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Thread: compound effects of auto plant closings

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    Banned Melonie's Avatar
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    Default compound effects of auto plant closings

    (snip)"The approaching closings come as automakers, hurting from expensive health care, cheaper foreign competition and other problems, look to cut costs.

    Almost half of Ford's hourly production workers -- 38,000 so far this year -- have accepted buyouts or early retirement offers from the nation's second-biggest automaker, which lost $7 billion in the first nine months of the year.

    About a year ago, GM made public a plan to idle 12 plants over three years. GM spokesman Dan Flores said so far production has stopped at assembly plants in Oklahoma City and Lansing, Mich., and at a sheet metal stamping plant in Lansing.

    For all these cities, "it's all a question of getting property back into a tax base," said Kelly Novak, a research manager for the Washington-based National Association of Development Organizations.

    Many of the cities awaiting Ford closings mirror Lorain, a blue-collar town where the plant had been part of the industrial identity since 1958. Jobs there peaked at about 7,500 in the early 1970s. Ford stopped making Cougars and Thunderbirds there in 1997. During 2005, the work force dropped from about 1,700 to 750. Days before Christmas last year, Ford produced its last Econoline in Lorain.

    Lorain jobs and workers, as well as Econoline van assembly, went to a Ford plant in nearby Avon Lake. The workers tend to live in the northeast Ohio region, not just the city, so there wasn't much population shift.

    Loss of the plant meant $2.2 million less income tax revenue for a city that was already struggling with the loss of some 12,000 steel jobs in the past few decades. Lorain passed an emergency five-year, quarter-percent income tax increase to generate $2.4 million a year -- about $62 a year more on a $25,000 income -- but, said Mayor Craig Foltin, the city still cut about 100 jobs, including in the streets and parks departments.

    One trucking company that depended on Ford went out of business, and electrical, carpentry and plumbing independent contractors feel the pinch, Foltin said."(snip)

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    God/dess Deogol's Avatar
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    Default Re: compound effects of auto plant closings

    Typical government. The population is hurting so they raise taxes to help themselves.

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    Banned Melonie's Avatar
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    Default Re: compound effects of auto plant closings

    ^^^ well, this is the bottom line resulting from public sector employment that approaches something like 17% of all jobs nationwide, plus the state and local gov't costs to provide unemployment benefits and social welfare benefits to displaced union workers who simply can't find replacement jobs at any reasonable rate of pay. The state and local gov'ts are suddenly faced with their percentage of private sector taxpayers dropping significantly, as well as loss of property / income tax revenue from the corporation that formerly operated the closed plant, plus the new additional costs of unemployment checks and social welfare benefit costs for the displaced workers.

    When a large plant closes the proportional financial effects are magnified in that state and local area. Eliminating a few street repair jobs and parks dep't jobs is within the authority of the local gov't, but eliminating teachers, cops, firemen, social workers, gov't office workers etc. isn't so easy. So if the area loses 15% of its private sector former taxpayers due to a large plant closing, the gov'ts costs of writing paychecks for those teachers, cops, firemen, social workers, gov't office workers etc., as well as the cost of writing unemployment checks and providing social welfare benefits for the displaced former workers, must now be covered by increasing the income tax burden on the other remaining private sector taxpayers that still have jobs, and increasing the property tax burden on every home and business owner.

    This of course eventually creates a snowball effect where the rising income taxes and property taxes prompt the remaining private sector employers (and some of their taxpaying workers) to 'vote with their feet' i.e. relocation to a different city / state with a much lower tax burden. Lately, private sector businesses faced with heavy tax burdens thus heavy pressure to relocate are also exploring the option of going offshore / outsourcing / restructuring etc. as long as they're forced to change location anyhow - which of course leaves the taxpaying local workers out of a job, further reduces state/local tax revenues, further increases state/local gov't costs of unemployment checks and social welfare benefits, resulting in a further tax increase on an even smaller group of remaining private sector businesses and taxpaying workers !

    In a 'free market' setting, when this sort of snowball effect starts to build momentum (i.e. the auto industry, the airline industry, the steel industry), it would only make sense for employers to call for 'givebacks' on the part of highly paid employees in order to make overall budgets sustainable given a major reduction in revenues. However, where civil service public sector employees are concerned, this is basically an impossible option. Essentially all CSEA workers are protected by contracts, are guaranteed COLA pay raises, are guaranteed generous benefits etc. Additionally, given the recent election results and the fact that CSEA workers are a MAJOR support group, there is little chance that any laws will be changed / contracts will be modified.

    Thus once a few 'discretionary' local public service jobs are eliminated re roads, parks etc. state and local gov'ts basically have their hands tied in being able to either eliminate a significant number of other CSEA jobs or to reduce the rate of pay for those CSEA workers. If anything, as standard of living declines it may actually become necessary to ADD civil service jobs in the area of police, judges and jails ! This guarantees that income tax and property tax increases must be used to keep those CSEA paychecks flowing in the future. This also essentially guarantees that more and more private sector businesses will leave the state/local area taking high paying private sector jobs with them, causing both the loss of the former tax revenues generated by those private sector businesses and the tax revenues formerly paid by their highly paid employees.

    The 'tin foil hat' crowd would tell you that public sector employment is a 'parasitic system' where the public sector 'parasites' are fed by 'sucking blood' from the 'host' i.e. the private sector. Up to a certain point, the 'host' is able to tolerate a minor degree of 'blood sucking' without really noticing (think the 1920's). Up to another certain point, the 'host' definitely notices a greater degree of 'blood sucking' as an annoyance, but still remains strong and able to function normally (think the 1970's). But above a certain point beyond that, the continuous 'blood sucking' weakens the 'host' to the point where it can't function normally anymore thus has all it can do to simply maintain itself (think the 1990's). But as even more 'blood sucking' takes place, the 'host' can't maintain itself any longer and must either flee the 'parasites' or die ... which is the situation referred to in this thread.
    ~
    Last edited by Melonie; 12-10-2006 at 08:26 AM.

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