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October 24, 2006

A competitive auto industry

Ford’s announcement of potential large layoffs has again focused attention on the relative competitiveness of the U.S. auto industry versus foreign automakers. One issue often brought up is that U.S. companies must pay health care, whereas many foreign companies don’t because they are in countries with a central government-financed system. However, N.C. State University economist Mike Walden says that even if the United States went to a complete government-financed health care system it wouldn't necessarily help our auto industry.

"It depends on how this government-financed health system was to be financed," Walden says. "For example, remember all government revenues ultimately come from taxpayers -– households or companies.

"So if this system was financed by increasing business taxes, then what would simply happen is, yes, businesses would not have to pay directly for health care. They’d simply have to pay however for it through increased taxes," he explains. "And so the net would be no different for them.

"Or if the system were to be financed with more taxes on workers, presumably those workers would demand higher wages, and the companies would compensate," he adds. "Again, companies would be no better off.

"So when you look at some proposal like this you really have to look at the entire picture."

Posted by deeshore at October 24, 2006 08:00 AM

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