One issue contributing to the UAW’s strike against GM is that negotiations reached an impasse regarding the future of the “jobs bank,” or what the Wall Street Journal calls “GM’s Anti-Jobs Bank, the company’s euphemism for a post-employment limbo in which GM pays laid off members of the United Auto Workers not to work.” As the WSJ points out today, it’s “Nice nonwork, if you can get it.”
There probably isn’t a single issue that better highlights the problems facing GM and the UAW than the “Jobs Bank,” which they both agreed to in 1984. Here is what the WSJ had to say about it in a 2005 editorial “GM’s Anti-Jobs Bank“:
If you want to know why GM’s costs are too high for the number of cars it sells, here’s one explanation – the Jobs Bank.
GM doesn’t like to talk about the “jobs bank,” to the point that it won’t disclose how many idled workers are in the bank or even how much it costs the company. However, the Detroit Free Press has dug around and reported that the “bank” holds some 5,000-6,000 employees, at an annual cost of as much as $800 million a year. And that’s just the beginning of the damage it does.
The jobs bank was created in 1984 at a time when it became fashionable to worry that automation would cause robots to replace workers on factory floors. So in exchange for the right to introduce productivity improvements in factories, GM, Ford and Chrysler all consented to jobs banks. The idea was that in exchange for educating themselves, doing community service or in some cases just sitting around a factory, workers would continue to collect pay and benefits until the automaker could find another job for them.
One trouble is that U.S. car makers have been shrinking more than growing in the two decades since, meaning people have stayed in the bank longer than envisioned. The commitment to find a new job for those workers only made sense in an environment in which GM’s demand for labor was stable or growing. Instead, that demand has been steadily shrinking as productivity has increased and market share has decreased.
The jobs bank sends a message that downsizing is temporary, and that GM can accommodate those workers somewhere. The reality is that many of them are simply waiting out retirement.
GM has a host of problems, from the attractiveness of its product lines to the health-care costs it pays for its one million retirees. But a major one is size: It is a smaller company than it was or expected to be when it made the promises it’s now trying to keep both to retirees and current workers. GM has some of the most productive industrial workers in the world, but it has too many of them for the number of cars it can sell today.
The jobs bank is both cause and symptom of that problem. We don’t wish hardship on those workers, but the company’s future now rests on its ability to make its payroll match its production. If the jobs bank — and the self-deception it represents — cannot be fixed, that millstone will continue to drag down what was once one of America’s great companies.
MP: Only when and if GM and the UAW agree to eliminate the “jobs bank,” will there be any hope that either will survive.
India is now outsourcing outsourcing, the New York Times reports today in World Busines:
To fight on the shifting terrain, and to beat back emerging rivals, Indian companies are hiring workers and opening offices in developing countries themselves, before their clients do.
Infosys (NASDAQ: INFY) says its outsourcing experience in India has taught it to carve up a project, apportion each slice to suitable workers, double-check quality and then export a final, reassembled product to clients. The company argues it can clone its Indian back offices in other nations and groom Chinese, Mexican or Czech employees to be more productive than local outsourcing companies could make them.
Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away (Infosys) to supply it with Mexican engineers working 150 miles south of the United States border.
As an Infosys senior vice president put it, the future of outsourcing is “to take the work from any part of the world and do it in any part of the world.”
Or as Indian CEO Raman Roy said “Geography is history.”
MP: This might be a lesson from Inida for U.S. unions about how business will take place in the 21st Century. For example, the UAW wants GM to lock in future work for U.S. factory workers by promising jobs, product commitments and investments in U.S. plants.
“Globalization is killing us,” said Jerry Gillespie, president of a UAW local in Warren, Mich., whose members work on engineering and design of future products. “They want to build engineering centers in the rest of the world and take that work away from us. That’s our fight.”
That’s soooooooooooo Machine Age, 20th Century thinking.
DETROIT, MICHIGAN–The United Auto Workers launched a national strike today against General Motors Corp. after 10 days of marathon bargaining failed to produce a new labor pact for the automaker’s 73,000 hourly U.S. workers.
The stunning move came after the union told its members on Sunday they were to walk off the job unless they heard otherwise by 11 a.m. That word never came, and now GM is facing its first strike since the UAW struck the automaker’s operation in Flint in 1998.
Prediction: GM’s falling market share, currently at 23.56% (year-to-date), will fall by several more percentage points by the end of the year.
From the front page today’s WSJ, an article about the oversupply of lawyers, “Job Market Wanes for U.S. Lawyers; Law Schools Proliferate:”
“On the supply end, more lawyers are entering the work force, thanks in part to the accreditation of new law schools and an influx of applicants after the dot-com implosion earlier this decade. In the 2005-06 academic year, 43,883 Juris Doctor degrees were awarded, up from 37,909 for 2001-02, according to the American Bar Association (see chart above). Universities are starting up more law schools in part for prestige but also because they are money makers. Costs are low compared with other graduate schools and classrooms can be large. Since 1995, the number of ABA-accredited schools increased by 11%, to 196.”
MP: Now, if we could only have an outcome similar to this for medical schools and graduates from medical school, which have remained constant at 125 schools and 16,000 graduates, respectively, for at least the last 20 years (see chart above).
Unfortunately, “the marketplace doesn’t determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves.”
Result: We now have a doctor shortage and a lawyer surplus. The difference is that the lawyer surplus will eventually correct itself as law school graduates face falling wages and declining employment opportunities, resulting in fewer students being attracted to law. As long as medical schools and the number of graduates are artifically restricted, the doctor shortage will continue, especially for the “Family and General Practitioner” category (see chart below).
