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Unions and the Collapse

As this nifty video compilation shows, conservatives have been all over the idea that labor unions are to blame for Detroit’s woes:

My colleague Satyam Khanna observes in response that “unions have repeatedly made concessions to auto executives over recent years . . . AIG, Merrill Lynch, and Bear Stearns did not have unionized workers but still suffered economic collapses.”

I would add that it’s hardly as if German carmakers are operating in the conservotopia of unregulated, union-free labor markets where cars are made by eleven year-olds earning minimum wage. IG Metall is a powerful union, and German autoworkers are well-compensated. What’s more, if you go back a few decades to a time when the “Big Three” were more successful, you’ll see that the UAW contract was actually more generous to the workers back then. The reason for all this is that the car business is, by its nature, a promising field for union activity. Some businesses feature very low profit margins on individual goods, have labor costs as a very large proportion of operating expenditures, or involve few fixed costs. In that kind of business, there’s not much a union can do for a workforce. It can marshal political muscle on behalf of its members’ interests, curtail certain forms of abuse, and provide some services but fundamentally the wage structure of a business like that is set in stone by the underlying realities. But the car business isn’t like that at all. Cars are expensive, high-margin products and labor costs are a relatively small share of the overall cost of making a car. What’s more, a car factory is difficult and expensive to build. Under the circumstances, unions — both in Germany and in the United States (I know just enough about Japanese labor markets to know that I don’t understand Japanese labor markets and won’t comment on the subject) — have historically been able to get a big slice of the pie for their members. But as Detroit has come to have less-and-less pie over the years, the labor slice has gotten smaller and smaller.

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Now none of this is to deny that the union contracts play a role in this. On the one hand, there’s the health care angle. But on the other hand, there’s the competition from the Japanese cars. Those cars are, however, mostly made in the USA. But they’re made in “right-to-work” states in the South where it’s essentially impossible to organize a union. And for all the same reason that the car business is a promising venue for union organizing and collective bargaining, it’s also a business where avoiding unionization gives you a big competitive edge. Under the circumstances, it’s extremely difficult for Detroit to compete.

If things had gone differently in the middle of the twentieth century, we would have real national unions in the United States, not this special “no unions in Dixie!” situation. In that world, once foreign manufacturers started to put down roots in the United States there would have been a realistic chance of unionizing their plants. And either unionization or else manufacturer elements to undercut the appeal of union organizers would have lifted up wages. And you would have seen convergence between the wages of American auto workers making “foreign” cars in the United States and American auto workers making “American” cars in the United States. The converged wage would probably have been somewhat less generous (relative to broader economic trends) than in Detroit’s heyday (thanks to increased competition) but higher than what’s currently prevailing in the South. In that world, Detroit wouldn’t be suffering under a massive competitive disadvantage, workers would be making somewhat more money, and at the margin price points for different kinds of vehicles would be somewhat higher. In my view, that would have been a better world. But instead an alliance between big business and white supremacists kept unions out of the south and made the world we live in today.

Now obviously reflections on this sort of thing can’t produce an answer to the Big Three’s problems (or UAW’s) in the short run. But to me it highlights the importance of things like the Employee Free Choice Act that will make union organizing viable again. We need a world in which when someone comes up with a smart business idea (let’s build Toyota’s in the United States!) that creates a situation in which a union could be beneficial to workers, that we have a realistic shot at unionizing the new business. Otherwise, you get what we have here, where the future of the labor movement is tightly bound-up with the continued viability of large firms that were organized decades ago. But over the long haul, the economy is bound to be in flux with the fortunes of individual firms waxing and waning over time. Employment is going to shift hither and yon. And we need decent, high-wage jobs to shift hither and yon with them. And a big part of that is making unionization a realistic possibility.