Economists find domestic car bailout cost effective, but expect more demands in future
A new report suggests future investment subsidies and bailouts in the auto industry should come with wage concessions from workers.
While the 2009 bailout of GM Canada and Chrysler Canada was cost effective, ongoing subsidies would effectively support inflated wages for auto workers, the study by the Institute for Research on Public Policy found.
“In all cases, it’s better to provide subsidies than lose investment. But we can do better,” says co-author Leslie Shiell, an economics professor at the University of Ottawa. “The question is: Can we do it for less?”
Auto workers earn roughly $10 an hour more than those in other manufacturing industries, according to the study.
Wage concessions in that range could have made up the anticipated $5-billion shortfall between the $14.4 billion the federal and Ontario governments gave, and the amount they will recoup in the long term, Shiell says.
Wage concessions could also stave off the need for future investment subsidies, he says, using the Ford Centennial Project as an example. The deal involved $200 million from the federal and provincial governments to transform the company’s Oakville assembly complex into a flexible assembly plant. The initiative was expected to maintain 3,900 direct jobs and thousands of other spin-offs in the area.
A cut of roughly a dollar or two an hour would have equaled the subsidy over the course of 15 years, says Shiell.
Canadian Auto Workers (CAW) union economist Jim Stanford takes issue with that premise. The lifetime of a plant investment is only about six years, the length of time a model is in production, he says.
Further, it is unlikely wage concessions would deter companies from asking for investment subsidies anyway, he says.
“It’s becoming more common to ask for subsidies,” he says. “Mexico used to just provide cheap labour. Even it now provides investment subsidies. If it was just a question of getting labour costs down, why would Mexico provide subsidies?”
In the southern U.S., where labour is cheaper, subsidy rates are 30 per cent or higher, he says. By comparison, federal and provincial assistance here averages 15 per cent.
Shiell acknowledges there will be demands for more investment subsidies in future, and that’s something public policymakers will have to address.
“It’s considered pay to play,” Shiell says. “Companies are taking advantage of this and governments around the world are willing to throw money at it. The perception is there’s higher productivity (in the auto sector).”
That productivity includes the “spillover” of benefits to the larger community.
“It’s damn hard to put a dollar figure on the spillover so governments use that as a pretext to throw money at companies,” he says. “It boils down to governments having the nerve to say you’ve gotten this concession and we think you’re taking advantage of us.”
Without concessions from workers, the Canadian auto industry will stagnate, Shiell predicts.
“I don’t think we’ll see many new investments,” he says.
But there are alternatives to wage concessions, such as flexible working rules, and the elimination of bonuses and certain premiums as a condition of new investment, according to Stanford.
“What is the point of economic development if we don’t raise the standard of living?” he asks. “If accepted, this idea would make wage deflation a real policy decision.”
He also dismisses the idea that wages in the auto sector aren’t competitive with other manufacturing jobs.
“If you look at manufacturing, it’s not another factory job people go to if they lose their job,” he says. “They’re looking at a job at Tim Horton’s.”
Historically, wage concessions have not been tied to investment subsidies in Canada — and it would be a mistake to do so now, says Dimitry Anastakis, an expert on social policy and the auto sector at Trent University in Peterborough, Ont.
“Auto workers are at the top of a value chain,” he says, referring to the spillover effect. “You’re not subsidizing that job. You’re subsidizing the entire chain. If you go after these jobs, they’re at the top of the pyramid.”
Automakers are continuing to invest in Ontario because productivity is high, quality is high and the workforce is dependable, Anastakis says, adding he sees no reason to make lower wages a condition of future investment subsidies.
“Why just go after wage concessions? Why not profits? Why shouldn’t shareholders also have to concede something?” he says, adding a wage concession policy would “destroy” the collective bargaining process.
“Companies negotiate these wages with their workers. It’s like saying companies don’t have a say in the bargaining process.”
