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Honda poses pay dilemma: New auto plant's higher wages likely to force other employers to pay up or lose workers

July 3, 2006

GREENSBURG-Companies from Cincinnati to Indianapolis hoping to drive home business from Honda Motor Co.'s 2,000-employee plant might want to watch for an economic pothole hiding up the road.

Giant auto plants plopped onto the prairie, while buying hundreds of millions of dollars in goods and services from companies in the state, also tend to swallow workers from established employers.

That likely will force some Indiana employers to jack up wages and benefits to retain and attract workers pining to wear the Honda hat, observers said.

"There's no question that it will have an impact. ... The business community will respond accordingly," said Matt Meadors, president and chief executive of the Greater Evansville Chamber of Commerce.

The chamber's members noticed the effect when Toyota opened its truck assembly plant in Gibson County in the late 1990s.

For example, one Evansville electrical parts firm complained that it lost seven key employees to Toyota, despite boosting their wages 8 percent.

"Absolutely. I think it will definitely happen" here when the plant opens in 2008, said Patrick Barkey, an economist at Ball State University.

When the supply of labor tightens, as could happen as Honda hires, "there tends to be a bit of a bidding war. It tends to push up prices" of labor, Barkey said.

Greensburg community leaders acknowledge the challenge.

"I think that's always a concern, especially among some of the smaller manufacturers. If the ripple effect is true, then everybody is going to do job fairs," said Jennifer Sturges, executive director of the Greensburg/Decatur County Chamber of Commerce.

Sturges said perhaps some of the job fairs should focus on lassoing workers in surrounding counties, where unemployment is higher.

Honda will be a powerful magnet. The average hourly wage in Decatur County, population 25,000, is about $15; Japanese plants like Honda and Toyota often pay closer to $24 an hour.

"Employees certainly assess opportunities. It does create a competition in the work force," said Patrick Kiely, president of the Indiana Manufacturers Association.

A 2004 study of the Toyota effect in southwestern Indiana showed that median household income in Gibson County rose 21 percent, to $32,930, after the automaker started building trucks.

Per-capita personal income jumped 46 percent, to $25,555, according to the study by the University of Evansville and the University of Southern Indiana, which compared five-year periods before and after the plant opened.

The plant also had an impact on wages in Evansville, about 25 miles to the south, Barkey said.

Some firms that don't anticipate becoming a supplier to Honda already see the possibilities of a shifting work force.

"We probably ... may lose some people to that," said Dale Meyer, owner and president of Heartwood Manufacturing, a 50-employee firm that makes wood cabinetry down the road in Batesville.

Meyer said he's already thought about ways to make his workplace more attractive to retain his best workers. He's offered more flexible hours to help workers with children and other obligations-something giant companies with rigid policies often won't do.

Indeed, "it could be flexible hours or anything that's of value" to employees, Barkey said of incentives to retain workers.

One might think they'd be especially concerned about "Honda flight" at Ward Equipment, in Greensburg. Its skilled wrenchturners recently rebuilt and painted like new a 10-year-old Komatsu excavator (with the rare "extendahoe" option) the firm had ordered from the surplus market in Tokyo.

"I don't think it's going to be a problem," Rosemary Ward said flatly, noting how Greensburg isn't far from large cities and plenty of smaller ones teeming with job candidates.

"There might be people who come from Indianapolis," about 45 miles to the northwest, she said. "They're going to be drawing [workers] from counties surrounding here."

The pressure on wages here also could be relieved as more people move to Greensburg, improving the overall labor supply, Barkey said. Some of those people will bring spouses looking for jobs, as well.

Then again, employers might be able to afford to pay their workers more as the Honda plant stimulates the local economy, Evansville's Meadors said.

The 5,000-employee Toyota operation generates $1.4 billion in sales for businesses in the Evansville metro area each year, according to the UE/USI report.

Such giant plants tend to spur sectors such as home building, hotels, restaurants and retail.

"It does have a way of raising the standard of living of everyone in the area," Kiely said.

"[An auto plant] just creates tremendous wealth, prosperity. And that has to be good news. ... This will certainly moderate any potential impact," Meadors added.

He said improving skills of all workers is another way to effectively boost a region's labor supply.

Kiely said Japanese auto companies tend to be "very sensitive" about not creating a worker supply problem in a community.

"They're certainly going to get the best people they can find, but they also take into consideration not cannibalizing the local businesses."
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