, and eager to exploit the industry’s flush condition while it lasts, the UAW essentially decided to protect as many jobs for its members as possible at the highest wages possible. You can’t blame the union for trying to maximize what it most values — which is precisely the point.
In a different world, one in which the Big Three were not legally bound to deal with the UAW at all U.S. plants, and thus did not face a binary choice between paying UAW wages or moving abroad, the carmakers would at least have had the option of hiring Americans to build smaller cars at some wage between union scale and Mexican rates: bad for the union, but not necessarily bad for American workers.
No, we don’t want to start a race to the bottom on wages. What we have now, however, is the opposite problem: A lucky handful of union members get paid well, to the exclusion of other American workers. The more the Big Three shift small-car production to Mexico, the more nonunion foreign competitors have to follow suit.
The true wisdom of the UAW’s huge bet on large vehicles may not be apparent until the next gas price spike. And one wonders how environmental politics will change now that the United States’ preeminent industrial labor union is made up of SUV and pickup assemblers.
Meanwhile, in another part of the forest — Congress — labor is fighting the excise tax on high-cost health plans, a key part of President Obama’s health-reform law that helps insure poor people and curb overall costs, but impinges on unions’ ability to negotiate medical benefits.
Mancur Olson, the economist and analyst of interest-group behavior, long ago identified an inherent tension between unions’ “exclusive” goals (for members only) and their “inclusive” goals (for society as a whole). Unions were bound to be “ambivalent” between the two, Olson argued. Recent events bear him out — a reason to be ambivalent about unions.