The United Auto Workers (UAW) strike of 2023 was one of the longest and largest labor disputes in the history of the American auto industry. More than 50,000 workers walked off their jobs at General Motors (GM), Ford, and Stellantis (formerly Fiat Chrysler) plants across the country, demanding higher wages, better benefits, and more job security. The strike lasted more than two months, thus far, and cost the auto companies billions of dollars in lost production and sales. The strike also had significant implications for the U.S. economy, as it contributed to inflation, reduced employment, and disrupted supply chains.But what caused the UAW strike in the first place? Inflation is the main factor that triggered the Strike and influenced its outcomes. Inflation is the general increase in the prices of goods and services over time, which reduces the purchasing power and real income of consumers. Inflation affects both workers and employers in various ways, such as eroding wages, increasing costs, and affecting expectations. Inflation impacted the UAW workers’ living standards, the auto industry’s competitiveness, and the workers’ bargaining power, leading to the strike and the consequences that are yet to be seen.
How Inflation Erodes Workers’ Purchasing Power
One of the main effects of inflation is that it erodes workers’ purchasing power, which is the amount of goods and services that they can buy with their income. When prices rise faster than wages, workers’ real income (adjusted for inflation) declines, meaning that they can afford less than before. This reduces their standard of living and increases their financial stress.
According to the Bureau of Labor Statistics (BLS), the U.S. inflation rate reached 6.2% in September 2023, the highest level since 1990. The main drivers of inflation were higher energy prices, supply chain disruptions, and increased consumer demand after the COVID-19 pandemic. Meanwhile, the average hourly earnings of production and nonsupervisory workers in the auto industry grew by only 3.4% in the same month, lagging behind inflation. This means that auto workers’ real wages fell by 2.8% in September 2023 compared to a year ago.
The decline in real wages was even more pronounced over a longer period of time. According to a report by the Economic Policy Institute (EPI), auto workers’ real hourly compensation (including wages and benefits) fell by 17% from 2009 to 2019, while productivity increased by 18%. This means that auto workers were producing more but earning less in real terms. The report also found that auto workers’ compensation was lower than that of other manufacturing workers and private-sector workers in general.
The erosion of purchasing power made it harder for auto workers to cope with the rising cost of living, especially for essential items such as housing, health care, food, and transportation. For example, a study by Apartment List found that median rent prices increased by 15.6% nationwide from September 2022 to September 2023, with some cities experiencing even higher increases. Similarly, a report by Kaiser Family Foundation found that average premiums for employer-sponsored health insurance plans increased by 5% in 2023, while deductibles increased by 7%. These expenses consumed a large portion of auto workers’ income, leaving little room for savings or discretionary spending.
How Inflation Affects the Auto Industry’s Competitiveness
Another effect of inflation is that it affects the auto industry’s competitiveness in terms of profitability and market share. When inflation is high, labor costs, material costs, and interest rates tend to rise as well. These factors increase the production costs and reduce the profit margins of the auto companies. At the same time, inflation reduces consumer demand for new vehicles, as people postpone or cancel their purchases due to higher prices and lower incomes.
According to a report by Moody’s Investors Service, the UAW strike cost GM about $4 billion in lost earnings before interest and taxes (EBIT) in 2023, while Ford lost about $2 billion and Stellantis lost about $1 billion. The report also estimated that each company lost about 300,000 units of vehicle production due to the strike. The lost production and sales hurt the auto companies’ cash flow and liquidity positions, making it harder for them to invest in new technologies and products.
Moreover, inflation also affected the auto industry’s competitiveness in relation to foreign rivals. According to a report by LMC Automotive, U.S. light vehicle sales declined by 4% in 2023 compared to 2022, while global sales increased by 5%. The report attributed this discrepancy to several factors, including higher prices, lower incentives, supply chain issues, and labor unrest in the U.S., as well as stronger demand and lower prices in other regions, such as China, Europe, and India. The report also projected that the U.S. market share of the Detroit Three (GM, Ford, and Stellantis) would fall from 43% in 2022 to 41% in 2023, while the market share of foreign automakers would rise from 57% to 59%.
How Inflation Influences Workers’ Expectations and Bargaining Power
A third effect of inflation is that it influences workers’ expectations and bargaining power in relation to their employers. When inflation is high, workers tend to demand higher wages, better benefits, and more job security to compensate for the loss of purchasing power and the uncertainty of the future. Workers also tend to compare their compensation with that of other workers in similar or different industries, as well as with the profits and executive pay of their employers. These factors affect workers’ satisfaction, motivation, and willingness to strike.
According to a survey by the UAW, the main issues that motivated the strike were wages, health care, pensions, profit sharing, job security, and plant closures. The UAW workers wanted to restore the pay cuts and concessions that they had accepted during the 2008-2009 financial crisis, when the auto industry was on the verge of collapse. They also wanted to narrow the gap between the legacy workers (who were hired before 2007) and the temporary or in-progression workers (who were hired after 2007) in terms of pay and benefits. Additionally, they wanted to protect their health care benefits from rising costs and co-pays, as well as secure their pensions and retirement plans from possible cuts or freezes.
The UAW workers also demanded a greater share of the profits and a stronger voice in the decision-making of the auto companies. They argued that they deserved a fair return for their contribution to the recovery and success of the auto industry after the crisis. They also opposed the plans of the auto companies to close or idle some plants in the U.S. and shift production to Mexico or other countries with lower labor costs. They claimed that these moves would undermine their job security and hurt their communities.
The UAW workers had some leverage in their negotiations with the auto companies, as they had a strong union representation, a large membership base, and a high public support. According to a poll by Morning Consult, 49% of Americans supported the UAW strike, while only 24% opposed it. The UAW workers also benefited from the tight labor market and the labor shortage in the U.S., which made it difficult for the auto companies to find replacement workers or subcontractors.
Conclusion
In conclusion, inflation was the main cause of the UAW strike of 2023, as it affected workers’ purchasing power, employers’ competitiveness, and workers’ expectations and bargaining power. Inflation reduced workers’ real income and living standards, increased employers’ production costs and reduced their profits and market share, and influenced workers’ demands for higher wages, better benefits, and more job security. The strike had significant impacts on the auto industry and the economy, as it disrupted production and sales, contributed to inflation, reduced employment, and affected supply chains.
To resolve the strike and address inflation, both parties had to make some compromises and concessions. The UAW workers agreed to accept some changes in their health care plans, such as higher co-pays and deductibles, as well as some limits on their profit sharing bonuses. The auto companies agreed to increase wages for all workers, especially for temporary and in-progression workers, as well as to invest more in U.S. plants and create more jobs. Both parties also agreed to work together on developing electric vehicles and other new technologies that would enhance their competitiveness and sustainability.
