The history of a "different kind" of war.
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On September 15, a strike began in the US that may change the trend of the last decades regarding the distribution of wealth among the parties that produce this wealth. About two months ago, the UAW United Auto Workers began a large-scale strike to negotiate wage increases through 2028. These strikes took place at Detroit Three plants. ), namely the big three American car manufacturers: General Motors (GM), Ford and the Stellantis group (which owns Chrysler, Jeep and RAM among others). But why claim that this strike can bring about such radical changes?
The UAW union last Saturday announced an agreement in principle with the Stellantis group that will end a six-week strike against the manufacturer. The proposed deal, which comes days after Ford reached a separate deal with the union, brings the historic work stoppage against the Detroit Three one step closer to a complete end, as a tentative agreement with General Motors last Monday, after the agreement with Stellantis two days earlier and in order to apply additional pressure, a new strike was announced at the General Motors plant in Spring Hill, Tennessee (keep the location in mind, because it matters) . Meanwhile, a day after the Stellantis deal, UAW President Shawn Fain and other union negotiators outlined to union members via a Facebook live meeting details of the historic contract they negotiated at Ford ahead of the membership ratification process.
The deal broadly includes an immediate wage increase of 11% for hourly workers, 3% in each of the next three years and 5% in the final year. That means workers at the plant who are paid the top scale of $32.05 an hour today will be paid $42.60 by the end of the agreement in April 2028. Workers will move up to the top scale in three years, instead of eight, under the new agreement. Temporary workers and low-wage workers at Ford plants will see the biggest wage increases under the contract, which eliminates a two-tier wage system and turns temporary workers into permanent employees within 90 days. Notably, workers won additional job security benefits, including a commitment by Ford of $8.1 billion in new manufacturing investment.
The union also won assurances that union workers at future Ford battery plants would not be subject to lower wages, as it had feared in the shift to electric vehicles. A similar guarantee seems to be provided by the Stellantis group. The UAW saved 5,000 jobs that were to be cut, as well as a commitment from the group to add an additional 5,000 jobs by the end of the agreement in April 2028. Additionally, Stellantis agreed to restart its shuttered Belvidere, Illinois plant for the building a truck and adding 1,000 jobs at a new battery plant also in Belvidere.
The losses of war
Where are we today and what are the losses of this "war" between employers and employees? It is likely that the agreements will be ratified, but this is not guaranteed at this time, as the initial goals of the workers (increasing wages by 40% and returning to traditional pensions and health care for retirees) do not seem to be achieved. All that remains is to ratify the agreements of 57,000 UAW members at Ford, 43,000 at Stellantis and 46,000 at GM. But to reach those deals, the strike that began on Sept. 15 has resulted in economic losses of $3.95 billion in the first two weeks, according to a report by consulting firm Anderson Economic Group. Of that, $325 million was in direct lost wages, $1.12 billion was in losses to Detroit manufacturers, $1.29 billion was in supplier losses and $1.2 billion was in dealer and customer losses, according to the report . General Motors, for its part, reported third-quarter earnings of $3.1 billion, but said the strike has already cost the company $800 million and without a deal, it would cost about $200 million a week going forward. Ford reported lower-than-expected earnings and said the strike had cost the company about $1.3 billion in lost production, while Stellantis is expected to share third-quarter results next week. On the other hand, about 3,780 workers at General Motors, Ford and Stellantis (1,330 at Ford, 350 at Stellantis) and more than 2,100 at General Motors have been laid off so far, according to data provided to Axios by the companies. Unfortunately, wars, even of this kind, have casualties and many of them become visible over time. "When others start to feel it, it will affect the generally supportive sentiment Americans have expressed about the UAW's demands so far in the strike," said Anderson Economic Group CEO Patrick Anderson.
Why does the usual loser seem to win?
If we want to understand the outcome of the war between the United Auto Workers union and Detroit's Big Three, we should look to the work of a 20th century economist named Richard Lester.
