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The most important rule in economics, and one of the most important in life, has been famously restated several ways.
“There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
— Frédéric Bastiat
“There are no solutions, only trade-offs.”
— Thomas Sowell
“There ain’t no such thing as a free lunch.”
— Economists (and parents) everywhere
As the United Auto Workers strike concluded, few seemed to understand the thought expressed above. There was much talk about the benefits, but little about the cost of the strike itself and the expensive contracts that came out of it.
The tentative agreements between the union and the Big Three automakers feature 26%-100% pay increases, depending on the plant and seniority of the worker, and they automatically put future workers under the UAW master agreement. Workers will see increases in their benefits. The union did not, however, get the 32-hour work week it wanted. It also did not get automakers to pay employees who don’t work, and the agreements did not restore traditional pensions.
While the union might be happy with the strike’s outcomes, it seems to have overlooked the costs. In the short term, the strike meant tens of thousands of people, including non-union workers, were out of work. In the medium term, workers will see wage and benefit gains. But in the long term, the strike is likely to hurt Michigan and the auto industry.
For decades, the number of auto jobs in Michigan has been declining. Many jobs were replaced by automation, while others departed to Southern states or other countries. A key reason for this outmigration has been the trade-offs present in the UAW contracts. Those agreements contain provisions that make workers more expensive and less productive, which is only amplified by semi-regular work shutdowns. Auto companies either cut jobs or outsource to new locations where labor costs make them competitive. The recent strike is likely to amplify this trend.
The Mackinac Center responded strongly to the crisis. We helped reporters and the general public understand the benefits and the costs of different actions. Our work — featured on CNN, Fox News, USA Today, National Review and many other places — laid out the strike’s negative effects.
While the media focused on the positives for unionized autoworkers, we should keep in mind the long-term costs. The latest strike and the new contract structure have made Michigan autoworkers much more expensive to employ. In time, Michigan is likely to come out a loser.
