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December 16, 2008

Debunking the myth that union auto workers make $73/hr

Debunking the myth that Big Three auto workers make $73/hr: Even if you count the value of wages plus fringe benefits, union autoworkers only make about $55/hr, compared to $45/hr total compensation for workers in non-union Japanese plants in the US.

The $73/hr figure was made up by the auto companies to win public support during pay negotiations with the unions. Obviously, it was to the companies' advantage in the PR war to make the union out to be much better compensated than it actually was.

The sneaky part is that the $73/hr number reflects the cost of paying benefits for all the Big Three retirees. The Big Three have been very big for a very long time, so obviously, they have a lot of retirees collecting benefits. If you divide through the costs for the retirees by the number of union workers today, you add another $15/hr per employee that the companies have to pay, but which today's employees never see.

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Hey moron. Ya, you Lindsay. Why should I give a crap whether or not you/todays's Auto worker see's the full $73/hr? " I " The CUSOMER have to PAY it! Worse yet, I'll have to make payments for 5 years on a piece of crap that was designed to break the moment the warranty runs out. Heaven help me if I got one made on Monday, or Friday, or Thursday morning, or Wendsday afternoon. Whiz on the lot of you. I hope the manufactures do go bust. Your unemployment won't last forever. Then you will have to get a REAL job and actually WORK for a living like the rest of us.

I still can't get over the amount of anguish we're going through over fifteen or thirty billion dollars for the auto manufacturers, in contrast to the ocean of free money our government continues to pour into the financial sector. I know, of course, that conservatives wouldn't be conservatives if they didn't try to use the specter of a looming depression to bust the unions, and generally reduce as many workers as possible to serfdom. But I still think there must be a lot of people out there still entranced by that New Economy bullshit: you don't need to manufacture anything in the realm of matter in order to generate wealth, just a bunch of financial firms with the ability to make money appear out of thin air.

The arguing about the cost of funding retired workers retirement and health benefits has been completely off base. The auto companies (and plenty of other companies) had ample opportunity to fully fund these accounts when the employees were employed and the companies were making great profits.

Instead, the auto companies decided not to fund the pension and health programs, and increased quarterly dividends and executive compensation. Worked pretty well for a long time.

Now the auto companies are stuck. They make fewer cars and employ far less people, especially in the US, while their obligations have not diminished. US auto companies also did not invest in quality manufacturing and product support, or innovate, or keep up with modernizing plant investments either, a symptom of the same short term thinking that has prevailed.

But the fact remains that the auto companies entered into a contract with the union and the workers, and now many are trying to help them break that deal. Where I come from, your word is your bond. You might make a bad deal but you honor it. These folks have no honor.

I'd also like to mention how the southern states (and plenty of others) have put their thumbs on the scales of the free market - offering all sorts of taxpayer subsidies to lure foreign automakers to their right to work states. Not only do their employees make less than UAW members, but the taxpayers are paying for that privilege.

The issue should not be only UAW workers salaries, considering the fact that CEOS, VPs and other high level executives of the Big 3 made huge money while they ran the companies to the ground. Where are the CEO pay cuts? Why should we only cut the middle class Americans salaries while CEOs will run the companies to ground and enjoy lavish lifestyles...

Not fair!

First, even $55 requires a fair amount of union privilege. Semi-skilled workers making $110,000 a year are in roughly the same position as rich 19th century farmers: people who got rich by working for an industry that's not dying, and dragging the rest of the economy down with it.

Second, as the article notes, the Big Three and the UAW are delusional when they insist that American cars are now fine, and success is right around the corner if only the government gives them more subsidies now. Roger Smith said that in the 1970s, when he argued for tariffs on Japanese cars; the tariffs are still here, American cars are still losing market share because of their low quality, and no matter what kind of futuristic technology GM and Ford try to develop, Honda and Toyota always seem to be there first. (Besides which, the vehicle makers of the future are Bombardier and Alstom...).

Why is it so friggin' difficult to manufacture a decent car in the USA? That's a serious question. American cars suck. They've always sucked. We make good weapons here. Stuff that's a lot more complicated than your average automobile.

If the government is going to save the auto industry, it should really save it. As in, commit enough resources to transform the industry, not just keep it on life support forever. That would mean money for research and development, retraining, new factories, etc. Reinvent the industry to make cars that people actually want and that are as energy efficient as possible. The Volkswagen bugs for the 21st century.

Of course, the public should get an equity stake in the companies if we invest to save them.

Sure, cut the CEO's pay, especially that loser at GM who doesn't believe in global warming.

We've got to do something, otherwise the rust belt will lose 2-3 million jobs in a matter of weeks. The shock could pull the entire country, if not the world, into a depression.

Eh...

American cars do not suck. My car ( a nonsexy but smooth running 2007 Ford Taurus ) was excellent value for money. I like it. My passengers like it.

There are many good American cars for sale today, some of which are doing really well, including the
Cadillac

Detroit has done lots of good things- just not enough.....

