Profits, Not Unions, Save Jobs

Posted: Oct 12, 2007 12:01 PM
Profits, Not Unions, Save Jobs

Workers at Chrysler's U.S. plants went back to work six hours after the United Auto Workers union struck the automaker this week. The once powerful UAW, which in its heyday had more than 1.5 million members, used to be able to bring Detroit to its knees. No more. Today the UAW claims only 640,000 active workers, and its major goal in negotiations with the big car companies is to keep that number from shrinking. But the battle ultimately may be a losing one -- and the union is largely to blame.

It costs Chrysler an average of $75.86 an hour to employ each worker, according to the Associated Press, which is the highest in the American auto industry. The costs include not only what goes into the average worker's paycheck, just under $29 an hour, but more importantly the contributions the company makes to employees' health and retirement benefits.

Like General Motors, which settled after a two-day strike last month, Chrysler also pays retirees' health care, a roughly $19 billion liability. Chrysler's agreement with the union included a promise to create a health care trust similar to the one GM and the UAW set up to take over that company's $55 billion liability for the retiree health care program.

Last year, GM lost $10.6 billion, while the Chrysler division of DaimlerChrysler -- the German company that owned Chrysler until it was sold recently to a private equity firm in the U.S. -- lost $1.5 billion. Companies that lose money can't continue to increase salaries and benefits, much less pay out billions in benefits to people who no longer work for the company. But unions rarely demonstrate an understanding of this basic economic fact.

Even harder for unions to grasp is that there is no such thing as job security. Sure, a company can foolishly promise never to lay off workers, but it can't keep its promise if it doesn't make a profit. And unless productivity rises -- which means producing more with fewer workers -- profits will decline.

So what's a union to do? As the UAW's short-lived strikes against GM and Chrysler this fall demonstrate, trying to force employers to make concessions that are economically unfeasible doesn't work anymore.

Unions would be far better off abandoning their adversarial role and trying to become helpful partners with employers. It's in everyone's interest -- from the lowest-paid worker to the CEO -- that a company maximizes its profits.

But doing this would require unions to abandon outdated work rules, which prevent union members from doing jobs outside their specific category, working flexible schedules without demanding overtime or sitting on employer-employee committees except those sanctioned in collective bargaining. As a result, non-union companies often offer workers more individual choice.

In a non-union environment, a mother who wants to work a few extra hours one week in order to take time off to attend a school activity the next can do so without making it more expensive for the company through mandatory overtime pay rules. Similarly, unions prevent employers from rewarding the best hourly workers with bonuses and other special benefits outside the contract, and they won't allow penalizing, much less getting rid of, slackers. But a non-union company can reward innovation and industry among its workers.

The most constructive thing unions could do to help their current members is to ensure that those workers are more, not less, productive. But even a union's best efforts to hold onto its members' specific jobs won't stop capitalism's creative destruction engine. Some jobs in some industries will always be lost in order for other jobs to be created.

The UAW's new contract with GM promises to limit outsourcing of certain jobs and commits the company to hiring 3,000 temporary workers as permanent employees. The union hasn't yet made public the details of its deal with Chrysler, but it's a safe bet they've attempted a similar bargain there.

In the end, however, it will be the companies' profitability, not the union's efforts, that will keep good-paying jobs available for those workers.