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Several folks have e-mailed me asking that I repost a thought or two on the original auto bailouts. Here is one of them, and for fun, I added the following section to my original post.

  • But let’s assume that even all 1 million auto workers would be out of work. That of course would never happen – the remaining productive auto makers would make use of the valuable assets – so at worst maybe a quarter would be out of work. How does this “catastrophe” measure up to other catastrophes in the labor market? I think three events are worth recalling.
    • First: the Mariel Boatlift in 1980 represented an influx of 125,000 Cuban immigrants into Miami in a very, very short period of time. You should note that the immigrants were of much lower skills than the Cubans that had arrived before and in the early parts of the Revolution. So, did this influx of newly unemployed, unskilled people devastate South Florida? Of course not. Mr. Card is also not exactly a radical libertarian economist either. He found that:
    • The Mariel immigrants increased the Miami labor force by 7%, and the percentage increase in labor supply to less-skilled occupations and industries was even greater because most of the immigrants were relatively unskilled. Nevertheless, the Marie1 influx appears to have had virtually no effect on the wages or unemployment rates of less-skilled workers, even among Cubans who had immigrated earlier.
    • Second, some years earlier a small event led to a somewhat larger shock of unemployed workers coming back into the United States. In fact, the United States they were coming back to looked a heck of a lot different than the one they left. Oh, there were somewhere around 10 million unemployed soldiers coming home from World War II. And what followed was arguably the 10 best years of economic growth the country has ever seen. (I am not claiming the unemployment caused growth, rather that it did not inhibit it in any way)
    • Third: OK, those might be smallish numbers. But did you know that each and every single year in America over 25 million jobs are destroyed. I’ll repeat that in case you missed it. Every year, we lose a number of jobs representing over one-sixth of the size of the entire labor force. That’s right. It’s just that every year the “economy” creates about 27 million new jobs. On net, then we see about 2 million new opportunities created every year. And that is even before the Lord and Savior decided he can create even more through his waving of his government magic wand.
      • As if losing 25 million jobs each year was not enough, did you also know that in a typical year there are about sixty million total separations of workers from jobs (some of this includes the same worker leaving many jobs, but that reinforces the point I am making). Remember that the entire labor force is about 150 million people. So these separations (either voluntary or involuntary) amount to (gross) 40% of the labor force experiencing some kind of major change in each year.

Hopefully the point is obvious by now … but if the typical churn in the labor market does not cause annual disaster after disaster, then what possibly is different about a change in a single sector of the economy that dwarfs the size of these other events? Maybe you would argue that the auto sector is different because it is concentrated in one city and one industry – but what about the Mariel Boatlife example above? Do you want to argue that American auto-workers, who are already skilled and assimilated into American culture, would have a worse time than Cuban immigrants? Or do you wish to argue that the reason to bail out the auto sector is because you fear that Detroit will turn into a dump? Can Detroit can get any worse?

One Response to “Reader Request – More on the Auto Bailouts”

  1. Harry says:

    Tonight I watched a ubiquitous GM ad on television, with the Chairman talking about how GM is back, et cetera.

    I could not help but harken back to my days as an operating specialist, a field of consulting where we did projects to improve the ratio of output over input, broadly defined.

    My company, though not I, did a project for Pontiac, after we did Motors Insurance Company, the warranty arm of GM. There are many job stories there, but I digress.

    One of the things that became automatic instinct was to comprehend an area in any company and assess things going wrong — machines making strange noises, smoke arising — and especially people doing anything but work.

    The GM commercial shows many people leaving their just-finished work, a lot of folks walking around, many of them in dress shirts. Hardly anyone, maybe no one — I’m not sure until I see the commercial again — actually making a car by screwing in a bolt or a screw.

    This in itself would have been red meat for us, as it always was, when we talked to our client about how many millions of his dollars was being wasted everywhere in his organization on payroll, not to mention all the scrap and rework caused by walking in hallways to the next meeting instead of paying attention to what was happening on the floor.

    I do not hold much hope for GM when its CEO is unexcited when he sees a hundred people in any given snapshot not building cars. (I’m not going to mention GM’s Jobs Bank, which pays “laid off” workers.)

    I drive a GM car, a great car, which I bought used. Their new cars are too expensive. They require an electrician from maintenance to fix a switch on an automatic machine while the expert machine operator watches, idle for hours. The only way GM can compete with its Cadillac is that the mechanic in Stuttgart building the BMW has more stupid work rules, and gets paid for a 40-hour week plus a month off for holiday for a 35-hour week. The 40- and 35-hour weeks count when you punch in and when you punch out, not the time you actually are working.

    My company never based its value on getting people to work harder, and when you were doing a job where capital and machines were at work, labor was not as signifigant. Rather than working harder, we always thought more often was better, and producing something of value, as opposed to waste, was paramount. Our jobs depended every day on getting more output per unit of input and it had to be demonstrated.

    Regarding your comment on immigrants, your point is well-taken.

    I’ve read all the arguments about the Baby Boom demographics and our domestic people growth rate, and I am concerned about our country’s future ability to pay for all its obligations when we are room temperature but my daughter is still around.

    Many of those arguments never speak to the question of who will be around to feed us and provide whatever else we need. Surely if we have a declining workforce, then our burden on whoever is still working becomes expotentially greater.

    Thus it is hard to understand opposition to letting other people into our country, as long as they are willing to work, regardless of the impossible social welfare systems we create for the nonworking.

    The UAW, of course, is afraid Mexicans will displace them, either by working for less per hour or more often. What they do not know is that as long as they are idle, the Jobs Bank will fail probably when they are still alive, and it would be in their interest to work as often as the Mexicans.

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