Lester, a Princeton professor for many years, coined a term to describe wage negotiations between an employer and an employee: "the range of indeterminacy." It thus captures the fact that wages do not simply reflect market forces such as a worker's productivity or a company's profits. In the real world, workers in similar jobs often earn different salaries. Their wages fall somewhere in the range of Leicester's indeterminacy scale.
This is because most workers do not know exactly how valuable their contributions are and therefore what their real market wage should be. Of course, company executives don't usually know it either, but executives have more information—about how much money different employees make and how productive each one is. Employers also have more leverage. Companies usually employ many employees and the loss of one of them is usually manageable or even negligible. For most workers, however, resigning over a wage dispute can create financial hardship.
For these reasons, workers' compensation is often set at the low end of the range of indeterminacy. In the relationship between an employer and an individual worker, the employer has more power. But there is also an important qualification in the previous sentence: individual worker.
When workers band together, they can reduce the power imbalance. They can share information with each other and exert some leverage of their own in the negotiation process. A business that can afford to lose one worker to a pay dispute may not be able to afford to lose dozens. Of course, there is a term for a group of workers coming together to increase their bargaining power: labor union. Last week, the big three – General Motors, Ford and Stellantis – each agreed to raise wages to levels that workers certainly couldn't get by asking politely (I'm recalling some old Greek movies in which the foukaras employee had the audacity to ask for a few penny increase). The wage increases are the biggest U.S. auto workers have received in decades. The increases are also a reminder that organized labor has an unparalleled record in reducing economic inequality.
A large academic study (Farber et al., 2021), using Gallup surveys covering millions of workers over decades, found that unionized workers typically had 10% to 20% more than similar non-unionized workers. Extra pay generally doesn't hurt economic growth, economists have found. Instead, it often comes from executive wages and business profits, reducing inequality (Yu, Mankad et al., 2021). Unions change the distribution of the economic pie more than the size of the pie. Or to put the idea in Lester's terms, unions shift wages from the low end of the indeterminacy range to the high end.
To be clear, unions sometimes win such large wage increases that wages exceed a reasonable range and make it difficult for an employer. Unions can also block necessary changes in a company's operations. This excess occurred in parts of the auto industry during the 1970s, contributing to Detroit's decline. Today, auto executives are warning of a similar risk. Unions counter that the recent raises make up for years of wage stagnation — and that Detroit executives have received even bigger raises recently.
I can't know for sure that these wage increases will look reasonable over time and when companies post back-to-back results. But these again will depend on a long list of factors, including whether Chrysler, Ford and GM produce more attractive vehicles in the coming years than they did in the 1970s. But it would also be wrong to assume that executives are automatically right that wage increases are excessive. After all, wages make up less than 5 percent of the cost of an average vehicle. Let alone that company executives in almost every industry often claim that salaries are too high. They prefer it when wages are at the low end of the indeterminacy range – partly because it leaves more money for executives!
And after this battle, what?
The United Auto Workers on Thursday marked the next step in the union's campaign to build on its success in negotiations with the Detroit Three: to begin organizing site visits to Toyota, Tesla and other automakers' U.S. factories where workers are not have unions. The UAW hopes the significant wage and benefit gains from the agreements with Ford, General Motors and Stellantis will spark unionization efforts across the U.S. auto industry.
"One of our biggest goals coming out of this historic contract win is to organize like we've never done before," UAW President Shawn Fain said Sunday, signaling the union plans to use its success in bargaining with Three of Detroit to win other workers. "When we return to the negotiating table in 2028, it won't just be with the Big Three. It will be with the Big Five or the Big Six."
In the 1970s, the UAW had 1.5 million members. Today, its membership has dwindled to 380,000, even though the American auto industry has recovered significantly in recent years. To grow, the UAW will need to gain a foothold in non-union auto plants, which produce more than half the cars assembled in the United States.
