Gm and Uaw Butt Heads over Jobs

1) In an effort to save its shrinking rank and file, the United Auto Worker (UAW) began a two -month-long Strike against General Motors . At issue was GM's desire to eliminate its "pegged rate" pay system and cut its North American work force by about 40,000 jobs over four years. GM's pegged rate system allows plant workers who meet a daily quota in five or six hours to either go home for the day or collect overtime pay for the remaining portion of the day- a system that GM says creates great inefficiencies in production. GM believes that eliminating its pegged rate pay system some workers will make its operation more efficient and raise workers' productivity. However, the UAW is fighting on both issues to keep its declining membership from further shrinking.

To support their position , GM officials cited lagging efficiency measures and high wages relative to other automakers. Workers at Ford produced an average of 33.2 vehicles per year paid wages that averaged $43 per hour. In contrast ,GM workers produced an average of 27.9 vehicles per year and received $ 45 per hour.

Do these figures justify GM's proposed actions ? Why or why not?

Answer:

G.M. in the above action was fighting to eliminate the practice of its workers to collect full pay once they produce a certain number of parts. As mentioned in the New York times by Keith Bradsher I quote:

"GM Wanted to get rid of the system called ''pegged rate.'' But the U.A.W. has resisted, noting that a local agreement last year with G.M. already calls for the practice to be phased out for any new auto parts production assigned to the factory."

The strike by 3,200 workers at the factory has hindered their production. It has been published that G.M. closed 26 of its 29 assembly plants in North America for lack of parts and has announced a loss of $1.18 billion due to that strike and a previous strike that also took place during a very recent period. The strikes have forced G.M. to lay off 161,000 workers temporarily, while outside suppliers have laid off thousands more. Now, would that loss be justified by their proposed action? both short run or long run?

From looking at the numbers above comparing GM and Ford, and realizing that both companies work in the same market for a share of that market customers, and knowing that this is an Automotive market, we realize that a great deal of their capital is invested in factories, machinery, and technology, all of which can be considered as a fixed cost. The one element that can be considered as variable cost for the short run is labor. Thus, GM's decision for cutting down wages to match that of Ford will be mainly related to production levels and how they are affected by this change in labor or cut down in their wages.

We see from GM numbers that their labor have lower productivity and are being paid more compared to their competitor Ford. Thus, we can look at it as a monopolistic competition or oligopoly - if the prices are somehow fixed and agreed upon between the companies and their third competitor, Chrysler. In all cases, the cost per labor is lower in Ford compared to GM and is still having higher level of production. Also, we see that Ford has the same input but a higher output in their production (reflected in the higher vehicle produced per year) which makes Ford