Wednesday, November 30, 2016

Draining the Swamp? Trump Swelling It with Carrier

Carrier gets a sweet deal from President-elect Trump and VP-elect Pence to keep jobs in Indiana. 
In the end, UTC agreed to retain approximately 800 manufacturing jobs at the Indiana plant that had been slated to move to Mexico, as well as another 300 engineering and headquarters jobs. In return, the company will get roughly $700,000 a year for a period of years in state tax incentives.
But Indiana is still losing more jobs than it is gaining. It will keep 1,100 jobs and lose 1,300.
Some 1,300 jobs will still go to Mexico, which includes 600 Carrier employees, plus 700 workers from UTEC Controls in Huntington, Ind. The company has plans in place to offer displaced workers employment and relocation in UTC’s aerospace business, or to provide funding for reeducation.
Apparently Carrier isn't new to this game. They've already gotten lots of tax breaks. But, with Trump's campaign posturing, they were able to get more.
This is congruent from what we know about the sort of tax breaks Indiana and Indianapolis has already offered the firm. Back in 2011, the city gave the company a six-year property tax abatement, which allowed them to forgo paying $1.2 million in taxes, according to the Indianapolis Star. The company has also taken advantage of funds the state allocates for job retraining, and had reached a deal with Indiana to return several hundred thousand dollars for contributions it made to the company’s retraining programs as a part of the state’s Skills Enhancement Fund.
Though most small businesses would jump through hoops to get a $63,600* subsidy per employee for years, it may be small potatoes for Carrier's parent company. The real problem is the stick of a Trump administration taking away United Technology's military contract business if the company doesn't make Trump look good on this.
Furthermore, there is reason to believe that this deal isn’t just about the tax breaks. The New York Times points out that United Technologies may very well be more concerned with angering the President than it is with saving the small amount of money relative to its overall revenue that the Mexico-relocation would provide. “While Carrier will forfeit some $65 million a year in savings the move was supposed to generate, that’s a small price to pay to avoid the public relations damage from moving the jobs as well as a possible threat to United Technologies’ far-larger military contracting business,” according to the Times.
Isn't this exactly the sort of carrot/stick strategy Republicans and conservatives would have praised had it been the Obama administration "urging" energy companies to support policies combating climate change (né global warming)?

Good life in the swelling swamp.
*This is for jobs paying $20 to $25 per hour. That's $800 to $1,000 per 40 hour week; $41,600 to $52,000 per year before withholding. So, depending on fringe benefits these are likely "free" employees.
Even with that, however, once the layoffs were to begin in mid-2017, most of the workers would have had a hard time finding jobs that paid anywhere near the $20 to $25 an hour that veteran line workers earn.
Most anyone could run a profitable business with free labor. Nice!


MAX Redline said...

Carrier is owned by a defense contractor (United Technologies). They were big on moving production of HVAC units to Mexico until it occurred to them that while they could do that, they just might lose some of those defense contracts.

Funny how motivating that can be.

T. D. said...

Yep. They award contracts not on merit but on political back scratching. Government that picks winners and losers in contracts (or taxes or criminal charges) on the basis of whether you follow their policies or not has too much power. I detest it no matter who does it. Wish I could fight it more effectively than with these less than pin prick posts.

MAX Redline said...

Hey, a lot of R&D goes into those $600 toilet seats! ;-)

T. D. said...

Agree 100% that sort of thing is swampish and needs to end. If UT was charging $600 for toilet seats, they should have their contract abrogated for that--not for moving some of their manufacturing to another country because U.S. employees are more expensive than the product can support.

It's not good economic or social policy to encourage artificially keeping jobs that can't compete. (My grandpa made saddles in the early 1900's. His boss told him to go into another profession. He did. Building railroad cars. That was smart.) Carrier will either keep getting lots of government subsidies for those jobs or go broke. Both destructive courses of action. Those jobs can't last on their own. Same for $15/hr fast food jobs--as you have pointed out again and again, Max! $20 to $25 hr for those jobs is a call for automation if there is no move to Mexico.

MAX Redline said...

McD and other fast-food joints, along with midline joints like Applebee's are already moving to automation for ordering/payment in areas like Oregon and Seattle, where politicians have instituted workplace mandates that cost employers a lot of money. We'll be seeing a lot more of that as politicians with no business knowledge continue to pursue utopia.

T. D. said...

Max, you have been beating this drum of the lunacy of mandating wages for a long time.

People get confused about job creation. As Milton Friedman points out ( we could create all the jobs we want (e.g., digging holes and filling them up), but the real issue is creating jobs that produce products or services we are willing to pay for. If you make the cost of the product higher than the buyer is willing to pay, there is no sale unless the product is necessary to the buyer's life/well being. Then you in effect use extortion on the buyer.

On one hand you have the progressives who drive prices up via minimum wage laws. On the other you have nationalists who also drive prices up via keeping $20 to $25/hr jobs in the US (e.g., Carrier). The problem is that consumers are not willing to pay for $15/hr fastfood service or $20/hr air conditioners unless they are forced into it. Thus, automation is the long term end around for both types of wages mandated by law and getting consumers to buy the product/service.

Trump wants a 35% tax on items American companies produce abroad ( The answer to that is to have an international division of your company that initially sets up its manufacturing units abroad. So, no initial jobs in the US and no moving jobs out of the US. Patterico points this out (

"Similarly, Trump, by telling companies that they will suffer consequences if they leave America, is going to cause some number of companies not to set up shop in the United States to begin with."

MAX Redline said...

Exactly right, TD. Ultimately, he stands to create more problems than he resolves if he followed through on his proposals. On the other hand, he's backed off of so many that I tend to view his approach as free-association rather than actual policy.

T. D. said...

Undoubtedly right, Max. Free-association means it can change at any moment. I'm assuming policy in all areas will change depending on who's on the other side of the desk talking. Sigh.