A comprehensive study from the World Bank suggests that labor unions make a company less productive.
In the 168-page report, several outstanding conclusions were reached from a study of the United States, Japan, Britain, Australia and Canada. Some of them are:
While these conclusions should surprise no one, they amount to a very organized attack on labor from a world-recognized institution.
Anyone familiar with the American automotive sector will automatically recognize many of these "conclusions" as valid. There are other companies in other sectors that have had their competitiveness damaged by union demands and restrictions. Unions are one very big reason why, when permitted to do so, many American companies run to other non-unionized locales.
The problem is a big one. While unions make some American industries un-competitive, unions have been historically responsible for the quality of life of many workers. In fact, you could make a case for unions enlarging the middle class in America during the 20th century.
The reasons are many: Higher wages for those covered by a union contract.
Lately, because of the American dollar, companies have been re-locating in foreign countries. By doing so, American companies can take advantage of low wages from an unorganized work force, as well as avoid the paying of fringe benefits.
The issue of fringe benefits is very important here, because American workers cannot afford health care without help from the companies they work for.
The companies, to their credit, are balking at the increasing cost of health care, because it is affecting their bottom line. Meanwhile, no one, especially the government, is helping to alleviate the situation.
The result will be that more and more American companies will try to divest themselves of the health care burden, and American workers will be the losers. No European country faces this dilemma. Nor does Canada. Europe and Canada have government sponsored health care plans, and industry supplies supplementary insurance only. This greatly reduces the cost to companies for both union and non-union workers.
If America is to remain competitive, the federal government either has to put a lid on health care costs, or subsidize health care costs in some way that the whole burden does not fall upon the employer.
What I am getting at here is not a system of "socialized" medicine, although that is an option, but an attempt by government to make American companies more competitive.
Unfortunately, due to treaties with other countries like Canada and Mexico, and EU structures, we no longer live in an isolated employee benefits environment. The idea of government subsidies for medical care may become a necessity in the United States if we are to save American jobs.
I mention this not because I want government intervention in yet another part of our lives, but I do want Americans to keep on being employed. More importantly, I want Americans to enjoy the best health care that is available on this planet.
I am told again and again that America has, by far, the best health care facilities in the world. I believe that.
But the best health care facilities do none of us any good if none of us can afford them.
Take some time to ponder what the "root cause" of these problems are, and try to figure out what might be a cure for the root-cause problem, rather than creating more "solutions" which become new problems on their own! Click here and ponder whether the union exists for the "greater good" or for the benefit of a few at a large total cost to many. Talk about monopoly power?!
[07.28.2003... from Michael Lombardi [MichaelLombardi@lombardipublishing.com]
---U.S. automakers are in no position to buck unions.
There is a strike threat in the air and the Big Three are wondering how soon to give in to the union demands. As you already know, U.S. car sales are not anywhere near what they are supposed to be, despite the massive discounts and zero interest offers.
GM made most of its money last quarter from its financing division, both on car financing and home mortgages. I didn't know they were that heavily into mortgages, but it's nice to know they are diversified, 'cause the auto business will not become very profitable in the near future.
The last strike was a 58-day walkout in 1998 at GM in Flint, Michigan. It cost GM $2 billion, two points of market share and accomplished nothing.
Union officials, on the other hand, are political people who are elected by the rank and file to hassle auto management no matter what market conditions are. They would soon be out of a job if they appeared to be at all cooperative.
Morgan Stanley, which seems to have an opinion about everything, says that " if we have learned anything about these negotiations, you get changes in the margins only."
The auto companies want auto workers to pay for more medical expenses out of their own pockets. No way, says the United Auto Workers.
Yet, the Union is willing to allow Detroit to move more parts manufacturing to lower-cost suppliers. Does this appear contradictory? It does to me.
Because of union wage demands, GM, Ford and DaimlerChrysler are paying union employees more per hour of labor than their competitors. Ford estimates its current hourly labor costs, including benefits, to be about $53 an hour.
U.S. auto makers also require more time to assemble each vehicle. Honda puts a car together in 22.2 hours, versus Chrysler's 28 hours.
U.S. auto makers are also building vehicle models to satisfy a union agreement, rather than because of customer demand. This occurs when a contract requires an auto company to keep a plant open and the assembly line running to keep union workers employed.
Union demands automatically make the Big Three high-cost producers. And, high cost producers are on their way out, no matter what industry they happen to be in.
Toyota and Honda do not have labor unions in the U.S. This gives them a competitive advantage that is hard to overcome.
In addition, GM is paying 2,000 out-of-work, ex-GM workers full salaries due to a clause in their contract which prohibits transfer to a plant more than 50 miles from the one in which they were laid off.
Nice work if you can get it.
Naturally, the auto makers want to get rid of such provisions. They also want to address the every-increasing health care costs and pension benefits that are playing havoc with their balance sheets.
Early retirement is being encouraged as a way of reducing union membership.
"I am deeply concerned that the pension and health care obligations of auto companies will threaten the capital adequacy of the Big Three unless extraordinary leadership is shown by auto makers and unions," said Robert S. Miller Jr., former vice chairman of Chrysler.
Since extraordinary leadership is in short supply on most of the union and management sides in Detroit, does this mean that an auto company or two will go out of business ? Yes, it does.
There is precedent for this scenario. For years, the United Steel Workers Union fought steel company management at Bethlehem Steel to narrow the productivity gap from eight worker-hours per ton to two worker-hours per ton.
Meanwhile, top foreign steel companies were producing steel at one worker-hour per ton. Result: no more Bethlehem Steel.
There are only two U.S. owned auto companies left: Ford and GM. G. Richard Wagoner, GM chairman, has already warned union and company executives that unless trends change, the auto maker could be another Bethlehem Steel.
---Just a note on GM.
Earnings are down 30 per cent in the second quarter of this year due to the rising cost of consumer incentives and the shutdown of key plants.
Second quarter net earnings fell to $901 million, from $1.3 billion a year ago.
GM is optimistic about the rest of the year. A spokesperson said that GM might earn $4.50 a share this year, excluding the performance of its Hughes division and other special items.
Nearly all of the second-quarter earnings came from its finance unit, General Motors Acceptance Corporation, which earned a record profit of $834 million for the period. GM's mortgage operations earned $415 million.
Very good, except that a car company is also supposed to make money selling cars. I know they are working on that. I read it in the paper.