Tuesday, October 11, 2005

Delphi Bankrupcy

How will the Delphi bankrupcy effect the Union of Auto Workers? Delphi is an auto parts maker saddled, as are many old union shops, with sky high labor costs, an obdurate workforce, and huge pensions obligations. Currently, workers are paid $130K/year (with no overtime, and this does not include the value of a generous pension, and I'm not sure if it includes benefits). To put this in context, the national household average wage is $40K, so with 1.5 people working in a household, this comes out to about $200K, certainly in the top 5% US households by income. Delphi management wants to reduce this to around $40K/year ($60K/year household, or in the top ~40% of the US) and the UAW is saying no.

Slate's excerable Daniel Gross displays his typical economic illiteracy by casting this as a morality play where evil "cram down" artists want to take away the middle class delivered by unions. But to me, any company that is losing money, and whose major customer is losing money, and has costs way out of line with competitors is going to have to tackle those costs or go out of business. And I don't think going from the top 5% to the top 40% is "destroying the middle class" (or re-proleteriatizing the working class, or whatever) -- although that is a *huge* pay cut that I'm sure the unions will fight tooth and nail against. I don't know how this particular drama will play out, but companies have promised more money to their retirees than they can pay and they will either 1) renege on that promise, 2) pass the cost onto the government (who will pass it onto tax payers) or both.

Some key things to know about the American economy: the US manufactures more products than it ever has before in its history. You heard it right here folks, American manufacturing is alive, well, and bigger than its ever been in the past. However, jobs in the manufacturing sector keep on shrinking. What gives? Machines. Whenever anyone starts talking about US manufacturing going away they are wrong -- it's growing. When they talk about US manufacturing jobs going away they are correct, but the jobs aren't going to imports, they're going to machines.

Maybe the UAW should consider recruiting robots.

I also want to add one other note -- people seem to beleive that it was unions that made the American worker rich. This is not true, they transfered some money from consumers to union labor but the main source of american wealth has been rising productivity. Henry Ford's workers became wealthy not because Ford was a generous man (although it sounds like he was) but because Ford's workers were really really productive.

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