Future auto bailouts must include wage cuts: Canada study

Wed Mar 21, 2012 11:32am EDT
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TORONTO (Reuters) - Future government bailouts of ailing industries such as the C$14.4 billion ($14.50 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 Wednesday 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 C$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 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 C$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.   Continued...