Wage Against the Machine: How Autoworkers May Make Us Money

Source: Micah Wright/Autos Cheat Sheet

Micah Wright/Autos Cheat Sheet

Still think the economy is in the crapper without a sign of a plunger to be seen? According to a recent report by Bloomberg, cars are “flying off U.S. dealer lots at the fastest pace since 2005,” something that is awesome to hear after almost a decade of semi-flaccid sales and equally floppy workman’s wages. The report claims that coincidentally (or not) 2005 was the last time America saw some serious perks for automotive industry workers, a financial ailment that may be about to be cured as experts continue to predict widespread wage increases across the board. But the fun doesn’t just stop there: Because if gains like these continue to foreshadow broad pay bumps for all of the American labor market, Federal Reserve policy makers may finally have the evidence they need to leverage the wage pressure they so desperately want to see in action.

Studies show that “sales of U.S. cars and light trucks ran at an 18.12 million annualized rate in October,” and according to data from Ward’s Automotive Group, this makes it the biggest jump since 2005. While some suspect that this may be driven by suspiciously low borrowing costs and inexpensive gasoline, others feel that American automakers are just producing higher quality cars than ever before and buyers see that — a fact that the auto industry is still set to have its strongest year since 2000.

Source: Micah Wright/Autos Cheat Sheet

Micah Wright/Autos Cheat Sheet

This rides on the coattails of news surrounding workers at both Ford Motor Co. and General Motors, as both groups just received new labor contracts in late November that include across-the-board raises, paths to senior-level pay for entry-level workers, and the ratification of annual bonuses so that they may now reach as much as $10,000. This all comes a month after workers at Fiat Chrysler Automobiles NV reached a similar agreement in October that left all parties satisfied.

No one really seems to mind that the new labor contracts only cover 140,000 unionized employees at the so-called “Big Three.” Events like these have the potential to boost pay grades for over 1 million hard working Americans in all of the U.S. auto industry, once it’s proven to work on a large scale, something that many feel has been long overdue since day one. The talk of developments inspiring wage hikes across many other areas of the labor market has been a hot topic for many economists, and according to Joel Cutcher-Gershenfeld, a professor of labor and employment at the University of Illinois at Urbana-Champaign, this may be the dawn of a new age for the average American worker.

“The auto industry has been a bellwether for the economy,” Cutcher-Gershenfeld said. “It is certainly the case that there will be wage pressure on the foreign transplants in the Midwest and the South based on the auto agreements.”

Regardless of whether the good professor is correct or not, these deals are the direct result of a decade-long drought where raises for senior workers and higher wages and benefits for new hires were practically nonexistent. It was not until 2007 when union-backed concessions forced workers to agree upon a way in which to stem job losses that the ball began to roll in the right direction. It was a time of uncertainty, and as both Chrysler and GM extended their hands for government-sponsored bankruptcy bailouts in 2009, all of the dreams of one day having reasonable workman’s wages began to go up in smoke.

Source: Micah Wright/Autos Cheat Sheet

Micah Wright/Autos Cheat Sheet

But the bailouts worked. The Big-Three began to regain their footing almost instantaneously — today’s vehicles, sales, and production numbers reinforce this fact. But not all was well with the workers in the factories across America, and since those dark days in late 2009, the wage that premium autoworkers once had over the average American population has been near-eliminated, according to the Labor Department data found in Bloomberg’s report.

Studies show that employees working in automotive and parts manufacturing segments once earned at least 30% more than all other private U.S. non-supervisory workers in 2006. Flash forward to October of this year, and these same jobs are down to being just 1.8% above the national average, making it “the lowest premium in Labor Department data going back to 1990.” Break that down to the basics, and it means that with an average hourly income of $21.56 an hour, the pay for autoworkers in dangerous environments is currently lower than it was 10 years ago. Add inflation and all of the other price hikes for basic living essentials, and you’ve got disgruntled skilled workers that aren’t getting payed diddly in an increasingly expensive America.

Source: Bloomberg

Source: Bloomberg

This was when someone sounded the horns. There is only so much a robot can do (for now) when it comes to assembling and testing an automobile, making human labor a commodity worthy of investment. As plant employers reassessed what was most important for their future livelihood, workers began a heated round of negotiations in July that focused on them getting a fatter piece of the pie, and in the process hopefully make up for decades of stagnant or slashed salaries. Sure, agreements have yet to be made, but at least talks are being conducted in due fashion — a step that eludes to brighter days and better pay for almost all automotive industry workers.

So now you are left wondering how this all effects you. Well, an acceleration in wage growth in the auto industry might benefit everyone else’s as well. Without sounding like a slack-jawed economy professor, it’s worth reiterating that because wage hikes have persistently been a missing piece of the economic recovery’s scattered puzzle for years, as many other segments remain uninspired to make the first move, instead waiting to see how this automotive attempt plays out. It is a problem that Bloomberg mentions as one that has “been lamented by Fed policy makers,” even long before the bailouts, when debating the timing of a preliminary interest rate increase in 2006 first surfaced. But with negotiations underway, industry experts suspect that if these autoworker agreements are met with wage hikes, the effects felt from them will “ripple through the economy,” and with a little luck provide Fed officials an incentive that shows wage inflation pressure is on the rise after decades of dormancy.

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