The upside of a down dollar, illustrated

On October 2, 2007, in General, by Neil Stevens

Once upon a time, Canadians had an advantage over Americans in manufacturing: a strong US Dollar made it easier to pay Canadians (and others) to do work that Americans could also do. But, those days are over for now, as the Canadian Auto Workers may be among the first to find out.

Says the Washington Times:

For more than 30 years, Canada’s low dollar and nationalized health care system have given Canada’s auto manufacturing and assembly plants a competitive edge over their U.S. counterparts, said Dennis DeRosiers, a Toronto auto consultant. Private health insurance added between $10 and $25 an hour to labor costs for the Big Three in the U.S.

“Those days are gone,” Mr. DeRosiers said. “The dirty little secret” is that the Canadian Auto Workers union, in its last three or four contracts, ate up Canada’s health care cost advantage in higher wages and other benefits.

That and the surge in Canada’s dollar to parity with the U.S. greenback add up to “higher costs for active workers in Canada,” he said.

So Canadian employees demanded their share of the gains made by shifting manufacturing from the US to Canada, and when that advantage was gone, it became more expensive to manufacture in Canada than in the US.

Sure, this seems like a pretty narrow case: one expensive, unionized labor force gaining an advantage over the another, but it seems to me that once you subtract out the union arms race from both sides, the same principle is going to apply to non-unionzed labor, yes?


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