Browsing the blog archives for February, 2016.

Why Carrier is Shipping 1400 Jobs to Mexico

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It was recently reported that Carrier plans to shift 1400 jobs from its plant in Indianapolis to Mexico in an effort to cut costs. Average wages in Indianapolis exceed $20 per hour, but would drop to around $3 south of the border. While union leaders are understandably upset about the move, it’s really about economics.

http://www.reuters.com/article/us-carriercorp-layoffs-idUSKCN0VP2R6

But the story doesn’t end here. According to an article in yesterday’s The Internet Post, Carrier received $5.1 million in “clean energy tax credits” as part of the stimulus package in 2013. When receiving the funds, Carrier officials said they planned to use the money to “expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line.” Apparently Carrier officials didn’t mention their Mexico plans when getting the check.

http://theinternetpost.net/2016/02/17/carrier-received-5-1-million-in-obama-stimulus-cash-before-move-to-mexico/

Some are upset simply because Carrier is considering moving jobs from Indianapolis to Mexico. Worker anger was already present before the story broke about the $5.1 million stimulus payment. I understand this anger, but companies have a right to move production to minimize costs. The wage gap usually has to be substantial to justify a move outside of the US, but it’s the company’s right to make the decision. The idea that Carrier should “save US jobs” and not move is shortsighted because it assumes that the company can remain profitable while paying higher wages. Whether or not a particular company should relocate production abroad is often complicated and depends on factors unique to the company and its industry.

However, my view changed completely when I learned of the stimulus payment. While details are still forthcoming, this smells like more cronyism and unintended consequences to me. A government stimulus program is supposed to boost production and hiring in the US. As with most government programs designed to spur business activity, the bulk of the money either has little if any appreciable effect on long-term growth or ends up in the hands of cronies. As President Obama put it when confronted with the fact that the $787 billion 2009 stimulus package (ie, the American Recovery and Reinvestment Act) wasn’t working as promised, “Shovel-ready wasn’t as shovel ready as we expected.” He should not have been surprised.

This is a story worth watching and Carrier has some explaining to do. In the interim, it should remind all of us why government meddling in business affairs on either side of the equation rarely makes any sense.

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More on Wal-Mart

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Since announcing the closure of 269 stores globally (see previous post), there have been two interesting developments in the Wal-Mart saga. The company also announced that all of its workers will get a raise this month. Meanwhile, some of the workers at the Winnsboro, SC Wal-Mart Supercenter are soliciting signatures on a petition in hopes that the corporate office will reconsider closing it later this year.

While some pundits and big labor tell the story of a corporate giant squeezing suppliers, competitors and labor, a closer look at Wal-Mart tells a different story. It is probably true that Wal-Mart executives factor in some of the negative press when making strategic decisions, but most of them are based on economic reality. Wal-Mart is struggling because of a flat economy, increased preference for online shopping, and the strength of smaller discounters like Family Dollar. Its experiment with small, concept stores hasn’t worked out, at least not yet. Meanwhile, labor costs are creeping up, forcing many stores to raise wages to retain top employees and avoid costly high turnover. Wal-Mart is refocusing its strategy to deal with the changing landscape.

These recent developments underscore two realities that are often overlooked. First, the best way—if not the only way—to increase wages over the long term is not to mandate a higher minimum, but instead to grow an economy that creates more opportunities for workers. In such an environment, companies have no choice but to increase pay.

Second, current wages at Wal-Mart and other retailers are generally in line with the market. This is by definition. Most Wal-Mart workers who are legitimately underpaid—that is, they could do better elsewhere—will find other opportunities. Those that stay need something from Wal-Mart that they cannot get elsewhere. For some, it might be better hours, attractive working conditions, or a convenient location. For others, it’s a job. Companies like Wal-Mart and McDonald’s offer excellent entry-level job opportunities. Workers who prove themselves can move up or move on. Demanding higher wages so workers can stay in their current jobs long term misses the point altogether.

It’s human nature to think you’re underpaid, but when you don’t leave, you probably aren’t. The Wal-Mart workers petitioning the company to retain its Winnsboro store demonstrate that these jobs are, for many, solid employment. It’s fair to have a debate about practices at Wal-Mart or anywhere else, but it should be an honest one.

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