Thursday, December 8, 2016

Carrier deal isn't all it was cracked up to be

Donald Trump’s vaunted deal with Carrier to keep jobs in Indiana seems to have been less than it originally seemed. The president elect had celebrated the deal that he claimed would save “over 1,100” manufacturing jobs in Indiana. Now a union leader is saying that Trump “lied his a-- off” about what the deal accomplished.

Chuck Jones, the president of United Steelworkers 1999, told the Washington Post that he was optimistic when he heard the announcement about the deal in late November. Now Jones says that the claims that Trump made were misleading and that the number of jobs saved includes positions that Carrier never planned to transfer Mexico.

According to Jones, only 730 manufacturing jobs would be retained in Indiana and 550 production workers will still be laid off. Jones said that Trump apparently counted 350 research and development jobs that Carrier had never intended to move to Mexico as well as 80 nonunion clerical and supervisory jobs.

Jones said that when Trump addressed Carrier employees on Dec. 1, he waited for an acknowledgement that the 550 workers would still lose their jobs. Instead “he got up there and, for whatever reason, lied his a—off,” Jones said.

Jones, who says he voted for Hillary Clinton as the “better of two evils,” said, “Trump and Pence, they pulled a dog and pony show on the numbers. I almost threw up in my mouth.”

Still, more than 700 American jobs saved should be worth celebrating, right? After all, manufacturing jobs are well-paying, union jobs and keeping them in the US benefits the whole country. Or does it?

According to Business Insider, the week before Trump’s deal was announced, the company made another unilateral announcement. In a surprise move, Carrier announced that a five percent price increase would take place on January 1. Since the price increase was announced on Nov. 23, before the deal to keep the jobs in Indiana was reached, some doubt a connection between the two events, but Carrier was obviously in negotiations at that point and had been the butt of Trump’s criticisms throughout the campaign.

The price increase can be reasonably assumed to be an unintended consequence of Trump’s interference in the company’s operations. It was previously reported that Carrier employees make as much as $26 per hour which equates to $70,000 per year with overtime. Using Mexican workers at $3 per hour, Carrier would save a whopping $65 million per year.

On CNBC’s “Mad Money with Jim Cramer,” the chairman and CEO of United Technologies, Carrier’s parent company talked about the reasons the company had planned to move. “We have a very talented workforce in Mexico,” Greg Hayes said. “Wages are obviously significantly lower. About 80% lower on average. But absenteeism runs about 1%. Turnover runs about 2%. Very, very dedicated workforce.”

Hayes went on to say that Carrier’s American workers were very experienced, but these high levels of experience were not required in the production of Carrier’s heating and air conditioning products in Indiana. The company had offered many workers transfers to its aerospace divisions where decades of manufacturing experience would have been a more valuable asset.

The reported details of the deal with Carrier included $7 million of tax credits from Indiana over 10 years. The financially astute reader may have calculated that moving to Mexico would have netted Carrier more than 92 times the savings of staying in Indiana, even with the new tax credits. To keep the company profitable and shareholders happy, something had to give.

The experience with Carrier comes with lessons for American voters as well as the incoming Trump Administration. First, Trump’s tendency to stretch to the truth until it broke in the campaign does not appear to have disappeared with his electoral victory. Trump’s statements will need close scrutiny and should be taken with a grain of salt.

Second, even Donald Trump cannot rewrite the laws of economics. Central planning by a Republican president does not work better than central planning by a Democrat. When government interferes with markets, it is subject to the law of unintended consequences no matter who is making the deal.

Originally published on The Resurgent 

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