Evan Vucci/AP Photo
United Auto Workers walk the picket line during the autoworkers strike, September 26, 2023, in Van Buren Township, Michigan.
While bargaining between the Big Three auto companies and the United Auto Workers continues, and the strike continues to spread, the UAW has already won one significant victory. Both Ford and Stellantis have agreed to reinstate their annual cost-of-living adjustments (COLAs) to UAW members’ paychecks.
Under the landmark “Treaty of Detroit” between the union and the Big Three in 1950, the UAW first won a COLA for its members, and it soon became a standard feature of union contracts during the heyday of post–World War II American labor. In 2009, when the Big Three were reeling from the Wall Street–induced Great Recession, the UAW agreed to eliminate COLA provisions from its contracts, and winning reinstatement has been a major feature of the union’s current campaign.
Ironically, it was the UAW’s 1950 contract with General Motors that first established the right to a COLA. Today, GM is the only one of the Big Three that has yet to agree to its revival.
But is reinstating a COLA really sufficient to revive workers’ fortunes, even if it comes complete with the 30 percent-plus wage increase the UAW is proposing?
Late last month, the Financial Times published a deep dive into what the Big Three have done with their revenues since they were saved from bankruptcy by federal bailouts and UAW concessions (like abandoning the COLA) in 2009. The findings offer a particularly instructive guide to how economic inequality has skyrocketed in recent years. They also illustrate how Thomas Piketty’s famous formula describing capital in the 21st century—r is greater than g, meaning that the rate of return on investment is greater than the rate of growth of the economy—can be augmented by comparing the rate of growth of investment income over the rate of growth of wage income in a key industry.
Since the collapse of 2008, the FT reports, the Big Three have rewarded shareholders through dividends and buybacks to the tune of $85 billion.
That was money that could have gone to investment in electric cars, at levels that could well have currently made the Big Three competitive with Tesla at the very least. That was also money that could have enabled the companies to reinstate their COLAs, or just to raise wages in a way at least modestly comparable with their payouts to investors. Instead, as the FT documents, the UAW members employed at the Big Three have actually suffered declines in real wages since 2017, which has been a time of record profits for the companies.
The divergent directions of income from investment and income from work is the real indicator of how capital has surged at the expense of labor during the past half-century.
The companies’ top executives, whose compensation is tied to share value, have also cleaned up in recent years. As I noted last week, the ratio last year of CEO pay to median worker pay at Stellantis was 365-to-1, and at General Motors 362-to-1, according to the Securities and Exchange Commission. But that doesn’t really set the auto industry apart from the rest of corporate America. A new survey from the Economic Policy Institute pinpoints the ratio between the CEOs and median paid workers at all publicly traded U.S. companies last year at 344-to-1.
The divergent directions of income from investment and income from work is the real indicator of how capital has surged at the expense of labor during the past half-century. It is a feature of a fully financialized economy, where laws and rules change to permit new means of rewarding investors (as they did in 1982 to permit buybacks), where tax rates on the highest incomes are slashed so much that middle-income taxpayers often end up paying more than the rich, and where the higher investor payouts that Wall Street demands pressure companies to reduce worker compensation by all means possible (see: offshoring to China, Vietnam, India, etc.).
Against all that, is a mere COLA an adequate solution? Clearly, public policy has a major role to play, if some kind of balance between investment income and work income is to be struck. More progressive taxes, repeal of the buyback rule, and kindred policy shifts would surely help.
Let’s imagine, however, that more could be done (and, if the nation is ever to rebuild its middle class, must be done). In addition to linking workers’ wages to the cost of living, how about also linking them to investor rewards, like bumping them up whenever dividends are issued, or when buybacks are authorized? Currently, American corporations reward investors when their work generates profits, or even just generates revenue, while no such rewards go to those who do the work.
COLA, schmola. Why shouldn’t unions demand a link to investor payouts?
As a rhetorical salvo, they surely should. As a matter of practicality, alas, it wouldn’t work. If a union used its bargaining power and threat of striking at a single company to institute such a process, investors would race for the exits and the company’s share value would all but vanish. This could never work at a single company or in a single industry or single sector or single state.
But as a matter of federal law? The very idea of a federal minimum wage was unthinkable until the New Deal Democrats enacted it. The idea of a federal law that establishes some direct linkage between investor income and worker income is also unthinkable, but if we are to diminish the ever-widening disparity between the two, some version of that may be necessary.
Yes, the inherently devilish details would be mind-boggling. At minimum, we should work out how much various versions of such a linkage would lessen this investment-labor gap, and use disparity reductions as the standard that other more established kind of reforms, be they to the tax code or wage legislation, would have to match. Higher taxes on investment income could fund, for instance, a nationwide worker bonus fund, or more conventionally finance such programs as free public child care.
COLAs are essential, but also essentially inadequate to restrain, much less reverse, our march to oligopoly. Until we link income from work to income from investment, or just routinely redistribute income from investment to income from work, greater oligopoly impends.
