September 21, 2023 For Media Use Only (Not For Commercial Use)

ANALYSIS OF RECENT UAW STRIKE

Introduction:
John F. Kennedy once said, “My intention is to talk not of general principles, but of specific
cases – to propose not partisan criticisms but what I hope will be constructive solutions.” There has
certainly been a lot of debate in the last week over the recent UAW Strike and this report seeks to
not only answer the hard questions that are being asked but also seeks to establish a sense of
reconciliation that is needed for both auto workers and the Big Three auto companies alike. This
report seeks to provide constructive solutions by answering the following questions:

1. Should unions be allowed to exist in America’s free market economy?

2. Are autoworkers being paid enough with the historic inflation of
18.6% we have had from 2020-2023? (This is the highest thirty-two
month stretch of inflation since 1980-83).
3. Are CEOs of these companies being paid too much? The ratio of
CEO pay to median worker is 362-to-1, 365-to-1, and 272-to-1, at GM,
Stellantis, and Ford respectively?
4. Should these companies implement practices such as profit sharing
or gainsharing to be more equitable to their employees?

A. Should unions be allowed to exist in America’s free market economy?

In my opinion, there is a place for labor unions in the United States. In certain industries,
workers need to be protected and stood up for, so they are not taken advantage of by their
employers. Whenever it comes to economic issues in the United States, I generally like to follow the
advice of Adam Smith, the father of capitalism1. Although Smith didn’t directly discuss labor unions
based upon his writings, we can extrapolate the following of what he would say about them:

Free Market and Competition: Adam Smith believed in the power of the free market and the
"invisible hand" to regulate prices, wages, and production. Labor unions, by negotiating collective
bargaining agreements and potentially restricting labor supply, could be seen as interfering with the
natural operation of the market, which Smith might have viewed critically.

Wages and Labor: Smith recognized that employers would always try to depress wages to increase
their profits: "It is not, however, difficult to foresee which of the two parties must, upon all ordinary
occasions, have the advantage in the dispute, and force the other into a compliance with their
terms." Given this, Smith might have seen the utility of workers banding together to negotiate

1
You might think that Adam Smith didn’t care about the poor because he is the father of capitalism, but that
couldn’t be further from the truth. He once said, “no society can surely be flourishing and happy, of which the far
greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge
the whole body of the people, should have such a share of the produce of their own labour as to be themselves
tolerably well fed, clothed and lodged.” Sounds like Bernie Sanders, right?
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wages, as individual workers would be at a significant disadvantage when negotiating with

employers.

Monopolies: Smith was wary of monopolies and any form of market power that could distort
competition. If he viewed labor unions as having too much power and acting monopolistically, he
might have critiqued them. On the other hand, he was also concerned about business monopolies,
and unions could be seen as a counterbalance to corporate power.

Common Good: While Smith believed in self-interest driving economic activity, he also recognized
the importance of policies and structures that benefited the common good. If labor unions were
seen as ensuring fair wages, safe working conditions, and preventing worker exploitation, Smith
might have seen their value in promoting the broader welfare of society.

In conclusion, it's speculative to determine exactly how Adam Smith would view modern
labor unions. While certain aspects of unions might conflict with his staunch belief in the free
market, other facets of union activity, particularly those that protect workers and counterbalance
corporate power, could align with his views on justice, fairness, and societal well-being.

B. Are autoworkers being paid enough with the historic inflation of 18.6%
we have had from 2020-2023? (This is the highest thirty-two month
stretch of inflation since 1980-83).

For the top tier workers, meaning anyone who joined the company in 2007 or earlier,
they make $33 an hour, and for the lower tier worker, those who joined the company after
2007, they make $17 an hour. The average age of Tier 1 workers at GM and FCA is 51; it is
49 at Ford, the automakers report. In contrast, the average age of Tier 2 workers is 39 at GM
and FCA and 34 at Ford.

