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REGIONAL ECONOMICS IN AMERICA A/K/A THE NEW CHINA (PART III)

July 13, 2015

REGIONAL ECONOMICS IN AMERICA A/K/A THE NEW CHINA (PART III)

The rates of unionization of Southern states’ workforces are extremely low; 4.3 percent in Georgia, 3.7 percent in Mississippi, 2.2 percent in South Carolina and 1.9 percent in North Carolina. Workers employed by temporary staffing agencies create additional obstacles to raises in wages and unionization since such workers are not per se employees of Nissan, Mercedes et al., but rather temporary help employed by staffing agencies and deployed to car assembly plants in the South via contracts between such agencies and, for instance, Nissan. One former official of Nissan estimates that more than half the workers in Nissan’s Southern plants are staffed by such “contract employees.”

Thus Nissan’s Southern plants are not staffed by Nissan’s regular employees but rather mainly by workers who are not their employees but subject to their control, which means that more than half of the workers at Nissan do not enjoy the legal protection and rights accorded to employees under federal law (and such protective labor laws as the state may have, if any). The only “rights” they have are to work for less than already underpaid regular employees and pay a commission percentage off the top of that meager wage to the contracting agency which could result in a net-net wage to such contract employees below the federal minimum wage, which further means that such contract workers who work full time could be relegated to poverty status and eligibility for food stamps etc.

I, for one, do not object to the food stamp program but I do object to a system that uses my tax money to keep body and soul together for full time workers who assemble automobiles such as the luxury Mercedes. Why should you and I subsidize the profit margins of such companies either foreign or domestic (Shades of Wal-Mart!) by providing sustenance to their employees (whether contract or regular)? These European and Oriental car manufacturers are already getting a huge break on labor costs by assembling their products for sale here; why pay their help so poorly that public assistance is needed? It’s because they can get away with it, of course, in an anti-union/poor pay political environment where the politicians can brag about bringing jobs to the state and the factory owners can be the good guys who provide the jobs. Missing in this pretense is the role of the taxpayer, who may well be paying a portion of the wages of workers for such luxury automakers via public support, and with such subsidies (albeit indirectly) headed straight for the bottom lines of these manufacturers.

Meyerson points out that most of the largest factories that have arisen in the South in recent years belong to European and Asian firms that, in their home countries, pay high wages and are entirely and harmoniously unionized, but that in going to the South they go native, paying wages and providing benefits well beneath those that such firms as General Motors and Ford offer their employees while (with the notable exception of Volkswagen) blocking workers’ attempts to unionize. They have found their New China with its cheap wages and a market as well, not to mention an America asleep at the switch in providing some of their contract employees with public assistance so car-makers and others can keep wages low and profits high with such undeserved subsidies from our public till.

Thus the assembly work done by Americans here is essentially a low-skilled effort. Jurgen Buhl, for instance, who heads the treasurer’s office of IG Metall (the German metal-workers union) and is the primary staffer for the union’s representative on Airbus’s board of directors (Yes, union representatives do serve on the boards of directors of German corporations) says that “Airbus is a global manufacturer. When we go abroad, we have the high-value work, the research and development, done in Germany. We (workers in German factories) supply the high-value parts. The workers who assemble the parts in Tianjin, China, produce 3 to 5 percent of the total value. But given the 6 to 1 productivity advantage that the United States has over China, it’s cheaper to do the final assembly in the U.S.”

So there you have it! To our shame, China cannot compete with us on labor costs in such assembly of Airbus parts (which we will not make here but import from Germany), and there is another good reason why our assembly line workers are set to finally assemble Airbus parts as well, and it is this: German assemblers cannot compete with our low labor costs, either. The average hourly compensation for manufacturing workers in Germany in 2011 (the last time BLS made such an international comparison) was $47.38 there and $35.53 here, a difference of a third. No doubt the German manufacturing wage has surpassed $50 an hour by now (while we argue here over whether the federal minimum wage should be raised from $7.25 an hour and our manufacturing sites in the North are being vacated with moves not just to the Orient or Mexico, but to the South in our own country where cheap labor costs are fine for such manufacturers’ bottom lines but deadly to aggregate demand in our overall economy.

The final result of these globalizing tactics is that for global manufacturers, the United States (and more precisely, the American South) has become the low-wage alternative to China, and even for American manufacturers as well. For instance, in 2012, GE brought its production of water heaters and refrigerators back from China and Mexico to its Appliance Park factories in Kentucky, but unlike other Southern factories, Appliance Park was unionized. However, the union was compelled to agree to a two-tiered contract in which the lower tier (70 percent of the workforce) had a starting pay of $13.50 an hour, almost $8 less than what new workers there used to receive. Back to the future?

The American South has become the low-wage anchor of a global production process – such as it was before the Civil War when Cotton was King and the slave South dominated the American economy and much of the European economy and its textile mills. Even though wages then were generally poor, no one could compete with slave labor, nor can even China compete with us today in many areas. One of our advantages over China is, of course, that we buy products made here, thus substantially reducing the costs of transportation of such goods to market. On the other hand, with (nearly) slave wages paid today in the South and the invasion of southern reduction of wages to their meager levels in our North, query as to whether and how long we can keep up the necessary demand to buy goods made anywhere.

Unfortunately, the spread of southern earning levels to the North is not confined to manufacturing. The expansion of Wal-Mart from the South into the North and West has had a profound effect on the incomes of retail workers and of workers all along its supply chain. Economist David Neumark has found that wages in counties where a Wal-Mart has been operating for eight years are 2.5 percent to 4.8 percent lower than those in comparable counties with no Wal-Mart outlets. Similarly, Moody’s Analytics has found that the overall wage gap between the Midwest and the South has narrowed from $7.00 in 2008 to $3.34 in 2011, a discouraging trend as recession (or worse) beckons when demand evaporates.

We are the “New China” by choice. Let’s end wage inequality and choose to be America.   GERALD     E

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