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Wednesday, December 28, 2005

The Economy Makes News

There hasn't been much talk about the economy lately, mostly in my opinion, because the news is fairly good, and that doesn't sell papers.

However, the Washington Post did have a fairly balanced editorial today on the state of the economy. While it is fairly balanced, I believe they have at least one point wrong, or at least not well explained.

It is true that wages haven't kept up with economic growth, and I'm pretty sure that the WaPo is correct in their assumption that the rising cost of healthcare and other benefits is probably the reason for that. Those costs (according to the editorial) have gone up about 5-6% per year since 2001. That's a big jump, unfortunately wages have only been rising at about 0.8% over the same period.

They are also correct in their thought that manufacturing wages especially haven't kept up, when compared with the white collar folks in the world. However, I think that they missed a small point in there. Our manufacturing base has been, on average, overpaid compared to the rest of the G-7 over the last 2 or 3 decades. The UAW, and steelworkers unions and others had, for a number of years, a fairly captive market, and milked it for all it was worth, and then some.

But we look now, and GM says they can't afford the $56/hr in wages and benefits they pay at their plants, Delphi is in the same boat, and Ford will be out shortly with the same type of data. But take a look at the number, $56 per hour. That type of number is unsustainable in an economy that competes in the world market place.

So, while manufacturing hasn't risen as fast as others in wages, maybe it's not as much education, as the Post points out, but may just be a natural economic equalization happening. For those jobs to survive they can't have that kind of wage rate, and it will have to slow it's growth, or fall, to become marketable against the world.

While it may seem like I'm picking on auto workers, they and their brothers in the parts industry, make up a huge part of the US manufacturing base. When they get hit with pay cuts or freezes, its disproportionately skews the numbers for the whole sector. In fact, if someone could point me to the numbers minus the auto workers, I'd appreciate it.

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Blogger Steven Tucker said...

"But take a look at the number, $56 per hour. That type of number is unsustainable in an economy that competes in the world market place".

[socialism]But what if the people need that much? I mean, what do the CEOs make? Maybe the CEOs should give back all their expensive toys and stock options to the people so that they can afford to pay them what they need.[/socialism]

Sorry, couldn't resist.

6:06 AM  
Blogger Crazy Politico said...

[econ 101] Even if GM's entire white collar force took a 100% paycut the corporation would have still lost 90% of what it did last year. It's the blue collars wage & benefit packages that are sucking the company dry. [/econ 101]

6:16 AM  
Blogger The_Bos'un said...

Bob, As usual you are right on the button. Good article. We cannot afford to keep up with GM's, Delphi, and Ford's up to $56/hr in wages and benefits. Hundai, Toyota, Honda, and other companies are leaving em in the dust on profit and productivty. And it is unsustainable in the world market place.
I too would like some hard numbers minus the auto workers to see if this grumpy old guy (me) is right that unionism = socialism = downfall of our economy.

7:55 AM  
Blogger shoprat said...

You are mostly right but overlooking something; not everyone in the Auto Industry makes GM wages. (My wage/benefit package is about a third of GM's).

Some of my co-workers think that sealing our borders to all imports would solve all of our problems but that is not doable, nor will work over the long haul. (Though I do believe that China should not be allowed to sell cars in America until there is some political reform in China - My reasons are moral and political rather than economic.)

If you want an answer to non-automotive economics you can compare on a county by county level, the local economy. The I-75 Corridor through Detroit, Flint and Saginaw is some of the worst unemployment in the country. (I was in Saginaw a couple of weeks ago and it's beginning to look like there's nothing left except monuments to a once thriviing city, Flint is the same way, but Bay City, which is just a little north of Saginaw, seems pretty healthy.) However if you head west to Grand Rapids and Muskegeon (furniture country) the economy is not that bad.

12:51 PM  
Blogger Crazy Politico said...

SR, I understand not all auto workers are on that scale, but the vast majority working directly for GM Ford and Chrysler are, while others in the supply chain are definitely lower.

I agree with you on China selling cars here, until they do reform some (many) things over there.

Remind your friends in the industry that we could seal the borders, but then any of them that do anything with aluminum will be out of work, since the US doesn't produce any Bauxite, which is a requirement for making usable aluminum.

And we saw what happened to the folks in the steel using industries when Bush decided to toss the tariffs on steel imports. Estimates as high as 225,000 jobs were lost in user industries, to save under 40,000 steelworker jobs...

Drive to northern Virginia and any thoughts of economic woes go away. With an unemployment rate in the area of less than 4%, building is crazy.

5:27 PM  

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