Okay, why aren't all American cars as good as the Taurus? Saturns are reportedly good cars, too.

So, all the more reason why a big overhaul could succeed.

I don't see an alternative to going big at this point. Either the industry collapses and takes the economy down with it, or we keep stringing it along and pay more in the long run, or we make some big changes today.

I am all for big changes- no Band Aids.

I want everyone involved to give up something -- including the UAW.

And I want the end result to be companies that don't just hang on, but who can reasonably be expected to one be profitable, and two add significant market share by making great stuff.

If we can't do that, then an orderly shut down is what is needed. But I want to be aggressive and play to win. There is no good reason why we cannot have a healthy, thriving auto industry in this country again.

But everyone needs to take a haircut and much of the bureaucracy and work rules must go, quickly.

Again, the same GM and Ford are making money right now in Europe and South America. And GM is doing really well in China.

A lot of the models are different but it shows that these companies can thrive.

And yes, in most of those places, health care is not an employer responsibility so that needs to be looked at big picture.

I think that McCain wanted to decouple the health care from employment. That would solve some things, if done right.

Part of what has dragged the US companies down

You can't compete when you're hamstrung by documents like this.

Debunking the myth that Big Three auto workers make $73/hr: Even if you count the value of wages and fringe benefits, union autoworkers only make about $55/hr, compared to $45/hr total compensation for workers in non-union Japanese plants in the US.

"only" about $55 per hour? As Alon notes, that's quite a bit compared to similarly skilled workers in other industries, and as you note yourself, it's more than 20% more than workers in non-union plants are making.

Your description of factories based in America and hiring American workers as "Japanese plants" strikes me as borderline xenophobic. It also bears on your question "Why is it so friggin' difficult to manufacture a decent car in the USA?" Apparently, several firms are making decent cars in the USA; why should their competitors get help from our government that Toyota and Honda don't get? Perhaps if the Big 3 do fail, these other companies will step in to fill the gap, limiting the indirect economic damage some are predicting.

If it's possible to make cars profitably in the U.S., somebody's going to do it. And if it's not possible, government loans can't magically make it so.

There is nothing wrong with a little bit of economic nationalism. Too much is bad, but too little and before long you don't even have a country. Japan, Germany, France, China - all successful countries are economically nationalist to some extent.

Lets not forget that Toyota and the rest got nice big fat subsidies themselves -- from the states where their plants are -- which is why they're not squawking about anything that is happening now with the Big Three.

$55/hr is not $73/hr. I'm objecting to the misinformation, not the $55/hr figure. I'm not saying that automakers are underpaid. Of course they get paid well. The Big Three helped build the American middle class with good union wages and benefits.

Even if the UAW agreed to drop wages and benefits to the level of the non-union plants, it would only knock about $800 off the price of the average Big Three car--which isn't nearly enough to make consumers want to buy the damned things.

It's not xenophobic to refer factories owned by Japanese companies assembling Japanese brands of Japanese-engineered cars as "Japanese plants" for short. The major trade association representing these enterprises refers to itself as the Japanese Automakers of America. I'm glad they're here.

Doug said it totally correct. Pay attention Lindsay. The consumer TODAY still pays the $73/hr. Where's the misinformation?

The companies are selling a product that costs them $73/hr to build and need to make money buy putting less than $55/hr into it. And you wonder why there is a lack of quality?

It may be time for some capitalistic Darwinism. All the mis-management and lack of foresight from CEO's of the past have caught up to the big three.

Thank you drive through.

Anybody who thinks a factory worker is taking home $55/hr, let alone $73/hr hasn't worked in or around factory very much.

As to Lindsay's question of "Why is it so friggin' difficult to manufacture a decent car in the USA?" it is, by and large, due to the fact that US auto companies have been run by guys that have come up through the ranks of the finance department, and not the engineering department.

GM is especially bad in this regard, and many times in the past, GM would have had a very good car on their hands, but once the bean-counters got a hold of it, it was junk and not what was initially advertised or announced.

The Fiero, the Aztek (which was based on Toyota mechanicals), late 70s/early 80s Vettes ... the list is long, and ugly.

Essentially, GM (& Ford & Chrysler) have been turning in C+ answers for the past 30 or 40 years, while the likes of Toyota & Honda have been getting consistent As & A+s

None of this, by the way, is the fault of the people working in the plants.

Blaming the UAW for the hole that The Big Three (OK, two & a half) find themselves in is like blaming the stokers on The Titanic for hitting the iceberg.

The Big Three helped build the American middle class with good union wages and benefits.

In what world are people who make $110,000 a year middle class?

There is nothing wrong with a little bit of economic nationalism. Too much is bad, but too little and before long you don't even have a country. Japan, Germany, France, China - all successful countries are economically nationalist to some extent.

