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Sunday, December 14, 2008

High Labor Costs at GM? Blame Grandpa!

In response to my commentary yesterday on the strange agreement between George W. Bush and Dennis Kucinich that the federal government can't let GM et al. fail, the good Dr. Blanchard joins regular commenter PennyPincher in pointing the finger at those darn unions. Dr. Blanchard repeats the frequently cited comparison of average compensation: $72.31 at GM, Ford, and Chrysler; $47.60 at Toyota, $42.05 at Honda, $41.97 at Nissan. This dramatic difference in compensation, conclude a number of commentators, is due to the inflated wages demanded by the obstinate United Auto Workers who have a socialist stranglehold on Detroit but not the Japanese-owned auto factories here or overseas.

As usual, I'm treading well outside my area of expertise. However, it might be worth noting, not a refutation of those figures, but a possible explanation. Obviously those compensation figures are not the straight hourly wages. GM reports its average hourly wage for its UAW workers is $29.78. Toyota reports paying about $30 an hour. The compensation gap lies in benefits:

GM says its total hourly labor costs are now $69, including wages, pensions and health care for active workers, plus the pension and health care costs of more than 432,000 retirees and spouses. Toyota says its total costs are around $48. The Japanese automaker has far fewer retirees and its pension and health care benefits are not as rich as those paid to UAW workers [Julie Hirschfeld Davis and Ken Thomas, "$14B Auto Bailout Dies in Senate," AP via Yahoo News, 2008.12.12].

Berkeley professor Harley Shaiken made the same point on Monday's Talk of the Nation on NPR. The foreign transplant factories (and yes, Tony, I agree that "foreign" is a decreasingly meanginful term in the global economy) don't have lots of American retirees yet drawing pensions. GM, Ford, and Chrysler are paying a penalty for three things:
  1. having been in business here longer,
  2. operating in one of the last industrialized countries without universal health coverage, and
  3. keeping their promises to retirees.
We can't change #1... although I suppose a clever capitalist could cahootsify with Bush et al., get the feds to let GM fail and fail big, then buy the factories, hire back the workers, and claim no obligation whatsoever to the retirees of a company that no longer exists.

Tom Daschle and Barack Obama could help change #2... and adopting a universal single-payer not-for-profit health coverage system would be a much more efficient and long-lasting stimulus to the American economy than any of the bailouts handed out so far.

As for #3... well, breaking promises to Grandpa and Grandma doesn't bubble to the top of my list of preferred economic solutions.

We can blame unions and break promises, but Monty, I'll take door number 2.

Update 15:15: Joel Rosenthal evidently misses the memo and makes the silly claim that autoworkers are being paid $70 an hour. Yet even hardcore Republican Joel says the domestic auto industry is a public good—key to economy and national defense!—that deserves saving. I guess socialism is o.k., as long as you dress it up as big tough army-guy stuff.


  1. pennypincher12/14/2008 7:33 PM

    Thanks Corey for running me down, when I was just stating information that I heard on the news. Appreciate it!

    I am not the only one of the opinion that the Union is part of the problem. The Exec's of the Big 3 offered to accept no pay for 1 year if they were given money for a bailout. Now I know those people are making way more than they probably should, but if they are going to take no pay, then what is wrong with the workers taking a reduction in pay (whether it be hourly wage or some type of benefit)? It's better than not have a job.

    This concept is not that unusual. I know of a company in the local area that is having all of their employees cut their workday by 1 hour (so they are only getting paid for 35 hours per week). I also know of another company that has cut raises, bonuses, and company matches for 401k.

    These are difficult times for everyone.

  2. Hi, PennyP!

    I'm not running you down. Heck, I'll still have you over for dinner sometime. I'm just noting that you are one of numerous people citing that particular bit of information. I then follow by pointing out that that information may be misleading, since the actual hourly wages GM workers are getting are about the same as the wages at Toyota, if not a nickel or dime less. So taking a pay cut isn't really the issue. The pensions and health benefits are.

    So just curious, PennyP: would you argue that the retirees should all step up and give up a portion of their pensions? Better than no pension at all... right?

  3. Pennypincher12/14/2008 9:09 PM

    The information that I listened to came off the national news. I wasn't the only one discussing it at work. I know for a fact that although I make a good wage, with my other employer paid benefits, I don't make anywhere near the $73/hour that was discussed about the GM autoworkers. During the news cast, they interviewed an autoworker that was complaining about the fact that people were saying they could make half of what they do for the same job elsewhere. The guy said he would like to see someone TRY and do what they do for half the pay. There are people out there that do, and they work for Hyundai and Toyota.

