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The Double-Edged Sword: How Union Demands Can Both Help and Harm Workers
While I strongly support workers' rights and believe employees deserve fair compensation, I worry that some unions may go too far in their demands, hurting businesses' competitiveness and flexibility. This could ultimately harm workers and consumers.

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Take the United Auto Workers (UAW) union and the Big Three American automakers for example. UAW is requesting a 40% wage increase, 32 hour work weeks, increased retiree benefits, and pay for laid-off workers doing community service. By one estimate, this would add $80 billion in labor costs for the automakers. Compared to auto workers in Japan, Mexico and China, US autoworkers already earn high wages. It's understandable why automakers have moved production overseas seeking cheaper labor.

Labor costs impact automakers' ability to price vehicles competitively. Unlike UPS, which can pass higher labor costs to customers given its duopoly with FedEx, the Big Three face intense competition and limited ability to raise prices. To meet UAW's demands, they may need to cut vehicle models and focus solely on luxury vehicles. Stellantis has suggested it can't produce a $25,000 EV if UAW demands are met.

While vehicle demand and profits are high currently, the Big Three's margins lag rivals like Tesla. They've invested billions retooling for EVs but are selling those models at a loss so far due to low production volumes. With higher interest rates pressuring cash flow, they need to cut costs to stay solvent long-term. Auto CEOs have all indicated this.

If workers want higher wages, productivity must also increase. Big investments in automation could boost output with fewer workers, but UAW opposes displacements. Until the Big Three can overcome UAW's influence, startups like Tesla and Rivian will likely outperform them. GM's big investment in Cruise reflects a potential pivot from automaker to robotaxi operator.

In summary, while I strongly support workers, some union demands may go too far, reducing business flexibility and competitiveness. This risks harming workers if companies fail or cut jobs. There are better paths to raise wages through increasing worker productivity and collaboration between labor and management.


Cato Institute
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