Wednesday, November 12, 2008

How Many Jobs at Risk?

. Wednesday, November 12, 2008

You'll likely hear the following a lot over the next few weeks (months?).
A failure at GM, which represents about half of the U.S. auto industry, could eliminate 2.5 million jobs and $125 billion in personal income in the first year.

  • "Michigan Gov. Jennifer Granholm said ...that one in 10 American jobs are supported by the auto industry and that if it collapsed, ""there would be a ripple effect throughout the nation."
  • Majority Leader Harry Reid, D-Nev., said "...he would try to pass emergency legislation to help save millions of jobs supported by the auto industry."
The estimated job losses resulting from a GM bankruptcy filing (which seems increasingly likely) come from a study by the Center for Automotive Research. CAR's estimated job losses rest on the following assumptions:

Production by the big three in year 1 following bankruptcy: 0
Production by all foreign producers in year 1 of bankruptcy: 0

That's right; these estimated job losses rest on the assumption that bankruptcy by any of the big three causes the complete cessation of auto production by all producers, American and foreign brands, in the first year of filing. The extent to which that assumption is reasonable thus determines the extent to which the forecast job losses are reasonable.

Here's the full quote from the CAR report:
"We assume that domestic production by international automakers in the United States would be seriously affected by a major contraction of the Detroit Three automakers for at least a period of one year due to the high likelihood of many U.S. supplier company insolvencies. In fact, we assume in our 100 percent contraction scenario that not only does domestic production by the Detroit companies fall to zero in the first year, but that domestic production (in the U.S.) by the international producers also falls to zero" (page 3).


How Many Jobs at Risk?
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