Initially I saw the UAW / GM agreement as GM caving in to the union. Not so, argues Hassett. At best, it's a compromise. At worst, it's recognition by the union of its precarious position.
Ed
GM, UAW Find a Cure at Last for Union `Cancer': Kevin Hassett
By Kevin Hassett
Oct. 1 (Bloomberg) -- The deal between the United Auto Workers and
General Motors Corp. may well go down as the most important agreement in the
long history of U.S. labor relations. If unions exist at all 20 years from now,
it will be because labor negotiators adopt and expand upon the revolutionary
model made public last week.
The stakes could hardly be higher. If the American labor movement were a
baseball team, this deal would make the Chicago Cubs look like the New York
Yankees. The movement has been on a losing streak stretching back to the 1950s,
and the losses have been accelerating.
According to the latest data from the U.S. Bureau of Labor Statistics,
the percentage of the private workforce that is unionized is only 8.1 percent,
down from 9.8 percent in 2000, and 27 percent back in the 1950s.
Economic research has clearly identified the causes of unionization's
decline. Unions have historically foisted rigid work rules and higher costs on
companies. Since unions can't organize every company on Earth, non-unionized
competitors have eventually emerged to grab business away from unionized
companies. Unionized factories have closed, while non-unionized plants have
flourished.
One study of unionized workers found that they make about 15 percent more
money than non-union workers in the U.S. That's certainly good news for those
who are older and likely to retire before high costs drive the unionized firm
into bankruptcy. It's not necessarily a good deal for younger workers who will
be on the street when the ``cancer'' of union inefficiencies kills the patient.
Steep Drop
The auto industry in the U.S. has seen an especially dramatic case of
union cancer. The number of active workers in the UAW has dropped precipitously
in recent years, from 302,500 in 2003 to 180,000 today.
Why the sharp drop? Work rules that were negotiated back when U.S.
automakers were awash in market power allowed workers to quit, for example,
once they had met their piece-rate rules for the day. This often allowed
workers to quit and receive a full day's pay after a half-day's work. And these
lucky workers had short careers as well: With retirement eligibility starting
after 30 years, a high school grad could retire at 48.
The end result of this has been that U.S. manufacturers have been weighed
down by an extremely expensive workforce and an enormous pool of retirees who
receive costly benefits. GM has about 74,000 active UAW workers, and about
340,000 retirees. Workers at UAW organized plants cost about $25 per hour more
than at a Toyota Motor Corp. plant.
Lower Wages
Such a cost differential isn't sustainable, and the UAW has finally
conceded the point. In the landmark agreement, the union will now allow GM to
pay new workers much lower wages, and has also allowed the automaker to offload
retiree health costs into an independent trust that will be seeded with about
$35 billion of GM money.
By making these concessions, the UAW has finally acknowledged something
that big labor has always been reluctant to: Past practices were driving
employers into bankruptcy. Labor cannot simply demand higher wages without
providing greater productivity and expect the firm to survive.
One could envision a future of the labor movement that builds off this
agreement and fundamentally alters the relationship between workers and
companies. In their landmark book ``What Do Unions Do?'' first published in
1984, Harvard economists Richard Freeman and James Medoff envisioned a union
that could be a net positive for a firm if it worked to maximize what the
authors called the ``union voice'' effect.
Hope Yet for Unions
If workers get together and figure out changes that can be made to
improve operating practices, and then voice these observations to employers,
then the union could in theory help the employer become more competitive.
Unions haven't done this effectively enough in the past to offset higher
wages, but there is no reason why they couldn't do so in the future. If they
do, they may well flourish.
Consider two hypothetical firms: One has a workforce that has developed a
communications apparatus that allows employees, in consultation with
management, to change work practices on a dime as new potential efficiencies
are discovered. Another has a disorganized workforce. Workers do their jobs and
go home.
Which firm will provide the best product at the best price? The one with
the organized workforce might well, especially if it turns out that workers are
better than firms at organizing themselves into productivity-enhancing
networks, and if workers accept extra compensation in the form of equity in the
firm, rather than higher hourly wages.
American labor isn't there yet, of course, but the UAW has taken a step
in the right direction.
Almost 10 years ago, I wrote a piece in the Wall Street Journal titled,
``Why Big Labor Keeps Getting Smaller.'' I argued that all signs pointed to the
gradual disappearance of organized labor in America. Even after a decade of
steady decline, today one would have to conclude that the outlook is less
bleak.
To contact the writer of this column: Kevin Hassett at [EMAIL PROTECTED]
Last Updated: October 1, 2007 00:13 EDT
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