Do you think car workers should take a pay cut to help save the industry?

In the first place, Cynthiann, the image of 'fat cats' is only partly true. We (as 'hoi polloi' learn to hate them largely because of what we read or hear in the media. That, in itself, is a large and tangled web. As I pointed out in my comment to the first response, there are a few people 'earning' exorbitant amounts and it's very tempting to say "Well, I'm living off $20,000, so why can't 'he'?" (or something similar). Economically, it doesn't work like that for may reasons. The 'fat cats' may actually be paid their 'fat cat' salary because they are experts at asking for money ... could you or I do the same, do you think, with as much authority? Maybe, maybe not, but for sure we would need to climb the ladder first. There are certainly some (relatively) 'fat cats' on hourly rate working in the motor industry, as my second respondent showed.

We both know that truth is relative. I do understand what you are saying and you are correct. However, as the saying goes 'justice must not only be done but BE SEEN to be done'. It is all a matter of perception to the workers. If they see that Mangement is going to have a pay cut then they are less resentful if their salary is cut. Do you see where I am going with this? Perception is very important. I did manage to read some responses on this excellent posting and was amazed to see that the workers in the car industry are paid so much money per hour. Honestly owlwings? I don't have any answers but have enjoyed this discussion.Blessings

Yes, I agree with the very valid points you have made there. It feels as the whole world is moving into a new era, and it's amazing how sudden this has been. :-)

Most people's economic perception is swayed a good deal by the 'envy factor'. If you have (to take a simple example) one executive who is earning $100,000 and 1000 workers who are on $30,000, if you cut the executive's salary by 50% you save $50,000 but if you cut the worker's pay by 10% you save $3 million. The point is that an executive's skills are transferable and he can move to an industry which will pay the going rate. That's a very simplistic example, of course, but, in the end people are paid what they are worth to the company, not primarily for their time or to give them a living. There simply isn't an economic equation that says that any particular person has a right to be paid a 'living wage' by anyone. Governments may try to protect their people by passing laws to set a 'minimum wage' and by creating benefits for those who are unemployed but, in economics, there is really no 'inalienable right' or 'natural law' that says that everyone 'deserves' a living.

I agree very much that it is the circulation of money (rather than the existence of it) that is what the economy is about. This is why we have built-in obsolescence in almost everything we spend our money on. It is actually perfectly possible to have light bulbs, washing machines and cars which could run (with maintenance) for 50 years but the economy, as we have come to know it, simply would not survive!

The problem seems to be that it's the people's Unions that are seeking to price them out of jobs. Unions were originally set up to act collectively against exploitation by employers. Historically that was very necessary (and still is of course, in spite of much legislation that protects workers) but I feel that, in this case, they have lost the plot.

I quite agree with you. If they had not been trying to prevent non petrol engines being built and had listened to environmentalists about what cars they should be building they might not be going broke now. It is always the ordinary workers that suffer and cutting their wages will not save the industry. As a worker said on the TV last night if they all worked for free the company would still be broke by January.

Apparently (according to the link Whiteheather quotes above), your $50 an hour is VERY conservative! The automotive industry world wide is, I'm afraid, in for a long and, in many places, useless struggle to survive. Actually, it has been living on borrowed time for many years - much longer than the current recession - and has probably been paying its workers more than was economically viable in the long term. Whether that has been due to union pressure or competition within an industry which has been riding a false wave, I'm not sure. Part of the problem is that most people don't find CEOs and top executives very believable when it's highly publicised that they are 'paying themselves' what look like huge salaries and bonuses while the 'workers' seem to get nothing. The Unions, of course, try to promote this apparent discrepancy and are too committed to preserving pay levels rather than jobs. In my example above (to response 1) it is very easy to see that a huge (and crippling) pay cut at management level is less viable than a much smaller pay cut across the board. This is not, of course, to say that a simple pay cut of whatever amount will necessarily save everybody's job.

My numbers are from 2006 so probably are more now Ford: $70.51 per hour GM: $73.26 per hour Chrysler: $75.86 per hour

Cutting back hours is just another way of saying that the pay of the hourly paid workers is cut. It usually doesn't affect salaried workers as much, if at all - or, at least, it affects them in a different way (often by redundancy while the reduced staff are employed at the same salary): that is just one of the basic inequalities of the current structure of most corporations. Here in the UK, at least one company has sent its workers home on one third pay. "We have no work, but we shall need you back when business gets better.", basically. Yes, it's natural to hit out at the 'fat cats' who appear to be earning gross amounts (from the common worker's point of view). We are human and envy and greed are just as present in our minds as they are in the minds of most (including the 'fat cats'). They tend to distort our view of basic economy in the name of 'fairness', which we have come to believe in as a 'right' which is hardly ever achieved! I have shown elsewhere in this discussion that it is actually more economic to cut the workers' pay packets by, say, 10% than it is to reduce the executives' salaries by 50%. Assuming that both things happened, if you were an executive, would you consider that 'fair', I wonder? No doubt you would say that you 'suffered' more. On the other hand, the workers would point out that the executives' salaries were still much higher than theirs and that, if they can survive on their reduced pay, then surely the 'fat cats' are still laughing! In fact, I hear that the bosses (or some of them, at least) did agree to forgo their salaries entirely for a time in order to make it seem 'fairer' and to help the industry. It seems, though, that the unions still were not prepared to negotiate pay cuts. Since you cannot be a Union member unless you are employed in the industry, it looks as though the unions want to drastically downsize the number of people they represent!

