Unintended Consequences

Back when I was working for GM (not as an employee – as a contract person), I learned a number of curious counterintuitive things – like people with seniority wanted to be laid off first during slow times.  Doing so, they would get 90+ percent of their pay and continue to vest in their pensions, then could work “off the books” doing construction work for cash or just tour the country in a motor home on an extended vacation.  The low seniority people were the ones who had to show up for work and make the cars.  It wasn’t called Generous Motors for nothing.

Another quirk was that the State of Michigan gave GM special exemptions on how Unemployment Insurance is supposed to work.   It’s a bit complicated, but there is a state and a federal fund with different sources of money.    The basic principle of funding is that each employer keeps a “balance” in the fund – how much they’ve paid in, and the amount of benefits paid out.  If a company gets in a deficit position, their contribution rate goes up to help rebuild the fund.   Other employers temporarily are subsidizing the ones (like GM) with lots of unemployed workers.

Well, GM had incorporated Unemployment Insurance into their business model.  When GM didn’t need all its workers, it would lay them off and let the State pay them.  Normally doing that would risk that those employees could drift away and when GM needed to restart the line, it would have to rehire and retrain people – so their agreement with the Unemployment folks was that GM workers collecting unemployment were NOT required to look for a new job to keep getting the check.  [Yes, I know that is a scam too] The Fund just became a way to subsidize GM at the expense of other employers.  Michigan didn’t want to lose GM, and many of those other businesses were indirectly in business because of GM so they were not in a position to complain.  This was in the 1980s, and also unemployment benefits were taxed differently than today.

Since GM will be declaring bankruptcy and shutting a lot of plants, those GM workers will be on unemployment for a LONG time, with no real assurance that GM will ever be in a position to pay back into the state uninsurance funds – especially in states where GM is going to shut down its only facility.

Look for a bunch of State Unemployment Funds screaming “we’re out of money” (It’s already started because the condition of the economy in general).  Not only are people collecting unemployment, but a lot fewer employers are paying into the fund.  Look for demands for a Federal Bailout  (did you read that IRS taxes paid in April were down 36% year over year?… yet Bloomberg and the economists think things are about to “turn around”)

In the spirit of just making problems worse, the Democratic party solution to this is to always feel compassion for The Worker – by extending unemployment so long that people forget what it is like to work.   Other employers become so burdened down with the costs and the artifically high costs of labor that they shut down or move to other countries to get out from under.

Do what you’ve always done, you’ll get what you always got.