New York CNN –
As the historic United Auto Workers strike has officially begun, experts say the U.S. economy is already struggling — but the impact of the strike is unlikely to plunge the country into a recession.
“That’s because the unionized portion of the industry, while still large, is no longer as large a part of the economy as it once was,” Gabriel Ehrlich, an economic forecaster at the University of Michigan, told CNN.
However, the ultimate impact of the strike depends on how long the strike lasts, whether companies lay off workers at other plants, how many workers leave their jobs, and how long it takes unions and companies to negotiate an agreement.
UAW President Shawn Fain said, “We are not going to ruin the economy. The truth is we are going to ruin the multi-billion dollar economy.”
Although estimates of the strike’s economic impact do not indicate “destruction of the economy,” the damage could be significant.
For example, if all UAW workers at Ford, General Motors and Stellantis went on strike for 10 days, the Anderson Economic Group estimates it would cost the U.S. economy $5 billion.
Another estimate by Ehrlich assumes that there would be a significantly smaller immediate spillover effect. He estimated that $440 million worth of revenue would be lost nationwide if all UAW members went on strike for two weeks. If the strike lasts eight weeks, he estimates that incomes nationwide would fall by $9.1 billion.
Here’s how the strike could hurt the US economy:
Although striking UAW members will receive $500 weekly in strike pay, it likely will not be enough to sustain their normal expenses. This means that local businesses near strike sites will suffer a loss of revenue.
If the strike lasts long enough, it could prompt employers near the affected auto plants to lay off workers, said Tyler Theile, vice president and director of public policy at the Anderson Economic Group.
With auto inventories nationwide still below pre-pandemic levels, the Big Three automakers will be eager to resume production once the strike ends, Ehrlich said. That’s why he expects them to delay canceling orders from suppliers for necessary parts for as long as possible.
But when automakers eventually start canceling orders, it will impact the entire parts supplier network. First, suppliers that work directly with automakers, so-called Tier 1 suppliers, will try to keep workers on the payroll because they fear that if they lay people off, they will be able to rehire them, which is known as a “waiver “Hoarding behavior”. ”
But if a strike lasts long enough, they have no choice but to fire workers.
Then the pain can spread. Tier 2 suppliers – those that supply Tier 1 companies – could also have to lay off workers as a result.
If fewer people work because of the strikes, the government can collect less tax revenue. This is important because it means fewer programs will receive the funding they need.
At the state level, Ehrlich estimates that Michigan, the epicenter of many strikes, will see a $10.6 million drop in tax revenue if the strike lasts two weeks.
The Anderson Economic Group estimates that 25,000 vehicles will not be produced if the strike lasts ten days. That would lead to higher car prices, especially since inventories are already tight, said Theile.
Still, the impact of the strike will be unrelated to the Covid pandemic and computer chip shortages that have largely crippled the entire U.S. auto industry in recent years, said Jonathan Smoke, chief economist at Cox Automotive.
According to the August Consumer Price Index, new vehicle prices rose nearly 3% compared to last year.
CNN’s Peter Valdes-Dapena contributed.