Wage cuts needed in any future auto bailouts: Canada study

Authors say 2009 bailout successful, future subsidies must be competitive
|labour-reporter.com|Last Updated: 03/22/2012

(Reuters) — Future government bailouts of ailing industries such as the $14.4 billion rescue of auto giants GM Canada and Chrysler Canada in 2009 should be pegged to commitments from skilled workers to take wage cuts, a study published on March 21 says.

The study by the Institute for Research on Public Policy, a Montreal-based think tank, does not reject bailouts and said the cost to Canadian taxpayers of not stepping in to help the auto industry in 2009 would have been greater than the amount governments spent: as much as $20 billion in economic losses.

"While the one-time bailout of GM Canada and Chrysler Canada in 2009 was successful, ongoing subsidies to the auto sector must be reassessed, especially in times of fiscal restraint," says the study, authored by Leslie Shiell, a University of Ottawa assistant professor, and Robin Somerville, a director of the Centre for Spatial Economics.

"The authors thus recommend that governments require competitive wages as a condition for a subsidy for the auto sector as well as for all other industries."

That idea was strongly opposed by Canadian Auto Workers (CAW) economist Jim Stanford, who argues in a commentary included in the report that cutting wages would take away incentives for productivity and be self-defeating.

GM and Chrysler Canada received government bailouts in 2009 after being battered by the global financial crisis. As the bailout was being negotiated, Chrysler Corp. said in a letter to employees that its operations could not survive in Canada without significant concessions from workers.

In their analysis, Bailouts and Subsidies: The Economics of Assisting the Automotive Sector in Canada, Shiell and Somerville say workers' pay premiums could have funded about $6 billion of the bailouts at GM and Chrysler in 2009, significantly reducing the governments' net exposure.

"We argue that many Canadian automotive workers (assembly workers, especially) enjoy a significant premium in pay above the competitive level for similar skills and experience."

The authors concede from the outset report that the federal and Ontario government bailout of GM Canada and Chrysler Canada was a smart, one-time move.

They say some 100,000 jobs would have been lost if the companies had shut Canadian operations in early 2009, about 75 per cent of those in Ontario, Canada's most populous province.

The report says that global economic uncertainty will continue to put pressure on governments to intervene in the economy to protect jobs and living standards.

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