Why do GM workers insist on job guarantees?

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Free Exchange asks:

The problem that unions tend to to face, in America and in Europe, is that successful attempts to improve the viability of a business lead to growth but also to employment shifts. A company may survive and generate better outcomes and wages for its workforce, but only if there is freedom to adjust the size and composition of that workforce. Since workers primarily benefit from employer concessions only to the extent that they're still employees, this encourages unions to ask for growth-constraining benefits that ensure either continued employment or handsome benefits for those forced to leave the company.

This state of affairs leads many economists to lament the existence of unions generally, since they tend to constrain economic growth, but it's important to note that union members are simply insuring against the potential loss of benefits they'd face if shunted out of their particular firm or industry and into another part of the economy. It stands to reason, then, that the package of benefits sought by unions might be less damaging to growth in situations where unions are fewer, larger, and more encompassing. In that case, a worker forced out of a firm for the sake of efficiency would stand a better chance of landing in an industry or firm with equally good worker benefits.

If that's the case, though, and larger unions are more amenable to growth-friendly corporate policies, then why not extend worker benefits to include all workers? If job loss carries with it the risk of benefit loss, leading workers to fight job-loss in growth inhibiting ways, why not eliminate that risk by providing those benefits at a national level? If concerns about health insurance and pension plans are encouraging workers to ask for employment protections, it seems sensible to provide them to all, so that displacement from any job into any other job will not result in benefit loss and give unions reasons to ask for job security (or fight openness to global markets).

Obviously, such programs must be paid for and would probably necessitate tax increases, which come with their own economic distortions. But it may be time to acknowledge that such trade-offs are necessary.



The problem is that while theoretically, such protections could smooth the growth losses this way, in practice, there's little evidence that they do so. Europe seems to have permanently lower growth, and higher unemployment, despite generous public pensions and health insurance. Indeed, the union fight at GM was over a group of people that already have gold-plated government health insurance: retirees over the age of 65. Nonetheless, the union struck.

Members of the UAW want job guarantees because outside a GM plant their skills will never, ever return anything close to what they make inside one. According to the Freep, wages and benefits for the average UAW worker run about $73. At a standard 40-hour workweek, that's the equivalent of a roughly $100,000 a year salary for someone with a high school education who takes no entrepreneurial risk. Where else is that kind of deal available? Is it any wonder that the membership wants to fight to keep that? Slash the health benefits and pensions in half and it would still be an extraordinarily good deal for workers whose earning power on the open market is probably more in the $20 an hour range.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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