A new kind of medical practice is flourishing nationwide that offers to go to where the patients are — whether a home, an office or a hotel — to treat ailments as diverse as a sprained ankle or a bad case of bronchitis. Some services may even wheel in a mobile X-ray machine or an ultrasound machine, depending on the ailment, or perhaps pull out kits to test for strep throat or to draw blood. They may dole out medication on the spot or arrange for pharmacies to deliver prescriptions.
“When you call, you can speak to a doctor in five minutes, and that doctor can be there with you within the hour. Where else do you get that kind of delivery?” said Walter Krause, founder of Inn-House Doctor. The company says it has 40 physicians on call in Boston, Chicago, Dallas, Houston, Las Vegas, Phoenix, Philadelphia and Washington; some of the doctors are in private practice or work in hospitals, and they make house calls during their time off.
The convenience comes at a price. Appointment fees can range from $250 to $450, with additional tests and medication extra. And payment is due at the time of the appointment.
Another service for Manhattan only is Sickday Medical House Calls and one for Miami only My Home Doctor. About 10 years ago, I argued in this article Deregulate Health Care, Bring Back House Calls, that deregulating medicine and ending the artificial restrictions on the supply of physicians would restore competition to the point that we would see doctors making house calls again. Although not widespread yet, I think the new trend towards housecalls in major cities is a promising sign that market solutions for health care are being taken seriously, especially given other trends like the low-cost, consumer-friendly, market-driven, walk-in health care clinics in retail stores spreading across the country.
WALL STREET JOURNAL—With the Canadian dollar surging against the U.S. greenback, Robert Katzman is dealing with situations they don’t teach in Economics 101.
The owner of five strip clubs in Detroit and Windsor, Ontario, says American dancers are heading to Canada to earn the strengthened Canadian currency, and Canadian customers are heading to Detroit because their dollars go further there. He’s fighting back by advertising more in the U.S. and offering free limo service to get Detroit men to visit his Windsor clubs.
The rise is a boon for Canadians looking to buy American real estate, stocks or just about anything for sale at the Mall of America in Bloomington, Minn., which has seen a 15% uptick in the number of Canadian customers this year. But it isn’t good news for Canadian hotels or tourist destinations, or exporters of everything from beer and maple syrup to lumber and wheat.
The result has injected a touch of national giddiness into Canada’s traditional reserve as a slew of opportunities present themselves, from real-estate deals south of the border to substantial breaks on college tuition for parents sending their kids to school in the States.
UPDATE FROM NY TIMES: On either side of the border, a buck is now a buck, or as Canadians call it on their side, a loonie. Coupled with high prices and high taxes for many things in Canada, the strength of the Canadian dollar is driving Canadians into the United States to shop for shoes, school supplies, gasoline, used cars and second homes.
MP: Compared to January of 2002, when the exchange rate was 1.6143 Canadian dollars per USD, everything in the U.S. is now on sale at a 38% discount for Canadians. The U.S. economy is now like a giant Wal-Mart for Canadians, with “everyday low prices.”
1. LOS ANGELES (MarketWatch) – Minneapolis-St. Paul is where it’s at when it comes to business, much more so than any other of the nation’s major urban areas. The Twin Cities ranked at the top of a MarketWatch study on the nation’s best metro centers for business, winning by a wide margin. Minneapolis-St. Paul got 329 points, 38 points ahead of second-place Denver.
The Twin Cities region has a high concentration of massive and diverse Fortune 1000 and S&P 500 companies. It also has a significant number of Forbes 400 private companies. Further, Minneapolis-St. Paul has a healthy array of up-and-coming companies on the Russell 2000 index. And it has more small businesses per capita than just about any other city.
2. Wall Street Journal – There are 19 Fortune 500 companies with headquarters in the Twin Cities, including Best Buy Co., 3M Co. and Supervalu Inc., which have been attracting young professionals looking to begin a career. Average salary last year was $44,980 in the Twin Cities, almost $5,000 more than the national average according to the U.S. Bureau of Labor Statistics.
“For the past two decades, these economic prospects made the Cities one of the fastest growing metropolitan areas in the Midwest,” says University of Minnesota geography professor John Adams. Adding to the growing population is an influx of African and southeast-Asian immigrants.
According to Edmunds, the average automotive manufacturer incentive in the U.S. was $2,362 per vehicle sold in August 2007, down $159, or 6.3%, from July 2007, and up $51, or 2.2%, from August 2006.
The average incentive for the “Michigan 3″ (Ford, GM, Chrysler) was $3,373, and the average for the “Japanese 3″ (Nissan, Honda, Toyota) was only $1,365. Add an additional $1,500 per vehicle in health care costs for the “Michigan 3″ compared to about $200 per vehicle for the “Japanese 3,” and it’s no surprise that GM lost $2 billion in 2006 and Ford lost $12 billion.
According to a report released by the BEA for Gross Domestic Product by State in 2006:
1. The average economic growth for all states in 2006 was 3.4%.
2. Michigan was the only state with negative economic growth in 2006, -0.50%. It also has the highest unemployment rate in the country for August at 7.4%.
3. Idaho was the state with the highest rate of output growth, at 7.4%, followed by Utah (7.2%), Arizona (6.8%) and Oklahoma (6.7%), which are all right-to-work states.
Bottom Line: Michigan should maybe consider becoming a right-to-work state?