There’s battle lines being drawn.
Nobody’s right if everybody’s wrong.
– Buffalo Springfield, from the song For What It’s Worth
Barack Obama says the recovery is underway, and all our economy needs is a little stimulus. Mitt Romney says what this country needs is a president with experience in creating jobs.
The truth is that neither camp is facing the truth.
If you want to know what’s really behind the absence of employment of the type that created and sustained generations of American workers, forget the politicians and listen to American Airlines. From a recent story from CNN/Money called American Airlines to lay out cuts to unions…
AMR Corp. said at the time of its Nov. 29 bankruptcy filing that it was forced to file because of the need to achieve a more competitive labor structure. Most other major U.S. airlines have already cut labor costs by their own trips through bankruptcy over the last 10 years.
Among the moves that American’s unions expect include having aircraft flown overseas to low-cost maintenance facilities for the extensive overhaul required for planes on a regular basis. Most U.S. airlines, including United Continental, Southwest Airlines and Delta Air Lines, already have costly maintenance performed at overseas facilities.
Today, American Airlines employs about 9,000 union mechanics who do the heavy maintenance on their planes. Most are in Tulsa, Okla., with the rest in Dallas. They’re highly skilled and efficient, but they earn about three times more than their counterparts in China and South and Central America.
So in order to compete with the other airlines that have already outsourced this work, American Airlines is saying it needs to follow suit. And since they promised not to do this in previously signed union contracts, they’ll simply get rid of those prior obligations by filing bankruptcy.
And those 9,000 maintenance jobs are the tip of the iceberg. According to the story above, American intends to reduce its labor force by more than 80,000. Lowering their labor cost is the primary reason for filing bankruptcy in the first place. Here’s a quote from the Nov. 29, 2011, CNN/Money article about the bankruptcy filing…
He (Thomas Horton, American Airlines Chairman and CEO) said that American is paying $800 million a year more in labor costs than it would be if it had labor contracts comparable to its competitors.
“Clearly it was our preference to do this in consensual fashion,” he said. “Unfortunately, we were not successful in that regard.” American will now gain significantly greater leverage in those talks given the bankruptcy court’s power to void contracts.
Bottom line? The American labor market is too complex to fault one company, industry, or trend. But there’s little doubt that at least some of what’s shrinking our middle class isn’t because taxes are too high, regulations are too intense, or because we’re lacking a president with experience creating jobs. It’s simply because countless companies are finding ways to do the work with fewer American employees – and paying less to those they retain.
Why are they doing it? Because they can
Imagine that you owned a business and could hire workers for one-third the pay. Would you? What if you could use the threat of hiring lower-paid workers as leverage to force your existing staff to accept lower pay. Would you? If you answered “no” to these questions, then answer this one…
What if your competitors used lower-paid staff and, by continuing to pay your employees more, you were unable to compete and went out of business. Would that make you feel better?
American Airlines and other companies like it aren’t the bad guys. They simply have the ability to get the job done for less – and they’re taking it like anyone else would.
One of the most valuable companies in the world is Apple. Most of their products are made in China by workers making a tiny fraction of what Americans make. In India, you can hire an MBA for your IT department for $6,000 a year. Walmart stocks its aisles with products made in countries with vastly lower labor rates than those here.
And Americans have been demonstrating for decades that in order to get the lowest prices on everything from clothes to iPhones, they’re willing to sacrifice their neighbors’ jobs.
What’s the solution?
If you ask Mitt Romney, the solution is more training and less government interference. Here’s what he says about jobs on his website…
Mitt Romney will rebuild the foundations of the American economy on the principles of free enterprise, hard work, and innovation. His plan seeks to reduce taxes, spending, regulation, and government programs. It seeks to increase trade, energy production, human capital, and labor flexibility.
If you ask President Obama, it’s about using government to train more Americans for jobs. Just today, the AP reported that part of the newly announced budget includes billions for job training…
President Barack Obama called on Congress Monday to create an $8 billion fund to train community college students for high-growth industries, giving a financial incentive to schools whose graduates are getting jobs.
So both sides are talking about job training, which no doubt is important: If you’re an American Airline mechanic, you’ll certainly appreciate learning some computer skills when your job goes to Central America. But are either of these approaches really dealing with – or even admitting – the underlying issue?
What do you think?
I’d be interested in getting your take on the jobs issue. Do you think I’m overstating the problem? Is it just a matter of time, stimulus, or additional job training that’s going to solve the problem? Let me hear from you below or on our Facebook page.
But while you’re watching the never-ending debate on your favorite website or cable channel, consider that the answer to our jobs problem isn’t showing up on a bumper sticker. And when you hear either side claim they’ve got the solution, remember these words from the same Buffalo Springfield song I quoted at the beginning of this story…
A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side
It’s time we stop, hey, what’s that sound
Everybody look what’s going down
And by the way, if you’re too young or otherwise unfamiliar with the song “For What It’s Worth,” you can watch Buffalo Springfield play it here. For those in my generation, it was emblematic of the protest movement surrounding the Vietnam War. It’s a great tune.
I've been giving financial advice for 40 years, and I'm a millionaire several times over. Here are the 10 best bits of financial advice I've both given and taken.