Exports and Unions

The United Steel Workers union rejected a three year contract with Boeing and on Saturday, September 20th shut down lucrative assembly plants. Boeing reported a $4.1 billion profit last year and the people who worked to create that profit want a piece of it.

Opposition of union authority cite the drag that higher wages, pensions, and health care benefits force upon corporate competitiveness. Peter Morici, an international business professor at Robert H. Smith School of Business at the University of Maryland, says "This is a good example of why manufacturing is leaving the country". But is this true?

Boeing makes 30 percent of their plane's parts but buys the remaining 70 percent from outside suppliers around the globe, from Japan to the U.S. According to the company it was closer to 50-50 earlier this decade.

Between March 2001 and December 2007, average import airfreight prices increased just 1.7 percent; less than the cost of inflation. In certain years the cost of airfreight imports even decreased 5.1 percent. This made it extremely cheap for Boeing to import outsourced parts for their planes. Never minding the breach of quality impacts outsourcing allows, if union workers took no raises over the six year span, Boeing could still have outsourced work since supply chain costs were rock bottom.

In that time, 20,000 aircraft workers could have been added to the growing list of America's working poor. They would bog down the emergency health care system, apply for assistance, and stop spending, all while the private company recorded billions in profits. Economists should be careful when assigning "why" to causations of outsourcing. Implying workers should give up necessary benefits for the idea of saving a job is not so simple.

Today, the Bureau of Labor Statistics reported import air freight prices rose 21.5 percent over the past 12 months driven by petroleum prices. Boeing is now going to have to pay more for the parts imported from Japan, or pay workers here to make them. Note to the union: the ball is in your court.

September 27-28, 2008 (The Wall Street Journal) - Many of the defense industry's most important programs will start the new fiscal year next week with higher budgets, thanks to a quickly hashed-out bundle of bills expected to be sent to President George W. Bush for approval just before lawmakers return home to campaign ... Future Combat Systems, the Army's long term program to overhaul its fighting forces, received $26 million above the administration's $3.6 billion request, giving lead contractor Boeing Co. a boost.