Go to Original
The Big Squeeze
By Paul Krugman
The New York Times
Monday 17 October 2005
In 1999 Delphi, the parts division of General Motors, was spun off as an independent
company. Now Delphi has filed for bankruptcy. Its chief executive, Robert S.
Miller, wants the company's workers to accept drastic wage cuts, from an average
hourly wage rate of about $27 to as little as $10 an hour.
There are a lot of questions about how Delphi and the auto industry in general
reached this point. Why were large severance packages given to Delphi executives
even as the company demanded wage cuts? Why, when General Motors was profitable,
did it pay big dividends but fail to put in enough money to secure its workers'
pensions?
But Delphi's bankruptcy is a much bigger deal than your ordinary case of corporate
failure and bad, self-dealing management. If Delphi slashes wages and defaults
on its pension obligations, the rest of the auto industry may well be tempted
- or forced - to do the same. And that will mark the end of the era in which
ordinary working Americans could be part of the middle class.
There was a time when the American economy offered lots of good jobs - jobs
that didn't make workers rich but did give them middle-class incomes. The best
of these good jobs were at America's great manufacturing companies, especially
in the auto industry.
But it has been a generation since most American workers could count on sharing
in the nation's economic growth. America is a much richer country than it was
30 years ago, but since the early 1970's the hourly wage of the typical worker
has barely kept up with inflation.
The contrast between rising national wealth and stagnant wages has become even
more extreme lately. In 2004, which was touted both by the Bush administration
and by Wall Street as a year in which the economy boomed, the median real income
of full-time, year-round male workers fell more than 2 percent.
Now the last vestiges of the era of plentiful good jobs are rapidly disappearing.
Almost everywhere you look, corporations are squeezing wages and benefits, saying
that they have no choice in the face of global competition. And with the Delphi
bankruptcy, the big squeeze has reached the auto industry itself.
So what are we going to do about it?
During the 1990's optimists argued that better education and worker training
could restore the economy's ability to create good jobs. Mr. Miller of Delphi
picked up that argument as part of his public relations campaign for wage cuts:
"The world pays knowledge workers far more than it pays manual, industrial
workers," he said. "And that's what's sweeping over here."
But that's a very 1999 sort of answer. During the technology bubble, it was
easy to believe that "knowledge workers" were guaranteed good jobs.
But when the bubble burst, they turned out to be as vulnerable to downsizing
and layoffs as assembly-line workers. And many of the high-paid jobs that vanished
when the technology bubble burst have never come back, partly because they have
been outsourced to India and other rising economies.
Today, some of us like to stress the depressing effect of the dysfunctional
American health care system on wages. A large part of the problem facing the
auto industry and other employers that still provide good jobs is the cost of
providing health insurance, both to their current employees and to retired workers.
If we had a Canadian-style system - which is enthusiastically supported by
the Canadian subsidiaries of U.S. auto companies - the big squeeze might be
averted, at least for a while. One more reason to be angry with auto executives
is that they never threw their support behind national health care in this country,
even though such a system is clearly in their companies' interest.
What if neither education nor health care reform is enough to end the wage
squeeze? That's the possibility that makes free-trade liberals like me very
nervous, because at that point protectionism enters the picture. When corporate
executives say that they have to cut wages to meet foreign competition, workers
have every right to ask why we don't cut the foreign competition instead.
I hope we don't have to go there. But denial is not an option. America's working
middle class has been eroding for a generation, and it may be about to wash
away completely. Something must be done.
-------
Jump to today's TO Features:
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. t r u t h o u t has no affiliation whatsoever with the originator of this article nor is t r u t h o u t endorsed or sponsored by the originator.)
"Go to Original" links are provided as a convenience to our readers and allow for verification of authenticity. However, as originating pages are often updated by their originating host sites, the versions posted on TO may not match the versions our readers view when clicking the "Go to Original" links.
Print This Story
E-mail This Story