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December 10, 2008 06:48 PM UTC

Circling back on UAW wages, legacy costs and the Big 3

  • by: Steve Balboni

(Round 2, ding! – promoted by Colorado Pols)

On Monday I posted about a lengthy diary at ColoradoPols that, in my opinion, unfairly and dishonestly attacked the United Auto Workers and their members in Detroit’s Big 3. A vigorous debate ensued but it appeared that the diaries author, Laughing Boy, and I had reached a bit of an impasse. He was still pushing the meme that UAW workers in Detroit were pulling in wages of $73/hr and that such over-generous wages and benefits were the source of the collapse of Detroit. I made several honest attempts to change his mind to no avail and the debate reached a stalemate.

This morning though David Leonhardt of The New York Times helpfully addresses this issue again. He not only swats down the $73/hr lie but he also places wages in the context of their relative costs to Detroits business. On the flip lets delve into Leonhardt’s article,

Seventy-three dollars an hour.

That figure  –  repeated on television and in newspapers as the average pay of a Big Three autoworker – has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that’s wrong with bloated car companies and their entitled workers.

To the Big Three’s defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit’s decline. “We’ve heard this garbage about 73 bucks an hour,” Senator Bob  Casey, a Pennsylvania Democrat, said last week. “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we’re doing here.”

So what is the reality behind the number? Detroit’s defenders are right that the number is basically wrong. Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year)…

The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for  retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix – dividing those costs by the total hours of the current work force, to get a figure of $15 or so – and end up at roughly $70 an hour.

Emphasis mine. This is an argument that Laughing Boy made and one that I quickly conceded, these payments to retirees are a real cost and they must be accounted for. I just think that its dishonest to account for them as wages being paid to current workers. It’s a gross distortion of their actual compensation and is done not to enlighten the discussion or in the name of forging a compromise but rather to demonize the workers and their union.

But they are still real costs and so the issue is still the same, over-generous benefits for auto workers and retirees. Right? Not so fast says Leonhardt,

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies – as opposed to all of society – must shoulder much of the burden of paying for retirement.

This drives a dagger through the heart of the right-wing attack narrative that greedy union members negotiated benefits packages that drove their employers out of business. Toyota et al. don’t have the same legacy costs because they don’t have anywhere near the same number of American retirees. The benefits that Detroit retirees recieve are a result of our country’s inistence that employers shoulder the burden for pensions and health care for our retirees. This system isn’t in place because labor unions and the left wanted it this way, it’s a system that the right-wing has fought to maintain in the name of preventing  “socialism” in the United States. Ignoring the fact that the status quo would place American inudstry  at an increasing competitive disadvantage the right has fought vigorously to prevent a national health care system and to weaken Social Security.

This isn’t about pampered and over-paid workers. This is about a benefit system that is broken and an economic mantra (“Free trade”) that leaves our workers and industries hopelessly exposed. This is also about a powerful conservative movement that has sought to prevent any change for the better from our status quo while at times seeking the active destruction of what protections and benefits do exist.

Leonhardt continues by placing the wages of Detroits workers in perspective,

So here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour – the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler.

The assembly line worker in Detroit isn’t to blame for the collapse of the brand image in Detroit. A retiree receiving their monthly pension check isn’t to blame for the current crisis at Chrysler. A workers sick child accessing health care through their fathers insurance didn’t bring down General Motors.

Right-wing loathing of the American worker and middle-class borders on the pathological. It has no basis in reality, it no basis in logic nor fact. It’s instead reflexive and instictual. We’ve witnessed an Orwellian  Two Minute Hate be unleashed towards workers who’ve done nothing but negotiate in good faith, show up to the factory every day and do their jobs.

Perhaps Laughing Boy was right and the sit-down strike in Chicago really is a turning point, maybe for the first time in a generation or more we will see the American worker begin to stand up for themselves. To push back against the smears and hit jobs and to demand that their rights be respected and their contracts honored.

Cross-posted at my personal blog,…


27 thoughts on “Circling back on UAW wages, legacy costs and the Big 3

  1. And we’re basically in understanding, although I’d still maintain that there are senior line workers in Detroit that make more than $73/hr. in wages without the additional compensation, and from my view the UAW workers are overcompensated and you disagree.  It’s cool.

    Could it be that this is a different kind of turning point that responds to the market better?

    Instead of guaranteed benefits, employers start guaranteeing contributions to health and pension plans?

    1. Definitely. I thanked you on my blog the other day for the good debate but don’t think I did so on here. So, thanks! It’s been fun and I look forward to many more.  

    2. That’s the single largest cost to car manufacturing in the United States. GM And Ford keep building their new plants in Canada not because of tax breaks or the ilk, but the fact that they don’t have any health care costs.

      And to pre-empt LB, the Big 3 shouldn’t have offered the awesome health care package to the unions when they were negotiating with them, but that’s their fault.  

        1. You shouldn’t change your health care choices because of the big three. You should change your health care plan because it is mismanaged and dangerous to your health.

          At least 40% of the cost of health insurance is management paperwork. In addition the market is not free because the insurance companies offer too much choice, their plans are not equivalent and it is hard or impossible to figure out what is or is not covered by them and even more than most purchases we are irrational about health care choices and so a free market is impossible. We’re not going to shop around for the least expensive doctor when we’re suffering from pneumonia (or anything other than cosmetic surgery). The system as currently set up is not working and cannot be made to work.

          The system as currently set up is a threat to your health because if you lose or change your job you’ll end up not being covered. It is also a threat to your health because doctors are making decisions based upon insurance company profit requirements rather than long term health. And because it results in overworked emergency services and if you ever need them you’re not going to get the best care.

