In mid-June, the Alliance of Area Business Publications held its summer conference in Detroit. It was my first trip to Detroit, and it proved to be an enjoyable and productive experience.
Detroit has been hit hard by setbacks in the automotive industry. Though the city is huge, its economy is largely dependent on the auto industry. All three of the major U.S. automakers are headquartered in Detroit. Thus, as the U.S. auto industry has succumbed to competition and relocated manufacturing to other parts of the country and the world, Detroit has suffered mightily.
Some interesting statistics about the economics of the auto industry were made public recently in connection with the General Motors employee cutbacks. If my memory serves me correctly, the average pay for a GM hourly employee is $52 an hour. I suspect that this rate includes benefits, but, nonetheless, that’s more than $100,000 per year for the hourly workforce. Additionally, the cost of each GM automobile includes about $1,200 in healthcare costs for both active and retired GM employees.
And, therein lies the problem. The various autoworkers’ unions have ratcheted up the cost of labor to the point that it is no longer competitive. Given the increasingly global nature of business, the workforce cutbacks announced several weeks ago were inevitable and more will follow.
To some extent, their loss is our gain as the southeastern states are predicted to add a dozen or more auto manufacturing plants in the coming decade.
My previous employer, KLH Industries Inc. was a manufacturer of automotive components for GM here in Mississippi and Mexico. From 1979 until the mid-90s, KLH operated without union representation in Mississippi. Then, around 1995, the workers voted to bring in a union and within two years KLH was out of business. The company employed over 1,000 workers in Jefferson Davis, Holmes and Covington counties. Many of those workers have yet to find steady employment following the demise of KLH.
A recent column in The Clarion-Ledger by Sid Salter advocated increasing the minimum wage, pointing out that it hasn’t been adjusted in years and years and the inflation adjusted buying power is now less than it was before it was last raised. The column was well written and compelling, but having just returned from Detroit, it caused me to pause and ponder the role and impact of the minimum wage.
No such thing…
Radio talk show host Dave Ramsey recently told a caller that there is no such thing as job security with any employer. The only security we can have comes from skill security. In other words, our security depends on developing our work skills into valuable commodities. If we then lose our jobs, we still have our skills to fall back on and help us quickly find another job. I think Dave hit the nail on the head.
When the minimum wage is increased the government arbitrarily puts a higher price tag on minimal skill labor than the market is otherwise willing to pay. Similarly, when unions extort ever-increasing wage increases for their members, they are likewise arbitrarily increasing the price above what the market has set for that particular job.
Throughout the last century, the autoworkers’ unions in Detroit and other areas of the industrial north have consistently increased the cost of labor to the point the jobs are leaving the area. Doesn’t increasing the minimum wage promote a similar outcome? Would KLH still be in business if it hadn’t voted in union representation?
Are we doing low skill workers a favor by artificially propping up their wages and thereby encouraging them to maintain the status quo with their skills? Those jobs are rapidly disappearing and as costs go up higher and higher, the jobs leave faster and faster. Are we doing the low-wagers a favor by driving their jobs away? Would raising the minimum wage be somewhat akin to rearranging the deck chairs on the Titanic?
OK, take a deep breath and pay close attention. Americans embraced the Industrial Revolution and created the highest standard of living on earth. We have a strong sense of entitlement to that rich standard of living. For more than a century it was a given that we would be rich and many other nations would be poor. It’s just the way things were. We pitied the less fortunate and sent them a few bucks now and then, but we in no way were willing to yield our standard of living to help other peoples increase theirs.
The times they are a changing. By embracing the Information Age where technology is everything, other, traditionally poor, countries are building their standards of living at our expense. They can do the work as well as we can and they work cheaper than we do. Our less is their more.
Though a few die-hard isolationists are screaming to place tariffs and embargoes on foreign commerce to protect American jobs, they clearly don’t know what they’re talking about. As long as Americans enjoy buying stuff cheap at Wal-Mart, they will not stand for embargoes. The offshore job drain will continue because we want cheap stuff more than we want to retain American jobs.
The world is becoming more global every day and, over time, the economies of all countries will move toward equalization. This is not a happy prediction for the U.S. However, in my judgement, it is reality. Therefore, our only hope for future economic well being is to take Dave Ramsey’s advice and develop our skills to the maximum. We need to become CEOs of ourselves and sharpen our skills to the point of being indispensable. Then, and only then, will we have real economic security.
Thought for the Moment
You don’t make progress by standing on the sidelines, whimpering and complaining. You make progress by implementing ideas. — politician Shirley Chisholm (1924-2005)
Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at email@example.com.
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