Friday, October 28, 2011

With New Labor Contracts, Detroit Protects Turnaround

General Motors, Ford and Chrysler met with the United Automobile Workers (UAW) union this week and discussed the future of their companies after the ratification of their last four year agreement. All three of the Detroit-based companies made progress in closing the gap between foreign competition and can now be substituted because they are desired more by consumers. The American companies decided to keep cost down but they keep production the same and hire more workers. Howeever the companies evaded increasing wages for long-time workers which was a main point of the UAW's contracts. In the past, the companies hired around 300,000 workers in 2001 but now it has shrunk to only 112,000 workers! The companies claimed to reduce workers to match their decreasing market shares but their total output has decreased as well. Their marginal output of labor was shown in reverse- the less the hired, the less they produced. However, American companies pay workers about $50-57 an hour while the foregn competetors only pay below $50 an hour. The higher salary for the American companies increase the incentive for laborers to work there than for the foreign companies. This might cause in increase in the supply of labow and a decrease for the demand, but all of the American companies are looking to increase their marginall product of labor so they are looking for new workers. Will this drastic change in employees and production rate make the companies sucsessful again, or will the demand for locally produced cars decrease even more?

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