A Story about Unintended Consequences
The Wall Street Journal has this great (but tragic) story about how GM was hoodwinked back in 1984 into paying workers to do nothing (subscription required).
Detroit's Symbol of Dysfunction:
Paying Employees Not to Work Cost Tops $1.4 Billion a Year As Layoffs Fill 'Jobs Bank';
A Dismal Facility in Flint
Mr. Mellon Takes a Long Nap
By JEFFREY MCCRACKEN
March 1, 2006
FLINT, Mich. -- In his 34 years working for General Motors Corp., one of Jerry Mellon's toughest assignments came this January. He spent a week in what workers call the "rubber room."
The room is a windowless old storage shed for engine parts. It is filled with long tables, Mr. Mellon says, and has space for about 400 employees. They must arrive at 6 a.m. each day and stay until 2:30 p.m., with 45 minutes off for lunch. A supervisor roams the aisles, signing people out when they want to use the bathroom.
Their job: to do nothing.
This is the "Jobs Bank," a two-decade-old program under which nearly 15,000 auto workers continue to get paid after their companies stop needing them. To earn wages and benefits that often top $100,000 a year, the workers must perform some company-approved activity. Many do volunteer jobs or go back to school. The rest must clock time in the rubber room or something like it.
It is called the rubber room, Mr. Mellon says, because "a few days in there makes you go crazy."
The Jobs Bank at GM and other U.S. auto companies including Ford Motor Co. is likely to cost around $1.4 billion to $2 billion this year. The programs, which are up for renewal next year when union contracts expire, have become a symbol of why Detroit struggles even as Japanese auto makers with big U.S. operations prosper.
While GM often blames "legacy costs" such as retiree health care and pensions for its troubles, its Job Bank shows that the company has inflicted some wounds on itself. Documents show that GM itself helped originate the Jobs Bank idea in 1984 and agreed to expand it in 1990, seeing it as a stopgap until times got better and workers could go back to the factories.
About 7,500 GM workers are now in the Jobs Bank, more than double the figure a year ago. The bank added 2,100 workers last month when the company closed a truck-assembly plant in Oklahoma City. Each person costs GM around $100,000 to $130,000 in wages and benefits, according to internal union and company figures, meaning GM's total cost this year is likely to be around $750 million to $900 million.
One way employees in the Jobs Bank can fulfill their requirements is to attend eight- or 12-week classes offered by GM. In these classes, Mr. Mellon has studied crossword puzzles, watched Civil War movies and learned about "manmade marvels like the Brooklyn Bridge," he says. One class taught him how to play Trivial Pursuit.
Every day for a week Mr. Mellon got up at about 4:30 a.m. to make the 45-minute commute to the rubber room from his home in Otisville, Mich. At first he read the newspaper or magazines lying around, such as Reader's Digest. He talked some with acquaintances. After conversation dried up, he says he spent hours staring at the wall, hoping time would move faster.
Battling the new competition, GM developed a plan to spend $24 billion improving factory automation and copying Japan's efficient production methods. "Our workers were frightened -- scared, of course, of robots," says former UAW President Douglas Fraser, who retired from the union in 1982 and continues to teach labor history.
That was the backdrop when the UAW contract at GM came up for renewal in 1984. Papers in the Walter Reuther Library at Detroit's Wayne State University, an archive of labor materials named for the famed UAW leader, document what happened next. At about 4 p.m. on Aug. 8, 1984, GM put forward a one-paragraph memo proposing the creation of an "employee-development bank." The idea was to help train or find jobs for senior UAW employees who would "otherwise be permanently laid off" because of better technology or higher productivity.
Once the idea was on the table, GM agreed to expand it as the UAW ratcheted up pressure for a deal. A strike at a few locals was gradually spreading to engulf more than half the company. GM's first proposals, noted in documents from early September 1984, described a three-year program for employees with 10 years of experience costing no more than $500 million in total. The union sent back a demand that the program cover workers with six years on the job, run for six years and cost as much as $1 billion. GM agreed, and later said even one-year workers could join.
Reaching a Deal
The two sides reached a deal to end the strike on Sept. 21, 1984. The UAW told its workers their jobs were "more secure than ever in history." The UAW view, which continues to this day, was that the Jobs Bank would force GM and other auto makers to find work for union members because no company would keep paying people not to work.
Ford made a similar deal shortly afterward. A former Ford executive in labor relations, John Slosar, recalls: "We just focused on matching each other back then, not 'Hey, this will disadvantage us to the Asian auto makers.' "
Letters between GM Vice President Alfred S. Warren and the union show GM was confident it could afford the Jobs Bank and fight off its Japanese rivals because it had new versions of the Pontiac Grand Am and Buick Riviera in the works as well as plans to introduce the Saturn line of cars.
Most of these products fell short of their targets, however, while the Jobs Bank got bigger and more expensive. When the six-year pact expired in 1990, GM and other auto makers expanded it to include not only those workers affected by technology improvements but also those affected by slow sales. GM boosted funding to $1.7 billion for three years.
This is the worst possible outcome for both GM (and the other automakers) AND the workers that get sent to the "Rubber Room." In addition to being costly to GM, it's demeaning to the workers. In addition, they could be doing more productive tasks for society... instead, they're driving a meaningless commute to sit on their duffs all day.
This also is an example of why GM and Ford are in a death spiral. It's clear that even in the 1980s, as they were getting their clocks cleaned by foreign automakers, that management did not know the extent of the problem or its effects on the strategic direction of the company. To agree to create a job bank and justify it because of the new Grand Prix model that's going to be released is just idiocy. The expansion of the Job Bank in the 90s demonstrates again that years after they were established, management still did not have any strategic vision for the company. No doubt the UAW thought they had done a bang-up job in negotiating when they got the Job Bank established. But, little did they know that without GM, their union members would suffer - and suffer they will.
With businessmen like these, it's no wonder that our auto industry is in shambles. It's sad to see that many that head to the Job Bank every day don't take advantage of the pay and the time to actually better themselves and obtain skills that might be useful in today's economy. They are a drain on our economy...
Fortunately for me, I'm not an investor in any of these companies. If I were, I'd be calling for an immediate closure to the Job Bank or, at a minimum, actually take advantage of the human capital that is tied up there to improve my business through retraining.
Here's a story from October 17th, 2005 on the Job Bank program in the Detroit News Auto Insider.
ARC: St Wendeler