Why the GM Strike Makes Sense

The GM strike makes sense to me. The key issue for the union, quite properly, is the jobs of its members. The last time the UAW went on national strike, in 1970, it had 400,000 members; now, it has 73,000. It has failed to prevent the loss of over 300,000 jobs, even as GM has been creating new jobs overseas. So despite coming to an agreement on the crucial healthcare issue, GM wants to be able to reduce its US workforce even further, and it's hard to see how it would be in the union's interest to allow that to happen.

Note that this strike is not about pay, and not about benefits: it's about job security. So I'm puzzled when Matt Cooper says that inflation hawks "will look at any settlement as pressure on prices". They won't, for two big reasons.

Firstly, GM does not have pricing power. It competes against Japanese manufacturers who are perceived by the public as being higher quality than GM's offerings. If GM tries to charge significantly more than Honda (HMC) and Toyota (TM), it simply won't sell cars.

Secondly, a settlement would not imply higher car prices anyway, and neither would it imply higher unit labor costs. The outcome of this strike will affect one big thing: where the extra marginal dollar of GM revenue goes. Now Matt might like to see that money to GM's shareholders; personally, I'd rather see it go to GM's workers. But either way, the net effect on inflation is the same. And in general, wage inflation is a good thing, if price inflation remains controlled: it means people are being paid more money, in both nominal and real terms. This strike might be a big deal for GM, but it has very little in the way of macroecnomic consequences.

Comments

[Carpe Max:]

You can probably expect more strikes and mergers with foreign automakers in the future as American autos lose their competitiveness. However, I think both sides realize that they cannot let the strike last too long. It could really hurt GM (even more) and the workers would be in a much worse position then. Therefore, I don't think the strike will last long. NewsVisual did an interesting map showing the connections between GM and the UAW www.newsvisual.com/new... . Hopefully these ties will lead them back to the negotiating table.

2007 Sep 25 07:20 PM

[hook:]

thanks for the input Felix...now aren't you late for the communist party meeting tonight? better run along now comrade.

2007 Sep 25 07:46 PM