Buffalo News (New York), May 25, 2008, Sunday
Copyright 2008 The Buffalo News
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Buffalo News (New York)
May 25, 2008, Sunday
FINAL EDITION
SECTION: BUSINESS; Pg. C1
BYLINE: By Matt Glynn - NEWS BUSINESS REPORTER
BODY:
Buffalo Niagara's auto manufacturing sector has long been a wellspring of high-paying jobs.
But the economics are changing at local plants run by Ford Motor Co., General Motors Corp., Delphi Corp. and American Axle & Manufacturing, based on the most recent labor contracts approved by autoworkers those companies.
Most of the deals call for paying new hires for certain jobs much less than existing workers, while protecting current workers' wages and benefits. Some new hires at Ford and GM, for instance, will make about $14 an hour, compared to $28 per hour for existing workers in those positions.
The labor deals at suppliers Delphi Corp. and American Axle imposed wage cuts on current workers, and those employers are paying new hires even less.
The impact of the labor cost restructuring will unfold as more of the higher-paid workers take buyouts or retire, and new workers come aboard at lower wages to fill some vacancies. At American Axle, workers facing wage reductions will receive buydowns paid over three years to help them make the transition.
The new hires who earn less, as well as some existing workers who are subject to pay cuts, will have less money to spend on everything from houses to cars to restaurants. It is a message that Kevin Donovan said he tries to spread when talking about the labor contracts' broader impact on the community.
"People don't realize how much money from these wages go into the economy that helps everybody else," said Donovan, assistant director of United Auto Workers Region 9.
Auto manufacturers and their suppliers poured about $774 million in wages into the region's economy in 2006, according to the state Department of Labor. The combined total from 2000 through 2006 was $6.3 billion.
American Axle exemplifies the restructuring under way. The company will shut its Town of Tonawanda forge, which had 530 union and nonunion employees before the strike, as well as a gear and axle plant in Buffalo, which had been idled since late last year.
Beyond the jobs that will be lost through the closings, American Axle will cut workers' wages by $6 to $8 per hour at its Cheektowaga plant, which will stay open and expand. The UAW represents 116 workers there.
The American Axle workers will receive maximum "buydowns" of $105,000, paid over three years, to ease their transition to the lower wage scale. The amounts they receive will vary depending on how much they will lose over the four-year contract.
American Axle said it expects to hire new workers after current workers accept buyout or retirement packages and leave. New hires for some jobs will start at $14.35 or $16.50 per hour, while skilled trades workers will start at $26 per hour.
The local economy will feel the ripple effect of the revamped wage scales at American Axle, Ford, GM and Delphi, observers and economists say. Those four companies' area plants together employ more than 6,000 union and nonunion people. (The total includes American Axle's prestrike job figures.)
William Ganley, professor of economics and finance at Buffalo State College, said the impact of a deal like the one at American Axle is twofold: The company will keep at least some of its local jobs, maintaining an important regional link to manufacturing, he said. But at lower pay, the jobs won't pack the financial punch they once did.
"We have a diminished economic impact from these lower-wage jobs," he said.
>Pay perspectives differ
Ganley said a worker's perspective on how good those new wages are depends on where they are in their careers. For workers in their early 20s, the starting pay looks pretty good, he said. "Your expectations are not based on $28 an hour," he said.
But for older workers, he said, absorbing a drastic pay cut from a level like $28 an hour is a tough adjustment, if they have based their car and mortgage payments on that income.
Richard Deitz, regional economist with the Federal Reserve Bank of New York's Buffalo branch, said the pressures the region's automotive sector is feeling in jobs and wages stem from a combination of overseas competition and greater efficiency within the industry.
"This is just part of a much broader trend that been happening nationwide for some time," Deitz said. Buffalo Niagara seems to be affected disproportionately because of its large base of manufacturing jobs, he added.
Employers such as American Axle say they need to reduce wages to be competitive with rivals who are paying their workers less. And automakers such as Ford and GM are trying to lower their labor costs in the face of reduced market share and slumping U.S. sales.
Economists talk about the "multiplier effect," how spending by an employer and its employees stimulates the local economy. With manufacturing, the effect is typically high, both through a company's business transactions with local vendors and the paychecks that employees spread around the local economy.
That impact can be felt personally. Donovan recalled that when labor talks were under way at Delphi Corp., with its Lockport plant a focus of concern, a worker in a restaurant in that town told him: "I hope you take care of this thing and keep this plant alive, or I'm going to lose my job."
Delphi ultimately decided to keep the Lockport plant open, one of the few in the United States it will retain. That preserved a key large-scale employer, but the latest contract included wage cuts.
>Impact hard to quantify
Sizing up the economic impact of the labor cost changes at the auto manufacturers and the suppliers on Buffalo Niagara is hard to pinpoint. GM and Ford, for instance, are still completing their buyout and retirement offer programs.
New hiring at the lower rates will depend on how many older workers exit, as well as how many new workers the companies need in light of lower production volumes and the drive for greater efficiency.
George Palumbo, a Canisius College economist, notes that even if a worker decides to take a buyout package worth, say, $140,000, it is not immediately clear how that will affect things locally. That amount is pretax, and it is not known whether the worker will stay in the area or move away, he said.
Art Wheaton, director of Buffalo labor studies at Cornell University's School of Industrial and Labor Relations, said the economic effect of the pay cuts and job losses will also show up in areas like workers' contributions to charitable organizations like the United Way and Catholic Charities.
"These are the folks making these decent wages that are very much contributors to the local economy," he said.
Ganley said deals like the one at American Axle could have a spinoff effect in still another way: putting pressure on unions that negotiate contracts at companies with smaller numbers of workers in the future.
Making up for the impact that manufacturing jobs have on the regional economy in other fields can be a challenge, Palumbo said.
Federal statistics showed that from 2001 to 2006, finance and insurance jobs in the region increased 15 percent, while manufacturing jobs fell 19 percent, he noted. But the average earnings per worker in the finance category was $53,461, compared to $82,454 in manufacturing. At those earnings, it would take about 1.5 finance jobs to match one manufacturing job.
Ganley said some other job sectors are showing growth potential, such as health and medical research, as well as a 500-job silicon manufacturing plant planned for Niagara Falls. "There are some plus signs," he said.
e-mail: mglynn@buffnews.com
LOAD-DATE: May 27, 2008
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