What Will The Economic Impact of the GM Strike Be? Here's What Experts Say

What will the economic impact of the GM strike be?

That depends, of course, on how long it lasts. Even though the auto industry isn't what it used to be in terms of driving the U.S. economy, a prolonged strike would still have an impact. There's the loss of sales to GM and the income to the roughly 50,000 workers on strike. The latter is about $85 million per week. However, according to Dr. Erik Gordon, who studies the auto industry at the Ross School of Business at the University of Michigan, if it only lasts a few weeks, that may simply result in sales being pushed out from September to October, and have few lasting effects. However, if it goes past that, it could affect the broader economy.

The first ripple would be to others in the GM system. Gordon says, "The big vehicle manufacturers make some of their own parts, but tires, seats, all sorts of things, are made by other companies. If the strike lasts long enough, those companies will start laying people off."

"The second ripple," he continues, " is to the local economies where the various facilities are located. People will be a little less confident and start delaying big ticket purchases, like refrigerators and big screen TV's. The next ripple is small-ticket items, like eating out. How wide the effects and how much really depends on duration of the strike."

Gordon has calculated that in all, up to seven jobs could be impacted for every striker, although he cautions, "Take that, and any estimate, with a grain of salt. It's very hard to isolate cause and effect." Back of the envelope, that's half a billion dollars per week in total impact, probably not enough to push the economy into recession. The U.S. economy is around $400 billion per week.

Unless it spreads beyond GM. Dr. Robert Franzosi of Emory University, who in 1995 wrote the seminal quantitative analysis of strikes, The Puzzle of Strikes, says, "We are way over-due for a strike wave. Strikes tend to go in fifty-year cycles, and I'd predicted one would start in 2010 or 2015. I'm not saying this is the start of such a wave. Strikes tend to end quickly during economic expansions because manufacturers don't want to lose sales. But you never know what can happen when a major strike occurs. Strikes and union growth are contagious."

So how long will this one last? A retired industry executive who still lives in the Detroit area told me, "I think the strike will be less than a week and I would not be surprised if an agreement is announced tomorrow." He says the last GM strike, in 2007, lasted two days. He, like many, believe it will be settled quickly because big strikes are simply too expensive for both sides. According to the Wall Street Journal, this strike could cost GM $100 million each day. And the strikers are reportedly getting $250 per week in strike pay. That's only a sixth of what they're used to.

However, that's no sure thing. No one really knows because there's not a lot of recent experience with strikes. Americans don't go on strike any more. According to the Bureau of Labor Statistics, at the beginning of the 1980's there were roughly 150 major work stoppages each year. By 1990, that had fallen to around 50, and since 2000, it's averaged around 20 each year. As a result, according to Dr. Michele Campolieti, a professor of economics at University of Toronto, research on strikes and their economic effects in the U.S. has "gone out of favor." So predicting how long the strike might go on becomes a matter of educated guesswork. But Campolieti thinks this one could drag on a bit. "Based on our recent experience with a GM strike here in Canada, I'd expect it to last a few weeks."

According to Gordon though, this one could go on even longer. "It's going to be tough for either side to settle quickly. GM needs the flexibility to close plants they won't be needing. There's an industry downturn coming, so they can't just throw money on the table for higher wages and say 'we'll make it up later.' And there's also a shift going on away from sedans to SUV's and Silverados and those types of vehicles. A further shift to electric vehicles is coming. On the union side, the rank and file is worried about jobs. When I talk to workers, they keep mentioning Lordstown." Lordstown is an Ohio plant that closed this year when it wasn't "allocated" new vehicles to manufacture. Gordon also says that union leadership, who are under investigation for corruption by the Department of Justice, has "every incentive to keep the strike going, and keep members focused on the battle with GM rather than replacing leadership."

Correction (9/18 9.53 a.m.): A previous version of this article described Michele Campolieti as an associate professor of economics at University of Toronto. Campolieti is a professor. Newsweek regrets the error.