Today's News & Commentary — November 13, 2015
The Wall Street Journal reports that General Motors, which has recently agreed to a new contract with the UAW Union (UAW) that will drive up its labor costs, plans to begin importing and selling Chinese-made cars in the U.S. In becoming the first major auto maker to do so, GM plans to start small, importing between just 30,000 and 40,000 midsize sport-utility vehicles (the “Buick Envision” model) next year. However, GM has signalled that this could be part of a longer-term strategy that would eventually entail higher production. Some might attribute GM executives’ desire to seek lower-cost manufacturing options to the much richer plans procured by the UAW Union this year, but GM officials maintain that the plan is not a cost-saving measure. Rather, the Buick Envision will “fill a gap in the brand’s products line.” The sale of Chinese-made vehicles in the U.S. has the potential to rile up members of the UAW, especially since this announcement comes on the heels of GM’s announcement that it will be moving production of some of its smaller passenger cars to factories in Mexico over the course of this 4-year labor contract. Although the union and GM purportedly came to an understanding regarding this plan to import from China during recent labor talks, it will be interesting to see the changes that GM makes to its investment and production plans, the effect this has on its union relations, and whether other domestic auto companies will follow suit.
Conversely, Toyota has become the latest example of a building boom inside the U.S. by foreign automakers. Toyota has recently begun manufacturing Lexus vehicles in the U.S. for the first time, adding 50,000 Lexus ES 350 models each year to the production operations of its existing factory in Georgetown, Ky. The move will transform the factory into the largest Toyota factory in the world, according to the New York Times. In discussing the move, Toyota emphasized the importance of the American market to Toyota and its confidence in the capabilities and operations of American workers. Toyota has prepared for the new Lexus production line by funneling billions in new investments into its existing facilities, encompassing a huge expansion in machinery, the addition of 750 new jobs, and an investment in 1.5 million hours of worker training.
Following the American Postal Workers Union’s recent endorsement of Bernie Sanders for President, Politico wonders whether the 2-million member Service Employees International Union (SEIU) will release its long-expected endorsement of Hillary Clinton this upcoming Tuesday, Nov. 17. While a final vote has yet to take place in the executive board, it appears there will be the opportunity to hold one at its Tuesday meeting. An SEIU endorsement would be another significant yet unsurprising labor win for Clinton, who, according to Politico, has “already collected endorsements from unions representing more than half the nation’s union workers.”
In the midst of recent protests leading the Fight for $15, the New York Times lays out the recently-announced positions of four of the eight Republic contenders for President with respect to raising the minimum wage. In the Republican debate on Tuesday, Donald Trump set the tone with his assertion that American businesses already can’t compete because wages are too high. Ben Carson, who had previously favored raising the minimum wage, has now changed course and does not support a raise because he believes that high wages cause high unemployment among black teenagers and that, more generally, “every time we raise the minimum wage, the number of jobless people increases.” Marco Rubio sang his familiar song to the tune of “if you raise the minimum wage, you’re going to make people more expensive than a machine,” leading to the acceleration of the automation that has already replaced some jobs. Finally, when asked about his relevant economic policies, John Kasich noted that the minimum wage in Ohio, now set at $8.10/hour, has seen a “moderate increase.”
Finally, the New York Times makes the case that recent employment statistics signal a strong labor market resilience, solid fundamentals in the economy, and rates that are close to reaching full employment. Despite rising above their average for October, initial claims for state unemployment benefits were again unchanged last week (276,000), sitting at a level not far from levels last seen in the 1970’s. That claims have remained below 300,000 for 36 consecutive weeks, combined with recent surges in job growth and a low jobless rate that many officials view as indicative of full employment (it fell to 5% last month), has bolstered expectations that the Federal Reserve may raise interest rates next month. Since December 2008, the Fed has kept its short-term interest rate near zero. All eyes will be on the Federal Reserve to see if they are convinced that these recent indications of a strong labor market are sufficient to enact an initial interest rate hike at their policy meeting on December 15-16.