In reading about the proposed bailout of the auto industry, I’d been bothered by
the figure that union workers are making $70/hour. It left me feeling very
unsympathetic to UAW and the auto workers but more sympathetic to GM, Ford, and
Chrysler management. After all, how could anyone compete when your labor wages
are so much higher?
Well, it turns out to be a dishonest calculation:
Let’s start with the fact that it’s not $70 per hour in wages. According to
Kristin Dziczek of the Center for Automative Research–who was my primary source
for the figures you are about to read–average wages for workers at Chrysler,
Ford, and General Motors were just $28 per hour as of 2007.
That $28 gets raised to $70 by taking benefits being payed out to retirees and
dividing by the number of active workers. Which is $42/hour.
Of course, the cost of benefits for those retirees–you may have heard
people refer to them as “legacy costs”–do represent an extra cost
burden that only the Big Three shoulder. And, yes, it makes it
difficult for the Big Three to compete with foreign-owned automakers
that don’t have to pay the same costs. But don’t forget why those costs
are so high. While the transplants don’t offer the same kind of
benefits that the Big Three do, the main reason for their present cost
advantage is that they just don’t have many retirees.
Of course, the contracts were renegotiated last year to reduce benefits, take
the auto industry off the hook for retirement benefits, and reduce wages:
It was a radical change that promised to make Detroit far more competitive. If
carried out as planned, by 2010–the final year of this existing contract–total
compensation for the average UAW worker would actually be less than total
compensation for the average non-unionized worker at a transplant factory. The
only problem is that it will be several years before these gains show up on the
bottom line–years the industry probably won’t have if it doesn’t get financial
assistance from the government.
So maybe the unions aren’t as responsible for the auto industries woes as commonly presented.