With that being said, let’s now look at how the current salaries rank according to
their age and adjusted for they live:

First, let’s look at the cost of living for each of these cities:

Toledo, OH: 27.8% under average US city

Wayne, MI: 13.6% under average US city
Fairfax, KS: 13.4% under average US city
Wentzville, MO: .6% under average US city

Now, let’s look at total salaries: for tier 1, $78,000 currently for top tier employees,
salaries would increase to $92,000, for tier – 1 employees it would go from $41,000 to
$50,000. In terms of age, for tier 1 workers, they would be in the 70% in terms of earning
for age, and for those in tier 1, they would be in the 46%. Look at the table below for what
would be their real wages in terms of cost of living. The percentile for the new earnings
adjusted for cost of living.
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Toledo, OH Wayne, MI Fairfax, KS Wentzville, MO

Tier 1 $117,576 (80%) $104,512 (76%) $104,328 (76%) $91,448 (70%)
Tier 2 $63,900 (60%) $56,800 (54%) $56,700 (54%) $49,700 (46%)

With inflation from 2020 to 2023 being 18.6%, the highest it has been for a 32-
month stretch since 1980-1983, these auto makers have stepped up to the plate by giving a
22% increase. It is possible that no other industry has received a wage increase like this
possibly ever in the history of the United States.

C. Are CEOs of these companies being paid too much? The ratio of CEO
pay to median worker is 362-to-1, 365-to-1, and 272-to-1, at GM,
Stellantis, and Ford respectively?
Yes. They are being paid way too much. The reason they are being paid too much is because often
times the Board of Directors get too cozy of a relationship with the CEO. The average Board of
Directors pay for companies in the S &P is $325K. That is 5 times more than the average worker
and they only put in a few hours of work a month. The pay of the Board of Directors should not
exceed the median worker’s salary. Additionally, at Ford, there are a few direct descendants of
Henry Ford that make hundreds of thousands of dollars sitting on their board. There should be a
nepotism rule that direct and indirect family members cannot sit on the board. They already have
mutli-million-dollar trust funds while the average worker has to struggle to make ends meet.

D. Should these companies implement practices such as profit sharing or

gainsharing to be more equitable to their employees?
It’s ultimately up to these companies if they want to. But if they did, there are two ways they
would be more equitable: profit sharing and gain sharing.
Profit Sharing – Profit sharing strategies are established using set economic guidelines that
determine the distribution of benefits between the company, acting as the primary entity, and the
employee, in the role of a representative. For publicly traded firms, these methods often involve
distributing shares to their employees.
For instance, say the profits are x, which could be a arbitrary variable. Prior to being aware
of the profits, both the agent and principal could concur on a sharing rule s(x). So, the agent would
get and the principal would get what’s left over, or x-s(x).
Profit-sharing often results in reduced tension and increased collaboration between
employees and their employers.
Gain Sharing - Profit-sharing often results in reduced tension and increased collaboration between
employees and their employers. Three types of gain sharing programs are…
September 21, 2023 For Media Use Only (Not For Commercial Use)

Scanlon plan - Gainsharing awards workers a share of the saved costs, often in the form of a single
bonus. While it emphasizes boosting productivity, profit-sharing is geared towards elevating
profitability.
Rucker plan - While this strategy employs committees, its structure is more straightforward, yet the
computations for cost-saving are intricate. A ratio is determined representing the production value
needed for every dollar of the overall wage expenditure.
Improshare - "Improshare" is short for "Improved productivity through sharing" and is a newer
approach. In this method, a benchmark is set specifying the anticipated hours for production. Any
discrepancies between this benchmark and the real production time result in savings shared between
the enterprise and its employees.

Conclusion: To conclude, we must remember the wisdom of William Penn when he encouraged
us to debate with unthinking sureness: “In all debates, let truth be thy aim, not victory, or an unjust
interest.” The auto industry is an integral part of the U.S. economy considering in as recent as 2020,
the auto industry made up 3% of U.S.’s GDP ($627 billion out of $20.93 trillion. The fact that
there is much tension around the issue is not only normal, but constructive according to Martin
Luther King Jr.; after all, he once said,
I must confess that I am not afraid of the word “tension.” I have earnestly opposed violent
tension, but there is a type of constructive, nonviolent tension which is necessary for growth.
Just as Socrates felt that it was necessary to create a tension in the mind so that individuals
could rise from the bondage of myths and half truths to the unfettered realm of creative
analysis and objective appraisal.
Half truths have no place in an industry as important as the auto industry. Issues must be
debated and discussed with alacrity, and once that happens, we will not only have clarity, but equity.

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