First, Germany is consistently the least economically nationalist major economy. By some metrics, Japan is less economically nationalist than the EU and US (e.g. when Japan signs free trade agreements with developing countries, it doesn't insist on ridiculous rules to protect its own corporation, like labor or copyright standards).

Second, economic nationalism hurts the world. The Great Depression was worse than previous depressions largely because the US imposed steep tariffs on imported goods; this led to retaliatory tariffs, which destroyed world trade. The only countries that can afford to put up trade barriers without destroying themselves in the process are those that can ensure they have access to other markets; for example, South Korea, Israel, and Taiwan could always export to the US because of their military alliance.

And third, economic nationalism can hurt the domestic economy, too, by reducing competition. A good case study is the US transit industry. In principle it was unprotected, but in practice, by the 1970s all of the major clients were publicly owned, so federal Buy American laws made it impossible to buy imported rolling stock and buses. New York City Transit was stuck with a choice of 3-4 domestic manufacturers for every order. Needless to say, the quality of the product was exceptionally low; the ensuing violation of contract lawsuits killed what was left of the US rolling stock industry.

The soundbite you hear on TV is that autoworkers make $73/hr.

The truth is that the companies have to spend $73 per employee per hour on "wages + current benefits + benefits to retirees," which is not the same thing at all.

If you count benefits to retirees, why not count the cost of the mortgages on the factories and say that a Big Three auto worker makes $150/hr in "wages + benefits+ benefits to retirees + mortgages" or "wages + benefits + benefits to retirees + mortgages + the cost of steel"...?

Cost to employer per employee per hour is an arbitrary statistic that doesn't mean anything like what the people who trot out the $73/hr figure want you to think it means.

You could add up all the company's expenses and divide through by the number of employees and claim that the cost per employee per hour is hundreds or thousands of dollars an hour.

The more retirees there are, higher the cost per employee per hour. As the Baby Boomer generation retires, there ratio of retired to working UAW members will continue to rise. So, by the company statistic the average auto worker today will seem to be getting paid more and more, without getting any increases in wages or benefits--just because the company counts the cost of a growing pool of retirees.

The company PR flacks would probably say that the "cost to employer" statistic is valid because the union had something to do with negotiating the benefits for retirees as well as people working today. If you're writing a PhD dissertation on the impact of the UAW on the economic fortunes of the Big Three in the 20th Century, then maybe "cost to employer" is a useful statistic to think about. But if you're wondering whether you should pursue career in auto assembly, or whether you should be envious of your neighbor the UAW paint gun operator it's totally useless.

People who use the $73 soundbite want you to assume that autoworkers are earn $150,000/year and resent them accordingly. In fact they get pay and benefits worth about $55/hr. The reason the figure is so misleading is that when people ask how much you make per hour, they're implicitly talking about cash wages. That $55 total includes benefits mandated to all employees by law, like the employer's share of FICA. When you ask your average wage-earning person how much they make per hour, they don't stop and factor in the value of their health insurance and pension, let alone the amount their employer kicks in for Medicare and Social Security.

On average auto workers earn something like $28.00 in wages, plus a good benefits package.

That's a good middle class wage and security for your retirement. Newbies start around $14/hr. The nominal hourly wages for UAW members are comparable to those of workers in American-based Japanese car plants, but the UAW benefits packages are better.


I'd like to see the breakdown of the salaries of executives and managers of these companies, including bonuses. Somehow it's alright for CEOs to make 500 times the rate of their workers but it's not ok for a worker to make much more than the minimum if he or she is a blue collar worker or a lower skill service worker.

Lindsay, the employer-contributed part of FICA is 7.65% of gross income, which in this case works out to $2/hour. It's not a big part of the difference. Also, I think the American Community Survey does include benefits in its calculations. Its figure for Michigan's median household income in 2007 is $60,000.

Lesley, the arguments pushed by labor unions for excessive wages for unskilled workers are the same as those pushed by CEO boosters for excessive wages for executives. They both believe that any concern about the fairness of high pay comes from envy or class warfare. They both believe that their narrow sector represents the backbone of society, and is crucial for upward mobility. And they both engage in serious xenophobia when confronted with the fact that high CEO pay/union privilege doesn't exist in most developed countries.

The head of GM pulled down something like $7,500 an hour last year, IIRC. That's about $60K per day, or about a hundred and twenty-five Chevy Impalas a week.

But the union puke makes too much.

Oh, hell ... dropped my decimal point ... too long a day.

Twelve and a half cars, not 125. Poor bastard barely scrapes by, and it's all my fault.

The Dixie car manufacturers shouldn't get too smug. Good cars can and will be made China, India, Brazil, Thailand, etc. with labor willing to work for wages (and no benefits) far below anything even non-union American labor will accept. It's another race to the bottom. Gentlemen, start your engines.

Well, at GM everyone is overpaid, clearly. You could argue that the best solution is to liquidate and let the Japanese companies take over all plants and equipment; that way everyone would be paid fairly, as is the Japanese practice.

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