America must think twice about the automobile manufacturing situation

Opinion pieces and speeches by EPI staff and associates.

[ THIS OP-ED ORIGINALLY APPEARED IN THE FLINT JOURNAL ON DECEMBER 4, 2005. ]

Why do some workers get paid more than others? Ask an economist, and you'll hear the standard Labor Economics 101 theory: Employees are paid the value of the extra product made by the last worker.

So, autoworkers get paid more than lawn care workers because they are in a much more productive industry and the value of their product -- an automobile -- is so much higher than the product of landscaping -- a beautiful lawn.

For years, the UAW bargained for higher wages to keep pace with national productivity gains. Meanwhile, the higher productivity of automobile workers compared to the national average was passed on to consumers, keeping the price of cars down. Now, a competing wage model is being pushed.

The new Delphi idea is that the wages of workers should not be connected to the value of their product or labor productivity. Instead, the view is that there are "unskilled" workers who exist with some limitless supply -- in Mexico and China -- and that the wages of workers should simply reflect that unlimited global supply. But there are several problems with that view of setting wages.

First, because the new "Delphi theory" does not relate product value to the work done, it gives a false signal between the contributions and costs of capital and labor to production. It makes labor too cheap, and will stall advancement by discouraging the proper investment in machines and increased productivity.

Second, by making labor too cheap, it violates another established economic principle: Workers should earn enough to reward investments in their skills, by their employers and themselves -- "human capital" in other words. Pay teachers less than garbage collectors, and no one wants to invest in the years of schooling it takes to become a teacher.

As it happens, the term "unskilled" is used too often to mean someone without a college education. Modern factory workers are not "unskilled" as not everyone has their level of physical dexterity, knowledge of electronics, robots, tools and eye-hand coordination.

Third, if we do not pay workers based on their productivity, people won't be able to afford to buy the product. Henry Ford and Walter Reuther both understood that simple truth, and it's time that Delphi did, too.

If autoworkers at Delphi get paid $9 an hour, the rest of society will have to subsidize them. At $9 an hour, a worker would earn below the federal government's poverty level for a family of four. This means that other Americans will pay for food stamps, housing vouchers, Medicaid and other poverty supplements to sustain Delphi workers at the poverty level.

When Hurricane Katrina hit New Orleans, many Americans were puzzled why people were left behind. Why didn't everyone just drive away in their cars? Wake up, America! If you make $9 an hour, you don't own cars to drive away in. You are struggling to pay rent and put food on the table.

Delphi's theory of setting wages ought to concern all Americans. If America cannot afford automobile workers, then it isn't clear which jobs will be left. Hurricane Delphi will have more victims than Katrina.

William E. Spriggs is a senior fellow at the Economic Policy Institute, a think tank in Washington, DC.

[ POSTED TO VIEWPOINTS ON DECEMBER 13, 2005. ]