Biden’s misplaced bet on labor unions

Joe Biden calls himself the “most pro-union president in American history.” His bet is that what is good for labor unions is good for the nation, and thereby, for his political prospects.

Yet we may be approaching a juncture at which unions try to hold a major chunk of the US economy hostage, while demanding pay and perks well beyond what much of working-class America gets. Biden could find that he’s bet on a horse many Americans don’t want to win.

The United Auto Workers (UAW) could go on strike against the three domestic automakers as early as Sept. 14, when their current contract expires. On the eve of the strike, union boss Shawn Fain is trashing General Motors (GM), Ford (F), and Stellantis (STLA) execs for insulting offers, even though UAW members already outearn most blue collar workers, and the gap would widen based on the automaker offers the UAW is laughing off.

Tough talk amid contract negotiations is normal, and the two sides could settle, averting a strike. If they don’t, the result could be an unwelcome jolt to the economy just as Biden is campaigning for reelection and trying to convince Americans his economic plan is restoring prosperity. A strike could cost billions of dollars in lost output, especially in the swing state of Michigan. If it lasts long enough, it could crimp inventory on dealer lots and send sky-high auto prices even higher.

Americans have a shifting view of unions, which complicates Biden’s embrace of them. Public approval of unions peaked at 75% in the 1950s, when around 25% of all workers belonged to a union. It fell to a low of 48% in 2009, when many Americans associated unions with the bankruptcies and federal bailouts of GM and Chrysler. Unions didn’t cause those bankruptcies, but union perks such as a “jobs bank” that paid laid-off autoworkers to do nothing highlighted inefficient and sometimes abusive union practices. Several corruption scandals have further dinged unions’ popularity.

Union membership is now down to just 10.1% of the total workforce, yet unions’ approval ratings have jumped back to 67%. That probably reflects burgeoning populism in both political parties, with Democrats such as Biden, Bernie Sanders, and Elizabeth Warren joining Republicans such as Donald Trump in telling voters that the system is rigged against them and that the spoils of capitalism go largely to the rich and well connected. Support for unions is highest among Democrats, but it has risen during the last decade among all groups, including Independents.

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That could change, however, if 146,000 auto workers walk off the job and unions suddenly get deeper scrutiny. Trade expert Clyde Prestowitz, who has advised several presidents, points out that a typical union worker at one of the domestic automakers earns about $37 per hour, or $78,000 per year. The average for all manufacturing workers is about $27 per hour, and that includes around 160,000 non-union workers at US plants run by Tesla (TSLA), Toyota, Honda, Nissan, Subaru, BMW, Mercedes, Volkswagen, Volvo, Hyundai and Kia, many in the South.

The UAW wants a 46% increase in pay, which would push average annual earnings over $100,000. It also wants a four-day workweek. Who doesn’t? But the risk in making such demands is that ordinary people who start paying attention amid a crippling strike may begin to think the UAW’s demands are unreasonable, maybe even ridiculous.

Biden has dispatched Democratic factotum Gene Sperling to aid in negotiations, but the Biden/Sperling agenda isn’t the same as the union’s. Biden wants to avert a strike without antagonizing the UAW — which is conspicuous, so far, in its lack of a Biden endorsement in the 2024 presidential contest. The UAW, judging by its rhetoric, seems to feel the time is right for a sweetheart deal, given the implied backing of the most pro-union president ever, not to mention chronic worker shortages. The automakers, for their part, may decide they can’t afford to take on even higher labor costs and deepen their disadvantage to the non-union shops.

Maybe it’ll all work out, as it did with UPS and its unionized workers over the summer. Even if it does, however, Biden seems to have bought himself more downside than upside. He’s so devoted to the union cause that hundreds of billions of dollars in subsidies for green energy, semiconductors, and infrastructure he signed into law during the last three years are contingent on the work being done domestically, by union workers. Yet this outsized focus on the manufacturing sector shortchanges the rest of the economy.

Manufacturing today accounts for just 8.3% of employment, down from 30% in 1950. Factory output is much higher than it was in the supposed heyday of manufacturing, in the ‘50s, ‘60s, and ‘70s, because of automation and other efficiencies. But no economist thinks there will ever be a big boom in the portion of workers employed at factories.

The service economy accounts for 86% of all jobs today, up from 62% in 1950. Almost all the jobs are in services. Yet Biden never talks about beefing up the service economy. Many service workers endure stagnant wages, declining living standards, and all the other problems that are making Americans gloomy under Biden. Probably way more, in fact, than in manufacturing. Yet Biden isn’t addressing any of those folks the way he claims solidarity with blue-collar workers.

Why the disconnect?

There’s something about the robust ethic of blue-collar work that politicians love to romanticize, plus, it’s easy to visualize people laying pipe or welding panels onto a chassis along an assembly line. Service work is amorphous, by contrast, given that it includes everybody from janitors to retail clerks to plumbers to nurses to lawyers and accountants and programmers and even CEOs. Some services workers are unionized, but most aren’t. As far as they know, Biden’s paying them no mind whatsoever.

The power of the US economy, however, is largely in the service sector, because that’s where much of the innovation and wealth creation takes place. That’s not a knock on manufacturing, which also relies on innovation and entrepreneurship to succeed. It’s just a statement of the obvious, given that the service sector generates $21 trillion in GDP compared with just $3 trillion for manufacturing.

Democrats are puzzled by the apparent contradiction that the Biden economy looks good, statistically, yet Biden’s approval rating is so dismal it could tank his reelection. Maybe voters should give Biden more credit for a solid economy. But Biden isn’t talking to most voters when he goes around the country bragging about new factories and rebuilt bridges. In fact, he’s talking to a small minority of them, and an automaker strike by a portion of those could leave Biden with some awkward explaining to do to everybody else.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

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