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Who Will Be Helped in Federal Aid to the Automakers?

October 31st, 2008 . by economistmom

I’m the Ph.D. economist, but I learned something about economic policy this week from my “laid off” friend from Chrysler.  He’s not really “laid off”–not yet, at least.  What he is right now is an employee being “bought out.”  The distinction, in theory and on paper, is supposed to be this:  a “laid off” worker is one who has been involuntarily fired from his job; a “bought out” worker is one who is voluntarily quitting his job.  In practice, particularly in the case of the GM-Chrysler merger, there’s very little difference: the bottom line is that my friend will almost surely lose his Chrysler job within a couple of months, either way.  (This story on the Wall Street Journal’s economics blog says that “30,000 to 40,000 of Chrysler’s 67,000 employees would lose their jobs” if the GM-Chrysler merger goes through.)  And his losing his job will be far from “voluntary.”

Seeing so little practical difference between losing one’s job by being bought out versus laid off, I did not realize until yesterday that if my friend chooses to accept the buyout Chrysler has offered him, he would not be eligible for unemployment benefits.  That’s supposed to be OK, because he would be walking away with $50,000 (gross of tax, by the way), a $25,000 car voucher, and six months of health coverage.  But let’s face it:  that may be better than being pushed out with nothing, but it really amounts to hardly anything relative to what he’s “walking away” from.  Doing the math it’s easy to figure out he’ll be far from “held harmless.”  Like the vast majority of his colleagues at the truck plant, my friend has worked in the auto industry for most of his career and lived in the Detroit area for most (all) of his life.  He’s not just losing his job at Chrysler; he’s being displaced from his industry and his entire line of work.  For someone like him, being “bought out” doesn’t feel like a golden opportunity to take that better job offer that’s just waiting for him; it feels like being handed a tiny suitcase (the buyout package) wearing just the clothes on his back and being booted out the factory door.  That suitcase seems pathetically small when one has a long, uncertain path to travel.

(Here’s a couple years old AP story on the tough decisions autoworkers face when being offered a buyout package.  The only difference now: the buyout packages are less generous, and the job prospects for employees who choose to take the buyouts fewer.)

And here I sit inside the Beltway, working on federal fiscal policy issues, and suddenly my world collides with my friend’s as federal policymakers contemplate the terms of a possible $10 billion loan to GM and Chrysler for their possible merger–a loan and a merger which to me no longer seem just “possible” but more and more inevitable.  (We learned this morning that discussions about the federal loan are now on hold until after the election.)  And I keep hearing that if the federal government does decide to assist in the GM-Chrysler merger, they would want it to be under the condition that the auto companies “spare as many jobs as possible.”  But I don’t know if it’s possible, or desirable, for federal aid to reduce the number of jobs lost, if the goal is to “save” the Detroit auto industry.  The auto industry needs to pare down, consolidate, get more efficient in how they produce and what they’re producing, in order to ultimately survive.  They shouldn’t be encouraged to artificially keep up the number of workers who would just be producing more and more vehicles that aren’t being bought.

I’ve said before that I see a lot of promise in some of the ideas Senator Obama has to help Detroit “transform” into a vibrant, cutting-edge, center of manufacturing for energy-efficient vehicles and technologies.  I hope they will be pursued by the next Administration and Congress.  But the transformation will take time and involve a painful purging of sorts on the way there.  And that purging involves a massive loss of jobs from the Detroit area, and perhaps a substantial (at least temporary) loss of population to the extent that the displaced workers are fortunate enough to be able to move where jobs are more plentiful.

So if the federal government does decide to provide aid to the automakers, the first installment likely to assist the GM-Chrysler merger, I think all of us (since we’re paying for it) ought to be asking:  who exactly will be helped by this intervention?  Are we trying to help the owners, investors, and top executives of the auto industry, or are we trying to help the much broader class of people who work for the industry?  And if there’s a desire to help the workers, how best to do that?  Working out the “terms” of the federal agreement to minimize job losses is probably fruitless–those jobs will be gone no matter what.  Shouldn’t the federal government instead be doing more to help the displaced autoworkers themselves, who when you get right down to it are losing their jobs and really their entire livelihood involuntarily?

I’m no expert on the unemployment compensation system, but it seems one place to start is to not be so cheap about whether “bought out” Chrysler autoworkers, the real victims of the federally-assisted GM-Chrysler merger, should be entitled to unemployment benefits.  The federal government is supposed to be getting involved in this in the name of “economic stimulus” or “emergency” spending.  That “fiscal stimulus” might lead to further job losses is certainly sad and ironic, yes.  So if federal intervention can’t really save the jobs, can we at least make sure we adequately help those who are losing them?

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