America Can’t Afford Not To Pay Its Workers

I can be abrasive.

What else is new, right?

I like to think that’s one reason people spend so much of their valuable time reading whatever it is I have to say about current macro, market and socioeconomic events. I’m unapologetic in my views, and sometimes that manifests in acerbic commentary. In person, it shows up as a poker face on good days, and a kind of severe stare on bad ones. There isn’t much that’s warm about my in-person demeanor, which probably explains my lack of interpersonal relationships.

The upside of that for readers is that you know you’re getting my actual opinion and my sincere view on whatever the subject happens to be, not some watered down (or overhyped) narrative born of ulterior motives.

With that in mind, some readers have inquired as to my views on the U.A.W. walkout. Let me say, first, that I’ve never belonged to a union of any sort. I suppose that’s obvious, but just in case, I should put it out there. But I don’t consider myself “capital.” “Capital” is a robber baron. “Capital” is Warren Buffett. “Capital” is Jamie Dimon. I don’t know what I am, but I’m not that. I’m not properly “labor” either, but I’m damn sure closer to U.A.W. workers than I am to Buffett. And so are you.

Around half of readers (specifically, those of you with Plus subscriptions) know my opinion on the strike because I elaborated in the Weekly+, published on Saturday morning. Rather than paraphrase myself, I’ll reprint a few short excerpts. To wit:

The GOP and the pro-business lobby are keen to dispute the point whenever and wherever possible, but labor’s share of — well, everything, really, was in terminal decline for decades. Colloquially, you can’t screw everybody forever, and even if you can, you shouldn’t be surprised when the people getting screwed take an opportunity to push back. Personally, I hope the U.A.W. gets everything they’re asking for. Plus some more. And no, I don’t generally care about readers’ “educated” opinion on the matter because, frankly, the odds that it’s more educated than mine (at least in a strict sense of the term “educated”) are low, and also because I’ve discovered over the years that most Americans harbor ridiculous fantasies about their own place in the economy. Allow me to burst your bubble: Even if you’re upper-middle-class, you’re not capital. You’re labor. Maybe you’re technically capital if you own a small business, but as someone who’s been around a lot of small business owners in his life, I can confidently say they live a lot more like labor than they do capital.

Abrasive, I know. But not callous. Callous is Mark Stewart, Stellantis COO for North America who, in a testament to the kind of sheer, blatant obliviousness that has workers across industries in America so fed up, dialed in for negotiations with the U.A.W. last month from his second home in Acapulco.

Apparently, Stewart also sent an email from Acapulco exhorting workers to consider “economic realism” while fashioning their demands.

I don’t know how much Stewart makes (or what he’s worth), but I bet it’s a lot. So much, probably, that the average worker building a Jeep would initially have a difficult time figuring out how to spend it if it showed up in their bank account overnight.

I understand that labor’s escalating demands (and hardline negotiating stance) might seem unrealistic to a corporate sector which, for decades, succeeded in circumventing domestic supply-demand realities by moving production overseas. But the labor market is just that — a market. And like other markets, the price is determined by supply and demand. The pandemic and recent geopolitical shifts suggested outsourcing isn’t a riskless profit-maximization technique after all. Imagine that, right? There are no free lunches.

Back at home, workers exhausted with decades of sacrifice in the name of their employers’ bottom lines sense an opportunity. You can tell because they’re striking at a rate unseen in decades.

The US lost more than four million labor days to work stoppages last month, according to the BLS. That was before the U.A.W. walkout.

I don’t know if this has occurred to the C-suite or not, but the median monthly cost of housing (around $2,100 for a decent apartment and around $2,700 for the median monthly mortgage payment) is very onerous for average people. If you’re curious as to how onerous, observe the incidence of homelessness across the country. Yes, mental health and addiction are arguably the best predictors of homelessness, but it’d be comically obtuse to ignore the possibility that unaffordable housing is a factor in explaining why so many people don’t avail themselves of roofs.

Throw in the rising costs of anything and everything else over the past three years, and it’s small wonder workers are keen to capitalize on what it’s fair to describe as a uniquely advantageous set of circumstances vis-à-vis their bargaining clout: Inflation is high, the cost of housing is through the roof (pun fully intended), workers’ share of output in America has never been lower, corporate profits have never been higher, labor is in short supply and the President of the United States is avowedly pro-union. What would you do? If your answer isn’t, “I’d try to exploit the situation and extract as much value as I possibly could,” then guess what? You’re not a capitalist.

Capital in America is getting a hard lesson in capitalism. Shrill protestations about workers digging their own economic graves by making it impossible for their employers to compete are likely to fall on deaf ears. For some companies pushing back against organized labor, that argument doesn’t even make sense because they have no competitors — they operate de facto monopolies. I won’t name those companies, but I assume readers know which ones I’m referring to.

In cases where the argument does make sense (e.g., in the case of America’s automakers), I’d gently suggest that it isn’t incumbent upon workers to “take one for the team” when it comes to preserving margin, and even if it is, they’ve been sacrificing for 40 years. 40 years.

Workers’ job is to build cars (or widgets or whatever else). It’s management’s job to figure out how to turn a profit on those cars (or widgets). That’s why people like Mark Stewart make the big bucks. To strategize.