    My employer has gone through a rough spell in the past and we did have to suspend pay raises and also had to take so much unpaid time per week. The thing is, even with the negatives, I was still doing a lot better than other people out there. I am not greedy and try not to take things for granted. IF you have to lose an hour of pay a day, you really need to think, what would you make if you had to start over somewhere else.

    Unfortunately, Auto Manufacturing Companies have gotten greedy during the good times. As soon as oil started to skyrocket and everyone tightened their belts, their good times were over.

    Do you really think that the government should bailout a private organization? If I remember right, you are not an advocate of stimulus checks or bailout packages. Personally, I think the automakers should go through bankruptcy and reorganize.

    I don't want to see people lose their jobs, but if they aren't willing to compromise and help themselves, then why should the govenment give them a handout?

  4. What is the average pension of a retired auto worker for one of the big three? Compared to the average pension for anyone else? No one has stated that fact.

    I too think they should go thru bankruptcy, reorganize, and fire all the head honchos.

    And then I think the gov't should get out of the way and let the auto companies produce cars without having as many ridiculous regulations that have evidently been put on them over the years by the gov't. That is also part of the problem.

    I would like to see the auto companies produce more cars like the Chevettes we drove for years, or the Corsicas we upgraded to for several years. Both good cars, good mileage, and both discontinued for bigger, worse gas mileage, etc. If they made more sensible cars, they would be better off.

  5. pennypincher12/15/2008 5:08 AM

    I don't have exact numbers on a retired autoworkers pension, but I have a relative that retired from GM and they are doing better than the average person (in fact, very well).

    The thing is, when times are tough, companies shouldn't be adding to pensions and giving bonuses. Everyone needs to tighten their belt a little bit, but that's something these people just don't want to do.

    I have no doubt in my mind if automakers in general were making more fuel efficient cars that were actually affordable, they wouldn't be in the pinch that they are in. But I guess, who would have known we would be paying $4/gallon gas.

    My fear is that if the automakers get a bailout, it's going to be another AIG issue. They will learn nothing!

  6. PennyP: Let me try again:

    "The information that I listened to came off the national news." Yes, it did. I heard it, too. And my point is that that oft-repeated information misses a deeper point. Autoworkers aren't getting paid $70 an hour (I said that in the original post). The Big 3 are at a disadvantage in large part simply because they have been in business longer than the "foreign" transplant factories and thus have more obligations to retirees to fulfill. Yes, there are greed and bad business practices to blame as well... but that's management, not labor, screwing up.

    Do those retirees get good pensions? Sure. But GM made a deal with them years ago: bust your butts working for us for 30 years, and when you're old, we'll take care of you. Yes, cost-cutting is necessary, but not on the backs of Grandma and Grandpa. Whatever else GM does to save itself, it shouldn't get to renege on those promises.

    As for bailouts, PP, you're right: I'm not comfortable with handing out this money to big corporations. If they can't stay in business on their own, let them die. If the federal government has an interest in protecting jobs, we can do that with federal money just as easily by hiring them to build roads and bridges and do other public projects that will have lasting value for everyone, not just stockholders.

  7. Corey, what are you going to say when our government can't pay us our social security that we've paid into for years.
    You think they're going to feel the least bit sorry about that?
    I'm sure you realize there isn't any social security money set aside for anyone.

  8. I'm gonna say, "Yup, saw that one coming."

    Social Security isn't a pension plan. Social Security is you and me paying for Mom and Dad's groceries when they retire.

    Now if the pension plan I have paid into (SDRS) decides not to give me my money when I turn 65, I'll be a little cranky.

  9. pennypincher12/15/2008 6:31 PM


    I understand that the average working isn't getting actually paid $70/hour. But there is no reason that a benefit couldn't be cut, reduced hours, or even a slight wage decrease. Something to save the industry and their jobs. It would, hopefully, only be temporary, but if not, at least they have a job. That's the whole thing. They could be out of a job and making $8/hour working elsewhere.

  10. Sorry, Corey, Social Security is a pension plan, plain and simple. We are paying money in with the gov't promise that they will pay us a pension (SS) on our retirement. You are saying the auto companies can't renig on their promise. Well, with that same reasoning, neither can the federal gov't. The SS plan was instituted for pensions, not to be stolen by the feds into the general treasury for everything else. If the auto companies did that, they would be accused of theft. What's the difference?

  11. I agree whole-heartedly that pensions represent a promise that the automakers and all other employers ought not break.

    However, Social Security is not a pension plan. "...Social Security, although widely perceived as a pension program, is actually a pay-as-you-go system in which current workers fund payments to current retirees," which is exactly what I said above. Nobel economist Paul Krugman will tell you the same thing. Read more here, here, here, and here.


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