Zywicki Comments on Automakers' Jobs Bank Program

Bankruptcy expert Professor Todd Zywicki told that a controversial benefits program for laid-off autoworkers that might continue if Congress approves a $25 billion bailout of the U.S. auto industry could be eliminated under the alternative of bankruptcy for the automakers. 

The "Jobs Banks" program was created in 1984 when the Big Three automakers struck a deal with the United Auto Workers (UAW) to provide security for those displaced by automation and modernization of manufacturing processes. Under the program laid-off workers can collect up to full pay by participating in the jobs banks, where they have the option of performing community service or doing nothing at all. At the program's height in 2006, nearly 15,000 people took part in the jobs banks, many of them getting full pay while not performing any duties for the automakers.

Should Congress fail to authorize a bailout of the industry, automakers would be faced with bankruptcy, which Zywicki sees as an opportunity for them to terminate the jobs bank program, abruptly ending benefits to participants.

"This is exactly the sort of thing bankruptcy is useful get rid of programs that don't do the company any good," said Zywicki. "The short answer is yes, it would put workers 'out on the street.' The longer answer is that they might also be entitled to some damages or compensation."

Automakers' Jobs Bank Program Pays Laid-Off Workers to Do Nothing,, November 25, 2008. By Maxim Lott.

"Hoping to avoid bankruptcy and secure federal loans, carmakers and the UAW are considering eliminating the program anyway. But they have not decided yet.

"'It's premature for me to answer a speculative question,' United Auto Works President Ron Gettelinger said Thursday, regarding whether the program would be eliminated if Congress made it a stipulation for a loan. 'Let's wait and see...what they come down with, and then we'll make a decision at that point in time.'

"Tony Sapienza, General Motors communications director for manufacturing and labor relations, said that he couldn't speculate about what would happen to the Jobs Bank program or how bankruptcy could affect workers in it.

"In 1984, when the program was created, General Motors, Ford and Chrysler were all doing well. The automakers wanted the UAW to support new, flexible manufacturing processes and more automation in their plants, and the workers wanted to ensure that they would have job security as the industry modernized. So an agreement was reached during contract negotiations to create the jobs banks, which would provide job security for workers who were laid off due to modernization.

"'Unions honestly thought that it would then cost too much to lay them off,' said Kristin Dziczek, a senior project manager at the Center for Automotive Research. Twenty-one years later, at the program's height in 2006, nearly 15,000 workers were in jobs banks and in many cases were getting their full pay to do nothing but show up.

"'They can simply sit in the jobs bank, play checkers for the rest of their lives at 90 to 95 percent of pay. Does that make any sense to you?' Peter Morici, a business professor at the University of Maryland who testified before Congress on the relief plan, said on the FOX Business Network, 'And why should a waitress in Indiana have her tax money sent to Detroit to subsidize that?'"

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