If the rejoinder is, “Yes, you’re right, it is management’s job to figure out how to turn a profit, and the solution is off-shoring and robots,” then so be it. But the associated societal trends aren’t sustainable. We’ve reached a breaking point.

Bottom line: America can’t sit back and watch as the middle-class is hollowed out completely. Without a reasonably prosperous middle-class, there is no social fabric, and the country is nearly bankrupt already in social capital terms. Corporations will tell you they can’t afford to pay workers what they’re asking for. The truth is, America can’t afford not to pay.

“This is indicative of a shift in bargaining power back to labor after decades of an ever-higher GDP share of capital,” Mohamed El-Erian said Monday, editorializing on social media around the chart shown above. “Indeed, I am surprised it took so long given the tightness of the labor market and the size of the unanticipated inflation shock.”

Yes, Mr. El-Erian. “Indeed.”


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8 thoughts on “America Can’t Afford Not To Pay Its Workers

  1. Reminds me of so many corporate arguments that environmental, building and safety restrictions are prohibitively expensive and will doom investment, but then find untold millions (if not billions) to clean up pipelines that won’t spill, rigs that won’t leak, industrial equipment that won’t explode or catch fire, as well as pay fines and settle class action judgments for polution and practices that they swore up and down were all but impossible, until they inevitably happened.

    Turns out the C-suites of corporate America may be a lot more like the Communist autiocrat Xi than the freedom-loving, market-abiding capitalists they like to pretend to be.

  2. I grew up hating unions, specifically the UAW. My family’s smallish business made its bones in WWI as the only contractor producing backout lighting for literally every military vehicle produced between 1941 and 1971. They didn’t sell for much but we sold all of them from a ramshackle building dating back to 1859 when it was a buggy factory. Because we made auto parts, we were organized by the UAW. Because we were located 15 miles from the Studebaker plant in South Bend were suffered under auto company pattern bargaining and made virtually no profit. In my younger days when I served as an internal consultant and general dog’s body for the company, I got the thrill of negotiating against the UAW. No fun. We always lost. In the mid-1970s I was now a prof at a regional state university that was unionized. I thought it was undignified for profs to be in unions and since my state was a “right to work” state, I didn’t have to join the union. Seventy-five percent of my colleagues also didn’t join. Soon after I had been there a few years, been promoted and gotten tenure in our business school, the Provost called me and asked if I knew anything about insurance and stuff like that. I said yes so he asked if I would join the union and help them negotiate better benefits. It turned out that the state wouldn’t give the administrators any better benefits than we were getting (there’s the real power) so if we asked for good stuff, they would agree to it so that they could get the same (and a bit more). So I joined and soon found just how badly treated my colleagues were. It was truly shameful and really undignified. I spent the next 16 years as the head of the union’s bargaining committee and while I did that we managed to negotiate the only contracts that were signed voluntarily by both sides. We still weren’t treated very well (except for those of us in the business school) but at least we were more dignified and some could of us actually afford to send our kids to college (no free tuition for faculty in our cheap state). If workers can’t eat, they can’t eat and help their kids better themselves. That just isn’t right in this nasty country.

  3. Labor creates all wealth. Labor is entitled to all it creates. The working class and employing class have nothing in common. There can be no peace so long as hunger and want are found among millions of the working people and the few, who make up the employing class, have all the good things of life.

    1. The 19th century wants its slogan back…

      And “all wealth”? Some unions have a pretty nice cash pile, they can probably borrow what funds they lack. Why don’t they go and create their ideal company/cooperative?

      1. If I recall correctly, you’re European. And good for you, because you guys/gals have a lot more respect for your citizens’ dignity than we do here in the States. But let me just remind you (and again, this assumes I’m correct in recalling that you’re from Europe) that we run no holds barred capitalism over here. I’ve seen quite a few Europeans take jobs here thinking — you know — “Oh this’ll be great” and then after a couple of months, they discover that this is no joke. If you don’t demonstrate the proper commitment and deference, we will fire you, put your family out on the streets and laugh about it. That’s American capitalism. It’s broken to the point where workers aren’t asking anymore. If we don’t fix it, they’ll be coming into our gated communities next to take what they want. I’m only half-joking.

  4. The 29M per year CEO telling me that her firm cannot turn a profit because of increased labor costs in a competitive oligopoly is farcical. Sure that CEO may have to take a pay cut, sure the price of cars will go up, but guess what else goes up? Those workers spending power! Hey, now they can afford to buy more things for more expensive prices which will support the economy. I’m sure Mary Barra has someone over there at GM running Cobb-Douglas Isoquants/Isocosts and Fournot calculations every day trying to figure out how to optimize profits while simultaneously lying through her teeth about the unsupportability of paying labor its due. I also don’t recall so much outrage when dealers were marking up new cars because of inhibited supply over Covid issues a couple of years ago. I doubt the labor cost increases on vehicles will touch those ridiculous prices.

    I would also like to remind everyone that back in 2008 when it seemed possible that the American automotive industry might die off, those same laborers made voluntary concessions to help keep these firms afloat. How were they rewarded? Gaslighting when they finally demanded to be paid what they are owed.

    1. +1.

      “Good capitalism” includes gouging, privatized profits and socialized costs, eye-watering C-suite comp packages and buybacks > Cap Ex.

      “Bad capitalism” = living wages, actual competition, transparent pricing, and bearing true costs of business and production, including externalities.

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