Unions pose difficult political test for Obama

How firmly will he stand with his labor allies during the painful restructuring of the auto industry?

Rebecca Cook/Reuters
Cuts ahead: Big Three auto workers, like these Chrysler employees, face big contract concessions.

The worst job market in a generation sets up a difficult test for Barack Obama: how closely to align himself with organized labor at a time when reviving economic growth is the top national priority.

It’s a question that the incoming president will have to address directly in his first few weeks in office, as debate continues over the details of a bailout for the automotive industry.

A new plan for emergency loans of up to $17.4 billion for the industry, announced by President Bush Friday, is contingent on concessions by various stakeholders, including unionized auto workers. These workers supported Mr. Obama in the presidential election, and they hope he will stand with them as a March 31 deadline for finalizing those concessions approaches.

But the issue goes beyond the auto industry and beyond the unionized workforce. One of Obama’s key tenets is that America is in economic trouble because ordinary workers have fallen behind and been neglected in public policy, relative to business executives and investors.

The test for Obama is how to adjust that balance while also encouraging those very businesses and investors to create or preserve much-needed jobs. The auto industry will be just the first test of how this will go.

“This may turn out to be a sort of Nixon goes to China moment, where Obama has to stand up to organized labor and tell them they can’t get what they want,” says Donald Grimes, an economist at the University of Michigan who follows the auto industry.

During the election campaign, Obama made other labor-oriented pledges, including support for a hike in the minimum wage and for a new law that would make it easier for unions to expand into new workplaces.

If Obama pushes to enact those measures early in his term, Mr. Grimes says, “it may make the [economic] recovery harder to achieve.”

Right now, job creation and preservation hold the key to recovery. With consumers retrenching in the face of tight credit conditions, the economy lost half a million jobs in November, and the layoffs haven’t abated this month.

In the auto industry alone, hundreds of thousands of jobs are now at stake with General Motors nearly out of cash to fund its operations – and Chrysler in a similar bind.

Mr. Bush announced the new aid for the industry on Friday – with loans that will come from the Treasury’s existing $700 billion economic rescue fund – after Congress failed to agree on legislation to achieve that result.

Under the terms of the loans, GM and Chrysler would have to agree on measures by March 31 to restore profitability – moves expected to include concessions for stockholders, bondholders, managers, and workers.

The move helps ensure that the companies won’t file for bankruptcy before Obama takes office, while leaving flexibility for the incoming president to choose his role in resolving the industry’s predicament.

Obama staked out careful ground in his initial response on Friday.

“I just want to make sure that when we see a final restructuring package, that it’s not just workers ... who are taking all the hits.”

He said his economic team would consult directly with the United Auto Workers, as well as with company management. He defined job preservation as the goal, and he warned: “There are going to be some painful steps that have to be taken.”

The Bush rescue agreement set a target, but not a requirement, that the union make concessions, resulting in pay rates competitive with nonunion auto plants in the US.

“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed,” UAW President Ron Gettelfinger said Friday.

Labor costs are just one challenge facing the Detroit carmakers, but they are a big one. Many analysts say the union may be hoping for too much from Obama at a time when many Americans oppose the rising scale of government bailouts.

Obama, for now, appears to be putting jobs as his top priority, while weighing other labor-related goals:

•Over the weekend, according to news reports, he boosted his two-year target for job creation to 3 million, up from a previously announced goal of 2.5 million.

•On Friday, he named Rep. Hilda Solis (D) of California to be Labor secretary. He said she would help reverse course at an agency that “has not lived up to its role either as an advocate for hardworking families or as an arbiter of fairness in relations between labor and management.”

•His administration is working on healthcare reforms – an issue of high concern to American households and workers, and one where many employers, although wary of new mandates on themselves, are dissatisfied with the status quo.

Many economists point to some European economies as examples of how inflexible labor policies can stifle job creation. But some economists also cite a weakening of labor unions as one prominent reason why US wages haven’t been rising as fast, relative to worker productivity, as they used to.

“What the unions want is just the recognition that they’re an important American institution,” says David Kusnet, a researcher at the liberal Economic Policy Institute in Washington.

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