What has happened, riyasam, is that the Unions (who represent the 'common man') have rejected a proposition that everyone should accept a reduction in pay. Let us not forget that many of these 'common men' are earning more in a couple of hours than many people would be glad to earn in a day. Read the article posted in Response #2.

Ronaldinu, in the first place, we are not talking about people on the breadline here. Look at the figures quoted by Whiteheather39 in Response #2. These are hourly paid workers who are on an average rate of more than $70 an hour! I agree that (nearly) everybody designs their life-style around their pay packet. The sensible man first sees to the basic necessities of life - a roof, food, clothing - and pays what he can afford (or can sensibly afford in the future) to maintain the lifestyle he has become accustomed to. Your response is a very common and natural reaction but it shows a basic ignorance of economics. No, I am not saying that you are ignorant - you are not! I am saying that the opinion you express ignores some very basic principles. We are discussing here a major industry which has been paying its employees very much more than the general rate because it could afford to. Now we have a recession and this great industry finds itself much too high up and, consequently, has to take a bigger fall than most. As I have shown elsewhere, it makes sound economic sense in order to save the industry and to keep at least the majority of people's jobs that all employees should accept a pay cut. The UAW, apparently, refused point blank to negotiate any such deal and the Government could not, therefore, continue with their proposals for injecting $17.5m capital. In this country, one motor company has recently given all its workers a 'garden leave' on one third pay. I am sure that there will be more to follow and, no doubt, some of the solutions will be harsher than that. The hard fact is that, if an industry collapses and cannot afford to pay workers because there is no work, it can very easily implode and disappear completely. That is much tougher on all the employees who have bought into the social norm (which the country's economy has blatantly encouraged) of living on the 'safe' credit of mortgages, loans and pension schemes. Of course they have families to take care of! Inevitably, the price of food and other things will rise, not fall! Those who have jobs, albeit at a lower rate, will be the lucky ones. If a whole industry disappears simply because unions refuse to accept viable and realistic economic solutions, the ultimate expense for the country as a whole will be far, far more than the amount that the Government put on the table!

A simple sum should show that, logical and 'fair' as that might seem, it isn't actually a valid economic answer. Let us assume that everyone personally values the salary they are currently earning and the lifestyle it supports. An executive on $100k a year 'needs' that amount to support his lifestyle and, for many reasons, feels justified in being paid that much. A day labourer who maybe makes $10k a year feels exactly the same, of course. Someone on a large salary is not any greedier than one who is on the breadline and both would feel the same about, say, a sudden 10% cut. There is a personal economic difference, of course, because food, clothing and housing are not based on a proportion of a person's salary, but this is not what a person's pay is based on. What someone 'earns' is determined by the demand for certain skills, the availability of those skills in the job market and by the amount a particular industry can afford to pay. From the industry's point of view, let us say there is one CEO for every 1000 workers. Suppose that the (well-paid) workers take home an average of $50k a year and the CEO gets, say, ten times that because that is what it costs to hire a good CEO in that business. You can easily see that if the CEO takes a 50% cut in pay, the company saves $250k but if the workers agree to only a 10% pay cut, the company will save $5000k ... a huge difference! In fact, I read elsewhere that, in order to help save the industry, some of the top people offered to take (effectively) a 100% pay cut but the UAW still refused to negotiate any pay cut for the workers!

Thank you for putting it more succinctly than I have done! At least, by all accounts, this recession is probably not going to be nearly as dire as the Depression of the 1930s, though for some people it may feel like that. The World economy (along with the economy of individual countries) is currently on a very rocky road and the media, on the whole, are doing nothing to make it look any better than the worst! That, of course, is so that, when there is any slight improvement, they can get up on their hen-houses and crow about how much better it is already! Many sectors are going to have to make big adjustments in the way they work. Some are just not flexible enough to do so and many vegetables will fall off the ox cart. What will be very sad is, if, having weathered this storm, we continue with running things just the way they were before. The basic mechanisms and principles behind the economy of the developed world need to change radically not just so we can say "Look, we survived the last rough spot, we can do it again" but so that the whole world, including the emerging nations, will be better off.