The Unemployment Question (Part Two)

Originally published in Flourishing September/October 2012

Last month I discussed the effects of minimum wage laws, particularly on young and unskilled workers.  I showed that by mandating a cost of labor in excess of that labor’s value to employers, the government causes high levels of unemployment among these groups of workers.

Similarly, by mandating that companies recognize and negotiate with unions, government often causes even highly-skilled workers’ wages and benefits to rise to uneconomic levels.  Since companies have budgets with limited income and fixed costs—like land, machinery, and buildings—higher wages and benefits mean that fewer workers can be employed.  Of course, companies can try to raise their prices to cover their higher labor costs, but I invite you to ask any GM or Chrysler shareholder how that worked out. 

In 2007, just before the housing and credit meltdown, The Center for Automotive Research1 estimated that Detroit’s automakers were paying $6365 per hour for production labor and benefits, while Toyota was paying 4750 in its American auto plants.

At about the same time, CNBC reported2 that U.S. automakers had a future burden for union-negotiated healthcare benefits of $1,500 per car, which Toyota and other non-union auto manufacturers did not have.  Indeed, GM was referred to as a “benefits” company, not as an auto manufacturer.  In 2007, GM lost $38.7 billion – a loss of $4,055 per car sold. In that same year, Toyota earned a profit of $17.1 billion – a profit of $1,874 per car sold.  

In 2008, the U.S. auto industry lost more than 400,000 jobs.  Most have not returned. 

When government chooses sides in the business arena—sooner or later—both sides will lose.  mh

(The Unemployment Question will conclude in the next issue.)

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1.  Katie Merx, “UAW Contract: Nuts and Bolts,” Free Press, September 29, 2007.

2.  Phil LeBeau, “GM and UAW Seal Deal: Was the Strike Worth It?” CNBC, September 26, 2007.