          This is a collective problem, not one that can be solved by HSAs or any other freemarket ideology approved solution. We either need single payer or to strictly regulate insurance. Period.

        2. I don’t want to oversimplify (as that will invite the wrath of my economist spouse) but a single-payer plan is basically one where one entity (in this case, the Federal Gov’t) has all the money for paying for healthcare, and then pays your medical bills at the facility of choice. Optional health procedures like boob & nose jobs are on your dime.

          Socialized Medicine is when the gov’t owns and operates ALL the healthcare infrastructure, which is not a good idea.  

          1. LB wants the same basic plan that he has now.  Single-payer as you are proposing would change his coverage, but not his choice of provider.

            Also, I think your summary of single-payer is still too simplified.  Some single-payer plans still pay out to an insurance company to administer the plan, under certain guidelines.

            LB – do you have an “average” health care coverage plan?  (i.e. do you have a PPO or HMO type plan?)  If that plan were paid through the government, under provisions that would lower the administrative cost of the plan while maintaining coverage level, would you object?  How about if single-payer covered a basic plan plus catastrophic coverage, while your provider was free to offer you supplemental coverage under its own rules?

            1. …because there’s several Single-Payer models to consider in that discussion. The most successful ones worth emulating are the current Dutch National Healthcare System, and the DoD’s Tricare System.

              A comparison on this website between just these two would burn far too many electrons. Maybe I’ll actually put together a diary entry with the pros and cons of those two, and compare and contrast with a true Socialized System, like the French or (technically) the VA or the DoD’s Health Care systems.

              BTW, as a (regrettably) frequent user of the VA health care system, even Denver’s crappy old hospital is light-years ahead of an HMO like Kaiser or a true out-of-pocket hospital like Rose Medical Center.

          2. We have that with the VA, and Britain has it with the National Health.

            A couple of years ago a few thousand people were asked how satisfied they were with their health care delivery systems.  It covered the whole gamut.  Which system got the highest rating?  Surprise!  The VA.  Better than Medicare, second place.  

            How about that, the two top rated systems are either government run or owned, or both.  

        3. Might work if you are making $100,000+ a year and don’t get a significant disease like cancer. Living at the poverty level trying to feed the kids and pay the rent, or have a few bucks but get unlucky on health, not so much.

      1. Yes you can’t avoid the costs of health care, I mentioned it specifically in the previous thread. We have historically have had a system of employer sponsored health insurance and retirement benefits, this is obviously a severe handicap to our industries (besides being terribly inefficient systems in their own right). Some of us have been arguing this very point for years but it falls on deaf ears as the right reflexively defends an obviously flawed system in the name of preventing “socialist” public programs. The car companies have been pointing to health care costs in recent years too.

        The Republican response seems to be sticking their fingers in their ears and saying “LALALALALALAA We can’t HEAR you LALALALALA”

          1. I’ve often thought that punitive damages are a good idea, but it shouldn’t be a windfall to individuals. Would a version of tort reform that required punitive damages go to a fund to pay other victims and/or a related charity be an acceptable form of reform to you?

          2. Less than 1%, righties.

            That includes ALL suites, defenses, settlements, and losses.

            So, get off the tort horse and go after the real burden: excessive overhead.  Marketing, underwriting, stockholder profits.  No one has come up with a figure lower than 25% for these costs. Note that is um, uh, oh, about TWENTY FIVE TIMES GREATER THAN LEGAL ISSUES.

            The most commone figures are at 30%-35%.

            I know you are intelligent people, LB and Lauren.  But you need to find the right windmill.  

            1. Colorado pioneered tort reform in 1980s. There has been a $250,000 limit on damages.  That has really brought down the cost of health care????  I believe that  medical malpractice premiums reflect that, but I don’t think that health insurance premiums are cheaper…

              what say you LBs?

    3. Set pension contributions are a good idea as long as we have private pensions. For one thing part of the problem the car companies got themselves into was reducing contributions when the stock market was going up because the increase in value in the instruments held was paying for it instead. Classic short term thinking that is biting them in the ass today.

      I also think that the pension function should be separated from management by the employer if contributions are going to be a set amount. Though from everything I’ve read self directed investment is a bad idea for all but that minority of people who are good at playing the markets.

    4. How overcompensated are CEO’s and top level mgmt?

      I could lose less than they have, but not be as sycophantic.

      I think that every Sen. and Rep.  that voted for a Bush tax cut should work for 1 dollar a year for the rest of their term.  

  2. If the auto industry had set aside funds as the workers incurred the benefit, then this problem would not have ocurred.  The fund would have been fully funded at the time the employee retired and its cost would have been paid for as the employee worked for the automaker.  This would have caused both the union and mgt to more realistically negotiate their benefits.  In total, it would have been spread over a larger base and would have been reflected in a higher cost for mgt as it paid for the benefit as it was promised.  Wanting to hide these promised benefits in financial notes rather then in the reqired financial statement has made their end of the year statements useless except for absolute experts.  This problem is magnified 1,000 time more in the government sector then in the private sector.  If it wasn’t also a gov problem it would probally be outlawed.

    1. But you can generally plan as you go and revise your fiscal stance.

      In the case of the Big 3, they underfunded the pension plan – like many other companies – by reducing investments in the plan when investing was going gangbusters.  It’s kind of an analogue to TABOR: in the best of years, rather than investing to the fullest, you cap the investment; then in leaner years you only spend what you were going to spend originally.  It’s a recipe for financial disaster.

        1. I don’t think you’ll see the lefties around here defending bad management of government programs any more than they defend bad management of private companies.  After all, we’ve been railing against the incompetence of this Administration for almost 8 years now…

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