As UAW fades, so does a path to U.S. prosperity

DETROIT Sun May 31, 2009 12:43pm EDT

A U.S. flag flutters in the wind in front of the the UAW logo outside the United Auto workers Union Solidarity House in Detroit, Michigan May 29, 2009. REUTERS/Rebecca Cook

A U.S. flag flutters in the wind in front of the the UAW logo outside the United Auto workers Union Solidarity House in Detroit, Michigan May 29, 2009.

Credit: Reuters/Rebecca Cook

DETROIT (Reuters) - For decades, unionized manufacturing jobs have been considered the surest path to middle-class prosperity and realizing the vaunted American dream for blue-collar workers.

The United Auto Workers helped make that dream a reality.

"We created the middle class in America," said Olen Ham, one of the few surviving members of the 1937 "sit-down" strike in Flint, Michigan, which won the first union contract with General Motors Corp.

Later contracts brought paid holidays, pension benefits and health insurance, enabling blue-collar workers to buy cars and homes and to send their children to college.

But the latest concessions by the UAW with automakers Chrysler LLC and GM will make the road to the middle-class much rougher to navigate for the next generation of workers.

At GM, for instance, new "entry level" factory workers making $14 an hour will not be promoted to "traditional" worker status -- earning $28 per hour -- until 2015. All Chrysler new-hires through to 2015 will be at the entry level.

The use of entry-level employees and a two-tier wage system was enshrined in the UAW's 2007 contract agreement GM, Chrysler and Ford Motor Co, in which the union made landmark wage and benefit concessions.

A widely accepted definition holds that wages of about $20 an hour -- $41,600 an year -- is the minimum needed for a family of four to obtain middle-class rank.

The union's concessions have been welcomed by many as a way for America's automakers to return to profitability and to compete with the nonunion factories run in Southern states by Toyota Motor Corp.

Others, though, see the diminished earning power of U.S. autoworkers as a worrying sign for consumer spending, with economic implications spreading far beyond Detroit.

"It's hard to have an island of prosperity in a sea of diminished prospects," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think-tank.

STAYING ALIVE

George McGregor, president of UAW Local 22 in Detroit, representing 1,800 GM workers, said the amended contract means "more work for less pay" but he likened it to a "pacemaker."

"Hopefully this will keep us alive until we get a heart transplant and get GM up and running again," he said.

As for the clause that will shut out entry level workers, McGregor is pragmatic.

"At least they'll have a job," he said. "And if they can hang on long enough, they may get a better one."

Under the amended GM contract, the UAW has also given up its power to strike.

Any differences with GM when the union's current contract expires in 2011 will be settled by binding arbitration.

Industry analysts say this means the UAW has effectively signed a six-year deal to 2015.

Labor law professor Harley Shaiken of the University of California at Berkeley said the UAW had made "some tough concessions" to stay GM alive, but may be able to rebound.

"By ensuring GM survives, the UAW will be in a central position to fight again another day if GM prospers," he said.

But Len Blum, managing partner and founding member of investment bank Westwood Capital, said UAW-represented workers were paid "in excess of the value that they bring to GM."

Tackling the pay issue would make GM a better company and ultimately help the U.S. economy, Blum added.

"The UAW is a dinosaur," he said. "We have labor laws in America so there's no reason why they should be protected."

DECADES OF DECLINE

As America's industrial sector has faded -- beginning in the 1970s with the steel industry -- so too has the number of the well-paid blue-collar jobs. UAW membership, which peaked near 1.5 million in 1979, fell to about 431,000 in 2008.

"The latest UAW concessions are part of a process that has been going on for over 30 years," Mishel said.

With Chrysler in bankruptcy and GM expected to follow on Monday, analysts say the UAW had no choice but to agree to cut retiree benefits and wages for future workers.

Auto sales are at their lowest level in almost 30 years, dragged lower by tighter credit, rising unemployment and a weaker housing market.

"This is just a microcosm of what is going on in the rest of the economy where most areas have seen wage, salary and benefit adjustments," said David Rosenberg, chief economist at wealth management company Gluskin Sheff. "It's all part of the adjustment to the post-credit bubble world."

Some argue that by cutting wages for their workers Detroit's automakers are taking a bite out of their own sales.

Starting with Henry Ford's introduction of the $5 workday in 1914, Detroit's autoworkers have been the industry's most faithful car buyers.

"Over their working careers you'd see GM workers buy 10 or 12 GM cars," said retired auto worker and union activist Gregg Shotwell. "Low-paid workers can't afford new cars, so GM is cannibalizing its own sales."

Others worry that cutting pay for auto workers will have a more widespread effect on the U.S. economy.

"Unions didn't just give us a better life, they gave us better purchasing power," Shaiken said. "They didn't just earn more, they purchased more as a result."

"We may be killing the goose that laid the golden egg," he said.