But big wins with Detroit's automakers won't break down the significant hurdles the UAW has to overcome to get foreign carmakers -- including Toyota, Hyundai, Honda, Volvo, Mercedes, BMW, Nissan and Volkswagen -- to the plants in the South. but also of Tesla. These companies have been elusive targets for the association in the past. In order to make progress, the UAW will have to overcome stiff management resistance, labor surveillance, unfavorable labor laws, and political leaders in the South who are hostile to unions.
Even if union efforts fail, however, the contracts could force non-union automakers to preemptively raise workers' wages and benefits to stave off union pressure. Historically, UAW talks with Detroit automakers have been closely watched by non-unionized automakers and suppliers. Already, Toyota has raised wages in the wake of the UAW's negotiations with the Detroit Three.
The UAW will have to overcome weak protections for labor organizing in the United States and the aggressive tactics of the auto industry to defeat unions. Companies often try to persuade workers not to vote for a union by hiring "union avoidance" consultants in an attempt to deter workers and weaken workers' unionization efforts. Even if a majority of workers vote for a union, negotiations over wages, benefits and other areas can drag on for years – and the longer companies can stall, the better for them and the worse for workers.
Many auto companies in recent decades have moved to the South, driven by cheaper labor, fewer regulations, tax incentives and anti-union laws. Every state in the South has laws that allow workers to opt out of paying union dues at their workplace, even if they benefit from union bargaining agreements, undermining a union's financial resources for strategy and collective bargaining. Workers have also strongly rejected UAW unionization in recent years at Nissan and Volkswagen in Tennessee, Toyota in Kentucky, Mercedes-Benz in Alabama, and other foreign auto plants, sometimes with help from Republicans. Tennessee Governor Bill Lee in 2019 visited the Volkswagen plant in Chattanooga to encourage workers to reject the union. Former South Carolina Gov. Nikki Haley, now a presidential candidate, said in 2015 that she was a "union buster" when the UAW was recruiting auto workers in the state.
However, as automakers scramble to build electric vehicles, many are opening new facilities in the South. The region has garnered 66% of planned electric vehicle jobs, according to a recent Environmental Defense Fund report. Pay in southern auto plants is lower than the UAW's top wages, according to a study this year by researchers at Alabama A&M University and Jackson State University, but wages are typically higher than in other industries in the South. This means car companies have more leverage over their employees if they threaten to walk away. Companies will argue, with some basis of fact, that jobs in their factories are better paying than in other industries.
The UAW also has its sights set on Tesla, which controls about 60% of the US electric vehicle market. The union has tried and failed in the past to organize at Tesla. Elon Musk is anti-union, and the National Labor Relations Board (NLRB) has repeatedly cited Tesla and Musk for illegal or improper anti-union activities. Last year, the NLRB said it was illegal for Tesla to bar employees from wearing shirts with union logos, and the agency asked Musk to delete a 2018 tweet that said workers would lose stock options if they formed a union.
A fairer distribution of wealth
Since around the beginning of the 1980s, there has been an ever-escalating concentration of wealth in a small percentage of the population. This trend is general throughout the economically developed world, and is also observed in countries where there has traditionally been low income inequality. Although technological progress has greatly increased productivity, this increase in wealth is not equally distributed among all participants. A large proportion of this widening inequality is due to the neoliberal economic policies introduced by the Chicago School and Milton Friedman, emphasizing a single dimension of business: the production of wealth for shareholders. This doctrine became a flag in the world's major economies, such as the USA and the UK, and was adopted to a lesser and greater degree by the rest of the developed economies. The result of the application of the Friedman doctrine is the current situation, where there is great inequality of wealth and income as well as a squeeze on the middle class. The negotiations of the UAW after many years, show that something can change in the largest economy of the planet, bringing the worker to the center of interest. It remains to be seen whether the venture will succeed or not.
*Cover photo: On February 11, 1937, General Motors signs the first labor contract following major strikes and riots.
